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FEB 16, 2010 - 02:00 ET Fourth Quarter 2009 Financial Results FOR: AFRICAN COPPER PLC African Copper plc (AIM:ACU), today announces results for the three and twelve month period ended 31 December 2009. Highlights
Commenting on the results, Brad Kipp, Chief Financial Officer of African Copper, said, "This has been an important period for African Copper and I am delighted with the progress we have made on all fronts in the fourth quarter after what was a testing time for the mining sector. We have recommenced operation at our flagship Mowana Mine and are making adjustments towards reaching full commercial production levels. We are also working on a mining license for Thakadu as well as seeking to unlock the potential of the Matsitama project with the right partner. "On the financial side, we have started to produce revenues and our net loss has reduced substantially, a result of the reversal of heavy impairment losses recognized on the Mowana Mine property in 2008. This reversal reflects favourable changes in the underlying estimates of expected future cash flows. With the return of favourable copper prices, and a ramping up of production, we look forward to the next 12 months with genuine excitement". Results for the three and twelve month period ended 31 December 2009 are summarized as follows and are more fully set-out in the attached appendix
OVERVIEW During the three months ended 31 December, 2009 and subsequently, African Copper made several important advances that management believes are important steps towards reaching full commercial production levels at its Mowana Mine. After recommencing production in August 2009, the plant at the Mowana Mine produced 4,344 Mt of concentrate, at an average grade of 27.34% copper for 1,192 Mt of copper contained in concentrate up to 31 December 2009. Since August 2009 to 31 December 2009, Mowana has generated gross revenue of GBP 2.63 million and incurred cash operating expenses of GBP 4.34 million. The plant met its operating targets for copper recovery rate in November 2009. As announced on 21 January 2010, the recovery rate and plant throughput fell back in December 2009 and January 2010, reflecting various operational bottlenecks exacerbated by heavy rainfall. At the date of this MD&A, the Company is addressing these bottlenecks and is in the process of sourcing a mobile crushing unit and completing the required permitting and design work to migrate from a dry to a wet tailings system. The Company also restructured its short term financing, replacing it with longer term commitments. In January 2010, Zambia Copper Investments (see "Liquidity" in this MD&A) received shareholder approval to replace $32.4 million of bridge loan facilities provided to the Company in May 2009 (the "ZCI Bridge Loans") with a four year secured credit facility of $31.1 million. Additionally, at the date of this MD&A, the Company is in advanced negotiations with a finance provider to provide a working capital credit facility. The Company did not make any significant expenditure on its Matsitama project during the three months, but is actively reviewing work done on the project and considering its next steps. Work is also being completed to secure a mining licence at Thakadu, 70km from the Mowana Mine. Overall, the Company recorded a net loss for the three months ended 31 December 2009 of GBP 3.72 million (0.45p per ordinary share), compared with a net loss of GBP 56.9 million (39.05p per ordinary share) during the three months ended 31 December 2008. The 2008 results were heavily affected by impairment losses recognized on the Mowana Mine property, plant and equipment, and the full-year 2009 results were affected in turn by the partial reversal of those losses, reflecting favourable changes in the underlying estimates of expected future cash flows. The Company also announced several changes to its Board of Directors and management during the quarter:
In addition, the Company announced that it had appointed Canaccord Adams Limited as its sole Nominated Adviser and Broker effective 29 October 2009. TRENDS Throughout the fourth quarter of 2008, and continuing into early 2009, global financial and commodity markets were characterized by volatility and falling copper prices. However by early August 2009 copper prices had rebounded to their highest levels since October 2008 and copper has been at the forefront of the rally in the base metals sector. Until the world's economic outlook becomes clearer, mining companies will likely experience fluctuations in energy and resource prices and currency volatility. MINERAL PROPERTIES Mowana Mine On 21 December 2009, the Company announced the most recent estimates of proven and probable mineral reserves and additional inferred mineral resources at the Mowana Mine. These estimates were prepared for ZCI by Read, Swatman & Voigt (Pty) Ltd ("RSV") in connection with the preparation of a circular to ordinary shareholders of ZCI dated 17 December 2009, and appeared in a Competent Persons Report of RSV dated October 2009 (the "CPR"). In preparing the CPR, RSV reviewed the Company's existing Mineral Resource and Mineral Reserve models for the Mowana Mine, which were calculated based on assumptions determined to be appropriate by African Copper (including a 0.10% Cu cut-off grade), and which have previously been disclosed by African Copper in its press release dated 26 November 2007. RSV applied its own set of assumptions (including a higher cut-off grade of 0.25% Cu) and re-estimated certain values as follows: SAMREC compliant Proven & Probable In-pit Mineral Reserves and In-pit Inferred Mineral Resources at a 0.25% Cu cut-off as at 6 August 2009
The inferred material has been included at the bottom of the Mowana Mineral Reserve statement because it is incidental to the mine plan. Mineral resources that are not mineral reserves do not have demonstrated economic viability. The key drivers that will impact on the success of the Mowana Mine will be:
Key performance details of the Mowana plant for the third and fourth quarter of 2009 are set out in the table below:
On 21 January 2009, the Mowana Mine had been placed on care and maintenance pending completion of financing. Since recommencing operations in late August 2009, the plant has produced 4,344 Mt of concentrate, at an average grade of 27.34% copper, for 1,192 Mt of copper contained in concentrate. Average direct feed ore was mined at a grade of 1.37%, in line with expectations, while the flotation circuits have been performing well when fed with a consistent supply of ore. Copper recoveries rates increased in October and November, reaching 57.3% in November, in line with the Company's targeted recovery rate of 57%, before declining, together with ore processed, in December and January. This was due to lower Secondary and Tertiary plant availability caused by high crusher liner wear and heavy rain, adversely affecting the consistency of the ore and hindering the flow of material from stockpiles. The existing dry tailings facility utilizes a horizontal belt filter to recover excess process water, resulting in tailings that can be dry stacked; however, this filter has been unable to consistently handle and produce dry tailings. Mine management has moved quickly to address these two bottlenecks that are currently preventing the mine from ramping up towards full plant capacity. The Company has designed a solution involving the rental of mobile crushing units, which is a quick and cost effective way to temporarily bypass the Secondary and Tertiary crushing plant while work is carried out to incorporate an improved feed arrangement for these crushers. Given the order fulfillment timelines for available mobile crushing units, the delivery and installation of the full required mobile crushing capacity may take until the end of 31 March 2010. This capacity will be increasingly available however during March 2010 while at the same time the existing Secondary and Tertiary crusher will be operated to maintain maximum production as much as possible. Based on the bottlenecks the Company has experienced in achieving design capacity for its dry tailings facility, it has decided to seek approval from the Government of Botswana to migrate to a more conventional wet tailings system, within which tailings containing significantly more process water are discharged continuously into a