Annual Report 2011 Mwana_AR11_Fr_3Aug.indd a Mwana_AR11_Fr_3Aug.indd a 2011/08/03 4:45 PM 2011/08/03 4:45 PM Mwana Africa PLC (Mwana) is a pan-African, multi-commodity resources company, with operations and exploration prospects covering gold, diamonds, nickel and other base metals in Zimbabwe, the Democratic Republic of the Congo (DRC) and South Africa. Contents Chairman’s letter Chief executive’s review Review of operations and exploration Financial review Overview of social and environmental responsibility Board of directors Directors’ report 2 4 6 14 18 20 22 Directors’ remuneration report 25 Statement of directors’ responsibilities 30 Statement of corporate governance 31 Independent auditor’s report to the members of Mwana Africa PLC Annual fi nancial statements Corporate information 32 34 76 Mwana_AR11_Fr_3Aug.indd b Mwana_AR11_Fr_3Aug.indd b 2011/08/03 4:45 PM 2011/08/03 4:45 PM Financial highlights (cid:129) Group revenues up £8.5 million to £27.3 million (2010: £18.8 million), of which Freda Rebecca contributed £23.4 million (2010: £6.0 million) (cid:129) Reduced loss for the group of £7.2 million (2010: £14.4 million loss) (cid:129) Reduced loss attributable to Mwana Africa shareholders of £2.1 million (2010: £14.5 million loss) (cid:129) Impairment reversal of £11.7 million at Freda Rebecca due to the successful restart and production ramp up (cid:129) Exploration spend: £7.7 million (2010: £4.0 million) (cid:129) Share placement of 46.4 million shares in October 2010 raised approximately £4.8 million net of expenses (cid:129) Drawdown of US$4 million by Freda Rebecca under its IDC facility in February 2011 Operational highlights (cid:129) Freda Rebecca production: 27,240oz of gold in the year to March 2011 (2010: 8,550oz – six months production) (cid:129) Increased gold resource at Zani-Kodo announced in July 2010: the Indicated Mineral Resource increased to 256koz and the Inferred Mineral Resource increased to 998koz, based on a cut-off grade of 1.0g/t gold (cid:129) Detailed plans for the resumption of operations at the Bindura Nickel Corporation (“BNC”) Trojan mine: Completion of SRK independent Competent Person’s Report reviewing these plans BNC off-take agreement with Glencore International for the purchase of the concentrate produced by Trojan Highlights after the reporting period (cid:129) Increased gold resources at Freda Rebecca announced in April 2011: the Indicated Mineral Resource increased to 1.67Moz and Inferred Mineral Resource increased to 0.64Moz, based on a cut-off grade of 1.5g/t gold £9.27 million gross fund raising completed in June 2011 Mwana_AR11_Fr_3Aug.indd 1 Mwana_AR11_Fr_3Aug.indd 1 2011/08/03 4:45 PM 2011/08/03 4:45 PM Chairman’s letter Dear shareholder Looking back on the past year, it has been one of contrast. We have seen notable success in the continued ramp up of the Freda Rebecca Mine in Zimbabwe which is now a signifi cant producer of gold and a valuable contributor to cash fl ow, while uncertainty over the outcome of indigenisation proposals by the Government of Zimbabwe have made it challenging to secure the necessary fi nance for the restart of Bindura. Metal prices remain strong, with gold in particular continuing to respond positively to quantitative easing in many of the world’s major economies, while the China and India growth story continues to confi rm the commodity super cycle. increase In April we announced a 60% in the gold resource at Freda Rebecca. The indicated resource of 1.7Moz demonstrates that the mine has a mine life of at least twenty years even at increased production rates. In addition to our on-going drive to increase production and lower costs, the life of mine expansion adds to Freda Rebecca’s strong potential for the future. Another notable success at Freda Rebecca has been the securing of debt fi nance for the project. In February we announced the drawdown of US$4 million of the loan facility provided by the IDC (Industrial Development Corporation of South Africa). This was a ground breaking transaction, being one of the very fi rst loans by an external lender into Zimbabwe for many years and I would like to express my gratitude to the IDC for their continued support. We believe that Freda Rebecca is a success at all levels and demonstrates Mwana’s ability to fi nance and restart operations in Zimbabwe. We will now apply that experience to the restart of operations at Bindura. Bindura remains on care and maintenance pending the raising of restart fi nance. The core operational team at the site has been kept in place and the assets have been well maintained. Securing fi nancing for Bindura remains a challenge in the current political climate and with uncertainty prevailing over the Zimbabwe government’s indigenisation proposals. Nevertheless we are progressing negotiations for loan fi nance and for the restructuring of creditor and workforce liabilities which I believe will put us in a better position to restart operations. indicated and In the DRC we have made signifi cant progress at our Zani-Kodo gold project in Ituri, where we have identifi ed a JORC compliant, inferred resource of 1.25Moz combined, and hope to announce a further increase in resources shortly. While pursuing our strategy of attracting joint venture partners such as the agreement we have in place with Anglo American on the North West Block, the exploration programme has been successful in identifying new drill targets for copper and zinc at SEMHKAT. With the ongoing cost of care and maintenance at BNC and our commitment to grow our gold resource at Zani-Kodo and base metal exploration in Katanga, it was considered prudent to raise £4.8 million net in October 2010. In March 2011 we embarked on a fund raising to enable the restart of the Trojan Mine. Our presentation to a wide group of international investors was 2 Mwana_AR11_Fr_3Aug.indd 2 Mwana_AR11_Fr_3Aug.indd 2 2011/08/03 4:45 PM 2011/08/03 4:45 PM well received and it became clear that more than suffi cient demand would be achieved to meet our target. Within a few days of the proposed closing the Zimbabwean government issued regulations on indigenisation which resulted in investors withdrawing their support for the fundraising. It is a sobering thought that as a result of this event we were unable to restart Bindura’s Trojan Mine, with the resultant ongoing uncertainties for our 2,170 employees, their dependants and of course our shareholders. As a result, in June 2011 we raised £8.8 million to ensure the company is properly funded through 2011/12. Further initiatives are now under consideration to facilitate the restart. We are disappointed by the performance of the share price at a time of strong cash fl ow performance from the Freda Rebecca Mine. As previously mentioned, we believe this stems from the current uncertainties in Zimbabwe. We have complete confi dence that these diffi culties can and will be resolved. I would like to take this opportunity to thank our management, operational and exploration teams for their heroic contribution and express our gratitude to our shareholders for their ongoing support and confi dence in the company. Oliver Baring Executive Chairman Mwana_AR11_Fr_3Aug.indd 3 Mwana_AR11_Fr_3Aug.indd 3 3 2011/08/03 4:45 PM 2011/08/03 4:45 PM Chief executive’s review Over the last twelve months, we have continued to focus on increasing cash fl ow from our producing assets whilst further develop- ing our exciting exploration projects. The year has not been without its challenges, but with production growing at Freda Rebecca, strong drilling results from Zani-Kodo and a strengthened balance sheet, we have built a solid basis for our next phase of growth. The ramp up in production continued successfully at the Freda Rebecca Mine, in parallel with a 60% increase in indicated gold resources, signifi cantly extending the expected life of the mine. Phase I of the restart was successfully completed, with the annualised production rate of 30,000oz reached by February 2011. Since then, the mine reached an annualised run rate of 35,000oz in May and is showing strong progress towards its 50,000oz per annum Phase II production target. Freda Rebecca produced a total of 27,240oz of gold during the period, contributing £14.4 million to group profi ts and generating £3.8 million of cash infl ows. We are confi dent that Freda Rebecca will continue to be a strong contributor to our cash fl ow, as we continue the successful ramp up towards the Phase II production target in parallel with increasing the effi ciency of our production process and reducing our cash costs; this involves the refurbishment of the second parallel mill and the expansion of the rock moving fl eet. As reported in June, this mill has been successfully commissioned and has contributed as planned to the Phase II tonnage ramp up at Freda Rebecca. The mine is now handling ore at the rate of 2,350t per day up from 1,800t per day, with a targeted Phase II throughput of 2,700t per day, which we expect to reach in September. The nature of the ore body at Freda Rebecca is such that mine economics benefi t hugely from increased mined volumes and our aim now is to expand production which will not only increase ounces produced but also lower cash operating costs per ounce. Further limited exploration drilling is being carried out within the mining permit with the aim of expanding the resource inventory of near-surface material. We believe that there is considerable potential to add near-surface resources which could be blended in to the ore processing stream to increase production and lower costs. We have detailed plans in place for the restart of operations at BNC. We have also refurbished substantial parts of the mine and processing equipment at Trojan in preparation for the restart. The restart plans involve the production of 7,000t per annum of nickel in concentrate annually and we have agreed off-take terms with Glencore International to purchase all of this output. The technical and economic viability of the project has been verifi ed by SRK Consulting in a Competent Person’s Report. Negotiations to secure fi nancing for the restart are on-going, together with a restructuring designed to streamline creditor and workforce liability at the asset. Whilst this task has been made diffi cult by uncertainties in the Zimbabwe mining industry regarding government indigenisation legislation, we remain committed to securing the restart of this unique asset in the Southern African region. Meanwhile, our care and maintenance programme and continuing refurbishment of the mine and equipment are maintaining the integrity of the operations and will ensure a quick and effi cient restart process. Whilst there remain a number of challenges for Zimbabwe, not least of which are the concerns regarding indigenisation of foreign companies which continues to constrain inward investment fl ows, there are a number of positives in the Zimbabwe economy which are often overlooked. Annual infl ation continues its downward trend, falling to 2.7% in March 2011, compared with the hyper infl ationary years in the not too distant past, these low infl ation fi gures have brought with them 4 Mwana_AR11_Fr_3Aug.indd 4 Mwana_AR11_Fr_3Aug.indd 4 2011/08/03 4:45 PM 2011/08/03 4:45 PM In addition to providing the best value for our shareholders, our commitment also remains with the communities in which we operate. Education and employee and community health programmes are a priority at our assets, and our positive impact on the local economy has included infrastructure support and procurement expenditure sourced from local suppliers. During the diffi cult care and maintenance period at BNC, we have continued to provide accommodation, water, electricity and primary health care for BNC employees. I would like to extend my thanks to our shareholders, management and operational teams, employees and all those who have supported us over the last year and are continuing to do so as we grow into the next stage of our development. Kalaa Mpinga Chief Executive Offi cer the stability required for businesses to operate normally. The agricultural sector is poised to grow by 19.3% in 2011 compared to 33.9% in 2010 and 14.9% in 2009. Buoyed by favourable international prices and a stable operating environment, production of most minerals in Zimbabwe has continued to show an upward trend; gold, for example, is expected to increase from a total of 9t produced in 2010 to a forecasted 12.5t in the agricultural and mining sectors not only create employment, but also generate substantial foreign currency infl ows into Zimbabwe as well as tax revenues for the country. in 2011. These performances The strong potential of our exploration assets was confi rmed by successful drilling campaigns at both the Zani-Kodo gold project and the SEMHKAT base metals concessions in the DRC. JORC compliant Indicated and Inferred Resources at Zani-Kodo have reached a total of 1.25Moz, with the results of further drilling expected to be known shortly. With a further 7,000 metres of the Zani-Kodo trend yet to be tested, we continue to believe in the tremendous potential of this asset for Mwana. Exploration is also continuing at the SEMHKAT concession, focussing on the development of a resource at Kibolwe through diamond drilling and geochemical surveys. With an intensive exploration programme planned for the months to come, we hope to be able to update the market on this in due course. Mwana fi nishes the fi nancial year with a signifi cantly strengthened balance sheet. The proceeds of our successful share placements in October 2010 and June 2011, £4.8 million and £8.8 million respectively have been allocated to our exploration, expansion, and care and maintenance programmes. Our plans at Freda Rebecca were further supported by the drawdown of a US$4 million loan facility from the Industrial Development Corporation of South Africa. The fi nancing, the fi rst of its kind in Zimbabwe, confi rms both the quality of our assets and our ability to fi nance their development in Zimbabwe and beyond. Mwana_AR11_Fr_3Aug.indd 5 Mwana_AR11_Fr_3Aug.indd 5 5 2011/08/03 4:45 PM 2011/08/03 4:45 PM Review of operations and exploration Africa 2 1 3 1. Zimbabwe Commodities: Base metals and gold Operations: Bindura Nickel Corporation’s Trojan and Shangani mines, and Freda Rebecca Project: Hunters Road Exploration prospects: Maligreen mine and Makaha deposit 2. DRC Commodities: Base metals, gold and diamonds Exploration programmes: Katanga, Maniamuna, Zani-Kodo and 20% stake in MIBA 3. South Africa Commodity: Diamonds Operation: Klipspringer mine Precious metals – operations Freda Rebecca gold mine – Zimbabwe The Freda Rebecca gold mine, situated in the town of Bindura, was acquired by Mwana Africa in April 2005. Production resumed in October 2009 following an extended period of care and maintenance. Since the recommencement of production, tonnage mined, grade and recovery have made steady progress. Ramp-up to the Phase I production target rate of 2,500oz per month (30,000oz per annum equivalent) has been successfully achieved with an average monthly production of over 2,500oz for the 10-month period to March 2011. A steady increase in mined tonnage from underground Freda Rebecca produced 27,240oz of gold in the year to March 2011, the fi rst full fi nancial year of production since the restart. operations has been recorded. This is attributable to improved loader availability and the deployment of an increased number 6 Mwana_AR11_Fr_3Aug.indd 6 Mwana_AR11_Fr_3Aug.indd 6 2011/08/03 4:45 PM 2011/08/03 4:45 PM of trucking units following the award of a load and haul contract as part of the ramp-up strategy. from the Industrial Development Corporation of South Africa. The drawdown of the remaining US$6 million remains subject Operational effectiveness as measured by equipment availability, running hours and tonnes per hour have demonstrated that the milling circuit is well established and capable of handling the required volume throughputs. As a result of implementing the planned maintenance programme, which involved signifi cant upgrade work on the processing plant, plant availability has improved and has been sustained ahead of targets. Plant recovery has improved progressively since operations resumed, with an average recovery rate of 84% being achieved in the quarter ended March 2011. With effect from the 11th of January, Freda Rebecca joined the “uninterrupted power supply” tariff with the Zimbabwe Electricity Supply Authority. Since that date, the site has benefi tted from full power with no incidents of load shedding or power disturbance being recorded. In June 2011, Mwana announced the completion of the Phase II refurbishment programme and the commencement of commissioning of the second mill at Freda Rebecca. The Phase II programme comprised the overhaul and refurbishment of the second milling circuit and its associated Carbon-In- Pulp/Carbon-In Leach sections. Following completion of the commissioning of the second mill, Freda Rebecca is well positioned to expand its processing capability and reach the targeted Phase II annualised gold production rate of 50,000oz per annum. In February 2011, following fulfi lment of the required conditions, including the provision by the