REG - Obtala Resources Ltd - Half Yearly Report <Origin Href="QuoteRef">OBT.L</Origin> - Part 1

WoodboisAnnouncement

29/10/2014 15:01

RNS Number : 7840S
Obtala Resources Limited
29 September 2014
29 September 2014
Obtala Resources Limited
("Obtala" or "the Group")
Interim Results for the six months to
30 June 2014
Transformation into Forestry, Agriculture and Food Processing Group
Financial Highlights
 Underlying operating profit of 0.25m ($0.4m) compared to losses of 1.8m ($3.0m) in the first half of 2013
 Operating margins of 81% in forestry and 20% in agriculture
 Revenues of 1.2m ($2.0m) compared to negligible revenues in 2013
 Strong asset backing and cash position of 1.4m ($2.4m) (prior to post balance sheet date receipt of 1m ($1.7m) on sale of loan in Paragon Diamonds)
Operational Highlights
 Ranges of branded sauces and packaged dried fruits launched
 Plans advanced to open a "African Home Stores" retail concept
 Operating management strengthened
 Vertically integrated business model adopted
 Expansion planned for forestry business
Commenting on the trading outlook, Executive Chairman, Frank Scolaro, said:
"We are transforming the group and we have a very clear vision, keeping our business model simple, focusing on execution, micromanaging our costs whilst increasing our revenues and generating high net margins. We are in exciting growth sectors and look forward to the future with confidence."
Enquiries:
Obtala Resources
Francesco Scolaro - Chairman
Simon Rollason - Managing Director
+44 (0) 20 7099 1940
Fox-Davies Capital
Jonathan Evans
+44 (0)20 3463 5000
Square1 Consulting +44 207 929 5599
David Bick/Mark Longson