tailings pond basin. The Company is amending the Environmental Management Plan ("EMP") to accommodate this proposed change, and design work on the new tailings facility is being undertaken by Scott Wilson RPA Mining Group with a view to starting construction as soon as the amendments to the EMP have been approved by the Botswana authorities which is expected during the second quarter of this calendar year. During the EMP approval period, the directors of the Company anticipate that the production ramp up will be unaffected by the tailings issue, as wet tailings will be deposited into a temporary tailings pond basin within the envisaged new tailings footprint. During the quarter, the Company held successful discussions with its off-take partner MRI Ag thereby improving certain terms included in its comprehensive 5-year off-take agreement, including payment for copper concentrate on an ex-mine gate basis and reduced penalties on lower grade concentrates. Thakadu Project Work is being completed to secure a mining licence at Thakadu to access the higher grade Thakadu mineral resources as a low-cost mining opportunity. The outcrop exposure at Thakadu and the possible initial box cut design lends itself to a small scale operation with low pre-strip mining requirements, limited overheads and the full support of the Mowana Mine infrastructure and management. The possible significant silver credit associated with Thakadu could also be factored into the costs associated with transporting the run of mine ore to the Mowana Plant which is 70 km away. The Company is working on an Environmental Impact Study ("EIA") and Archaeological Impact Assessment ("AIA") which are required to achieve a mining licence for Thakadu. The Company had previously planned to achieve the necessary permitting and apply for a mining licence during the first quarter of calendar 2010 but based on the current status this expectation has been changed to the second quarter of calendar 2010. On 21 December 2009, the Company announced the most recent estimates of proven and probable mineral reserves and additional inferred mineral resources at the Thakadu Project. In preparing these estimates, which appeared in the RSV CPR, RSV reviewed the Company's existing Mineral Resource models for the Thakadu Project, which were calculated based on assumptions determined to be appropriate by African Copper (including a 0.25% Cu cut-off grade utilizing ordinary kriging), and which had previously been disclosed by the Company in its press release dated 25 July 2007. In converting the Resources to Probable Mineral Reserves, RSV applied its own set of assumptions (including a higher cut-off grade of 0.5% Cu), to evaluate an economic pit-shell based on African Copper's existing proposed pit design. SAMREC compliant Proven & Probable In-pit Mineral Reserves, and In-pit Inferred Mineral Resources at a 0.5% Cu cut-off(1) as at 06 August 2009
(1) The cut-off grade was determined by RSV based on a forward copper price curve as supplied by African Copper ($2.25/lb in 2009-2010 and $2.00/lb in 2011-2020), operating costs, metallurgical recoveries, prevailing Botswana tax rates, average smelter charges and transport costs to the ports of Durban/Richards Bay. Mowana Mine - mining development and infrastructure and mine plant and equipment As a result of being placed on care and maintenance in January 2009, expenditures on Mowana infrastructure and mine plant and equipment were reduced to a minimum. During this period the Company restructured certain aspects of its operations, terminating various employees and incurring related legal and professional expenses. At the same time, Messina negotiated final debt settlement agreements with its large trade creditors including its mining contractor and EPCM contractors. Overall, expenditure related to property, plant and equipment were therefore reduced to GBP 1.3 million during the 12 months ended 31 December 2009 compared to GBP 56.9 million in the previous year. Expenditures were also offset by capitalized depreciation of GBP 493,909 and a foreign exchange gain of GBP 586,669 during the 12 month period ended 31 December 2009. The foreign exchange gain was the result of translating to Sterling the accumulated mining development, infrastructure and mine plant and equipment balances that are denominated in Pula in the Botswana subsidiary accounts. As at 30 June 2009, the Directors undertook a review of mining assets in light of certain indicators that the impairment loss recognized in 2008 had decreased, including the significant impact on the Company of the ZCI Financing Package described below under "Liquidity and Capital Resources". Following this review, including making estimates of the value in use of the Mowana Mine, the Directors concluded that a portion of the GBP 92.4 million impairment loss recognized in 2008 on that Mowana Mine no longer existed and that a partial impairment reversal of GBP 29.6 million was appropriate. No impairment reversal was made in respect of any of the other cash generating units. No additional indicators have been identified at 31 December 2009 that would require re-estimating the recoverable amount of any assets at that date. Matsitama Project In line with market conditions and management's need to aggressively reduce overheads until working capital finance was secured, exploration activity was curtailed at the Matsitama Project during the fourth quarter of fiscal 2008. Since completing the ZCI Financing Package, the first priority has been commencing operations at the Mowana mine as soon as practical. The Company and ZCI are currently reviewing the Matsitama tenement areas and work completed to date, with the objective of establishing internal programmes or seeking joint venture finance opportunities to expand the geological knowledge related to the Matsitama properties and to pursue the development of mineralization, if discovered, that is economically significant. Under mineral legislation in Botswana, a prospecting licence may be renewed for subsequent periods; however, upon renewal, the area covered by the licence must be reduced in size to not more than half the area at the end of its prior period of the licence. In February 2009 the Group applied to the Geological Survey of Botswana to renew Matsitama exploration licences 014/2004, 015/2004, 016/2004, 017/2004 which were due to expire on 30 June 2009. As part of this application the Group designated a reduction of 43% of the total area of these exploration licences, retaining the exploration ground deemed by management to be the most promising (or already hosting known mineralization ) based on exploration work completed in and prior to 2008. On 15 July 2009 the Geological Survey of Botswana renewed the Matsitama exploration licences for a period of two years. Matsitama Project - deferred exploration expenditures The Company spent GBP 12,645 (2008: GBP 903,146) during the three months ended 31 December 2009 and GBP 108,732 (2008:GBP 1.64 million) during the 12 months ended 31 December 2009 primarily on administrative expenses activities in the Matsitama prospecting licence area. OVERALL FINANCIAL PERFORMANCE