Export Credit Insurance Corporation of South Africa (“ECIC”) of political risk insurance for the facility, Freda Rebecca drew down the fi rst US$4 million tranche of a US$10 million project fi nance facility to the fulfi lment of further conditions precedent. In April 2011, the company announced increased mineral resources at Freda Rebecca. Based on a cut-off grade of 1.5g/t gold, the Indicated Mineral Resource increased from just over 1Moz to 1.67Moz of gold whilst the Inferred Mineral Resource, as similarly defi ned, is now 0.64Moz. The updated mineral resource was independently verifi ed by SRK Consulting (UK) Limited, and, is expected to form the basis of an extended mine life. Freda Rebecca production results for the periods to March 2010 and March 2011 Tonnes mined – underground Tonnes mined – low grade surface dump Tonnes processed Feed grade Plant recovery Gold produced 2011 2010 (6 months) 410,653 95,668 139,608 137,569 539,864 205,194 2.34 76.9 1.76 74.2 27,240 8,550 t t t g/t % oz Freda Rebecca mine – Resources at a 1.5g/t cut-off Classifi cation Tonnes Grade Gold Indicated Inferred (‘000t) Au (g/t) (‘000oz) 21,043 8,746 2.48 2.28 1,675 640 The effective date for the Freda Rebecca resource estimate is September 2010 Mwana_AR11_Fr_3Aug.indd 7 Mwana_AR11_Fr_3Aug.indd 7 7 2011/08/03 4:45 PM 2011/08/03 4:45 PM Review of operations and exploration cont. Precious metals – exploration Zani-Kodo – Democratic Republic of Congo Mwana has a joint venture with the state-owned Offi ce des Mines d’Or de Kilomoto (OKIMO) for gold exploration in the Ituri district of the DRC. The joint venture, in which OKIMO has a 20% free carried interest, covers gold mining rights over 1,605 square kilometres in Orientale Province, containing a series of highly prospective greenstone belts of Kibalian age which are considered to have the potential to host world-class gold deposits. Zani-Kodo is situated between the Kibali (formerly Moto Mines) Project (Randgold/AngloGold Ashanti J.V.) and the Mongbwalu Project (AngloGold Ashanti). Diamond drilling during the year was focused on the Badolite target area which is situated 1.5km to the south of the Kodo deposit. A total of 50 holes for 10,027 metres were drilled during the reporting period. The southerly continuation of the Zani- Kodo mineralised trend, which is marked by the sheared contact between footwall metasandstones and hangingwall Banded Iron Formations, was interpreted to pass through the area based on aeromagnetic data and fi eld mapping. The area is largely covered by talus deposits which explains the lack of artisanal activity. Drilling successfully intersected the targeted contact and continuous mineralisation was identifi ed over a strike length of 600m. A high grade shoot with intersections of up to 28m @ 3.0g/t was identifi ed. The ore zone remains completely open at depth. The table alongside shows intersections exceeding 1.0g/t In July 2010, an increased JORC-compliant resource at at Le Badolite released to date. To date a total of 2,000m of the Zani-Kodo trend has been shown to contain continuous mineralisation. A further 7,000m remains to be tested, along with a number of targets in the hangingwall of the structure. Zani-Kodo was announced. Based on a cut-off grade of 1.0g/t gold, the Indicated Mineral Resource increased to 256koz of gold while the Inferred Mineral Resource, as similarly defi ned, is now 998koz. Zani-Kodo – Resources at a 0.5g/t cut-off Tonnes Grade Gold Classification (‘000t) Au (g/t) (‘000oz) Indicated Inferred 2,489 8,623 3.20 3.60 256 998 The effective date for the Zani-Kodo resource estimate is July 2010 Zani-Kodo – Resources at a 1.0g/t cut-off Tonnes Grade Gold Classification (‘000t) Au (g/t) (‘000oz) Indicated Inferred 2,480 8,578 3.21 3.62 256 998 The effective date for the Zani-Kodo resource estimate is July 2010 8 Mwana_AR11_Fr_3Aug.indd 8 Mwana_AR11_Fr_3Aug.indd 8 2011/08/03 4:45 PM 2011/08/03 4:45 PM Le Badolite intersections exceeding 1.0g/t released to date Hole BDLDD001 BDLDD004 BDLDD006 BDLDD010 BDLDD011 BDLDD007 BDLDD012 BDLDD013 BDLDD009 BDLDD008 BDLDD016 BDLDD017 BDLDD021 BDLDD024 BDLDD025 BDLDD026 BDLDD014 BDLDD018 BDLDD027 BDLDD033 BDLDD032 BDLDD040 BDLDD039 BDLDD020 BDLDD022 BDLDD023 BDLDD031 From (m) To (m) Width (m) Grade Au (g/t) 23 75 54 112 125 151.8 165 92 82 151 57.8 150 102 166 187 45 56 74 46 27 48 182 202.8 251 299 333 393.4 345.2 108 229.5 272 261.6 32 90 82 118 128 154.4 167 111 85.2 161.2 60 154 103 172 189 48 62 79 50 29 49 200.2 213 270 307 340.1 395.0 346.4 117.4 234 285 264 9 15 28 6 3 2.6 2 19 3.2 10.2 2.2 4 1 6 2 3 6 5 4 2 1 18.2 10.2 19 8 7.1 1.6 1.2 9.4 4.5 13 2.4 2.15 1.52 3.00 3.69 4.27 1.80 1.55 2.39 1.26 2.11 1.15 2.30 1.02 1.10 1.78 2.14 3.43 3.55 3.88 1.13 1.64 2.38 2.95 2.60 3.33 2.81 2.96 1.87 1.39 2.22 1.82 1.62 Incl. 5m @ 2.13g/t Incl. 6m @ 4.24g/t and 10m @ 4.14g/t Incl. 3.7m @ 4.65g/t Mwana_AR11_Fr_3Aug.indd 9 Mwana_AR11_Fr_3Aug.indd 9 9 2011/08/03 4:45 PM 2011/08/03 4:45 PM Review of operations and exploration cont. Base metals – operations Bindura Nickel Corporation – Zimbabwe to produce concentrate containing 7,000 tonnes of nickel per year at steady state. BNC continues to seek fi nance to fund the restart of operations. Situated near the town of Bindura, 90 kilometres north-east of Harare, BNC is the only integrated nickel mine, smelter and refi nery operation in Africa. Historically, ore from the company’s Shangani and Trojan mines, with a combined hoisting capacity in excess of two million tonnes of ore per year, was concentrated and fed, along with concentrate from third parties, to BNC’s smelter and refi nery. BNC is listed on the Zimbabwe Stock Exchange. Mwana Africa acquired its 52.9% stake in the company in 2003. The mines, smelter and refi nery remained on care and maintenance during the year. The care and maintenance programme continues to preserve the integrity of the underground operations, surface concentrators and the smelter and refi nery complex. BNC has evaluated various scenarios for the resumption of operations. Given relatively limited availability of debt and equity fi nance for projects in Zimbabwe at this time, a decision was taken to try to restart BNC’s operations sequentially, beginning with the resumption of concentrate production from the Trojan mine and processing facility. BNC has developed detailed plans for the resumption of operations at Trojan, and SRK has completed an independent Competent Person’s Report reviewing these plans – the results of which were announced on 10 August 2010. SRK’s CPR states that; “SRK has reviewed the Business Plan for the restart of operations at Trojan and considers the plan to be both realistic and achievable”. BNC announced in February 2011 that it had signed an off-take agreement with Glencore International who will purchase all the concentrate produced by Trojan. After the restart, BNC expects In anticipation of the restart of operations management has carried out a programme of works aimed at overhauling key components of engineering and operational infrastructure. These works, funded from the BNC balance sheet, included overhaul of the main pumping arrangements and ventilation fans and a replacement programme of shaft guides. On surface the waste handling system has been re-engineered together with a major overhaul of the surface secondary and tertiary crushers. Preparatory work for the restart of operations has included the commencement of limited underground development (approximately 850m of development has been completed) allowing the commissioning of underground load haul dumpers, rigs and associated mining and engineering services together with shaft systems. Ore and waste hoisted to surface has allowed the successful hot commissioning of the surface waste conveyors and ore crushing facilities. The objective of the programme has been to de-risk the planned restart programme in anticipation of project funding. The management team at BNC has been retained during care and maintenance and have been re-mobilised and actively engaged in the pre-start programme. In anticipation of the phased restart, plans are underway to restructure the operations so as to reduce cost structures and ensure maximum productivity and profi tability going forward. The restart is dependent on obtaining funding which most likely will have to be sourced from foreign investors and/or the international debt markets. Obtaining restart funding will likely be dependent on BNC restructuring and improving its current creditor and workforce structure and resolving issues around the Indigenisation and Empowerment Act. 10 Mwana_AR11_Fr_3Aug.indd 10 Mwana_AR11_Fr_3Aug.indd 10 2011/08/03 4:45 PM 2011/08/03 4:45 PM BNC – Resources at March 2011 Tonnes (‘000t) Grade (%) Nickel (t) Measured Trojan Shangani Hunters Road Total Indicated Trojan Shangani Hunters Road Total Inferred Trojan Shangani Hunters Road Total 1,710 1,840 – 3,550 710 480 36,437 37,627 1,110 9,710 – 10,820 1.36 0.58 – 0.96 1.38 0.59 0.55 0.57 1.13 0.56 – 0.62 23,250 10,750 – 34,000 9,810 2,840 200,404 213,054 12,540 54,280 – 66,820 The effective date for the Trojan resource estimate is March 2010, and for the Shangani resource estimate it is August 2008. The effective date for the Hunters Road resource estimate is May 2006. The JORC-compliant resource of 36,437kt is found in the West Ore body of Hunters Road and includes 2,377kt of resource which forms part of a 30m cap of oxide ore mineralisation. In addition, in 1993, an Anglo American MinRED estimate showed 11,000kt grading 0.43% Ni approximately 600m east of the West Ore body of Hunters Road which is excluded from the resource shown above. Base metals – exploration SEMHKAT (Societe d’exploration Miniere du Haut Katanga) Exploration during the year focused on developing the resource at Kibolwe through a diamond drilling programme on the east, south and west of Kibolwe. Soil geochemical surveys were also conducted at Kibolwe, Mukema West and Lunsano target areas. Mwana has outlined a 10,000-metre drilling programme for 2011/12. Mwana is also conducting exploration under a joint venture agreement with Ambase Exploration Africa over 476 square kilometres in the North West part of the concession. During the course of the year a total of 2,355 samples were collected on regional reconnaissance lines and several new soil geochemical anomalies were identifi ed. Soil geochemical anomalies reach a maximum of 530ppm copper. A regional 20,000m RAB drilling programme is scheduled for 2011 to follow up the soil anomalies. Mwana holds an 85% interest in further exploration rights over 6,395 square kilometres of prospective ground in the western Katanga and eastern Kasai Oriental provinces of the DRC (Maniamuna). Kibolwe Project The Kibolwe prospect is a stratiform copper oxide deposit consisting of mainly malachite mineralisation. Reverse circulation and core drilling programmes carried out from 2004 to 2010 have outlined a near-surface, fl at-lying mineralised zone up to 40 metres thick extending over a strike of 1.88 kilometres. During 2010 a core drilling programme of Mwana holds a 100% interest in SEMHKAT which has 5,686m was completed with a view to extending the known exploration concessions covering 4,845 square kilometres in mineralised zone to both the east and the west. the south-east of the DRC. Exploration is focusing on sediment- hosted stratiform copper-cobalt, iron oxide-copper-gold (IOCG) The table over the page details all intersections exceeding 0.5% occurrences as well as on showings of lead and zinc. at Kibolwe extensions as at March 2011. Mwana_AR11_Fr_3Aug.indd 11 Mwana_AR11_Fr_3Aug.indd 11 11 2011/08/03 4:45 PM 2011/08/03 4:45 PM Review of operations and exploration cont. Kibolwe intersections exceeding 0.5% as at 31 March 2011 From (m) 22 51.2 55.7 71.2 54 73 36 76.2 123.8 12 52 12 88.9 62.28 97 74 0 38.1 6.12 50.31 18.0 110 133.0 215.0 40.9 20.9 66.5 98.2 117.0 134.7 170.6 141.85 208 18 102 67 26 107 To (m) 26.8 61.6 61.25 99 94 91 80 111.3 128.25 31.5 59 49.9 105.9 73.8 101 145.6 116.4 101 11 78 42.5 130.0 154.0 223.0 84.4 35.9 70.5 107.9 131.6 142.05 181.1 147 227 70 116 75.92 31 112 Width (m) Grade Cu (%) 4.8 10.4 5.55 27.8 40 18 44 35.1 4.45 19.5 7 37.9 17 11.52 4 71.6 116.4 62.9 4.88 27.69 24.5 20 21.0 8.0 38.5 15.0 4.0 9.7 13.6 7.35 10.5 5.15 19 52 14 8.92 5 5 1.28 0.64 1.38 0.54 1.17 2.05 1.12 0.59 1.9 0.5 0.6 0.62 0.51 0.5 0.91 1 1.3 2.16 1 1 1.12 0.88 0.8 0.62 0.86 0.65 1.3 0.57 0.92 0.62 0.53 1.18 0.69 0.62 0.75 0.71 0.59 0.63 Hole KIBWDD12B KIBWDD15B KIBWDD19B KIBWDD19 KIBWDD21D KIBEDD001 KIBEDD002 KIBEDD003 KIBWDD21B KIBWDD13 KIBWDD14 KIBWDD15 KIBWDD16 KIBWDD14B KIBWDD09 KIBWDD10 KIBWDD11 KIBWDD08 KIBWDD12 KIBWDD16C KIBWDD17B KIBWDD18B KIBEDD05 12 Mwana_AR11_Fr_3Aug.indd 12 Mwana_AR11_Fr_3Aug.indd 12 2011/08/03 4:45 PM 2011/08/03 4:45 PM To the west at Kibolwe the mineralisation splits into two zones representing the limbs of an antiformal structure. The main Kibolwe area is situated in the crestal area of the fold, with mineralisation deepening to the east. The 2010 drilling has added signifi cant strike length to the already defi ned deposit. Klipspringer production results for the periods to March 2010 and March 2011 Tonnes mined Tonnes treated 2011* 48,946 48,946 t t Mwana is developing new drill targets at Mukema, Lunsano and Kitemena-Kitugulu-Kamungoti. Carats recovered* carats 22,700 Grade cpht 46.00 2010 46,497 46,786 24,642 52.67 * Effectively represents 9 months production due to the weather incidents in December/January Diamonds – other interests Mwana Africa has minority stakes in a number of other diamond projects including a 20% interest in Société Miniére de Bakwanga (MIBA) in the DRC, an 18% interest in the Camafuca project in Angola and 12.5%† interest in the BK16 project in Botswana. † Mwana currently holds 55% of BK16 and has entered into an agreement with Firestone Diamonds whereby Firestone can earn up to 87.5% of BK16 for fi nancing and carrying out all work up to the completion of a bankable feasibility study Diamonds – operations Klipspringer – South Africa The Klipspringer diamond mine is situated approximately 250 kilometres north of Johannesburg. Mwana acquired its stake of approximately 62% through the purchase of SouthernEra in 2007. The company’s stake has increased to 66.7% following dilution of the joint venture partner due to non-investment by the partner in the working capital requirements of Klipspringer. A total of 24,780 carats were sold during the year. The average diamond price for the year was US$125 per carat. Although the diamond price improved by almost 15% during the year, this was offset in part by the continuing strength of the South African rand against the United States dollar. In September 2010 a 31.25 carat stone was recovered from the mine. The diamond was sold for US$8,200 per carat and to date this is the largest diamond recovered from the Klipspringer mining operation in just over 10 years. Following a number of severe weather incidents in December 2010 and January 2011, which fl ooded the shaft bottom and lower (7) level, a decision to stop production and development at Klipspringer for reasons of health and safety was taken. Operations have ceased and the mine is currently in a recovery phase aimed at re-instating infrastructure that was damaged as a result of the fl ooding. Management are reviewing restart scenarios and timing. Mwana_AR11_Fr_3Aug.indd 13 Mwana_AR11_Fr_3Aug.indd 13 13 2011/08/03 4:45 PM 2011/08/03 4:45 PM Financial review Income statement Pro-forma income and expense £ million Revenue Cost of sales Gross profit/(loss) Other income Selling and distribution expenses Care and maintenance expenses Administrative expenses Corporate costs Impairment reversal Profit/(loss) from operating activities Finance income Finance costs Profit/(loss) before income tax Income tax expense Non-controlling interest Net profit/(loss) attributable to owners of the parent Freda Rebecca 23.4 (16.3) 7.1 0.1 (1.1) – (3.0) – 11.7 14.8 – (0.4) 14.4 (3.3) – 11.1 BNC 2.6 – 2.6 1.2 – (11.1) (2.8) – – (10.1) – (0.6) (10.7) (0.1) 5.0 (5.8) Other Mwana Africa group 1.3 (2.1) (0.8) 0.7 – – (1.6) (4.9) – (6.6) 0.1 (0.9) (7.4) – – (7.4) Total 27.3 (18.4) 8.9 2.0 (1.1) (11.1) (7.4) (4.9) 11.7 (1.9) 0.1 (1.9) (3.7) (3.4) 5.0 (2.1) The group reported turnover for the period of £27.3 million Bindura Nickel Corporation (2010: £18.8 million) and a net loss before income tax for the year of £3.7 million (2010: £14.4 million). Freda Rebecca During the year, Freda Rebecca sold 27,240oz of Gold (2010: 8,550oz) at an average price of US$1,325 per ounce (2010: US$1,116 per ounce) as well as by-products, generating revenue of £23.4 million (2010: £6.0 million). Operating costs during the period increased in line with the Revenue of £2.6 million (2010: £11.8 million) was generated through the sale of in-process inventories. Operating costs of £15.1 million (2010: £16.6 million before impairment) were reduced from the previous year as the mine was on care and maintenance for the entire year. BNC reported a net loss before income tax of £10.7 million (2010: £4.8 million). Other Mwana Africa group ramp up of operations, and totalled £20.4 million (2010: Other revenue of £1.3 million (2010: £1.0 million) was generated £9.7 million) for the year. An operating profi t of £3.1 million by the group, principally the Klipspringer diamond mine. The together with a reversal of impairment on property, plant and company, excluding BNC and Freda Rebecca, incurred operating equipment of £11.7 million resulted in a net profi t before costs of £8.6 million (2010: £8.6 million). income tax of £14.4 million. 