Chairman's Statement
I am pleased to present the interim report of Obtala Resources Limited ("Obtala" or "Company" and its subsidiaries (the "Group")) for the six months to 30 June 2014.
During the half year, Obtala has continued to make good progress in developing its principal business which comprises a self-sustainable forestry and agriculture business through Montara Continental Limited ("Montara"). To support our agricultural strategy we have taken control (both operational and management) of a fruit and vegetable canning factory in Lesotho, in order to support our branded food product range. Moreover, we have also developed a concept of distribution outlets to deliver products directly into the market place. Finally we have concluded the sale of our loan in our investee company Paragon Diamonds Limited ("Paragon") and we have entered into a call option over 60 million shares in Paragon which if exercised would provide additional working capital for the Group.
Financial results
The Group generated revenues of 1.2 million ($2.0 million) during the six month period, driven by strong sales in our forestry and agriculture operations. The operating margin in the forestry division was exceptionally high at 81% and for the agriculture division it was 20%.
The six month period generated a loss of 0.25 million ($0.4 million), which excluding the 0.5 million ($0.8 million) of costs associated with Paragon means that the Group generated an operating profit of 0.3 million ($0.5 million) for the period. This compares favourably with a 1.8 million ($3 million) first half loss during 2013. Included in the income statement for the period is 0.5 million ($0.8 million) of admin and investment losses relating to Paragon Diamonds, this has been classified as a discontinued operations in anticipation of the results not being consolidated within the group going forward.
The group had a strong cash position of 1.4 million ($2.4 million) as at the period end (31 December 2013: 2.1 million), combined with stock awaiting sale of 0.3million ($0.5 million) (31 December 2013 0.1 million) and trade and other receivables of 1.0 million ($1.7 million) (31 December 2013 0.2 million).
Group net assets remained broadly in line with the prior year end at 121.1 million ($206 million) although have increased significantly since the last half year on the back of the revaluation of the forestry assets included in the 2013 results.
With the increase of activity in our main agriculture and forestry divisions along with our new divisions coming on line we look to build on these results for the remainder of 2014.
Montara Continental
Montara has made significant progress in developing its sustainable agricultural and forestry operations in Tanzania and Mozambique, respectively. This is now supported by the launch of a range of branded sauces and packaged dried fruits along with plans to open a chain of distribution outlets in Africa to benefit from the strong local consumer demand. The sum of these various parts will be a completely vertically integrated and sustainable business model.
Agriculture
The focus during the first half 2014 has been the continued development of the Morogoro farm and processing facility in Tanzania. We continue to invest in infrastructure moving towards completion of phases 3 by Q1 2015. The processing facility became operational at the start of the year, with subsequent production concentrating on dried tomatoes. Additional test work identifying the excellent potential to process and sell a range of other dried fruits that are abundant within the region has been completed.
During January and February 2104 successful drying trials were conducted on bananas, pineapples and mangoes. A high quality product was obtained from the trials for all fruits types and samples have been sent to Europe with positive feedback received. Although mangoes and pineapples are seasonal in Tanzania, bananas are produced on a year-round basis, providing an excellent opportunity to increase the product range and achieve high values with high margins. An agreement is in place with a local commercial banana and pineapple farm to provide raw material for the drying process, in addition to sources from local growers.. The Company has created small (75g), re-sealing doypack, Mama Jo's branded bags for the products and expect to use this concept for marketing and sales in Q4 2014. 
To support the concept of mixed dried fruits 20,000 grafted dwarf mango tree saplings have been purchased and planted on the farm. Test work indicates 14% of the mango fruit is recoverable as a dried product with initial yields of 5-7 tonnes of fruit per hectare expected in years 2-4, rising to +15 tonnes thereafter. The productive lifespan of the tree is in the order of 30-35 years. In the interim, the Company is buying fruit from local contracted farmers. Planting of the trees will provide a long term, low cost source of fruit.
The process of achieving Global.GAP certification, an internationally recognized standard for farm production, continues and is expected before year end.BRC Global Standards accreditation is also underway for the processing unit. BRC is a leading safety and quality certification program, used by over 20,000 certificated suppliers in 90 countries. The Standards guarantee the standardisation of quality, safety and operational criteria and ensure that manufactures fulfil their legal obligations and provide protection for the end consumer.
The location of the Morogoro project is ideal being situated adjacent to major infrastructure and only 180km from the export port facilities in Dar es Salaam. With this in mind we are currently evaluating the construction of a canning facility at Morogoro which will allow for a considerable increase in production volumes. The intention is to produce both canned and glass jar products which will deliver revenue uplift by allowing the Company to produce value-added, branded products. The Company has applied to the Government of Tanzania for the processing facility to be classified as an Export Processing Zone ("EPZ"), which will provide a range of financial and corporate benefits to our operation. A site inspection has been completed and our application has been lodged with the relevant authority. The grant of the EPZ licence will significantly improve margins for our products and also attract contract canning partners.
Continuing trials and evaluation of additional crops such as cherry peppers, alternative tomato varieties (including cherry), chillies and suitable rotation crops will allow for the determination of the more suitable feed inputs into a new canning facility. Any production has to be market driven and we are working closely with our off-take partner to identify the correct and most productive product range. Discussions are in process with a German design company to provide a blue print and costing structure for the planned facility, which will be funded through our own cash resources. Additional product ranges will also be supplied to our own African Home Stores outlets.
Forestry
As with the previous reporting period the Company's operation in Mozambique has concentrated on the manufacture and supply of wooden railway sleepers to a private Mozambican entity, funded by a Brazilian mining conglomerate, which has been commissioned to upgrade the railway infrastructure. The sleepers are typically used on junctions, crossing points and for annual maintenance, with the demand and required volume for these products remaining strong. This is being supported by local orders for sawn timber.
Local demand for timber products continues to grow as Mozambique's economy remains one of the most dynamic on the continent. Our main active concession area falls within the Nacala Development Corridor which is focused on upgrading infrastructure, particular the railways lines which will enable raw material and goods, such as coal to be transported to the deep water port at Nacala.
In June 2014 an independent consultancy was the commissioned to undertake a valuation of the timber concessions held in Mozambique. The valuation indicates a NPV of US$308m and using a 15% discount rate USD141m. This was based on a 10 year cash flow with a capital expenditure requirement of $15m over the period. This valuation supports the confidence we have as a company that the timber represents an excellent investment opportunity which we will now concentrate on developing. We are also seeking to further increase our land bank holding, and have dually submitted further applications and await further notification of their status.
We are confident that additional orders will be achieved based on the current economic growth within the country. In order to maximise production from our significant land holding the Company is evaluating, in partnership with a private timber consultant, the viability of bringing in an external contractor to significantly increase the cut volumes. If successful this would be initiated in Q2 2015 at the start of the next forest cutting season.
Our forestry business is committed to working with high levels of sustainability. In terms of forestry this means obeying all local laws such as ensuring all timber is legally harvested and relevant taxes are paid. This also means the development and implementation of replanting and reforestation programmes, where we have focused on employing local women in this important role.
Lesotho - Canning Facility
On 1st April the Company assumed the operational and management control over the only fruit and vegetable canning facility in Lesotho. Under an agreement concluded with the Lesotho National Development Corporation ("LNDC") a new holding company, Mountain Kingdom Foods (Pty) Ltd, was registered in Lesotho with Obtala holding a 70% interest, the LNDC holding 20% and the Lesotho Defence Force ("LDF") holding the remaining 10%. Funding of this new management and operating company is in proportion to the respective percentage shareholdings, in accordance with agreed budgets and working programmes. The contract is for an initial 15 year term renewable thereafter for a further 10 years.