Three months ended 31 December 2009 The Company recorded a net loss for the three months ended 31 December 2009 of GBP 3.72 million (0.45p per ordinary share), compared with a net loss of GBP 56.9 million (39.05p per ordinary share) during the three months ended 31 December 2008. As evidenced in the table above, the increased loss for the prior three month period compared to the loss for the three months ended 31 December 2009 was primarily related to the GBP 57.67 million impairment provision that was recognized during the three months ended 31 December 2008 to the Mowana Mine property, plant and equipment. Operating loss from mining operations: During the quarter the Mowana Mine moved from the development stage to production, recording sales revenue for the three months ended 31 December, 2009 of GBP 2.63 million (2008: Nil amount). These sales, as announced on 21 January 2010, reflected the various operational bottlenecks described above, exacerbated by heavy rainfall, and a consequently lower volume of ore processed through the plant than anticipated. At the same time, because of the demands of responding to these challenges, production- related costs were consequently increased. The Company does not believe that the operating results for this initial quarter of production are at all indicative of those it will achieve over time, after implementing the solutions currently in progress. With the commencement of production, the Company also commenced amortizing the Mowana Mine's property, plant and equipment during the quarter. Bank interest receivable: Bank interest receivable for three months ended 31 December 2009 decreased to GBP 3,561 from GBP 59,300 for the same period in 2008. This decrease is primarily the result of lower interest rates earned during the current year's quarter in order to ensure the liquidity and cash availability of the Company's funds. In addition, average cash balances and interest rates during the current quarter were lower. General and administration, consultants, salaries and benefits: During three months ended 31 December 2009, the Company incurred a total of GBP 507,682 (2008: GBP 698,822) in salaries, general and administrative expenses. During the current quarter the Botswana G&A decreased significantly due to restructuring of costs that was completed earlier in 2009. These savings were somewhat offset by iCapital Limited ("iCapital") fees of GBP 70K for the provision of technical and operational support and GBP 225K in "change of control" (see section entitled "Liquidity and Capital Resources" in this MD&A) payments required under the CEO and Chief Financial Officer ("CFO") employment contracts. Travel, accommodation: Travel and accommodation costs increased to GBP 54,417 during the three months ended 31 December 2009 compared with GBP 36,645 for the same period in 2008. Additional travel costs were incurred as part of the re-start of operations in Botswana including the cost of transporting certain consultants and iCapital metallurgical and financial expertise. Professional fees: Professional fees decreased to GBP 73,486 during the three months ended 31 December 2009 compared to GBP 172,689 for the same period in 2008. The equivalent period in 2008 included year-end audit costs (not incurred in 2009 due to the change in the Company's year-end) and additional legal fees relating to financing initiatives that took place in 2008, including work on the Extraordinary General meeting held on 7 January 2009. In addition, the current 2009 quarter included executive search fees for the hiring of certain new members of the Botswana management team. Share-based compensation: Share based compensation expenses of GBP 100 (2008: GBP 1,117) are non-cash expenses and reflect the derived value of stock options vested during the period. During the fourth quarter of 2009 no options were granted (2008: nil). The grant date fair value of stock options is amortized to the Income Statement over the period in which the options vest. Interest Expense: The GBP 298,238 interest expense for the three months ended 31 December 2009 relates to the interest on the ZCI Bridge Loans. During the 2008 comparative quarter the interest expense of GBP 446,999 related to the Pula 150.0 million (GBP 11.85 million) bond (the "Botswana Bond") that was placed on 4 April 2008 with local Botswana institutions. On 15 May 2009, Natasa Mining Limited ("Natasa") acquired the Botswana Bond and subsequently demanded immediate repayment of the entire principal amount on the basis of alleged defaults under the terms of the Botswana Bond. On 3 June 2009, the Company settled in full all the claims of Natasa against its subsidiaries Messina and Matsitama (including the repayment of the Botswana Bond). Foreign exchange: The foreign exchange loss of GBP 122,264 recorded for the three months ended 31 December 2009 was primarily related to the revaluation of the US$ denominated loans (ZCI) on the Pula denominated financial statements of Messina. Twelve Months Ended 31 December 2009 The Company recorded a net gain for the 12 months ended 31 December 2009 of GBP 23.15 million (4.12p per ordinary share), compared with a net loss of GBP 102.71 million (70.47p per ordinary share) during the 12 months ended 31 December 2008. As evidenced in the table above, the gain for the current 12 month period, compared to the loss for the 12 months ended 31 December 2008, reflects a GBP 29.6 million partial reversal in 2009 of a GBP 99.27 million impairment provision recognized in the 12 months ended 31 December 2008. Operating loss from mining operations: During the 12 months ended 31 December 2009, the Company had sales revenue of GBP 2.63million (2008: Nil amount) and operating costs of GBP 4.34 million (2008: Nil amount). This was lower than expected, reflecting the various operational bottlenecks described above, exacerbated by heavy rainfall, and a consequently lower volume of ore processed through the plant than anticipated. At the same time, because of the demands of responding to these challenges, production-related costs were higher than expected. The Company does not believe that the operating results for this period of production are at all indicative of those it will achieve over time, after implementing the solutions currently in progress. With the commencement of production, the Company also commenced amortizing the Mowana Mine's property, plant and equipment during the fourth quarter. Bank interest receivable: Bank interest receivable for 12 months ended 31 December 2009 decreased to GBP 19,758 from GBP 1,359,176 for the same period in 2008. The lower bank interest receivable related to lower average cash balances and interest rates throughout the current period compared to the previous year. General and administration, consultants, salaries and benefits: During the 12 months ended 31 December 2009, the Company incurred a total of GBP 2.32 million (2008: GBP 2.10 million) in salaries, general and administrative expenses. Costs for 2009 reflected savings realized and certain termination costs incurred during the restructuring that was completed while the Mowana Mine was on a care and maintenance basis. Savings from the restructuring were somewhat offset by iCapital fees of GBP 179K for the provision of technical and operational support and GBP 225K in "change of control" (see section entitled "Liquidity and Capital Resources" in this MD&A) payments required under the CEO and CFO employment contracts. Directors' Fees: During the 12 months ended 31 December 2009, the Company incurred a total of GBP 102,232 (2008: GBP 57,100) in director fees. The Directors' fees of GBP 102,232 include an amount of GBP 32,233 payable to UK HM Revenue and Customs ("HMRC") in respect of a UK Pay As You Earn ("PAYE") audit. An additional amount of GBP 4,383 interest payable to HMRC on late payment is accounted for in the interest expense. The increase also reflects changes to directors and an increase in director's fees on 30 November 2009. Investor relations and public company administration: Investor relations and public company administration costs decreased to GBP 153,875 compared with GBP 230,465 for the same period in 2008. During 2009, investor relations costs were significantly reduced in an effort to save funds while the Company was reorganizing. These savings were offset by the costs of holding two Extra-Ordinary General Meetings in January 2009 and May 2009. Travel, accommodation: Travel and accommodation costs decreased to GBP 149,416 during the twelve months ended 31 December 2009 compared with GBP 204,570 for the same period in 2008. Due to a lack of working capital during the first half of 2009 all discretionary travel costs were suspended in an effort to save funds. These savings were somewhat offset in the third and fourth quarter of 2009 when increased travel took place as part of the recommencement of operations at the Mowana Mine. Professional fees: Professional fees increased to GBP 945,056 during the twelve months ended 31 December 2009 compared to GBP 550,650 for the same period in 2008. The increase is due to legal and related professional fees in respect of the Natasa financing initiative, the Natasa debt acquisitions and completing the ZCI Financing Package and other attempted financing initiatives considered during the first half of 2009. Share-based compensation: Share based compensation expenses of GBP 20,244 (2008: GBP 60,307) are non-cash expenses and reflect the derived value of stock options vested during the period. During the twelve months ended 31 December 2009 no options were granted (2008: nil). The grant date fair value of stock options is amortized to the Income Statement over the period in which the options vest. Interest Expense and Deferred Bond Raising Fees: Interest expense increased to GBP 1,661,671 during the twelve months ended 31 December 2009 compared to GBP 1,293,078 for the same period in 2008. The GBP 1,661,671 interest expense for the twelve months ended 31 December 2009 relates to interest charges on the Botswana Bond until it was settled in June of 2009 and interest charges on the ZCI Bridge Loan. During 2008 interest expense of GBP 1,293,078 related to the Botswana Bond. Foreign exchange: During twelve months ended 31 December 2009, the Company recorded a foreign exchange gain of GBP 1,763,574 compared to a loss of GBP 612,066 in the comparative period in 2008, primarily related to the revaluation of the US$ denominated loans on Messina's Pula-denominated financial statements. SUMMARY OF QUARTERLY RESULTS The following table sets out selected financial data on the Company for the most recently completed eight quarters, which data has been prepared in accordance with applicable IFRS:
LIQUIDITY AND CAPITAL RESOURCES At 31 December 2009, the Company had cash and cash equivalents of GBP 1.1 million (31 December 2008 - GBP 1.76 million) and a working capital deficit of GBP 23.86 million compared to a working capital deficit of GBP 23.29 million at 31 December 2008. Included in the working capital deficit are GBP 24.27 million of bridge loans advanced by ZCI described below. In January 2010 these were refinanced by the Convertible Loan Facility which has a term of four years. ZCI Financing Package On 9 May 2009 the Company announced it had entered into agreements pursuant to which ZCI agreed to provide the Company and its stakeholders with a comprehensive financing package which was subsequently amended by further agreements with effective dates of 12 May 2009, 18 May 2009, 21 May 2009 and 19 June 2009 (the "ZCI Financing Package"): The ZCI Financing Package comprised: -- a US$7 million Initial Bridge Loan facility, made available to Messina on 13 May 2009; -- a US$25.4 million Second Bridge Loan facility, made available to Messina on 18 May 2009; -- a US$9.9 million Share Subscription, completed on 22 May 2009; and -- a US$31.1 million four-year Convertible Loan Facility, signed on 18 June 2009. Following the Share Subscription, ZCI had an interest in 82.16% of the Company's issued ordinary share capital, constituting a "change of control". In January 2010 the Initial Bridge Loan and the Second Bridge Loan were refinanced out of the proceeds of the Share Subscription and the Convertible Loan Facility. The Convertible Loan Facility has been guaranteed by African Copper and all other African Copper group companies and is secured over Messina's assets including a share pledge over the shares of Messina. ZCI Debt Acquisitions ZCI entered into binding debt assignment agreements with Moolman Mining Botswana (Pty) Limited ("Moolman"), Senet CC ("Senet") and RSV (collectively the "Large Creditors") pursuant to which the Large Creditors assigned their respective debts owed by Messina to ZCI at a price equal to 50 per cent of the face value of the Messina debts which totalled US$10.72 million. As a consequence of the ZCI Financing Package, and the ZCI Debt Acquisitions, the Group is indebted to ZCI at 31 December 2009 in an aggregate amount of US$39.86 million. Liquidity As a result of the two bottlenecks that prevented the Mowana mine from ramping up towards full plant capacity, the Company utilized more working capital than had been previously expected and additional working capital and capital equipment financing requirements were identified. In anticipation of these working capital needs, the Company's subsidiary Messina is in advanced negotiations with a finance provider to provide a working capital credit facility (the "Working Capital Facility"). Management also intends to complete the addition of a Dense Media Separation plant to the processing plant and further evaluate developing the underground portion of the mine at Mowana. Further project finance will be required to complete these initiatives. The Directors expect that additional capital equipment and other project funding may be provided in the future by financial institutions in Botswana and/or the UK or by ZCI. Terms of any further funding by ZCI will be subject to separate commercial negotiations between the Company and ZCI if such funds are necessary and become known. Additional financing may not be available when needed or if available, the terms of such financing might not be favourable to the Company and might involve further dilution to existing shareholders. CONTRACTUAL OBLIGATIONS At 31 December 2009, the Group's contractual obligations aggregated GBP 3.16 million:
At 31 December 2009, outstanding share options represented a total of 2,935,000 ordinary shares issuable for maximum aggregate proceeds of GBP 2,268,100 if and when exercised. OFF-BALANCE SHEET ARRANGEMENTS The Company has not entered into any off-balance sheet transactions. TRANSACTIONS WITH RELATED PARTIES The Company was charged GBP 76,141(2008 - Nil) for the three months ended 31 December 2009 and GBP 209,054(2008 - Nil) for the twelve months ended 31 December 2009 by iCapital for the provision of technical and operational support to the Company. J. Soko, a director of the Company, is a principal of iCapital. This related party transaction was in the normal course of operations and was measured at the exchange amount. As a consequence of the debts arising from the ZCI Financing Package and the ZCI Debt Acquisitions, the Group is indebted to ZCI at 31 December 2009 in an aggregate amount of approximately US$39.86 million. See Note 10 and 15 of the Financial Statements. RISKS The Company's operations are subject to numerous significant risks. To date it has little operating history and a history of losses and there can be no assurance it will ever be profitable. Its activities are focused primarily on the Mowana Mine. Any adverse changes or developments affecting this project would have a material and adverse effect on the Company's business, financial condition, working capital and results of operations. Neither the development of the Mowana Mine into a commercial operation and its economic viability, nor the success of other current nor future exploration activities can be assured. Copper price volatility and currency fluctuations may also affect the Company's production, profitability, cash flow and financial position. The capital, operating cost estimates and mining and processing plans anticipated for the Mowana Mine, including the key assumptions used by the Company in calculating the partial reversal at 30 June 2009 of the impairment charge recognized in 2008, are estimates only and may not reflect the actual capital, operating costs and mine and processing incurred by the Company. Foreign investments and operations are subject to numerous risks associated with operating in foreign jurisdictions, and government regulations may have an adverse effect on the Company. The Company's ability to meet its obligations and continue as a going concern is dependent on its ability to finalize the Working Capital Facility and subsequently generate positive cashflow from operations at the Mowana Mine. If the Working Capital Facility is not completed, the Directors expect, in the absence of alternative sources of funds, that additional funding would be available from ZCI. Terms of any further funding by ZCI will be subject to separate commercial negotiations between the Company and ZCI if such funding from ZCI is necessary. The Group is dependent on the continuing support of ZCI not to call for the repayment of amounts owed to it. If ZCI calls for repayment, the Group would, in the absence of alternative sources of funds, have insufficient funds to repay the loans and would thereby be unable to avoid formal insolvency proceedings. More information on these and other risks is set out in detail in the Annual Information Form filed on SEDAR for the year ended December 31, 2008. INTERNAL CONTROLS OVER FINANCIAL REPORTING During the period beginning on 1 January 2009 and ending on 31 December 2009 there were no changes in the Company's internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting and decisions regarding required disclosure. DISCLOSURE OF OUTSTANDING SHARE DATA The following details the share capital structure as of the date of this MD&A.