14 Mwana_AR11_Fr_3Aug.indd 14 Mwana_AR11_Fr_3Aug.indd 14 2011/08/03 4:45 PM 2011/08/03 4:45 PM Cash fl ow statement Pro-forma cash reconciliation £ million Opening cash at 1 April 2010 Cash fi nancing Equity issues Loan fi nance Sale of equity investments Operations Operating cash fl ow Change in working capital Capital expenditure Capitalised exploration Closing cash at 31 March 2011 Freda Rebecca 0.7 2.4 – 2.4 – (1.8) 3.8 (3.0) (2.6) – 1.3 Other Mwana Africa group 9.8 4.8 4.8 – – (12.8) (7.3) 2.2 – (7.7) 1.8 BNC 4.7 1.8 – – 1.8 (5.0) (7.3) 3.7 (1.4) – 1.5 Total 15.2 9.0 4.8 2.4 1.8 (19.6) (10.8) 2.9 (4.0) (7.7) 4.6 Freda Rebecca Positive cash fl ow of £3.8 million was generated by operations during the year. £3.0 million was invested in additional working capital of which £2.2 million was used to increase inventory to more adequate levels. Further capital expenditure of £2.6 million (2010: £2.2 million) comprises £1.0 million to maintain operations and £1.6 million to expand operations through the Phase II project. Funding was made available by the drawdown of £2.4 million (US$4 million) from a loan facility provided by the Industrial Development Corporation of South Africa and positive operating cash fl ow. Bindura Nickel Corporation Net working capital movements resulted in the release of £5.5 million (2010: £2.8 million) including the sale of listed equities held by BNC. BNC’s net cash position decreased from an opening balance of £4.7 million to £1.5 million at the year end. Other Mwana Africa group Mwana Africa (excluding BNC and Freda) saw an operating cash outfl ow of £7.3 million (2010: £7.2 million). During the year, Mwana Africa invested £7.7 million (2010: £4.0 million) in its portfolio of exploration prospects, £2.8 million in SEMHKAT (2010: £1.9 million) and £4.9 million in Zani (2010: £2.1 million). Sales of inventory and intermediate material and investments and receipt of cash from debtors, was offset by partial repayments to creditors and the costs of the care and maintenance programme. During the period, the company issued 46.4 million shares (2010: 88.3 million), raising £4.8 million net of costs (2010: £8.4 million). Mwana_AR11_Fr_3Aug.indd 15 Mwana_AR11_Fr_3Aug.indd 15 15 2011/08/03 4:45 PM 2011/08/03 4:45 PM Financial review cont. Balance sheet £ million Non-current assets Current assets (excl. cash) Cash Non-current liabilities Current liabilities Total equity Minority interests Equity attributable to owners of the parent Freda Rebecca BNC Other Mwana Africa group 2011 26.4 6.6 1.3 (7.8) (4.6) 21.9 – 2010 13.2 2.7 0.7 (2.0) (3.8) 10.8 – 2011 21.8 6.2 1.5 (7.9) 2010 21.9 11.7 4.7 (9.4) (20.3) (15.6) 1.3 (1.5) 13.3 (7.3) 2011 24.0 1.3 1.8 (2.8) (3.5) 20.8 – 2010 17.1 3.8 9.8 (3.3) (2.7) 24.7 – Total 2011 2010 72.2 14.1 4.6 (18.5) (28.4) 44.0 (1.5) 52.2 18.2 15.2 (14.7) (22.1) 48.8 (7.3) 21.9 10.8 (0.2) 6.0 20.8 24.7 42.5 41.5 At 31 March 2011, the group had cash balances of £4.6 million (2010: £15.2 million), comprising £1.5 million (2010: £4.7 million) held by BNC and £3.1 million (2010: £10.5 million) held by other Mwana Africa group entities. The book value of shareholders’ equity at the year end was £42.5 million (2010: £41.5 million). Freda Rebecca A combination of continued investment in assets, the ramp up to Phase II and the impairment reversal of £11.7 million has resulted in an increase in non-current assets to £26.4 million (2010: £13.2 million). Current assets increased by £3.9 million to £6.6 million (2010: £2.7 million). This amount includes an increase in trade debtors of £1.2 million, an increase in spares and inventory of £2.0 million and other debtors of £0.7 million. Bindura Nickel Corporation The value of current assets reduced by £5.5 million to £6.2 million (2010: £11.7 million) owing to conclusion of sales of various in-process inventories, certain non-critical stocks and spares, sale of the remaining portion of the equity portfolio, and receipts from an outstanding debtor. Raising additional provisions have resulted in an increase in current liabilities to £20.3million (2010: £15.6 million). Other Mwana Africa group The value of non-current assets increased to £24.0 million (2010: £17.1 million) as a result of additional exploration expenditure which was capitalised during the year in accordance with the group’s policy. 16 Mwana_AR11_Fr_3Aug.indd 16 Mwana_AR11_Fr_3Aug.indd 16 2011/08/03 4:45 PM 2011/08/03 4:45 PM Group liquidity Going concern The directors, after making enquiries and considering the uncertainties described further in note 2: Basis of preparation to the fi nancial statements ‘going concern’, have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the Annual Report and fi nancial statements and these fi nancial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate. At 31 March 2011, the group, excluding BNC, held cash of £3.1 million (2010: £10.5 million). As at 30 June 2011, the group, excluding BNC, held cash of £8.8 million following funds raised of £8.8 million in June 2011 and positive operational cash fl ows from Freda Rebecca. IDC facility As announced in February 2011, following the fulfi lment of required conditions, including the provision by the Export Credit Insurance Corporation of South Africa (“ECIC”) of political risk insurance for the facility, Freda Rebecca drew down the fi rst US$4 million tranche of the Industrial Development Corporation of South Africa Ltd (“IDC”) US$10 million project fi nance facility. The facility is repayable in 10 equal instalments over a fi ve-year period and attracts an interest rate of US$LIBOR plus 5%. Drawdown of the second tranche of the facility, totalling US$6 million, is subject to independent verifi cation of JORC/ SAMREC-compliant measured gold resources, suffi cient to support a 10-year mine life. Adequate Inferred and Indicated Resources to support this mine life were defi ned in the resource update at Freda Rebecca announced in April 2011 and discussions are ongoing with the IDC to confi rm whether this is suffi cient to meet the drawdown condition. Mwana_AR11_Fr_3Aug.indd 17 Mwana_AR11_Fr_3Aug.indd 17 17 2011/08/03 4:45 PM 2011/08/03 4:45 PM Overview of social and environmental responsibility Mwana Africa’s reputation for responsible development has been established by ensuring a safe working environment for its staff, by delivering benefi ts to the communities in which it operates, and by minimising the environmental impact of its activities. The company’s primary contribution to the remote areas in which it operates is the stimulation of economic activity through the creation of jobs, devel- opment and support of local businesses, the use of local contractors, and the purchase of goods and services from nearby suppliers. The focus of Mwana Africa’s social initiatives continues to be in education, health, and support of small and medium enterprises (SMEs). The Mwana group policies for Business Principles, Occupational Heath and Safety, Environment, and Corporate Social Responsibility (CSR) were all updated and revised during this reporting period. All Exploration Standards of Practice were similarly reviewed and re-issued. Stakeholder engagement is actively pursued through a variety of formal and informal meetings, briefi ngs, surveys, and feedback sessions on issues raised. Given the importance of CSR, Mwana was very proud that Freda Rebecca received an award for the best CSR programme in 2010 in the Mashonoland Central region by the Zimbabwe Chamber of Commerce. As per the South African Department of Mineral Resources requirements, for the calendar year to 31 December 2010, the Klipspringer diamond mine was 62% compliant with the South African 2002 Mining Charter targets for black economic empowerment (BEE), employment equity (EE) and localisation of recruitment and procurement, skills training, and environmental practices. Employment At the year end, Mwana Africa employed 2,991 people, of which 276 are in management and administrative positions. Preference during recruitment is given to the local community, especially for unskilled and semi-skilled positions. With the exception of senior expatriate management, all staff in our exploration operations are drawn from the immediate communities. At Freda Rebecca Mine in Zimbabwe 94% of the workforce is from the local town of Bindura. 90% of BNC’s staff are from the local communities of Bindura and Shangani. Between 90% and 100% of our workforce are represented by unions, which contribute to positive labour relations and collaboration with management through joint forums on issues such as wages, conditions of employment, Occupational Health and Safety, and serious diseases such as HIV/AIDS. No employee days were lost to industrial action. At the Klipspringer diamond mine in South Africa, 52% of the workforce was recruited from the immediate community and a further 41% from within the province. Workplace health and safety Local economic impact Mwana Africa recognises that exploration and mining have an inherent level of risk, and is pleased to report that no fatalities occurred this year at any of its operations. Proactive safety management programmes instituted at our active mines resulted in reductions in the lost time injury frequency rate (LTIFR) at the Klipspringer diamond mine from 14.78 to 1.06, and from 5.61 to 0.53 at the Freda Rebecca Mine. Both mines and all our exploration operations routinely achieved months in which no lost time injuries were reported. Freda Rebecca Mine began the initial systems and documentation compilation for certifi cation to the OHSAS 18001: 1999 standard for occupational health and safety. At the Klipspringer and the Freda Rebecca Mines, 31% and 23% respectively of total procurement expenditure was sourced from local/provincial suppliers. Several small business enterprises have been established or assisted by Freda Rebecca to provide services to the mine and the mine villages, and to encourage entrepreneurial ventures. The mines and exploration projects assist with infrastructure support such as the refurbishment of schools, upgrade of roads, and the construction of small bridges. Where operations interact with artisanal gold miners, the company has undertaken studies to better understand the issues of and challenges faced by these populations. This is as a prelude to formulating a strategy to manage future interactions 18 Mwana_AR11_Fr_3Aug.indd 18 Mwana_AR11_Fr_3Aug.indd 18 2011/08/03 4:45 PM 2011/08/03 4:45 PM with the aim to improve these miners working conditions. At Zani, PACT, an American NGO, is assisting Mwana with this process. Education Freda Rebecca Mine has developed a partnership with the Italian NGO Terre des Hommes to improve the educational facilities at the local village’s crèche. This NGO aims to uplift vulnerable children through the full provision of school fees for a child’s educational career. It is hoped that this partnership can be extended to the local primary schools in the Bindura area. Both BNC and Freda Rebecca Mine assist local scholars to complete their tertiary education by providing them with six-month vocational placements. The Freda Rebecca Mine is also sponsoring four students through their degrees at the School of Mines. BNC provides on-site primary school education, funds secondary schooling and grants a number of scholarships to higher education institutions for employees’ children. Employee and community health The principal health issues faced in the regions where Mwana Africa operates are malaria and HIV/AIDS. The company provides medicines, education and training for the prevention and treatment of both diseases, as well as associated infections such as tuberculosis. BNC and Freda Rebecca Mine also staff and fund the occupational health as well as primary health care clinics for employees and their families. Freda Rebecca recently began offering an Employee Assistance Programme to its employees and dependents, which focused on counselling for work and lifestyle problems. Mwana’s mine operations have all implemented community-wide HIV/AIDS management strategies linked to the concept of overall Wellness. This includes awareness and education campaigns, voluntary counselling and testing (VCT), and health care training. UNICEF donates primary health care drugs to Freda Rebecca, which passes on the unused portions to the local provincial hospital. Both Freda Rebecca and BNC have been accepted into the HIV/AIDS assistance programme co-ordinated by the Swedish Workplace HIV & AIDS Programme (SWHAP). This was possible through the relationship with a Swedish company, one of Mwana’s major equipment suppliers. Assistance from this organisation will improve the implementation of Mwana’s Zimbabwean HIV/AIDS and Wellness practices, and assist with specialized studies such as zero-prevalence surveys, Knowledge, Attitude and Practice (KAP) questionnaires, and statistical risk assessments. Both organisations also receive assistance from the Zimbabwean Business Council on Aids (ZBCA). Freda Rebecca, through a company supported medical aid, provides anti- retroviral (ARVs) medication to affected employees and their dependents. BNC has initiated the process of providing this aid through the same medical aid organisation. Environmental impact Mwana Africa limits the impact of its operations on the environment through responsible waste disposal and prevention of pollution, and optimising the use of resources such as water, fuel and electricity. Proactive measures are taken to conserve local biodiversity, and to re-establish habitats disrupted by vehicle movement, waste rock dumps and tailings dams. In all but one of our operations, internal and external environmental audits were completed. No signifi cant non- compliances were found, and Freda Rebecca received a complimentary report from the Zimbabwean Chamber of Mines for overhauled environmental management systems. Monitoring of water discharged by pumping after the fl ooding incidents at Klipspringer diamond mine showed no contamination of the groundwater. Geohydrological studies at Freda Rebecca Mine established that the groundwater has not been contaminated with acid mine drainage (AMD) or industrial pollution or effl uent. Proactive water quality practices have suffi ciently improved on Freda Rebecca Mine to reduce its discharge permits from red to blue. Freda Rebecca has successfully implemented an Environmental Management Programme, prepared in accordance with the Equator Principles and the performance standards of the IFC/ World Bank/World Health Organisation Guidelines. This mine has begun the process of obtaining ISO14001 certifi cation for environmental practices. Mwana Africa recognises its obligation to rehabilitate the sites where it has operated. Financial provisions are in place for costs associated with the closure of the company’s operations in Zimbabwe and South Africa, as prescribed by local laws. Mwana_AR11_Fr_3Aug.indd 19 Mwana_AR11_Fr_3Aug.indd 19 19 2011/08/03 4:45 PM 2011/08/03 4:45 PM Board of directors Oliver Baring (66) Kalaa Mpinga (50) Donald McAlister (52) Executive Chairman Chief Executive Offi cer Finance Director Oliver Baring is a former Managing Director of UBS in the Corporate Finance Division, where he was responsible for the Africa and Mining sectors. Before the merger with SG Warburg, he was a Partner of Rowe & Pitman, having spent fi ve years with the Anglo American/ De Beers group in the United States, the United Kingdom and South Africa. Mr Baring is currently a Non-executive Chairman of First Africa Holdings Limited, a Non-executive Director of BlackRock World Mining Trust plc and Ferrexpo plc, and an adviser to the Sentient Resources Fund. Kalaa Mpinga, who is a citizen of the DRC, has held a number of senior positions in different locations around the world. His career has included working for Bechtel Corporation in San Francisco and Anglo American Corporation of South Africa from 1991. In 1995 he joined the New Mining Division, the division responsible for exploration and the acquisition of resources in Africa. He was appointed a Director of Anglo American Corporation in 1997. Mr Mpinga left the group in December 2001 to pursue business opportunities founding Mwana Africa Holdings (Pty) Limited, the forerunner of Mwana Africa, in 2003. He is also a Non-executive Director of Group Five Limited, a South African construction company. in mining, Donald McAlister has signifi cant breadth of experience in the mining sector, including 19 years of experience as a Finance Director for African mining joining Mwana companies. Prior to Africa he was Finance Director of Ridge Mining PLC from 1999 until its acquisition by Aquarius Platinum in July 2009. At Ridge Mining he helped manage the acquisition, fi nancing and development, through to production of the Blue Ridge platinum mine. Prior to Ridge Mining, Mr McAlister was Finance Director at Reunion Mining PLC where his experience included the fi nancing of gold and base metal mines in Zimbabwe, Zambia and Namibia. Before that he worked in fi nance roles at Centurion Mining PLC, Enterprise Oil PLC and Cluff Oil PLC. He is currently a Non- executive Director of AIM listed mining company Tertiary Minerals plc where he is Chairman of the Audit Committee. 