Since assuming control the cannery has processed +110 tonnes of canned whole peeled plum tomatoes in both 3kg and 410g can sizes. The objective of the processing was to understand more fully the production constraints and make changes to improve efficiencies and reduce operational costs. Currently production has been suspended whilst capital equipment improvements are made and funded by LNDC. We have also initiated a HACCP and BRC food and safety certification programme. An initial pre-audit site visit has been completed and although final certification not expected until Q1 2015, the cannery will be able to sell to retail outlets in Q4 2014 now that the process has started and we have committed to achieve certification. The Company has employed an experienced cannery manager who has extensive certification experience having worked for various certification authorities to guide the process.
Historically the cannery suffered from underperformance owing to a lack of constant supply and a poorly developed agricultural sector. The Company has been actively working with farmer associations, government agencies and private farmers to build and create a fruit and vegetable sector within the country. Once the cannery achieves its optimum production capacity of c.100 tonnes per week, the Company will benefit from the downstream revenue of selling branded value added products in either cans or glass containers significantly increasing our production levels.
Branded Goods Entry - Mama Jo's
The Company entered the branded goods market in Q2 2014 when we announced the intention to launch our own branded and trademarked "Mama Jo's" range of glass bottled tomato ketchup, chilli and spicy sauces. The objective was to provide a direct outlet to the market through own branded products thus creating a completely vertical integrated business, the Farm-to-Fork model, importantly ensuring the Company captures the maximum value added potential from any of its production.
Manufacture of the sauces and bottling is being processed under a private label arrangement with an established, non-related organisation. The Company has engaged a sales team to help develop a custom-based solution in northern Europe and has made a number of sales to UK based restaurant groups. We are currently developing a range of plastic bottles for the sauces based on customer feedback and expect to have these being sold in Q4 2014. In addition to the European market we are also targeting the African consumer market and are in the processing of having a range of labels designed specifically for the African market place. It is the intention that all products from the farms and canning facilities will be marketed under the Mama Jo's label.
African Home Stores ("AHS")
This is the newest business concept we are implementing and supports the vertically integrated business model we are creating. The intention is to create distribution outlets for our branded products in Africa. Africa has over 900 million consumers with an estimated +400 million middle class consumers typically located in major cities or urban hubs. This represents the world's largest untapped market which continues to grow steadily as it moves away from aid toward trade.
The strategy is to understand the consumer requirements, which vary country to country and supply consumers with quality goods at low prices with high volumes sold on a monthly basis. Pricing will be lower than local department stores and retail outlets and will allow for local shop owners to travel from outlying rural regions within a country to buy stock from us thus promoting trade in more rural locations. The Company has secured supply lines of clothing, footwear, fashion accessories, household consumables, timber products and furniture. These will be sold together with our own branded and externally sourced food products. Operations will be low-cost with no-frills outlets that will enable us to keep prices down and competitive. As African Homes Stores grows we intend to engage a network of buyers located locally, regionally and internationally to provide low-cost, quality products.
We have secured leases on outlet premises in Maseru, Lesotho and in Bloemfontein, South Africa and will be trading from these outlets in Q4 2014. Local marketing strategies are in place and our objective is to rapidly expand the concept and model once proven to other countries over the next 2-3 years.
Paragon Diamonds
In August 2014 the Company concluded agreements with Titanium Capital Investments Limited ("Titanium") for the sale of the outstanding loan note ("Loan Note") held with Paragon Diamonds Limited ("Paragon") and agreed to grant a call option for an 60 million shares held in Paragon by the Company.
The outstanding loan of 1,996,000 was sold to Titanium at a 50% discount to realise 998,000 and the Company has further agreed to grant Titanium a call option, exercisable any time up to 1 December 2014, for Titanium to purchase 60 million shares of Paragon at 3.25p from the Company. In the event that Titanium exercises the call option in full, Obtala will realise a further 1,950,000 gross proceeds in cash. Moreover, in the event that the call option is exercised in full Obtala will hold 30,470,582 ordinary shares in Paragon (resulting in a holding of 9.20% based on the current issued share capital of Paragon). All shares from either the conversion of the convertible loan or from the exercise of the call option are subject to a lock in for a period up to 31 December 2014.
Under the agreement Paragon has appoint Philip Manduca, Chief Executive Officer of Titanium as Executive Chairman with Titanium agreeing to take responsibility for funding the Phase 1 mine development at the Lemphane Diamond Mine in Lesotho. Phase 1 will be a period of up to 2 years of open pit mining targeting 1 million tonnes per annum to produce 20,000 carats (2,500 carats per quarter), together with the completion of a bankable 3D geological model supported by additional resource definition drilling. Paragon has undertaken that any future funding through the issue of new shares will be carried out a placing price of no less than 4p per share.
As part of the negotiations Titanium and Paragon will establish a separate sales and marketing company of which Paragon will hold a minimum 25% interest, rising to a maximum of 50% once fully established. This entity will seek to buy and sell diamonds globally and is conditional upon the call option granted by Obtala being exercised in full by Titanium
Corporate Social Responsibility
In June 2014 the Company entered into a partnership with Sentebale, a children's charity founded in 2006 by His Royal Highness Prince Harry of Wales and Prince Seeiso Bereng Seeiso.
Sentebale means 'Forget me not' in Sesotho and works in partnership with local grassroots organisations and government ministers to provide healthcare and education to some of the most vulnerable children in the world -the victims of extreme poverty and Lesotho's HIV/AIDS epidemic. As a result of the partnership, we will make regular donations to the work that Sentebale does with vulnerable children in Lesotho. We have committed to working with the charity over a long period of time, developing the partnership further in the future, as Obtala continues to grow its production levels at the fruit and vegetable cannery in Lesotho.
Outlook
The Directors are highly optimistic for the outlook of the group. We are very clear about our vision, keeping our business model simple, focusing on execution, micromanaging our costs whilst increasing our revenues and maintaining high net margins.
The underlying asset base of our core business has now been established, creating a platform from which we can build and grow our vertically integrated agri-forestry business into a significant revenue producer in East Africa. We expect our asset base and sales to continue to grow during the second half of the year as our product range develops. So far we have only made one small step to achieve the company's goal. The forestry concessions too will grow and have significant untapped value which we have now focused upon.
We have secured new operational expertise on the ground, at fair cost and with immense experience able to increase production of saleable goods locally to continue growth of our existing business, and are in discussion with several potential joint venture partners to further develop allocated concessions in Mozambique which will alleviate capital expenditure requirements thereby increasing revenues and margins. This year we have prepared in advance of the four months rains and closed season and we hope to continue to produce throughout that period. The agriculture/food processing business is now capable of substantial growth revenue through sales and marketing of our own branded "Mama Jo's" range and also the own label market. We are also able to offer a diversity of rotational crops which the company has not yet benefited from. The addition of a canning plant in Tanzania will see the substantive growth we expect from our farm in Morogoro.
It is part of our strategy to now speed up the launch of the new outlets throughout East Africa under our registered brand AFRICAN HOME STORES, whilst keeping the company sufficiently funded from the groups revenue. AHS will provide an entry to the ever growing consumable market in the region. The opening of two AHS units in Q4 2014 will provide the catalyst to roll out the concept expeditiously. The further development of our own logistics network will afford us the opportunity to distribute wholesale into the region. We will also be able to explore the sales/marketing of fresh produce locally under the new "Mama Jo's" Colourful and Fresh brand.
Our focus is continually on creating further value, working closely with market demand, growing sales whilst maintaining high margins. We shall report on the group's progress regularly to update our shareholders on the development being made in each sector of the company. Without doubt the business fundamentals of the group remain highly attractive in an exciting and growing sector.
I would like to thank our shareholders for their continued support and also all of our employees across the group for their hard work and commitment during the period.
Francesco Scolaro
Executive Chairman
26 September 2014