NOTES TO THE RESULTS 1. FORWARD-LOOKING INFORMATION This MD&A contains "forward-looking information". Forward-looking information includes, but is not limited to, statements concerning mineral resource and reserve estimates, the steps required and the related timing to reach full production levels at its Mowana Mine, the additional amount of working capital and capital equipment financing required, the positive outcome of negotiations to secure the Working Capital Facility, the Company's expectation that ZCI will not require immediate repayment of the amounts owed to it including amounts owed to the Large Creditors, the Company's expectations that additional funding will be available from ZCI, the Company's overall strategy, the Company's plans with respect to obtaining mining licences for Thakadu, including with respect to the anticipated timing thereof, the Company's plans with respect to the exploration of the Matsitama Project, the estimated total discounted amount of cash flows required to settle the Company's asset retirement obligations, the Company's expectation of market volatility, the Company's critical accounting estimates, including the partial reversal of the impairment charge recognized in 2008, the Company's estimated amounts used to determine that a partial reversal of the impairment charge at 30 June 2009 recognized in 2008 is appropriate, the Company's strategy with respect to the use of financial instruments and derivative positions, estimated working capital costs, and other statements which are not historical facts. In certain cases, forward-looking information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "should", "might" or "will be taken", "occur" or "be achieved" and include the negative variation of such phrases. With respect to forward-looking information contained in this MD&A, the Company has made assumptions regarding, among other things, the Working Capital Facility providing the necessary working capital, any further financing required for additional working capital and/or project finance being provided by ZCI or other financial institutions, the implementation of the mobile crushing units and wet tailings facility to address bottlenecks thereby enabling the Mowana Mine to reach full production levels, the key drivers required for the success at the Mowana Mine, the net present value calculations underlying the Company's determination at 30 June 2009 that a partial reversal of the impairment charge recognized in 2008 is appropriate, the recovery of mineral properties, estimated useful lives of capital assets, stock appreciation and financial instruments valuation, the Company's ability to access additional capital equipment and other project funding (including additional debt from ZCI) to meet possible future funding requirements for working capital and/or project finance for the DMS or underground development, the regulatory framework in Botswana with respect to, among other things, permits, licenses, authorizations, royalties, taxes and environmental matters, and the Company's ability to obtain and retain qualified staff and equipment in a timely and cost-efficient manner to meet the Company's demand. Although the Company believes that its expectations reflected in forward-looking information are reasonable, such forward-looking information involves known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or the Company's projects in Botswana, or any of them, to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Such factors include, the Company not being able to repay any interest or principal payments when due under the ZCI Financing Package, the ZCI Financing Package and the contemplated Working Capital Facility being insufficient to meet the Company's necessary working capital requirements, ZCI not providing any further financing required for additional working capital and/or project finance on terms acceptable to the Company or at all or the Company being unable to obtain any such financing from alternative investors and/or lenders, the mobile crushing units being a quick and cost effective way to temporarily bypass the Secondary and Tertiary crushing plant to improve production efficiency, the timing of the EMP approval for a wet tailings facility, that production ramp up will be unaffected by the migration from dry tailings to wet tailings, any further delays in the ramp-up to commercial production or, any further material reductions in tonnages, grades and/or recovery rates and overruns in operating costs are experienced, ZCI requiring immediate repayment of the amounts owed to it on account of the Large Creditors, adverse changes in any of the key assumptions of the Company regarding the net present value calculations underlying the Company's determination that a partial reversal at 30 June 2009 of the impairment charge recognized in 2008 is appropriate, risks related to failure to convert estimated mineral resources to reserves, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, the possibility that actual circumstances will differ from the estimates and assumptions used in the current mining plan for the Mowana Mine, future prices of copper, unexpected increases in capital or operating costs, possible variations in mineral resources, grade or recovery rates, failure of equipment or processes to operate as anticipated, accidents, labour disputes and other risks of the mining industry, delays in obtaining governmental consents, permits, licences and registrations, political risks arising from operating in Africa, changes to regulations affecting the Company, changes in the debt and equity markets, inflation, changes in exchange rates, fluctuations in commodity prices and uninsured risks, as well as those factors discussed under "Risks" in this MD&A. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. The forward- looking information contained herein, unless stated otherwise, is made as of the date of this MD&A and the Company makes no responsibility to update them or to revise them to reflect new events or circumstances, except as required by law. The mineral resource and mineral reserve figures referred to in this MD&A are estimates and no assurances can be given that the indicated levels of minerals will be produced. Such estimates are expressions of judgment based on knowledge, mining experience, analysis of drilling results and industry practices. Valid estimates made at a given time may significantly change when new information becomes available. While the Company believes that the resource and reserve estimates referred to in this MD&A are well established, by their nature resource and reserve estimates are imprecise and depend, to a certain extent, upon statistical inferences which may ultimately prove unreliable. If such estimates are inaccurate or are reduced in the future, this could have a material adverse impact on the Company. Due to the uncertainty that may be attached to inferred mineral resources, it cannot be assumed that all or any part of an inferred mineral resource will be upgraded to an indicated or measured mineral resource as a result of continued exploration. Additional information about the risks and uncertainties of the Company's business is provided in its disclosure materials, including its Annual Information Form, available under the Company's profile on SEDAR at www.sedar.com. 2. DESCRIPTION OF BUSINESS African Copper is a base metals company, incorporated in England and Wales, with mining and exploration interests in Botswana. Its ordinary shares are listed on the AIM market of the London Stock Exchange ("AIM") under the symbol "ACU" and on the Botswana Stock Exchange ("BSE") under the symbol "African Copper". On 20 May 2009, as a condition of the closing of funding by ZCI, the Company announced it had voluntarily delisted its shares from the Toronto Stock Exchange ("TSX"). It has also changed its year end to 31 March from 31 December to align with ZCI and to streamline its accounting processes. The Mowana Mine, owned by the Company's subsidiary Messina Copper Botswana (Pty) Limited ("Messina") is located close to Botswana's second largest city, Francistown, in the north-eastern part of the country. Mowana and all current estimated mineral resources and reserves are part of the Dukwe Project, comprising; (1) exploration licence PL 33/2005, with an area of 139.6 km2, and (within that exploration licence) mining licence 2006/53L, with an area of 32.7 km2 and valid until the end of 2031 (2) exploration licence 180/2008, covering an area of 114.4 km2 to the north of PL 33/2005. The Dukwe Project also encompasses north and south extensions of mineralization lying outside the Mowana Mine licence area. The Company's subsidiary Matsitama Minerals Pty Limited ("Matsitama") holds the Matsitama Project, consisting of five prospecting licences contiguous with the Mowana Mine deposit. All the licences are valid and contain prospective areas of mineralization. Additional information relating to the Company can be found on the Company's website or under its profile on SEDAR at www.sedar.com. With corporate offices in the UK, African Copper has offices in Johannesburg and Francistown and a workforce at the Mowana Mine of more than 480 employees and contract workers. For further information please visit www.africancopper.com. APPENDIX AFRICAN COPPER PLC UNAUDITED CONSOLIDATED FINANCIAL INFORMATION Three and Twelve Months ended 31 December 2009 Expressed in Pounds Sterling The accompanying Financial Information for the three and twelve months ended 31 December 2009 have not been audited nor reviewed by the Company's Auditors and has an effective date of 15 February 2010. See Note 1 - Nature of operations and going concern African Copper Plc Statement of Comprehensive Income
The accompanying notes are an integral part of these consolidated financial statements.