20 Mwana_AR11_Fr_3Aug.indd 20 Mwana_AR11_Fr_3Aug.indd 20 2011/08/03 4:45 PM 2011/08/03 4:45 PM Stuart Morris (65) John Anderson (70) Etienne Denis (68) Non-executive Director Non-executive Director Non-executive Director the South African Stuart Morris was appointed to the Board in December 2005. He became a Partner of KPMG South Africa in 1976, later becoming Senior Partner and a member of the KPMG International executive and board. He was Chairman of Institute of Chartered Accountants’ Ethics Committee; President of the Johannesburg Chamber of Commerce and Industry; a Public Investment Commissioner; and a Council member of the Witwatersrand. From 1999 until 2004, when he retired, Mr Morris was Group Financial Director of Nedbank Group Limited. He is currently an independent Non-executive Chairman or Director, including Chairman of the audit & risk and remuneration committees, of several other listed and unlisted entities. the University of for what John Anderson was appointed to the Board in February 2007. He is Executive Chairman of J O Hambro Investment Management Limited where he manages is investment portfolios predominantly an international client base. Prior to joining the company in 1988, he was a Director of J Henry Schroder Wagg, and was instrumental in establishing and managing Schroder Securities Limited. Previously he was both Finance and International Partner at the London stockbrokers, Panmure Gordon & Co. Mr Anderson has been involved in natural resources and emerging markets than 40 years, is a graduate of the University of Edinburgh and qualifi ed as a Scottish Chartered Accountant in 1966. for more Etienne Denis was appointed to the Board in February 2007. He holds a PhD in Science from the University of Louvain (UCL). After working at the university and with Gécamines in the DRC, he joined Umicore (formerly known as Union Minière) in 1974 where he held a number of management positions, including those of Managing Director of Union Zinc, Umicore Engineering and Sibeka until 2003. When he retired, Mr Denis became a board member of Umicore until mid-2005 when he moved to the board of Cumerio. He was a Director of Adastra Minerals Inc. until 2006, when it was purchased by First Quantum Minerals. Mwana_AR11_Fr_3Aug.indd 21 Mwana_AR11_Fr_3Aug.indd 21 21 2011/08/03 4:45 PM 2011/08/03 4:45 PM Directors’ report The directors present their report and fi nancial statements for the year ended 31 March 2011. Principal activities The group’s main activities are exploration, development and production of gold, nickel, copper and diamonds. Further information concerning the activities of the group and its future prospects are contained in the Chairman’s letter on pages 2 and 3 and the Review of operations and exploration on pages 6 to 13. Business review The loss for the year attributable to shareholders of the parent company was £2.1 million (2010: £14.5 million). The directors do not recommend the payment of a dividend on ordinary shares. As required by the Companies Act 2006, the company must provide a fair review of the development and performance of the group during the year ended 31 March 2011, its fi nancial position at the end of the year and likely future developments in the group’s business. The information which satisfi es these requirements is to be found in the Chairman’s letter on pages 2 and 3, the Chief executive’s review on pages 4 and 5, the Review of operations and exploration on pages 6 to 13, and the Financial review on pages 14 to 17. Principal risks and uncertainties The operating entities are also exposed to changes in the market prices of gold, nickel and diamonds. The group does not hedge against sales prices of commodities or exchange rates. Cash balances are held in the British pound, the United States dollar and the South African rand. The group is signifi cantly exposed to the risks inherent to all exploration activities. Management limits the group’s exposure to this risk by closely monitoring the results of all exploration activities and by evaluating the feasibility of exploration prospects against changes in the relevant markets on an ongoing basis. Zimbabwean indigenisation In 2007, the Zimbabwean government published the Indigenisation and Economic Empowerment Act which made provision for the indigenisation of up to 51% of all foreign-owned businesses operating in Zimbabwe. Regulations in support of the Indigenisation Act were published in February 2010 in preparation for the implementation of the Act. On 25 March 2011 the Minister of Youth Development, Indigenisation and Empowerment published a notice in the government gazette promulgating the Indigenisation and Economic Empowerment (General) Regulations in statutory instrument 21 of 2010. The document sets out the requirements for the implementation of the Indigenisation Act and its supporting regulations as they pertain to the mining sector. These regulations include the requirement to transfer a minimum of 51% or a controlling interest to indigenous Zimbabweans. They also state that the valuation of the shares would be calculated taking into account the State’s sovereign ownership of the minerals exploited. The company has submitted representations relating to the indigenisation regulations to the Zimbabwe government and discussions are ongoing to determine the impact, if any, on Mwana’s shareholding in its Zimbabwean assets. 52.9% of BNC is owned by Mwana with Zimbabwean shareholders owning the remaining 47.1%, which includes the government who own approximately 22% through government controlled entities. The directors of Mwana consider that through the local ownership and the participation by BNC in local community initiatives, BNC substantially complies with Zimbabwean indigenisation regulations existing and proposed. BNC has submitted its Indigenisation Plan and is in discussion with government concerning the restructuring of BNC’s creditors. Freda Rebecca Gold Mine which is currently 100% owned, submitted its Indigenisation Plan in 2010 and is in discussion with government concerning these proposals. The Board of Mwana anticipates that these discussions will result in an ownership structure that will benefi t all stakeholders and will not reduce Mwana’s ability to control the cash fl ows of Freda Rebecca although there may be a reduction in its economic interest. Mwana has already committed to sell a 15% interest in Freda Rebecca Gold Mine to a local Zimbabwean investor as detailed in note 31 to the accounts. 22 Mwana AR11_Fin_4Aug.indd 22 Mwana AR11_Fin_4Aug.indd 22 2011/08/04 11:17 AM 2011/08/04 11:17 AM Key performance indicators The key performance indicators are presented in the Review of operations and exploration and in the Financial review. Changes in share capital Details of changes in the share capital during the year are set out in note 26 to the fi nancial statements. Creditor payment policy Each operating company in the group is responsible for agreeing the terms of transactions, including payment terms, with suppliers and, provided that suppliers perform in accordance with the agreed terms, it is the group’s policy that payment is made accordingly. Trade creditors of the group at 31 March 2011 represented 90 days (2010: 154 days) of annual purchases, including capital expenditure and 57 days (2010: 93 days) for the group excluding BNC. As reported in the Financial review on pages 14 to 17, BNC has remained on care and maintenance, pending fi nancing for the planned restart of the Trojan mine. As such, BNC’s liquidity has consequently been severely restricted, slowing payments to its creditors. Subsequent events The post balance sheet events are described in note 33 to the fi nancial statements. Directors The current directors of the company are as follows: Executive directors OAG Baring KK Mpinga DAR McAlister Executive Chairman Chief Executive Offi cer Finance Director Non-executive directors SG Morris JA Anderson E Denis The directors retiring by rotation are Mr SG Morris and Mr E Denis who, being eligible, offer themselves for re-election. The interests of the directors and their remuneration are described in the Directors’ remuneration report which is on pages 25 to 29. Major shareholdings The share register records that the following shareholders held 3% or more of the issued share capital of the company at 22 July 2011: Shareholder Vidacos Nominees Limited State Street Nominees LimitedChase Nominees Limited Chase Nominees Limited TD Waterhouse Nominees (Europe) Limited Number of shares 86,955,389 60,049,630 31,844,713 26,290,350 25,780,068 % interest 12.1 8.3 4.4 3.7 3.6 Mwana AR11_Fin_4Aug.indd 23 Mwana AR11_Fin_4Aug.indd 23 23 2011/08/04 11:17 AM 2011/08/04 11:17 AM Directors’ report cont. International fi nancial reporting standards The group has prepared its consolidated accounts for the year ended 31 March 2011 in accordance with International Financial Reporting Standards as endorsed by the European Union (EU-endorsed IFRSs). Political contributions and charitable donations The group made no political contributions during the year. Charitable donations amounted to £9,732 (2010: £2,138). Disclosure of information to auditors The directors who held offi ce at the date of approval of this directors’ report confi rm that, so far as they are each aware, there is no relevant audit information of which the company’s auditors are unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. Auditors In accordance with Section 418 of the Companies Act 2006, a resolution for the re-appointment of KPMG Audit Plc as auditors of the company is to be proposed at the forthcoming annual general meeting. By order of the Board: B Tuck Company Secretary 25 July 2011 24 Mwana AR11_Fin_4Aug.indd 24 Mwana AR11_Fin_4Aug.indd 24 2011/08/04 11:17 AM 2011/08/04 11:17 AM Directors’ remuneration report Remuneration Committee The Remuneration Committee, comprising non-executive directors SG Morris and E Denis, and chaired by non-executive director JA Anderson, reviews the performance of the executive directors and sets and reviews the scale, structure and basis of their remuneration and the terms of their service agreements, paying due regard to the interests of shareholders as a whole and the performance of the company. In determining the remuneration of executive directors, the Remuneration Committee seeks to enable the company to attract and retain executives of the highest calibre. The Remuneration Committee also makes recommendations to the Board concerning the allocation of share options to employees. No director is permitted to participate in discussions or decisions concerning his own remuneration. Remuneration policy The policy on directors’ remuneration is that the overall remuneration package should be suffi ciently competitive to attract and retain individuals of a quality capable of achieving the group’s objectives. The remuneration policy is designed such that individuals are remunerated on a basis that is appropriate to their position, experience and value to the company. The Remuneration Committee determines the contract terms, basic salary and other remuneration for each of the executive directors, including performance related share options, bonuses, pension rights and any compensation payments. Executive remuneration package The details of individual components of the remuneration package and service and employment contracts are discussed below. Basic salary and benefi ts The policy is to review salary and benefi ts annually against competitive market data and analysis, and adjust accordingly. Bonus scheme There is no formal bonus scheme in place and no bonus awards were paid in respect of the year ended 31 March 2011. Share options The company has outstanding options under an unapproved Share Option Scheme adopted in 1997, which expired in September 2007 (1997 Scheme) and a new scheme which was approved by shareholders at the company’s annual general meeting on 31 July 2007 (2007 Scheme). 1997 Scheme Under the 1997 Scheme unapproved share options were granted to directors and employees by the Remuneration Committee. The company’s policy on the granting of share options is to make such awards that are necessary to recruit and retain executives. Details of option awards made under this scheme and the previous option arrangements are detailed in note 31. The company has operated this scheme since 1997 where options were granted to any employee, offi cer or director of the company or any subsidiary of the company. The limit for options granted under this scheme was not to exceed 15% of the number of issued ordinary shares from time to time. The Board granted options at its discretion. The subscription price was fi xed by the Board at the price per share on the dealing day preceding the date of grant. These options vest immediately and may be exercised at any time within a seven-year period from the date of the grant, unless the Board determines otherwise. The options lapse if not exercised by the seventh anniversary of the grant. It was the Board’s policy to spread the vesting period for options granted to employees over two to three years. Unless the Board agrees otherwise, the right to exercise an option terminates on the holder ceasing to be a participant, subject to certain exceptions, which broadly apply in the event of death of the option holder or where the option holder ceases to be a participant due to retirement, ill health, accident or redundancy. In such a case, the option may be exercised within six months of such event provided such exercise will take place within seven years of the original date of grant. Mwana AR11_Fin_4Aug.indd 25 Mwana AR11_Fin_4Aug.indd 25 25 2011/08/04 11:17 AM 2011/08/04 11:17 AM Directors’ remuneration report cont. 2007 Scheme The 2007 Scheme allows for awards of both tax approved options (approved options) to be made to employees resident in the United Kingdom and unapproved options (unapproved options), to be made to both resident and non-resident employees. The company’s policy on the granting of share options is to make such awards that are necessary to recruit and retain executives. Details of option awards made under this scheme are detailed in note 31. The company has operated this scheme since December 2007 where options may be granted to full-time employees and directors of the company or any subsidiary of the company. The overall limit for options granted under this scheme and any other employees’ share scheme adopted by the company is, in any rolling 10-year period, 10% of the issued ordinary share capital (including treasury shares) of the company for the time being plus 8,100,000 ordinary shares. There is an individual limit of a maximum of ordinary shares to the value of £30,000 in respect of approved options. Options may be granted when the Remuneration Committee determines, within 42 days of the announcement by the company of its full or interim results. Options may be granted outside the 42-day period if the Remuneration Committee considers there to be exceptional circumstances. Options must be granted subject to performance conditions being satisfi ed. The performance conditions must be objective and, save where the Remuneration Committee determines there to be exceptional circumstances, the performance conditions must relate to the overall fi nancial performance of the company or the market value of ordinary shares over a period of at least three years. The performance conditions can be waived or amended by the Remuneration Committee if it determines that a change of circumstances means that the performance conditions cannot reasonably be met. No consideration is payable on the grant of an option and no option may be granted after 31 July 2017. The Remuneration Committee determines the exercise price before the options are granted which cannot be less than the market value of the shares on the date of grant. The options can be exercised only on or after the third anniversary of the date of grant provided the performance conditions have been satisfi ed or waived by the Remuneration Committee. The options lapse if not exercised by the 10th anniversary of the grant. These options lapse when the option holder ceases to be an eligible employee. In the case of death, a participant’s personal representatives may exercise his/her options within 12 months after the date of death. Where an option holder ceases to be an employee by reason of injury, disability, redundancy, the company that employs the option holder ceasing to be a subsidiary of the company, retirement, pregnancy or in any other circumstances determined by the Remuneration Committee, the options may be exercised within six months of the termination of employment or such longer period as may be determined by the Remuneration Committee. Share incentives The Share Incentive Scheme was approved by shareholders at the company’s annual general meeting on 31 July 2007. The Share Incentive Scheme is designed to complement the Share Option Scheme to facilitate awards to selected executives and managers. The Share Incentive Scheme permits the award of any one or a combination of the following incentives: • the sale of ordinary shares on deferred payment terms; • share awards as part of a bonus scheme by way of nil cost options in consideration of cash bonuses forgone on terms that would be determined by the Remuneration Committee of the company; and • the issue of share appreciation rights either by the company or EBT (as defi ned below). The company has also adopted an Employees’ Benefi t Trust (EBT) which will operate in conjunction with the Share Option Scheme and Share Incentive Scheme. The EBT has not yet been utilised for this purpose and there have been no awards under the Share Incentive Scheme since it was approved by shareholders. Pensions The company does not operate a pension scheme for executive directors but does, according to the director’s preference, contribute to the personal pension plan of each executive director, or pays cash in lieu of such contributions up to a specifi ed maximum of 12.5% of salary. No pension contributions are made in respect of non-executive directors. 