Condensed consolidated statement of comprehensive income
Continuing operations
Notes
Six months to 30 June
2014
(Unaudited)
'000
Six months to 30 June
2013
(Unaudited)
'000
Year to 31 December 2013
(Audited)
'000
Revenue
1,157
148
304
Operating costs
(320)
(652)
(1,323)
Administrative expenses
(759)
(825)
(2,608)
Gain/(loss) on investments
3
235
(125)
(3,125)
Impairment of intangible assets
-
-
(2,323)
Depreciation
-
(211)
(615)
Share based payment
-
(124)
(751)
Operating profit/(loss)
253
(1,789)
(10,441)
Share of losses of associate
-
(308)
(570)
Loss on disposal of associate
-
(4,904)
(21,170)
Fair Value adjustment of biological asset
-
-
107,379
Finance income/(costs)
30
-
(389)
Profit/(loss) before tax
283
(7,001)
74,809
Taxation
5
-
-
(34,361)
Profit/(loss) for the period/year from continuing operations
283
(7,001)
40,448
Discontinued operations
Loss for the year from discontinued operations
(502)
-
-
Total profit/loss for the period/year
(219)
(7,001)
40,448
Attributable to:
Owners of the parent
(239)
(6,536)
22,975
Non-controlling interests
20
(465)
17,473
(219)
(7,001)
40,448
Other comprehensive income:
Exchange differences of re-translation of foreign operations
(1,807)
2,244
(2,001)
Total comprehensive income for the period:
(2,026)
(4,756)
38,447
Attributable to:
Owners of the parent
(1,631)
(4,656)
21,487
Non-controlling interests
(396)
(101)
16,960
(2,027)
(4,757)
38,447
Earnings/(loss) per share
From continuing and discontinued operations
Basic and diluted (pence)
6
(0.09)
(2.59)
9.44
From continuing operations
Basic and diluted (pence)
6
(0.09)
(2.59)
9.44
The loss for the period arises from the Group's continuing operations.