African Copper Plc Consolidated Cash Flow Statement
1. Nature of operations and going concern African Copper Plc ("African Copper" or the "Company") is a public limited company incorporated and domiciled in England and is listed on the AIM market of the London Stock Exchange and the Botswana Stock Exchange. African Copper is a holding company of a mineral exploration and development group of companies (the "Group"). The Group is involved in the exploration and development of copper deposits in Botswana and is currently developing its first copper mine at the Mowana Mine and holds permits in exploration properties at the Matsitama Project. The Mowana Mine is located in the northeastern portion of Botswana and the Matsitama Project is contiguous to the southern boundary of the Mowana Mine. The Group has only one business segment, namely copper exploration, development and mining in Botswana. This is considered to be the primary reporting segment of the Group. Going Concern The financial statements have been prepared on the going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. On 31 January 2010 the Company and Zambia Copper Investments ("ZCI") completed the refinancing of the US$32.4 million bridge loan facilities that ZCI provided to the Company in May 2009 with a four year secured credit facility (the "Facility") (See Note 10 - Due to ZCI). The Facility places African Copper's borrowings from ZCI on a more permanent footing and comprises a convertible Tranche A of US$8,379,100 with a coupon of 12 per cent. per annum and Tranche B that is not convertible of US$22,750,000 with a coupon of 14 per cent. per annum. The Group's ability to continue as a going concern is dependent upon its ability to generate positive cashflows from operations at the Mowana Mine. The Mowana Mine recommenced operations in August 2009 but has yet to reach full commercial production rates or produce positive cashflow primarily due to the issues identified in the Management Discussion and Analysis for the three and twelve months ended 31 December 2009 which has delayed the ramping up of production to full plant capacity. As a result, the Company utilized more working capital than had been previously expected, and additional working capital and capital equipment financing requirements have been identified. In anticipation of these working capital needs, the Company's subsidiary Messina Copper (Botswana) (Proprietary) Limited ("Messina") is in advanced negotiations with a finance provider to provide a working capital credit facility (the "Working Capital Facility"). The Working Capital Facility is currently being finalized. The Directors therefore consider it appropriate to prepare these financial statements on the going concern basis. Management also intends to complete the addition of a Dense Media Separation plant to the processing plant and further evaluate developing the underground portion of the mine at Mowana. Further project finance will be required to complete these initiatives. The Directors expect that additional capital equipment and other project funding may be provided in the future by financial institutions in Botswana and/or the UK or by ZCI. Terms of any further funding by ZCI will be subject to separate commercial negotiations between the Company and ZCI if such funds are necessary and become known. Additional financing may not be available when needed or if available, the terms of such financing might not be favourable to the Company and might involve further dilution to existing shareholders. In the event that the Company is unable to secure the further finance required, the Company may not be able to fully develop the projects as contemplated and their carrying values may become impaired. The address of African Copper's registered office is 100 Pall Mall, St James's London SW1Y 5HP. These consolidated financial statements have been approved for issue by the Board of Directors on 15 February 2010. 2. Basis of Preparation General Information The financial information contained in this Interim Report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. No statutory accounts for the period have been delivered to the Registrar of Companies. The financial information contained in this Interim Report has not been audited by the auditors. The statutory accounts for the year ended 31 December 2008 have been audited and have been filed with the Registrar of Companies. The auditors' report on these accounts was unqualified and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006. The Group's interim financial information for the period has been prepared in accordance with accounting policies consistent with those adopted in the financial statements for the year ended 31 December 2008, and has been drawn up in accordance with International Accounting Standard 34, "Interim Financial Reporting". In the opinion of management, the accompanying interim financial information includes all adjustments considered necessary for fair and consistent presentation of financial statements. These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes for the year ended 31 December 2008. 3. Property, Plant and Equipment
Impairment Review As detailed in the accounting policies in the financial statements for the year ended 31 December 2008 the Directors are required to undertake a review for impairment at least annually and in particular where events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In such situation the assets carrying value is written down to its estimated recoverable amount (being the higher of the fair value less cost to sell and value in use). However, should indications dictate that a previously recognized impairment loss no longer exist or has decreased then the Directors should estimate the recoverable amount and determine whether an impairment reversal is appropriate. At 30 September 2008 and at 31 December 2008 the Directors undertook a review of mining assets in light of the then current economic events and associated declines in metal prices and the Group's working capital deficit and its need to raise at least $US15 million in financing. As a result during the three months ended 30 September 2008, a write down of GBP 41.60 million was recorded and a further GBP 50.84 million write down was recorded during the three months ended 31 December 2008 for a total of GBP 92.44 million. At 30 June 2009 the Directors undertook a further review of mining assets in light of certain indicators that the previously recognized impairment loss had decreased including the significant impact of the Company completing the ZCI Financing Package. In performing their review the Directors considered each of the Group's exploration and development assets on a project-by-project basis. Three general cash generating units were considered for the purpose of this assessment. These are:
Following this review and making estimates of the value in use of the Mowana mine and taking into account the failure of the transaction with Natasa Mining Limited (the "Natasa Transaction") and the finalization of the ZCI Financing Package, the Directors concluded that a portion of the recognized impairment loss recognized in 2008 on the Mowana mine unit no longer exists and that a partial impairment reversal was appropriate at 30 June 2009. No impairment reversal was made in respect of any of the other cash generating units. In deriving the estimate for the value in use in respect for the Mowana mine the Directors' calculated a Net Present Value of the projected cash flow to be derived from the Mowana mine based on the adopted five (5) year mining plan. The Net Present Value calculation used the following key assumptions:
It is estimated that the effect of adverse changes in key assumptions would result in the following decreases in the estimated value in use:
As required by IAS 36 no benefit has been recognized for any additional value that could be generated from the assets through improving the performance of the assets through additional cash outflows, from the development of underground workings or from production beyond the five year mine plan. The Directors have not carried out a further impairment review at 31 December 2009 but will undertake a further review as at 31 March 2010. A review would entail revision of a number of assumptions and a review of the mine model in light of initial production activity. As such, the Directors do not believe a further impairment review at 31 December 2009 would generate a more reliable valuation than that shown as at 30 June 2009. 4. Deferred exploration costs
The bank guarantee relates to a payment guarantee to Botswana Power Corporation in respect of the Mowana Mine.