26 Mwana AR11_Fin_4Aug.indd 26 Mwana AR11_Fin_4Aug.indd 26 2011/08/04 11:17 AM 2011/08/04 11:17 AM Fees The fees for non-executive directors are determined by the Board, having taken independent expert advice on appropriate levels, and are reviewed on an annual basis. Service contracts The service and employment contracts of the executive directors are not of a fi xed duration and therefore have no unexpired terms, but continuation in offi ce as a director is subject to re-election by shareholders as required under the company’s Articles of Association. The company’s policy is for executive directors to have service and employment contracts with provision for termination of no longer than 12 months’ notice. The non-executive directors do not have service contracts. Letters of appointment provide for termination of the appointment with three months’ notice by either party. Details of the current directors’ contracts or appointment dates are as follows: Executive directors Employer KK Mpinga DAR McAlister OAG Baring Non-executive directors SG Morris JA Anderson E Denis Mwana Africa Holdings Limited Mwana Africa PLC Mwana Africa PLC Employer Mwana Africa PLC Mwana Africa PLC Mwana Africa PLC Directors’ remuneration The remuneration of the directors who held offi ce during the year is as follows: Date of contract 16 December 2009 27 October 2009 18 June 2007 Date of appointment 6 December 2005 27 February 2007 27 February 2007 Director KK Mpinga OAG Baring DAR McAlister PE Sydney-Smith(4) KC Owen(5) SG Morris JA Anderson E Denis(6) Total Basic salary/fee(1) Annual bonus(2) Benefits in kind(3) Share-based payments 310,000 220,000 240,000 – – 40,000 32,500 20,000 862,500 – – – – – – – – – 57,126 75,725 33,552 – – – – – 166,403 29,758 19,343 22,319 – – – – – 71,420 2011 Total 396,884 315,068 295,871 – – 40,000 32,500 20,000 1,100,323 2010 Total 579,037 440,303 201,126 40,918 135,258 40,000 20,000 20,000 1,394,806 (1) Salaries for Mr Mpinga and Mr Baring were increased with effect from 1 April 2010 having not been adjusted since 1 January 2008. The fee payable to Mr Anderson was increased with effect from 1 April 2010 in recognition of his additional responsibilities as Chairman of the Remuneration Committee. (2) No bonuses were awarded in respect of the year ended 31 March 2011. (3) Benefi ts in kind relate to life, medical insurance and pension contributions for Mr OAG Baring and Mr DAR McAlister, and pension contributions and security services for Mr KK Mpinga. (4) Resigned as a director on 9 September 2009. (5) Resigned as a director on 3 September 2009. (6) The fee is paid to Sapiensa Sprl, a company in which Mr Denis has an interest. Mwana AR11_Fin_4Aug.indd 27 Mwana AR11_Fin_4Aug.indd 27 27 2011/08/04 11:17 AM 2011/08/04 11:17 AM Directors’ remuneration report cont. Contributions in lieu of directors’ pensions were as follows: Director KK Mpinga OAG Baring DAR McAlister PE Sydney-Smith KC Owen SG Morris JA Anderson E Denis Total 2011 £’000 2010 £’000 34 26 29 – – – – – 89 34 24 14 – 13 – – – 85 All contributions were either made to personal pension schemes of directors or accrued for future payment to personal pension schemes. Directors and directors’ share interests The directors during the year and their benefi cial interests at the year-end were as follows: Ordinary shares of 10p each at 31 March 2011 Ordinary shares of 10p each at 31 March 2010 Number 16,227,260 19,981,415 2,000,000 2,052,976 500,000 – – 500,000 250,000 – % 3.03 3.73 0.37 0.38 0.09 – – 0.09 0.05 – Number 16,227,260 19,981,415 2,000,000 2,052,976 500,000 – – 400,000 250,000 – % 3.32 4.09 0.41 0.42 0.10 – – 0.08 0.05 – Palanka Trust(1) Kalaa Katema Mukubayi Trust(2) KK Mpinga OAG Baring(3) DAR McAlister PE Sydney-Smith KC Owen SG Morris JA Anderson E Denis (1) Mr KK Mpinga controls the voting rights in Palanka Trust. (2) Related to Mr KK Mpinga. (3) Held through Mr OAG Baring’s personal pension fund. 28 Mwana AR11_Fin_4Aug.indd 28 Mwana AR11_Fin_4Aug.indd 28 2011/08/04 11:17 AM 2011/08/04 11:17 AM Directors’ share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the company granted to or held by the directors. Details of directors’ interests in shares held under option are shown below: Options held at 31 March 2010 Options granted during the year Options lapsed during the year Options exercised during the year Options held at 31 March 2011 Exercise price(1) Latest expiry date Officer Unapproved Options – 1997 Scheme KK Mpinga OAG Baring DAR McAlister PE Sydney-Smith KC Owen SG Morris JA Anderson E Denis 3,000,000 2,750,000 – – 3,000,000 850,000 500,000 500,000 Unapproved Options – 2007 Scheme KK Mpinga OAG Baring DAR McAlister PE Sydney-Smith KC Owen SG Morris JA Anderson E Denis 4,000,000 3,300,000 1,285,715 – 1,500,000 – – – Approved Options – 2007 Scheme KK Mpinga OAG Baring DAR McAlister PE Sydney-Smith KC Owen SG Morris JA Anderson E Denis – 76,923 214,285 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (70,000) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 3,000,000 2,680,000 – – 3,000,000 850,000 500,000 500,000 4,000,000 3,300,000 1,285,715 – 1,500,000 – – – – 76,923 214,285 – – – – – 60p 61p – – 55p 44p 48.75p 48.75p 27p 29p 14p – 39p – – – – 39p 14p – – – – – 12/07/2014 12/07/2014 – – 03/09/2012 07/12/2013 17/04/2014 17/04/2014 10/12/2019 10/12/2019 10/12/2019 – 03/09/2012 – – – – 13/03/2018 10/12/2019 – – – – – (1) Exercise price is the weighted average of all share options held based on the price at the grant date. No share options were exercised during the current or prior year. The intrinsic values of all options which have vested during the year was £nil (2010: £nil) No options have been awarded to directors between the year-end and the signing of these accounts. The market price of the company’s shares on 31 March 2011 was 7.4 pence per ordinary share and the highest and lowest share prices during the year were 14.00 pence and 6.98 pence respectively. The agreements covering directors’ options are available for inspection at the company’s registered offi ce: Devon House, 12-15 Dartmouth Street, London, SW1H 9BL. The company’s register of directors’ interests (which is also open to inspection) contains full details of the directors’ shareholdings and options to subscribe. Signed on behalf of the Board by: OAG Baring Executive Chairman 25 July 2011 Mwana AR11_Fin_4Aug.indd 29 Mwana AR11_Fin_4Aug.indd 29 29 2011/08/04 11:17 AM 2011/08/04 11:17 AM Statement of directors’ responsibilities To the shareholders of Mwana Africa PLC The directors are responsible for preparing the Annual Report and the group and parent company fi nancial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company fi nancial statements for each fi nancial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the group fi nancial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company fi nancial statements on the same basis. Under company law the directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of affairs of the group and parent company and of their profi t or loss for that period. In preparing each of the group and parent company fi nancial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and • prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping adequate accounting records that are suffi cient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the fi nancial position of the parent company and enable them to ensure that its fi nancial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and fi nancial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions. On behalf of the Board: DAR McAlister Finance Director 25 July 2011 30 Mwana AR11_Fin_4Aug.indd 30 Mwana AR11_Fin_4Aug.indd 30 2011/08/04 11:17 AM 2011/08/04 11:17 AM Statement of corporate governance The directors support the principles of good corporate governance. While not mandatory for an AIM listed company, the directors have implemented, where practical for a company of its size and nature, certain provisions of the principles of good governance and code of best practices under the 2008 Combined Code. The disclosures presented herein are limited and are not intended to constitute a corporate governance statement as prescribed by the Disclosures and Transparency Rules or the Companies Act. The Board has also considered the guidance published by the Institute of Chartered Accountants in England and Wales concerning the internal control requirements of the Combined Code, in line with the Turnbull Report. The Board regularly reviews key business risks, via a number of properly constituted committees, in addition to the fi nancial risks facing the group in the operations of the business. The Board The Board meets at least quarterly throughout the year. The Board is responsible for formulating, reviewing and approving the group’s strategy, planning, budgets, major items of capital expenditure, acquisitions, risk, human resources and environmental management. Audit Committee The Audit Committee meets at least twice during the year and is responsible for ensuring that the fi nancial performance of the company is properly reported on and monitored, and for meeting the auditors and reviewing the auditors’ reports relating to the accounts. The committee also recommends the appointment of, and reviews the fees of, the external auditors. It meets once a year with the auditors without executive Board members present. The Audit Committee comprises at least three members, two of whom shall be non-executive. The current membership of the committee is Mr SG Morris (Chairman), Mr E Denis and Mr JA Anderson. Remuneration Committee A Remuneration Committee meets at least twice per year. It reviews the performance of the executive directors and sets and reviews the scale, structure and basis of their remuneration and the terms of their service agreements paying due regard to the interest of shareholders as a whole and the performance of the company. The Remuneration Committee comprises the non-executive directors, Mr JA Anderson (Chairman), Mr SG Morris and Mr E Denis. The Directors’ remuneration report appears on pages 25 to 29. Internal controls The directors have overall responsibility for the group’s internal control effectiveness in safeguarding the assets of the group. Internal control systems are designed to refl ect the particular type of business, operations and safety risks and to identify and manage risks, but not entirely all risks to which the business is exposed. As a result, internal controls can only provide a reasonable, but not absolute assurance against material misstatements or loss. The processes used by the Board to review the effectiveness of the internal controls are through the Audit Committee and the executive management reporting to the Board on a regular basis where business plans, budgets and authorisation limits for the approval of signifi cant expenditure, including investments are appraised and agreed. The Board also seeks to ensure that there is a proper organisational and management structure with clear responsibilities and accountability. It is the Board’s policy to ensure that the management structure and the quality and integrity of the personnel are compatible with the requirements of the group. Mwana AR11_Fin_4Aug.indd 31 Mwana AR11_Fin_4Aug.indd 31 31 2011/08/04 11:17 AM 2011/08/04 11:17 AM Independent auditor’s report to the members of Mwana Africa PLC We have audited the fi nancial statements of Mwana Africa PLC for the year ended 31 March 2011, set out on pages 34 to 74. The fi nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company fi nancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors‘ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Statement of directors’ responsibilities set out on page 30, the directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit the fi nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the fi nancial statements A description of the scope of an audit of fi nancial statements is provided on the APB’s web-site at www.frc.org.uk/apb/scope/private.cfm. Opinion on fi nancial statements In our opinion: • the fi nancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2011 and of the group’s loss for the year then ended; • the group fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the parent company fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and • the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006 and as regards the group fi nancial statements, Article 4 of the IAS Regulation. Emphasis of matter – going concern In determining the form of our opinion on the fi nancial statements, which is not modifi ed, we have considered the adequacy of the disclosures made in note 2 to the fi nancial statements concerning the group’s and the company’s ability to continue as a going concern. In particular, the group’s ability to continue as a going concern is dependent upon its ability to effect suitable fi nancial and other arrangements to restart operations at Bindura Nickel Corporation and to settle deferred creditors or to continue to maintain all of the BNC assets on care and maintenance. Furthermore, as disclosed in note 2, the group’s and the company’s fi nancial position is also subject to uncertainties linked to the reliance on creditor deferral, commodity market conditions and political and indigenisation risks in Zimbabwe. These conditions, along with other matters explained in note 2 to the fi nancial statements, indicate the existence of a material uncertainty which may cast signifi cant doubt on the group’s and the company’s ability to continue as a going concern. The fi nancial statements do not include the adjustments that would result if the group and company were unable to continue as a going concern. Emphasis of matter – carrying value of company investments In determining the form of our opinion, which is not modifi ed, we have considered the adequacy of disclosures made in note 18 to the fi nancial statements concerning the carrying value of investments held by the company in Mwana Africa Holdings (Pty) Ltd of £44,618,315 (2010: £8,673,428). As disclosed in note 18, there are uncertainties linked to the implementation of the Indigenisation Law in Zimbabwe. The possible impact of this law is uncertain and represents a material uncertainty which may cast signifi cant doubt over the carrying value of the investments held by the company. The fi nancial statements do not include the adjustments that would result from the value of the investments being lower than their carrying amount as a result of the implementation of the requirements of the Indigenisation Law. 32 Mwana AR11_Fin_4Aug.indd 32 Mwana AR11_Fin_4Aug.indd 32 2011/08/04 11:17 AM 2011/08/04 11:17 AM Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the fi nancial year for which the fi nancial statements are prepared is consistent with the fi nancial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company fi nancial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specifi ed by law are not made; or • we have not received all the information and explanations we require for our audit. J Lowes (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 15 Canada Square, Canary Wharf 25 July 2011 Mwana AR11_Fin_4Aug.indd 33 Mwana AR11_Fin_4Aug.indd 33 33 2011/08/04 11:17 AM 2011/08/04 11:17 AM Consolidated income statement for the year ended 31 March 2011 Revenue Cost of sales Gross profit Other income Selling and distribution expenses Care and maintenance expenses Administrative expenses Corporate expenses Other expenses Impairment loss Impairment reversal Loss from operating activities Investment income Dividends received Loss before finance charges and income tax Finance income Finance costs Loss before income tax Income tax expense Loss for the year Loss attributable to: Owners of the Parent Non-controlling interest Loss for the year Loss per share Basic loss per share (pence) Diluted loss per share (pence) Note 7 7 7 7 11 11 12 12 13 15 15 2011 £’000 27,267 (18,442) 8,825 1,988 (1,131) (11,054) (7,409) (4,916) (37) – 11,743 (1,991) – 16 2010 £’000 18,780 (9,861) 8,919 728 (2,316) (9,447) (5,240) (4,542) (4,250) (2,395) 4,073 (14,470) 368 20 (1,975) (14,082) 87 (1,913) (3,801) (3,360) (7,161) (2,148) (5,013) (7,161) (0.42) (0.42) 134 (428) (14,376) (67) (14,443) (14,520) 77 (14,443) (3.63) (3.63) The presentation of the operating expenses in the income statement has been changed for the year ended 31 March 2011. Refer to note 7. The notes on pages 43 to 74 are an integral part of these consolidated fi nancial statements. 