Condensed consolidated statement of changes in equity

Share capital
Share premium
Merger reserve
Foreign exchange reserve
Share based payment reserve
Revenue reserve/
(deficit)
Total
Non-controlling interests
Total equity

'000
'000
'000
'000
'000
'000
'000
'000
'000
At 1 January 2013
2,501
10,441
28,543
3,867
969
15,593
61,914
17,546
79,460
Profit/(loss) for the period
-
-
-
-
-
(6,536)
(6,536)
(465)
(7,001)
Exchange differences on retranslation of foreign operations
-
-
-
1,880
-
-
1,880
364
2,244
Total comprehensive income for the period
-
-
-
1,880
-
(6,536)
(4,656)
(101)
(4,757)
Issue of shares
131
1,084
-

-
-
1,215
-
1,215
Share based payment
-
-
-

124
-
124
-
124
Purchase of own shares
-
-
-

-
(881)
(881)
-
(881)
Dilution of interest in subsidiary
-
-
-


(1,372)
(1,372)
2,782
1,410
At 30 June 2013
2,632
11,525
28,543
5,747
1,093
6,804
56,344
20,227
76,571
Profit/(loss) for the period
-
-
-
-
-
16,439
16,439
17,008
33,447
Exchange differences on retranslation of foreign operations
-
-
-
(3,368)
-
-
(3,368)
(877)
(4,245)
Total comprehensive income for the period
-
-
-
(3,368)
-
16,439
13,071
16,131
43,204
Issue of shares
1
3
-
-
-
-
4
-
4
Share based payment
-
-
-
-
805
-
805
-
805
Impairment of foreign exchange
-
-
-
(1,940)
-
1,940
-
-
-
Dilution of interest in subsidiary
-
-
-
-
-
(568)
(568)
4,148
3,580
At 31 December 2013
2,633
11,528
28,543
439
1,898
35,918
80,959
41,436
122,935
Profit/(loss) for the period
-
-
-
-
-
(239)
(239)
19
(219)
Exchange differences on retranslation of foreign operations
-
-
-
(1,392)
-
-
(1,392)
(415)
(1,807)
Total comprehensive income for the period
-
-
-
(1,392)
-
(239)
(1,631)
(396)
(2,027)
Issue of shares
-
-
-
-
-
-
-
-
-
Share based payment
-
-
-
-
77
-
77
-
77
Purchase of own shares
-
-
-
-
-
-
-
-
-
Dilution of interest in subsidiary
-
-
-
-
-
(1,172)
(1,172)
1,995
822
At 30 June 2014
2,633
11,528
28,543
(953)
1,975
34,507
78,233
43,035
121,268
 