Shares issued On 8 February 2008, a total of 7,284,000 ordinary shares were issued at a price of GBP 0.70 per ordinary share, raising total net proceeds of GBP 5,098,800. This private placement was completed as part of the finalization of a comprehensive off-take agreement for the Mowana Mine concentrates. On 28 April 2009 43 new ordinary shares of 1p were issued by the Company in connection with the Company's consolidation of share capital announced on 9 April 2009 as part of the proposed Natasa Transaction. The Natasa Transaction necessitated a reorganisation of the Company's share capital resulting in a consolidation of the Company's existing ordinary shares. One new Ordinary Share of 10p was proposed to be created for every 100 existing ordinary shares. At the Extra-Ordinary General Meeting held on 7 May 2009 the requisite level of shareholder approval for the Natasa Transaction was not received so accordingly the Natasa Transaction did not proceed to completion. As part of the ZCI Financing Package completed on 22 May 2009, a total of 676,570,500 ordinary shares were issued at a price of GBP 0.01 per ordinary share, raising total net proceeds of GBP 6,765,705. Acquisition reserve The acquisition reserve comprises the difference between the issued equity of Mortbury Limited at the date of the reverse acquisition of the Company by Mortbury Limited and the par value of shares issued by the Company in the share exchange, together with the fair value of equity issued to repurchase the Mortbury preference shares in issue. As such, the acquisition reserve is a component of the issued equity of the Group. Foreign currency translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of the Botswana foreign subsidiaries that have a different functional currency from the presentation currency. Exchange differences arising are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised in the income statement in the period in which the operation is disposed of. Dividends The directors do not recommend the payment of a dividend. 9. Share based payments African Copper has established a share option scheme with the purpose of motivating and retaining qualified management and to ensure common goals for management and the shareholders. Under the African Copper share plan each option gives the right to purchase one African Copper ordinary share. For options granted the vesting period is generally up to three years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Furthermore, options are forfeited if the employee leaves the Company. In 2004 options were granted at 35p and 76p, in 2005 all options were granted at 76p and in 2006 and 2007 all options were granted at 77.5p. No options were granted in 2008 or for the twelve months ending 31 December 2009. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
The total expense in respect of share based payments for the period was GBP 26,827 (2008:GBP 98,862) of which GBP 20,244 (2008:GBP 60,307) was recorded as an expense in the income statement and GBP 6,583 (2008: GBP 38,555) was capitalised as part of deferred exploration costs. Share options outstanding at the end of the period have the following expiry date and exercise prices:
On 9 May 2009 the Company announced it had entered into agreements pursuant to which ZCI agreed to provide the Company a financing package which was subsequently amended by further agreements with effective dates of 12 May 2009, 18 May 2009, 21 May 2009 and 19 June 2009. The ZCI Financing Package comprises: Initial Bridge Loans: - a secured bridge loan facility (the "Initial Bridge Loan") of US$7 million. The Initial Bridge Loan was made available to Messina on 13 May 2009. - a second secured US$25.4 million bridge loan facility (the "Second Bridge Loan"). The Second Bridge Loan was made available to Messina on 18 May 2009; Share Subscription: - a share subscription for gross proceeds to the Company of approximately US$9.9 million (the "Share Subscription"). The Share Subscription was completed on 22 May 2009 and the New Ordinary Shares were admitted to AIM. Following the Share Subscription, the Company had 823,429,500 ordinary shares in issue and ZCI had an interest in 82.16 per cent. of the issued ordinary share capital of the Company; Term Loan which Refinances the Bridge Loans: - a four year secured part convertible credit facility (the "Convertible Loan Facility") of US$31,129,100 comprising a convertible Tranche A of US$8,379,100 with a coupon of 12 per cent. per annum and Tranche B that is not convertible of US$22,750,000 with a coupon of 14 per cent. per annum. The Convertible Loan Facility was signed on 18 June 2009. Tranche A of the Convertible Loan Facility is convertible into ordinary shares of African Copper at a conversion price of 1p per share. The maximum aggregate number of new ordinary shares which may be issued pursuant to the conversion rights attaching to Tranche A is 556,307,263 new ordinary shares (subject to usual adjustments), which would, were Tranche A to be converted in full, increase ZCI's interest in the enlarged issued share capital of the Company from 82.16 per cent. to 89.36 per cent. The advance of funds under the Convertible Loan Facility was subject to the satisfaction of certain conditions precedent including that ZCI's shareholders having approved the Convertible Loan Facility and security over Messina's assets, including the Mowana Mine, becoming effective. The Initial Bridge Loan and the Second Bridge Loan will be refinanced out of the proceeds of the Share Subscription and the Convertible Loan Facility. The Convertible Loan Facility contains typical covenants, warranties and events of default for an agreement of this nature. The Convertible Loan Facility is guaranteed by African Copper and all other African Copper group companies and is secured over Messina's assets including a share pledge over the shares of Messina. On 31 January 2010 the Company and ZCI completed the conditions precedent under the Convertible Loan Facility resulting in the Initial Bridge Loan and Second Bridge Loan being refinanced by the Convertible Loan Facility. ZCI Debt Acquisitions On 11 May 2009, the Company and ZCI entered into a binding debt assignment agreement with Moolman Mining Botswana (Pty) Limited ("Moolman") pursuant to which Moolman assigned its 60 million Pula plus VAT (approximately US$8 million at an exchange rate of US$1/7.5 Pula) outstanding debt of Messina (the "Moolman Debt") to ZCI at a price equal to 50 per cent. of the face value of the Moolman Debt plus the full amount of invoiced VAT. The amount of the VAT will be refunded by the Company to ZCI upon recovery by the Company. On 12 May 2009, the Company's engineering procurement contractor Senet CC ("Senet") entered into an agreement with ZCI, pursuant to which Senet assigned its ZAR 17,002,545 (approximately US$2 million at an exchange rate of US$1/ZAR8.44) outstanding debt of Messina (the "Senet Debt") to ZCI at a price equal to 50 per cent. of the face value of the Senet Debt. On 21 May 2009, ZCI completed a compromise agreement with Read Swatman & Voigt (Pty) Limited ("RSV") pursuant to which RSV was paid in cash 50 per cent of monies of the total of ZAR 4,537,525 owed directly to RSV and 100 per cent of the total ZAR 1,509,374 owed to RSV sub contractors, being payment of a total of ZAR 3,777,836 (approximately US$448,141.87 at an exchange rate of US$1/ZAR8.43) in full and final settlement of debts due from the Company and its subsidiaries. Pursuant to the compromise agreement the full amount of the RSV Debt, ZAR 6,046,899 (approximately US$717,307 at an exchange rate of US$1/ZAR8.43) (the "RSV Debt") was assigned to ZCI. Each of the Moolman Debt, the Senet Debt and the RSV Debt are currently due and payable. ZCI and African Copper have agreed that the Company will cause the full amounts of the Senet Debt and RSV Debt to be repaid to ZCI in the short term and that the Moolman Debt will be repaid to ZCI as and when sufficient levels of working capital are available to the Company. As a consequence of the Initial Bridge and Second Bridge Loan and the ZCI Debt Acquisitions, the Group is indebted to ZCI at 31 December 2009 in an aggregate amount of approximately US$39.86 million. 11. Interest bearing borrowings