34 Mwana AR11_Fin_4Aug.indd 34 Mwana AR11_Fin_4Aug.indd 34 2011/08/04 11:17 AM 2011/08/04 11:17 AM Consolidated statement of comprehensive income for the year ended 31 March 2011 Loss for the year Other comprehensive (loss)/profit Foreign currency translation differences Net change in fair value of available-for-sale fi nancial assets, net of tax Other comprehensive profit for the year, net of income tax Total comprehensive loss for the year Total comprehensive loss attributable to: Owners of the Parent Non-controlling interest Total comprehensive loss for the year 2011 £’000 2010 £’000 (7,161) (14,443) (1,219) (1,252) (2,471) (9,632) (3,862) (5,770) (9,632) (1,148) 1,252 104 (14,339) (14,492) 153 (14,339) Mwana AR11_Fin_4Aug.indd 35 Mwana AR11_Fin_4Aug.indd 35 35 2011/08/04 11:17 AM 2011/08/04 11:17 AM Consolidated balance sheet as at 31 March 2011 Assets Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax assets Non-current receivables Total non-current assets Current assets Cash and cash equivalents Inventories Trade and other receivables Available-for-sale fi nancial assets Assets held for sale Total current assets Total assets Equity Issued share capital Share premium Reserves Retained earnings Total equity attributable to equity holders of the parent Non-controlling interest Total equity Liabilities Non-current liabilities Loan payable Rehabilitation provisions Deferred tax liabilities Total non-current liabilities Current liabilities Trade payables Provisions and other payables Total current liabilities Total liabilities Total equity and liabilities Note 2011 £’000 2010 £’000 16 17 18 19 20 21 22 23 24 25 26 27 28 19 29 46,832 20,299 2,516 1,575 948 72,170 4,592 4,597 9,582 – – 18,771 90,941 53,514 19,615 62,541 35,451 13,659 2,076 – 1,005 52,191 15,156 3,674 12,197 2,250 108 33,385 85,576 48,877 19,406 64,291 (93,073) (91,100) 42,597 1,551 44,148 1,919 11,201 5,338 18,458 8,317 20,018 28,335 46,793 90,941 41,474 7,321 48,795 – 13,954 670 14,624 8,879 13,278 22,157 36,781 85,576 The notes on pages 43 to 74 are an integral part of these fi nancial statements. These fi nancial statements were approved by the Board of directors on 25 July 2011 and were signed on its behalf by: OAG Baring Executive Chairman 36 DAR McAlister Finance Director Mwana AR11_Fin_4Aug.indd 36 Mwana AR11_Fin_4Aug.indd 36 2011/08/04 11:17 AM 2011/08/04 11:17 AM Company balance sheet as at 31 March 2011 Assets Non-current assets Property, plant and equipment Investments Total non-current assets Current assets Cash and cash equivalents Trade and other receivables Total current assets Total assets Equity Issued share capital Share premium Reserves Retained earnings Total equity attributable to equity holders of the company Liabilities Current liabilities Provisions and other payables Total liabilities Total equity and liabilities Note 2011 £’000 2010 £’000 16 18 21 23 26 29 67 46,435 46,502 1,279 37,472 38,751 85,253 53,514 19,615 2,051 8,789 83,969 1,284 1,284 85,253 92 10,602 10,694 8,856 30,113 38,969 49,663 48,877 19,406 2,087 (21,760) 48,610 1,053 1,053 49,663 These fi nancial statements were approved by the Board of directors on 25 July 2011 and were signed on its behalf by: OAG Baring Executive Chairman DAR McAlister Finance Director Mwana AR11_Fin_4Aug.indd 37 Mwana AR11_Fin_4Aug.indd 37 37 2011/08/04 11:17 AM 2011/08/04 11:17 AM Consolidated statement of cash fl ows for the year ended 31 March 2011 Cash flows from operating activities Loss before income tax Adjustments for: Inventory write-off Foreign exchange movements Depreciation Fair value adjustments Charge in relation to share-based payments (Decrease)/increase in rehabilitation provisions Increase in other provisions Increase in environmental assets Impairment loss Impairment reversal Profi t on sale of non-current assets Profi t on sale of equity investments Loss on sale of assets held for sale Finance income Finance costs (Increase)/decrease in inventories Decrease/(increase) in trade and other receivables Increase in creditors Finance costs Income tax paid Net cash used in operating activities Cash flows from investing activities Additions to property, plant and equipment Investment in intangible exploration assets Acquisition of investments Proceeds from sale of property, plant and equipment Proceeds from sale of investments Proceeds from sale of available-for-sale fi nancial assets Finance income Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Share issue expenses Loans Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Note 2011 £’000 2010 £’000 (3,801) (14,376) 65 313 1,265 (294) 139 (1,169) 5,107 (48) – (11,743) (996) – – (87) 555 (10,694) (1,142) 1,905 2,555 (7,376) (523) (10) (7,909) (3,995) (7,652) (25) 51 – 1,815 87 (9,719) 5,100 (255) 2,440 7,285 (10,343) 15,156 (221) 4,592 – (280) 1,192 – 262 8,295 – (5,402) 2,395 (4,073) (551) (368) 1,036 (134) 428 (11,576) 4,113 (879) 743 (7,599) (428) (60) (8,087) (2,028) (4,047) – 439 1,200 233 134 (4,069) 8,834 (456) (102) 8,276 (3,880) 18,886 150 15,156 Exchange rate movement on cash and cash equivalents at beginning of year Cash and cash equivalents at end of the year 21 38 Mwana AR11_Fin_4Aug.indd 38 Mwana AR11_Fin_4Aug.indd 38 2011/08/04 11:17 AM 2011/08/04 11:17 AM Company statement of cash fl ows for the year ended 31 March 2011 Cash flows from operating activities Profi t/(loss) before income tax Adjustments for: Depreciation Foreign exchange movements Loss on sale of non-current assets Charge in relation to share-based payments Impairment loss Impairment reversal Finance income Decrease in inventories Increase in trade and other receivables Increase in trade and other payables Net cash used in operating activities Cash flows from investing activities Additions to property, plant and equipment Acquisition of investments Proceeds on sale of investment Finance income Net cash generated by/(used in) investing activities Cash flows from financing activities Proceeds from issue of share capital Share issue expenses Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Note 2011 £’000 2010 £’000 30,404 (2,487) 29 2,074 9 91 – (35,981) (25) (3,399) – (9,435) 232 19 – – 186 2,332 (4,331) (37) (4,318) 417 (9,771) 474 (12,602) (13,198) (3) (25) 183 25 180 5,100 (255) 4,845 (7,577) 8,856 1,279 (54) (1,000) – 37 (1,017) 8,834 (456) 8,378 (5,837) 14,693 8,856 21 Mwana AR11_Fin_4Aug.indd 39 Mwana AR11_Fin_4Aug.indd 39 39 2011/08/04 11:17 AM 2011/08/04 11:17 AM Consolidated statement of changes in equity for the year ended 31 March 2011 Balance as at 31 March 2009 Loss for the year Foreign currency translation differences Revaluation of available-for-sale fi nancial assets Deferred tax on available-for-sale fi nancial assets Total comprehensive loss for the year Contributions by and distributions to owners Issue of ordinary shares Share issue expenses Share-based payment transactions Share-based payment reversals Total contributions by and distributions to owners Balance as at 31 March 2010 Loss for the year Foreign currency translation differences Reversal of fair value adjustments on available-for-sale fi nancial assets Deferred tax on available-for-sale fi nancial assets Total comprehensive loss for the year Contributions by and distributions to owners Issue of ordinary shares Share issue expenses Share-based payment transactions Share-based payment reversals Total contributions by and distributions to owners Balance as at 31 March 2011 Share capital £’000 40,043 – – – – – 8,834 – – – 8,834 48,877 – – – – – 4,637 – – – 4,637 53,514 Share premium Translation reserve £’000 19,406 – – – – – – – – – – 19,406 – – – – – – 209 – – 209 19,615 £’000 62,176 – (634) – – (634) – – – – – 61,542 – (1,052) – – (1,052) – – – – – 60,490 40 Mwana AR11_Fin_4Aug.indd 40 Mwana AR11_Fin_4Aug.indd 40 2011/08/04 11:17 AM 2011/08/04 11:17 AM Investment revaluation reserve £’000 – – – 697 (35) 662 – – – – – 662 – – (697) 35 (662) – – – – – – Treasury stock Share-based payments £’000 (1,072) £’000 3,247 – – – – – – – – – – (1,072) – – – – – – – – – – – – – – – – – 262 (350) (88) 3,159 – – – – – – – 139 (175) (36) Total equity attributable to equity holders of the parent £’000 47,326 (14,520) (634) 697 (35) Retained earnings £’000 (76,474) (14,520) – – – (14,520) (14,492) – (456) – 350 (106) (91,100) (2,148) – – – (2,148) – – – 175 175 8,834 (456) 262 – 8,640 41,474 (2,148) (1,052) (697) 35 (3,862) 4,637 209 139 – 4,985 42,597 Non- controlling interest £’000 7,168 77 (514) 621 (31) 153 – – – – – 7,321 (5,013) (167) (621) 31 (5,770) – – – – – 1,551 Total equity £’000 54,494 (14,443) (1,148) 1,318 (66) (14,339) 8,834 (456) 262 – 8,640 48,795 (7,161) (1,219) (1,318) 66 (9,632) 4,637 209 139 – 4,985 44,148 (1,072) 3,123 (93,073) Mwana AR11_Fin_4Aug.indd 41 Mwana AR11_Fin_4Aug.indd 41 41 2011/08/04 11:17 AM 2011/08/04 11:17 AM Company statement of changes in equity for the year ended 31 March 2011 Balance as at 31 March 2009 Loss for the year Total comprehensive loss for the year Contributions by and distributions to owners Issue of ordinary shares Share issue expenses Share-based payment transactions Share-based payment reversals Total contributions by and distributions to owners Balance as at 31 March 2010 Profi t for the year Total comprehensive profit for the year Contributions by and distributions to owners Issue of ordinary shares Premium on share issue less expenses Share-based payment transactions Share-based payment reversals Total contributions by and distributions to owners Balance as at 31 March 2011 Share capital £’000 40,043 – – 8,834 – – – 8,834 48,877 – – 4,637 – – – 4,637 53,514 Share premium Treasury stock(1) Share- based payments(2) £’000 19,406 £’000 (1,072) £’000 3,247 – – – – – – – – – – – – – – – – – – 262 (350) – – – 209 – – 209 19,615 – – – – – – – (1,072) – – – – 139 (175) (36) 3,123 Retained earnings £’000 (19,066) (2,487) Total equity £’000 42,558 (2,487) (2,487) (2,487) – (456) – 249 30,404 8,834 (456) 262 (101) 8,539 48,610 30,404 30,404 30,404 – – – 145 4,637 209 139 (30) 145 8,789 4,955 83,969 19,406 (1,072) 3,159 (21,760) (88) (207) (1) The treasury stock reserve represents the market value of Mwana Africa PLC shares which were purchased, but not cancelled. Represented, is the value on the date of purchase. (2) The share-based payments reserve represents the accrued employee entitlements to share awards that have been charged to the income statement, as well as accrued group employee entitlements that have been debited to investments in subsidiaries. 42 Mwana AR11_Fin_4Aug.indd 42 Mwana AR11_Fin_4Aug.indd 42 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 1. Adoption of International Financial Reporting Standards as endorsed by the European Union The consolidated fi nancial statements of the parent company (the company) and its subsidiaries (together, the group) and the fi nancial statements of the company have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). 2. Accounting policies Basis of preparation With the exception of certain items noted below, which are carried at fair value, the fi nancial statements have been prepared under the historical cost convention. The company and consolidated fi nancial statements have been prepared in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the company fi nancial statements, as applied in accordance with the provisions of the Companies Act 2006. Under section 408 of the Companies Act 2006, the company has elected not to present its own income statement. Going concern The directors, having considered the group’s and the company’s current trading activities, funding position and projected funding requirements and the Zimbabwean environment for the period at least twelve months from the date of approval of these fi nancial statements consider it appropriate to adopt the going concern basis in preparing the fi nancial statements for the year ended 31 March 2011. The group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Review of operations and exploration on pages 6 to 13. The fi nancial position of the group, its cash fl ows and liquidity position are as set out in the Financial review on pages 14 to 17. The group is also facing additional uncertainty arising from the recently announced indigenisation law in Zimbabwe, further details of which are set out on page 22. The group reports a loss for the year ended 31 March 2011 of £7.2 million (2010: £14.4 million). As at 30 June 2011, the group held cash of £8.8 million, of which £0.7 million is held by BNC. During the year to 31 March 2011, operations at Freda Rebecca have continued to ramp up and the Phase I production rate of 30,000oz of gold per annum was achieved in March. Production averaged 2,949oz per month in the four months to June 2011, the month in which the second mill was commissioned. The second mill will enable production to be increased further. As such, Freda Rebecca is now well positioned to expand its processing capability and reach the targeted Phase II annualised gold production rate of 50,000oz per annum. The operating cash infl ows from Freda Rebecca represent a strengthening of the group’s cash generating ability. During the year there have been steps towards the planned restart of the Trojan mine at Bindura Nickel Corporation (“BNC”). SRK Consulting completed their Competent Person’s Report on the restart of operations at BNC. This study confi rmed the economic and technical viability of the planned restart of the Trojan mine and concentrator. During the year BNC has also signed an agreement for the off-take of all of the nickel concentrate from Trojan and has made progress arranging loan fi nance which will provide part of the funds required for the restart. BNC remains on care and maintenance pending the restart of Trojan. BNC’s ongoing costs for the year to 31 March 2011 have been funded from its own resources, inter-company loans from group and by the continued deferral of signifi cant amounts which remain due on demand to creditors. The restart of BNC remains a priority for the Board and the directors have considered the continued care and maintenance costs of BNC in light of the group’s current cash resources. They recognise that securing funds in the next 15 months will be necessary to continue to maintain all of the BNC assets on care and maintenance. Whilst securing fi nancing for BNC remains a challenge in the current political climate and with the uncertainty prevailing over the Zimbabwe government’s indigenisation programme the directors are nevertheless making progress with negotiations for loan fi nance and for the restructuring of creditor and workforce liabilities and believe it is reasonable to plan on the basis that arrangements can be made to refi nance BNC and to restart operations in the coming year. The group’s other activities have been funded by its cash resources, including cash generated by Freda Rebecca together with proceeds from equity issues in October 2010 and June 2011 raising £4.8 million and £8.8 million respectively and the drawing of US$4 million by Freda Rebecca under the IDC loan facility. The group has no other borrowings and US$6 million of the IDC loan facility remains undrawn. Mwana AR11_Fin_4Aug.indd 43 Mwana AR11_Fin_4Aug.indd 43 43 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 2. Accounting policies (continued) The directors have prepared the cash fl ow forecasts of the group and are of the opinion that the group’s current cash resources, together with the cash forecast to be generated by Freda Rebecca, are suffi cient to fund all of the group’s planned activities for at least twelve months from the date of these fi nancial statements, with the exception of the planned restart of operations at BNC which will require additional funds to be raised. The creditor restructuring at BNC and the fi nancing (debt and equity) of the BNC restart is the subject of negotiations with a number of parties and the directors are confi dent that fi nancing can be arranged within the twelve month period. The group cash fl ow forecast shows suffi cient cash fl ows for the rest of the group and to keep BNC on care and maintenance until the earlier of the BNC restart and autumn 2012. The directors are aware that various uncertainties might affect the validity of their forecasts. These uncertainties include metal prices, mining and processing risks and resource and reserve risks, in addition to the political and indigenisation risks in Zimbabwe as noted above which may constrain the ability of the company to control the movement of cash between entities. The directors believe they have the ability to manage cash fl ows and will continue to do so even taking into account the indigenisation proposals such that these risks could be mitigated and their impact on the going concern status of the