    

Condensed consolidated statement of financial position
Notes
30 June 2014
(Unaudited)
30 June 2013
(Unaudited)
31 December 2013
(Audited)
'000
'000
'000
ASSETS
Non-current assets
Available for sale investments
-
273
261
Investment in associate
8
-
19,277
-
Intangible exploration and evaluation assets
7
54,329
62,583
55,891
Biological asset
107,379
-
107,379
Derivative financial asset
611
-
607
Plant and equipment
2,674
2,904
2,906
Total non-current assets
164,993
85,037
167,044
Current assets
Trade and other receivables
1,049
323
193
Inventory
334
58
77
Financial investment assets
687
-
751
Cash and cash equivalents
1,431
2,169
2,138
Total current assets
3,501
2,550
3,159
TOTAL ASSETS
168,494
87,587
170,203
LIABILITIES
Current liabilities
Trade and other payables
(1,442)
(307)
(1,186)
Financial investment liabilities
(2,578)
(168)
(2,578)
Current tax liabilities
(2)
(2)
(2)
Total current liabilities
(4,022)
(477)
(3,766)
Non-current liabilities
Deferred tax
5
(43,018)
(9,698)
(43,310)
Loans
(73)
(706)
(614)
Site restoration provision
(113)
(135)
(118)
Total non-current liabilities
(43,204)
(10,539)
(44,042)
TOTAL LIABILITIES
(47,226)
(11,016)
(47,808)
NET ASSETS
121,268
76,571
122,395
EQUITY
Share capital
10
2,633
2,632
2,633
Share premium
11
11,528
11,525
11,528
Merger reserve
28,543
28,543
28,543
Foreign exchange reserve
(953)
5,747
439
Share based payment reserve
1,975
1,093
1,898
Revenue reserve/(deficit)
12
34,507
6,804
35,918
Equity attributable to the owners of the parent
78,233
56,344
80,959
Non-controlling interests
14
43,035
20,227
41,436
TOTAL EQUITY
121,268
76,571
122,395
Approved by the board and authorised for issueon 26 September 2014
F Scolaro  P Cohen
Executive Chairman Finance Director

Condensed consolidated statement of cash flows
Notes
Six months to 30 June 2014
(Unaudited)
Six months to 30 June
2013
(Unaudited)
Year to 31 December 2013
(Audited)
'000
'000
'000
OPERATING ACTIVITIES
Operating profit/(loss)
(219)
(7,001)
74,809
Adjustment for non-cash items:
(Gains)/loss on investments
99
125
3,125
Foreign exchange (gains)/losses
(8)
(412)
(294)
Depreciation of plant and equipment
-
211
615
Share based payments
77
124
751
Impairment of assets
-
4,904
2,323
Decrease/(increase) in trade and other receivables
(856)
154
284
(Decrease)/increase in trade and other payables
275
(79)
796
Decrease/(Increase) in inventory
(257)
3
(22)
Finance expense/(income)
30
-
389
Share of losses of associate
-
308
570
Cash outflow from continuing operations
(859)
(1,663)
(2,863)
Income taxes paid
-
-
155
Net cash outflow from continuing operations
(859)
(1,663)
(2,708)
Net cash outflow from discontinued operations
-
Net cash flow from operating activities
(859)
(1,663)
(2,708)
INVESTING ACTIVITIES
Purchases of property, plant and equipment
-
(406)
(1,139)
Expenditure on exploration licences
7
(182)
(381)
(972)
Proceeds from disposal of financial assets
8
327
-
2,754
Net cash inflow/(outflow) from investing activities
-
(787)
643
FINANCING ACTIVITIES
Proceeds from issue of share capital
9
-
1,215
1,215
Expenses of issue of share capital
10
-
-
(66)
Funds raised by subsidiary
50
1,410
1,371
Finance expense
(30)
-
(211)
Net cash inflow from financing activities
20
2,625
2,209
(Decrease)/Increase in cash and cash equivalents
(694)
175
144
Cash and cash equivalents at start of period
2,138
1,994
1,994
Effect of foreign exchange rate variation
(13)
-
-
Net cash and cash equivalents at end of period
1,431
2,169
2,138