On 4 April 2008 Messina, the Company's wholly-owned subsidiary, completed the private placement of GBP 13.6 million (Botswana Pula 150 million) of fixed rate unsecured notes (the "Botswana Bond"). The notes were priced at 14.0 percent annual interest with a maturity of 7 years. On 2 April 2009 Messina did not pay the required interest payment due on the Botswana Bond which was an event of default under the Botswana Bond. On 15 May 2009 the Company announced that Natasa Mining Limited ("Natasa") had acquired the Botswana Bond and that Natasa had lodged a petition with the High Court of Botswana to seek an order for the provisional liquidation of Messina. As part of the ZCI Financing Package (See Note 10 - Due to ZCI) the Second Bridge Loan was made available to the Group with the primary portion of this amount made available for the purpose of repaying in full the Botswana Bond owing to Natasa. At 3 June 2009 the Botswana Bond owing to Natasa was paid in full. 12. Asset retirement obligations The Company estimates the total discounted amount of cash flows required to settle its asset retirement obligations at 31 December 2009 is GBP 2,502,350(2008 - GBP 2,426,399). Although the ultimate amount to be incurred is uncertain, the independent Environmental Impact Statement, completed on the Mowana Mine by Water Surveys Botswana (Pty) Limited in September 2006, using an assumption that mining continues to 2023, estimated the undiscounted cost to rehabilitate the Mowana Mine site of 24.3 million Botswana Pula. Under the terms of the Mining Licence, by the end of the first financial year in which copper is produced and sold, the Company must establish a trust fund to provide for rehabilitation of the Mowana Mine site once the mine closes. The Company will annually make contributions to this fund over the life of the mine so that these capital contributions together with the investment income earned will cover the anticipated costs. At the end of each financial year the Company will reassess the estimated remaining life of mine as well as the cost to rehabilitate the mine site and adjust its annual contributions accordingly. 13. Commitments At 31 December 2009, commitments total to GBP 3.16 million:
14. Related party transactions The following amounts were paid to companies in which directors of the Group have an interest and were incurred in the normal course of operations and are recorded at their exchange amount;
15. Ultimate Controlling Party The directors regard ZCI, a company registered in Bermuda, as the Company's immediate parent undertaking. The Company's ultimate controlling party is The Copperbelt Development Foundation. 16. Financial instruments The Group's principal financial liabilities comprise trade payables, purchase contracts and accrued expenses. The Group has various financial assets such as cash and cash equivalents and interest receivables, which arise directly from its operations. In addition, the Company's financial assets include amounts due from subsidiaries. From time-to-time the Group may use derivative transactions by purchasing copper put contracts to manage fluctuations in copper prices in the Group's underlying business operations. The use of derivatives is based on established practices and parameters which are subject to the oversight of the Board of Directors. All of the Group's and Company's financial liabilities are measured at amortised cost and all of the Group's and Company's financial assets are classified as loans and receivables. The board of directors determines, as required, the degree to which it is appropriate to use financial instruments, commodity contracts or other hedging contracts or techniques to mitigate risks. The main risks for which such instruments may be appropriate are market risk including interest rate risk, foreign exchange risk and commodity price risk and liquidity risk each of which is discussed below. The Group and Company's activities are exposed to a variety of financial risks, which include interest rate risk, foreign exchange risk, commodity price risk and liquidity risk. (a) Market Risk (i)Interest rate risk Interest rate risk is the risk that the value of a financial instrument or cashflows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities that the Group uses. Interest bearing assets comprise cash and cash equivalents which are considered to be short-term liquid assets. Interest bearing borrowings comprise bridge loans payable to ZCI under the ZCI Financing Package and variable rate vehicle lease obligations. Variable lease obligations are not considered material. As at 31 December 2009, with other variables unchanged, a plus or minus 1% change in interest rates, on investments and borrowings whose interest rates are not fixed, would affect the loss for the three month period by plus or minus GBP 36,544. (ii) Foreign exchange risk Foreign currency risk refers to the risk that the value of a financial commitment or recognised asset or liability will fluctuate due to changes in foreign currency rates. The Group is exposed to foreign currency risk as a result of financial assets, future transactions, foreign borrowings, and investments in foreign companies denominated in Botswana Pula. The Group has not used forward exchange contracts to manage the risk relating to financial assets, future transactions or foreign borrowings. Fluctuations in financial assets, future transactions or foreign borrowings are recognised directly in profit or loss. During 2007 and 2008 the Group purchased South African Rand from time to time to match known future South African Rand transactions relating to the development and construction of the Mowana Mine. As a result of the Group's main assets and subsidiaries being held in Botswana and having a functional currency different than the presentation currency, the Group's balance sheet can be affected significantly by movements in the Pound Sterling to the Botswana Pula. During 2007, 2008 and 2009 the Group did not hedge its exposure of foreign investments held in foreign currencies. There is no significant impact on profit or loss from foreign currency movements associated with these Botswana subsidiary assets and liabilities as the effective portion of foreign currency gains or losses arising are recorded through the translation reserve.
Commodity price risk Commodity price risk is the risk that the Group's future earnings will be adversely impacted by changes in the market prices of commodities. The Group is exposed to commodity price risk as its future revenues will be derived based on a contract with a physical off-take partner at prices that will be determined by reference to market prices of copper at the delivery date. From time to time the Group may manage its exposure to commodity price risk by entering into put contracts or metal forward sales contracts with the goal of preserving its future revenue streams. (b) Credit risk The Group is exposed to credit risk on its cash and cash equivalents and other receivables which also represent the maximum exposure to credit risk The Group only deposits surplus cash with well- established financial institutions of high quality credit standing. (c) Liquidity Risk As at 31 December, 2009 the Company had GBP 1.1 million in cash and cash equivalents, GBP 1.16 million in other receivables and prepayments and GBP 24.3 million due to ZCI. Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and the availability of committed credit facilities. The Group manages liquidity risk by monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities. Fair value of financial instruments The fair value of the Group's and the Company's financial instruments reflect the carrying amounts shown in the balance sheet. 17. Subsequent Events On 31 January 2010 the Company and ZCI completed the refinancing of the US$32.4 million bridge loan facilities that ZCI provided to the Company in May 2009 with the Facility (See Note 10 - Due to ZCI). The Facility places African Copper's borrowings from ZCI on a more permanent footing and comprises a convertible Tranche A of US$8,379,100 with a coupon of 12 per cent. per annum and Tranche B that is not convertible of US$22,750,000 with a coupon of 14 per cent. per annum. -30- FOR FURTHER INFORMATION PLEASE CONTACT: African Copper Brad Kipp Chief Financial Officer (416) 847 4866 bradk@africancopper.com OR Canaccord Adams (Nomad and Broker) Andrew Chubb / Tarica Mpinga 020 7050 6500 OR Tavistock Communications Simon Hudson / Nick Peters 020 7920 3150 npeters@cityinsights.co.uk -0- FOR FURTHER INFORMATION PLEASE CONTACT:
African Copper PLC
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