group and company is minimised. This can be by achieved by deferring discretionary exploration spend, drawing down the second tranche of the IDC loan when related conditions are met and restructuring to meet the indigenisation law in a way that the company is still able to exercise control over cash fl ows from both BNC and Freda Rebecca. However, the directors acknowledge that there is no certainty of successfully carrying out such mitigating steps. The directors have concluded that the combination of these circumstances represents a material uncertainty that may cast signifi cant doubt on the company’s and the group’s ability to continue as a going concern and that therefore the company and the group may be unable to realise all their assets and discharge their liabilities in the normal course of business. This uncertainty is linked to the current reliance of BNC on creditor deferral and future availability of funding for BNC, general market conditions and refl ects the political and economic situation in Zimbabwe and in particular the recent developments relating to indigenisation laws which the directors have considered in the context of making their going concern assumption. Nevertheless, after making enquiries and considering the uncertainties described above the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing these fi nancial statements which do not include any adjustments that would result from the going concern basis of preparation being inappropriate. Basis of consolidation Subsidiaries Subsidiaries are those entities over whose fi nancial and operating policies the group has the ability to exercise control. The group fi nancial statements incorporate the assets, liabilities and results of operations of the company and its subsidiaries. The acquisition method of accounting has been adopted. Under this method, the results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal. Jointly controlled entities – Klipspringer diamond mine A joint venture is an entity in which the group holds a long-term interest and in which the group has the ability to exercise joint control in terms of a contractual arrangement. The group’s interest in a jointly controlled entity is accounted for by proportionate consolidation. In terms of this method, the group includes its share of the income and expenses, assets and liabilities, and cash fl ows on a line by line basis with similar items in the group’s fi nancial statements. Transactions eliminated on consolidation Intra-group transactions and balances are eliminated in the consolidated fi nancial statements. Use of signifi cant estimates and judgements The preparation of fi nancial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Derivation of assumptions used in the estimation of the recoverable values of assets, disclosed in note 11 relating to impairment, requires a signifi cant amount of judgement. The assumptions underlying the estimated recoverable values include, amongst others, 44 Mwana AR11_Fin_4Aug.indd 44 Mwana AR11_Fin_4Aug.indd 44 2011/08/04 11:17 AM 2011/08/04 11:17 AM the technical performance, revenue, operating costs and discount rate (for discounted cash fl ow based valuations), and are based on management’s best judgements at the date of signing the accounts. The life of mine periods used for the purpose of calculating estimated recoverable values are based on resources and reserves. These judgements used by management correspond to realistic scenarios taking into account the information available. The impairment note discloses a sensitivity analysis with regard to the assumptions which the Board deems most susceptible to variances against forecast. In particular, information about signifi cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signifi cant effect on the amounts recognised in the fi nancial statements is included in the following notes: Note 11 – Impairment Note 22 – Inventories Note 28 – Rehabilitation provisions Note 29 – Provisions and other payables Note 31 – Share-based payments Foreign currencies The individual fi nancial statements of each group entity are prepared in its functional currency, which is the currency of the primary economic environment in which that entity operates. For the purpose of the consolidated fi nancial statements, the results and fi nancial position of each entity are translated into British pounds, which is the presentational currency of the group. (a) Reporting foreign currency transactions in functional currency Transactions in currencies other than the entity’s functional currency (foreign currencies) are initially recorded at the rates of exchange prevailing on the dates of the transactions. At each subsequent balance sheet date: • Foreign currency monetary items are re-translated at the rates prevailing at the balance sheet date. Exchange differences arising on the settlement or re-translation of monetary items are recognised in the income statement; • Non-monetary items measured at historical cost in a foreign currency are not re-translated; and • Exchange differences arising on the re-translation of non-monetary items carried at fair value are included in the income statement except for differences arising on the re-translation of non-monetary items in respect of which gains and losses are recognised in the other comprehensive income, in which case any exchange component of that gain or loss is also recognised directly in equity. The directors have prepared the fi nancial statements on the basis of their judgement that the functional currency under IAS 21 of the group’s Zimbabwean subsidiaries is the US dollar. The directors judge that the functional currency of these subsidiaries is the US dollar, based on revenue, capital expenditure and the majority of costs being denominated in US dollars. (b) Translation from functional currency to presentational currency When the functional currency of a group entity is different from the group’s presentational currency (the British pound), its results, fi nancial position and cash fl ows are translated into the presentational currency as follows: • Assets and liabilities are translated using exchange rates prevailing at the balance sheet date; • Income and expense items are translated at average exchange rates for the year, except where the use of such an average rate does not approximate the exchange rate at the date of the transaction, in which case the transaction rate is used; and • All resulting exchange differences are recognised in translation reserves as a separate component of equity and are recognised in the income statement in the period in which the foreign operation is disposed of. • Cash fl ows are translated using average exchange rates during the period and the effect of exchange rate changes on the balances of cash and cash equivalents is presented as part of the reconciliation of movements therein. Property, plant and equipment and depreciation Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Depreciation is provided to write off the cost less the estimated residual value of property, plant and equipment by equal instalments over the estimated useful economic lives as set out below: • Mining assets: mining assets are depreciated at varying rates on a straight-line basis over the expected useful lives, which range from three to 17 years. • Smelter and refinery assets: smelter and refi nery assets are depreciated at varying rates on a straight-line basis over the expected useful lives, which range from fi ve to 40 years. • Plant and equipment and motor vehicles: plant and equipment and motor vehicles are depreciated over their estimated useful lives on a straight line basis at the rate of 10% and 20% respectively. • Buildings: buildings are depreciated on a straight-line basis over the expected useful lives, currently 40 years. Mwana AR11_Fin_4Aug.indd 45 Mwana AR11_Fin_4Aug.indd 45 45 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 2. Accounting policies (continued) Intangible assets – exploration and evaluation expenditure All expenditure directly related to mineral exploration is capitalised on a project-by-project basis, pending the determination of the feasibility of the project. Exploration costs include certain administration and salary costs. If a project is ultimately deemed commercially and technically viable, the related exploration costs remain capitalised whilst the asset is developed, and are then written off over the life of the estimated ore reserve on a unit-of-production basis. If it is determined that a project is not expected to be successful, whether relinquished, abandoned or uncommercial, the related exploration costs are written off. Once a decision is made to develop then the related exploration and evaluation costs are transferred from intangible to tangible assets. Depreciation of property, plant and equipment used in exploration activities is capitalised to intangible exploration and evaluation assets. For the purpose of impairment assessment, capitalised exploration and evaluation expenditures are allocated to the cash generating units on the basis of the exploration fi eld in which the costs have been incurred. Impairment The carrying amounts of the group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Exploration and evaluation assets are also assessed for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable amount. An impairment loss is recognised to the extent that the carrying amount of an asset or cash-generating unit (“CGU”) exceeds its recoverable amount. The recoverable amount of an asset or CGU is the higher of (i) its fair value less costs to sell and (ii) its value in use, which is the present value of the future cash fl ows expected to be derived from the asset or CGU, discounted using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks associated with the asset or CGU. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated fi rst to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit. A cash generating unit is the smallest identifi able group of assets that generates cash infl ows that are largely independent of the cash infl ows from other assets or groups of assets. It usually corresponds to the exploration fi eld or the production unit. When a decline in the fair value of an available-for-sale fi nancial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in profi t or loss even though the fi nancial asset has not been de-recognised. The amount of the cumulative loss that is recognised in the income statement is the difference between the acquisition cost and current fair value, less any impairment loss on that fi nancial asset previously recognised in the income statement. The company assesses the value of its investments in and loans to its subsidiaries for impairment. Reversals of impairment An impairment loss in respect of an investment in an equity instrument classifi ed as available-for-sale is not reversed through the income statement. If the fair value of a debt instrument classifi ed as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement. An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment relating to other assets are recognised in the income statement. 46 Mwana AR11_Fin_4Aug.indd 46 Mwana AR11_Fin_4Aug.indd 46 2011/08/04 11:17 AM 2011/08/04 11:17 AM Investments The group’s investments in equity securities are recognised initially at cost. Subsequent to their initial recognition, they are measured at fair value and changes therein, including impairment losses, are recognised through profi t or loss. The group holds a 66.7% interest in the Klipspringer diamond mine joint venture, the assets, liabilities, income and expenses of which are consolidated on a proportional basis. The company has investments in its various subsidiaries. These are accounted for at cost less impairment. All inter-group loans are repayable on demand. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and call deposits with an initial period to maturity of no more than three months. Cash reserves held in currencies other than the British pound are subject to changes in value resulting from exchange rate fl uctuations. Inventories Inventories are stated at the lower of cost and net realisable value. In determining the cost of raw materials, consumables and goods purchased for resale, the weighted average purchase price is used. For fi nished goods and work in progress which includes quantities of gold in process, cost is taken as production cost, which includes an appropriate proportion of attributable overheads. Net realisable value is calculated based on market prices prevailing as at the year-end less costs to sell. Available-for-sale fi nancial assets The group’s Zimbabwean investments in equity securities, which were disposed of during the year were classifi ed as available-for-sale fi nancial assets. Subsequent to their initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognised directly in other comprehensive income. When an investment is de-recognised, the cumulative gain or loss in other comprehensive income is transferred to profi t or loss. Loan payable Loans are recognised initially at fair value, net of transaction costs incurred. Loans are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest rate. Rehabilitation provision A provision is recognised when the group has a present legal or constructive obligation as a result of past events, and when it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Estimated long-term environmental obligations, comprising pollution control, rehabilitation and mine closure, are based on the group’s environmental management plans in compliance with current technology, environmental and regulatory requirements. On initial recognition, the net present value of estimated future decommissioning costs are capitalised to property, plant and equipment and the concomitant provisions are raised. These estimates are reviewed annually and discounted using a pre-tax rate that refl ects current market assessments of the time value of money. Any increases in such revised estimates are capitalised to property, plant and equipment while decreases in estimates are recognised by impairing the asset in the income statement in the period in which they are incurred. Revenue recognition Revenue represents the sale of gold, nickel and diamonds net of discounts and taxes. Revenue also includes toll refi ning and processing of material on behalf of, or purchased from, non-group companies. Revenue from the sale of gold is based on the spot price on the date of delivery, while revenue from the sale of nickel is based on the international market price of nickel. Diamond revenue is based on negotiated prices. Revenue is only recognised when signifi cant risks and rewards of ownership have passed to the purchaser. Leases Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classifi ed as operating leases. Operating lease rentals are charged to the income statement on a straight-line basis over the period of the lease. The group has not entered into any fi nance lease arrangements. Mwana AR11_Fin_4Aug.indd 47 Mwana AR11_Fin_4Aug.indd 47 47 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 2. Accounting policies (continued) Employee benefi ts (a) Defi ned contribution pension scheme Certain companies in the group operate defi ned contribution pension schemes. The assets of the schemes are held separately from those of the group in independently administered funds. The amounts charged to the income statement represent the contributions payable to the schemes in respect of the accounting period. (b) Share-based payments The share option programmes allow employees to acquire shares of the company. The fair value of options granted is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option-pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to refl ect the actual number of share options that vest except where variations are due only to share prices not achieving the threshold for vesting. Taxation The tax expense represents the sum of the current tax and deferred tax. Current tax payable is based on taxable profi t for the year. Taxable profi t differs from profi t before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the fi nancial statements and the corresponding tax bases used in the computation of taxable profi t, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profi ts will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profi t nor the accounting profi t. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi ts will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the associated deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset only when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis. 3. Revised and Amended Standards and Interpretations The following revised and amended standards and interpretations, which have all been endorsed by the EU, have been adopted by the group in these consolidated fi nancial statements; their adoption has had no material impact on the group’s net cash fl ows, fi nancial position, total comprehensive income or earnings per share. • IFRS 1 (Revised), First-time Adoption of International Financial Reporting Standards, which is effective for accounting periods beginning on or after 1 July 2009, simplifi es the structure of IFRS 1 without making any technical changes. • Amendments to IFRS 2, group Cash-settled Share-based Payments Transactions, which is effective for accounting periods beginning on or after 1 January 2010, provides a clear basis to determine the classifi cation of share-based payment awards in both consolidated and separate fi nancial statements. 