Notes to the condensed consolidated interim financial statements
1. BASIS OF PREPARATION
The interim financial statements of Obtala Resources Limited are unaudited condensed consolidated financial statements for the six months to 30 June 2014. These include unaudited comparatives for the six month period to 30 June 2013 together with audited comparatives for the year to 31 December 2013.
2. SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared under the historical cost convention except for the revaluation of certain financial investments, available for sale investments and financial assets and liabilities which are included at fair value.
The accounting policies adopted are consistent with those followed in the preparation of the Group's annual financial statements for the period ended 31 December 2013.
The condensed consolidated financial statements do not constitute statutory accounts. The statutory accounts for the period to 31 December 2013 have been reported on by the Company's auditors and were unqualified.
3. GAINs/(Loss) ON INVESTMENTS 

Six months to 30 June 2014
Six months to 30 June 2013
Year to 31 December 2013

000
000
000
Gain/(loss) on disposal of investments
226
-
(68)
(Decrease)/increase in fair value of financial investments
(99)
(125)
(3,057)
Gain/(loss) from investing activities
127
(125)
(3,125)

4. SEGMENTAL REPORTING
The Group is currently in the process of production of diamonds, as well as exploration and development of mineral projects, as well as agriculture and forestry. In addition, the Group undertakes investing activities, which are now based principally in Guernsey. These are the Group's primary reporting segments.
5. TAXATION
The accrued tax charge for the six month interim period is based on an estimated worldwide average effective tax rate of nil per cent. after allowance for utilisation of tax losses brought forward in UK based subsidiaries (six months to 31 June 2013: nil%)
The Group has recognised a deferred tax liability of 43,203,000 at 30 June 2014 (30 June 2013: 9,698,000 31 December 2013: 43,310,000) which arose on the difference between the book value and the fair value of assets acquired on the acquisition of a subsidiary and the revaluation of a biological asset.
6. EARNINGS PER SHARE
Basic earnings per share is based on the loss for the six months of 239,000 attributable to equity holders of the parent divided by the weighted average number of ordinary shares in issue during the period of 254,712,936 exclusive of ordinary shares purchased by the Obtala Resources Employee Share Trust and held jointly by the Trust and certain employees (period to 30 June 2013 : loss of 6,536,000 divided by the weighted average of 251,921,807 shares; year to 31 December 2013: profit 22,975,000 divided by the weighted average of 243,495,579 shares).
Dilutive earnings per share is calculated by adjusting the weighted average number of shares in issue during the year to assume conversion of all dilutive potential ordinary shares, being share options and the shares held by the Trust and certain employees. There were no potentially dilutive shares in issue in the six months to 30 June 2014 (period to 30 June 2013: nil, year to 31 December 2013: nil).
7. INTANGIBLE EXPLORATION AND EVALUATION ASSETS
Mindex Licences
Paragon Licences
Montara Licences
Total Licences
'000
'000
'000
'000
Cost and book value at 1 January 2013
17,744
41,151
62
58,957
Expenditure on exploration and evaluation
-
504
-
504
Foreign Exchange
1,092
2,026
4
3,122
Cost and book value at 30 June 2013
18,836
43,681
66
62,583
Expenditure on exploration and evaluation
-
737
-
737
Foreign Exchange
(1,319)
(3,783)
(4)
(5,106)
Impairment charge
(2,323)
-
-
(2,323)
Cost and book value at 31 December 2013
15,194
40,635
62
55,911
Expenditure on exploration and evaluation
-
281
-
281
Foreign Exchange
(473)
(1,370)
-
(1,843)
Cost and book value at 30 June 2014
14,721
39,546
62
54,329
Purchase of mining licences
The above values of intangible exploration assets acquired represent the cash and non-cash consideration paid by the Group at the time of their acquisition, together with any subsequent expenditure, net of any effects of foreign exchange and impairment charges.
Impairment
The Directors have considered the following factors when undertaking their impairment review of the intangible assets:
a) Geology and lithology on each licence as outlined in the most recent CPRs (Independent Competent Person's Reports)
b) The expected useful lives of the licences and the ability to retain the license interests when they come up for renewal
c) Comparable information for large mining and exploration companies in the vicinity of each of the licences
d) History of exploration success in the regions being explored
e) Local infrastructure
f) Climatic and logistical issues
g) Geopolitical environment
After considering these factors the Directors have chosen not to make an impairment charge to the carrying value of the intangible exploration and evaluation assets as at 30 June 2014.
8. SHARE CAPITAL
Number
'000
Authorised ordinary shares of 0.01 each:
At 1 January 2013, 31 December 2013 and 30 June 2014
Unlimited
Unlimited
Allotted, issued and fully paid ordinary shares of 0.01 each:
At 1 January 2013
250,129,352
2,501
Issued in the period
13,131,312
131
At 30 June 2013
263,260,664
2,632
Issued in the period
-
-
At 31 December 2013
263,260,664
2,633
Issued in the period
-
-
At 30 June 2014
263,260,664
2,633
9. SHARE PREMIUM
'000
At 1 January 2013
10,441
Premium on issue of shares
1,084
At 30 June 2013
11,525
Premium on issue of shares
3
At 31 December 2013
11,528
Premium on issue of shares
-
At 30 June 2014
11,528
See note 10 for details of shares issued in the six month period to 30 June 2014.
10. MOVEMENT IN REVENUE RESERVE AND OWN SHARES

Retained earnings/(deficit)
Own shares
Revenue Reserve

'000
'000
'000
At 1 January 2013
17,009
(1,416)
15,593
Profit for the period
(6,536)
(6,652)
Purchase of own shares
-
(882)
(882)
Dilution of interest in subsidiary (see note 13)
(1,372)
-
(1,372)
At 30 June 2013
9,101
(2,298)
6,804
Profit for the period
29,511
-
29,511
Transfer from foreign exchange
1,940
-
1,940
Dilution of interest in subsidiary (see note 13)
(2,337)
-
(2,337)
At 31 December 2013
38,215
(2,297)
35,918
Profit for the period
(219)
-
(219)
Purchase of own shares
-
-
Dilution of interest in subsidiary (see note 13)
(1,172)
-
(1,172)
At 30 June 2014
36,804
(2,297)
34,507
Own shares held by the Trust represent the cost of Obtala Resources Limited shares purchased in the market and through subscription and held by the Obtala Resources Limited Employee Share Trust jointly with a number of the Group's employees. At 30 June 2014 4,350,000 shares were held by the trust (June 2013: 4,350,000 December 13: 4,350,000)
11. DEEMED PARTIAL DISPOSAL OF SUBSIDIARY UNDERTAKING
In the six months to 30 June 2014 the Company's listed subsidiary Paragon Diamonds Limited ("Paragon") issued 7,000,000 new shares to non-controlling interests raising cash proceeds of 50,000 and issued 35,471,510 new ordinary shares in order to acquire the remaining shares in a subsidiary of Paragon.
This diluted Obtala's interest in Paragon to xx.x% and created a deemed disposal for the Group resulting in a loss recognised in equity of 1.3 million.
12. NON-CONTROLLING INTEREST
'000
At 1 January 2013
17,546
Non-controlling interests in net assets on partial disposal (see note 12)
2,782
Non-controlling interests in share of losses post acquisition
(465)
Non-controlling interests in foreign exchange gains
364
At 30 June 2013
20,227
Non-controlling interests in net assets on partial disposal (see note 12)
Non-controlling interests in share of losses post acquisition
Non-controlling interests in foreign exchange gains
At 31 December 2013
41,436
Non-controlling interests in net assets on partial disposal (see note 12)
3,174
Non-controlling interests in share of losses post acquisition
(151)
Non-controlling interests in foreign exchange gains
(281)
At 30 June 2014
44,177
13. INTERIM FINANCIAL REPORT
A copy of this interim report will be distributed to shareholders and is also available on the Company's website at www.obtalaresources.com

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