48 Mwana AR11_Fin_4Aug.indd 48 Mwana AR11_Fin_4Aug.indd 48 2011/08/04 11:17 AM 2011/08/04 11:17 AM • IFRS 3 (Revised), Business Combinations, which is effective for accounting periods beginning on or after 1 July 2009. The standard continues to apply the acquisition method to business combinations, but with some signifi cant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently remeasured at fair value through profi t or loss; goodwill and non-controlling interests may be calculated on a gross or net basis; and all transaction costs are to be expensed. • IAS 27, Consolidated and Separate Financial Statements, which is effective for accounting periods beginning on or after 1 July 2009, requires the effects of all transactions with non-controlling interests where there is no change in control to be recorded in equity. Such transactions will no longer result in goodwill or gains and losses in the income statement. • Amendment to IAS 39, Financial Instruments: Recognition and Measurement, for Eligible Hedged Items, which is effective for accounting periods beginning on or after 1 July 2009, clarifi es how to apply the principles that determine whether a hedged risk or portion of cash fl ows is eligible for designation. • IFRIC 15, Agreements for the Construction of Real Estate, which is effective for accounting periods beginning on or after 1 January 2010, standardises accounting practice for the recognition of revenue by real estate developers for sales before construction is complete. • IFRIC 16, Hedges of a Net Investment in a Foreign Operation, which is effective for accounting periods beginning on or after 1 July 2009, clarifi es which currency exposures qualify for hedge accounting; which entity within a group can hold the hedging instrument; and how to determine the amounts to be reclassifi ed from equity to profi t or loss for both the hedging instrument and the hedged item when an investment in a foreign operation is disposed of. • IFRIC 17, Distributions of Non-cash Assets to Owners, which is effective for accounting periods beginning on or after 1 January 2010, clarifi es how an entity should measure distributions of assets, other than cash, when it pays dividends to its owners. • IFRIC 18, Transfers of Assets from Customers, which is effective for accounting periods beginning on or after 1 November 2009, clarifi es the accounting for arrangements where an item of property, plant and equipment provided by the customer is used to provide an ongoing service. Standards, Amendments and Interpretations That Are Not Yet Effective The following new, revised and amended standards and interpretations have been issued and endorsed by the EU unless otherwise stipulated, but are not yet effective and have not been adopted by the group in these consolidated fi nancial statements. None of these revised and amended standards and interpretations is expected to have a material impact on the group’s net cash fl ows, fi nancial position, total comprehensive income or earnings per share. • IFRS 9, Financial Instruments, which has not yet been endorsed by the EU and which is effective for accounting periods beginning on or after 1 January 2013, is the fi rst part of a new standard on classifi cation and measurement of fi nancial assets that will replace IAS 39. • IAS 24 (Revised), Related Party Disclosures, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 January 2011, removes the requirement for government related entities to disclose details of transactions with the government and other government related entities and clarifi es and simplifi es the defi nition of a related party. • Amendment to IAS 32, Financial Instruments: Presentation, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 February 2010, addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. • Amendment to IFRIC 14, IAS 19 – The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and Their Interaction, entitled Prepayments of a Minimum Funding Requirement, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 January 2011, applies to companies that are required to make minimum funding contributions to a defi ned benefi t pension plan. • IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 July 2010, clarifi es the accounting treatment for equity instruments that are used to extinguish fi nancial liabilities. • Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, (a) Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 July 2010, ensures that fi rst-time adopters of IFRS benefi t from the same transition provisions that amendments to IFRS 7 provide to current IFRS preparers; and (b) Severe Hyperinfl ation and Removal of Fixed Dates for First-time Adopters, which has not yet been endorsed by the EU and which is effective for accounting periods beginning on or after 1 July 2011, provides relief for fi rst-time adopters of IFRS from having to reconstruct transactions that occurred before their date of transition to IFRS and provides guidance for entities emerging from severe hyperinfl ation. Mwana AR11_Fin_4Aug.indd 49 Mwana AR11_Fin_4Aug.indd 49 49 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 3. Revised and Amended Standards and Interpretations (continued) • Amendments to IFRS 7, Financial Instruments: Disclosures, which has not yet been endorsed by the EU and which is effective for accounting periods beginning on or after 1 July 2011, enhances the reporting of transfers of fi nancial assets. • Amendments to IAS 12, Income Taxes, Deferred tax: Recovery of Underlying Assets, which has not yet been endorsed by the EU and which is effective for accounting periods beginning on or after 1 January 2012, provides a practical approach for measuring deferred tax assets and liabilities when investment properties are measured at fair value. 4. Financial risk management Overview The group has exposure to the following risks in relation to its operating and fi nancial activities: • credit risk, • liquidity risk, • market risk, and • currency risk. This note presents information about the group’s exposure to each of the above risks, the group’s objectives, policies and processes for measuring and managing risk, and the group’s management of capital. Further quantitative disclosures are included within note 32. The Board of directors has overall responsibility for the establishment and oversight of the group’s risk management framework. The subsidiaries report regularly to the Board of directors on their activities and their risk management procedures. The group Audit Committee oversees how management monitors compliance with the group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the group. Credit risk Credit risk is the risk of fi nancial loss to the group if a customer or counterparty to a fi nancial instrument fails to meet its contractual obligations, and arises principally from the group’s receivables from customers. The company’s cash balances are held in investments and with institutions considered by the directors to have a low risk of default. The group’s policy on credit risk is to seek, to the extent possible, to deal with customers with a strong fi nancial position, and to ensure that appropriate measures are taken to reduce the level of counterparty credit risk. Such measures may include limiting shipments of material while balances are outstanding, requesting the use of bank and/or corporate guarantees, and, where appropriate, retention of amounts owed by the group to its counterparties by way of offset against amounts owed to the group. The group’s principal customer is the Zimbabwe Chamber of Mines who purchase gold production from Freda Rebecca. Liquidity risk Liquidity risk is the risk that the group will not be able to meet its fi nancial obligations as they fall due and is measured by reference to cash levels and forecasted cash fl ows. The group’s approach to managing liquidity is to seek to ensure, as far as possible, that it will have suffi cient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation. The group monitors its current and forecasted cash and cash equivalents positions to ensure that it will be able to meet its fi nancial commitments. BNC’s cash position deteriorated during the period since it has remained on care and maintenance. BNC was not able to settle creditors and is reliant on continuing creditor deferral to avoid liquidation. BNC has initiated discussions to reach settlement with its creditors in due course. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and commodity prices will affect the group’s income. The group’s earnings are exposed to movements in the prices of gold, nickel, and diamonds that it produces. The group is also exposed to movements in interest rates on cash and cash equivalents as well as the risk related to market price of the investments held. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The group’s policy is not to hedge commodity price risk. Consequently, as at 31 March 2011 and during the year, the group did not have any long-term commodity price hedges in place. 50 Mwana AR11_Fin_4Aug.indd 50 Mwana AR11_Fin_4Aug.indd 50 2011/08/04 11:17 AM 2011/08/04 11:17 AM Currency risk The group operates internationally and is exposed to foreign exchange risk arising from transactions and investments that are denominated in currencies other than the British pound, including the United States dollar and the South African rand. Such risks include the effect of movements in exchange rates on the group’s forecasts of capital and operating expenditure, and on the group’s forecasts of revenue. The group’s policy is not to hedge currency risk. Consequently, as at 31 March 2010 and during the year, the group did not have any currency hedges in place. Capital management The group considers its capital to be equal to the sum of its total equity. The Board is committed to maintaining a capital base that maintains creditors’ confi dence in Mwana’s ability to meet its commitments. The company’s primary objectives when managing its capital are: • to ensure that the company is able to operate as a going concern; • to have available both the necessary fi nancial resources and the appropriate equity to allow the company to make investments including, where necessary, further investment in existing subsidiaries, that will deliver acceptable future returns to the company’s shareholders; and • to maintain suffi cient fi nancial resources to mitigate against risks and unforeseen events. The Board of directors monitors the return on capital using a number of metrics, including return on net assets and return on investment. There were no changes in the company’s approach to capital management in the year. Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements. 5. Segmental information The group has four reportable segments, as described below, which are the group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. The CEO reviews internal management reports for each of the strategic business units. The following summary describes the operations in each of the group’s reportable segments: • Gold: Gold mining and prospecting activities • Nickel: Nickel mining, smelting and refi ning activities currently on care and maintenance • Diamonds: Diamond mining activities currently on care and maintenance • Exploration: Gold and base metal exploration activities Information about reportable segments – Operations Gold Nickel Diamonds Exploration Total (Freda Rebecca) (Bindura Nickel Corporation) (Klipspringer diamond mine) 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 External revenue 23,279 5,979 2,648 11,796 1,340 1,005 – – 27,267 18,780 Reportable segment profi t/ (loss) before tax 14,353 (3,699) (10,863) (4,887) (748) (761) (813) 2,472 1,929 (6,875) Reportable segment assets 34,327 16,647 29,540 38,306 1,360 1,742 21,199 15,070 86,426 71,765 Reportable additions to property, plant and equipment Reportable additions to intangible assets 2,555 2,210 1,414 (261) – – – – 16 – – – – – 3,985 1,949 7,652 4,047 7,652 4,047 Mwana AR11_Fin_4Aug.indd 51 Mwana AR11_Fin_4Aug.indd 51 51 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 5. Segmental information (continued) Reconciliation of reportable segment profi t or loss Total profi t/(loss) for reportable segments Unallocated amounts: Other corporate expenses Consolidated loss before income tax 2011 £’000 1,929 (5,730) (3,801) 2010 £’000 (6,875) (7,501) (14,376) Information about reportable segments – Geographical South Africa and Zimbabwe Democratic Republic of the Congo Ghana United Kingdom Total 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 External revenue 27,267 18,780 – – – – – – 27,267 18,780 Reportable segment profi t/ (loss) before tax 1,613 (10,097) (287) 1,922 358 (1,132) (5,485) (5,069) (3,801) (14,376) Reportable segment assets 65,988 57,618 21,110 14,854 1,139 1,025 2,704 11,022 90,941 84,519 Reportable additions to property, plant and equipment Reportable additions to intangible assets 3,991 1,956 – – – – 7,652 4,047 – – – – 4 – 72 3,995 2,028 – 7,652 4,047 Freda Rebecca sells its gold production to the Zimbabwean Chamber of Mines. The main products at BNC during the year related to nickel and the major customers were well-established commodities traders. 6. Loss from joint venture Included in the group income statement are the following amounts relating to the Klipspringer diamond mine joint venture: Revenue Cost of sales Gross loss Other income Selling and distribution costs Administrative costs Loss from operating activities Finance income Loss before tax 2011 £’000 1,340 (2,035) (695) 37 (39) (663) (1,360) 686 (674) 2010 £’000 1,005 (1,272) (267) – – (748) (1,015) 84 (931) The group holds a 66.7% interest (2010: 65%) in the Klipspringer diamond mine joint venture. The mine is situated in South Africa’s Limpopo Province. Mwana Africa is currently the sole funder of the operation and the joint venture partners’ interest is being diluted in accordance with the contractual agreement. 52 Mwana AR11_Fin_4Aug.indd 52 Mwana AR11_Fin_4Aug.indd 52 2011/08/04 11:17 AM 2011/08/04 11:17 AM 7. Analysis of loss from operating activities Loss from operating activities is stated after charging: Cost of goods sold Depreciation Write-off of inventory Cost of sales Other income items Profi t on sale of available-for-sale fi nancial assets Fair value adjustments on investments Other income Operations (technical) Exploration Administrative expenses Loss on assets held for sale Write-off of capitalised exploration costs Provision for closure costs Other expenses 2011 £’000 17,112 1,265 65 18,442 698 996 294 1,988 6,883 526 7,409 – 37 – 37 2010 £’000 8,669 1,192 – 9,861 177 551 – 728 4,792 448 5,240 1,036 281 2,933 4,250 The presentation of the operating expenses in the income statement has been changed in the year ended 31 March 2011 in order to present a more detailed analysis of the costs of the group. The presentation of the expenses previously classifi ed as cost of sales of BNC has been changed in the income statement. These are presented as care and maintenance expenses in the operational profi t/(loss) section. As a consequence expenses of £9.4 million presented as cost of sales in 2010 have been reclassifi ed to care and maintenance expenses in the comparative information. In the previous years, certain expenses allocated to technical activities were disclosed as part of cost of sales as it was the view of the group that these expenses were by nature linked to the operational activity of BNC and Freda Rebecca. It has been decided to reclassify these costs under separate administration cost categories as part of the operational profi t/(loss). As a consequence the presentation of the comparative balances have been changed by £3.9 million classifi ed as cost of sales in 2010 and now reclassifi ed into administrative costs. Depreciation on property, plant and equipment capitalised as intangible assets is not included in the above analysis. 8. Amounts payable to KPMG Audit of these fi nancial statements Audit of fi nancial statements of subsidiaries pursuant to legislation Other services pursuant to such legislation Other services relating to taxation Services relating to corporate fi nance transactions All other services Total Auditors’ remuneration Mwana AR11_Fin_4Aug.indd 53 Mwana AR11_Fin_4Aug.indd 53 2011 £’000 2010 £’000 136 113 – 4 30 15 298 125 115 2 2 40 25 309 53 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 9. Remuneration of key management personnel Key management personnel are people responsible for the direction of the business, and comprise the executive and non-executive directors of Mwana Africa PLC. The remuneration of key management personnel is set out below in aggregate for each of the categories as specifi ed in IAS 24.9. Director 2011 KK Mpinga OAG Baring DAR McAlister PE Sydney-Smith KC Owen SG Morris JA Anderson E Denis Total remuneration 2010 KK Mpinga OAG Baring DAR McAlister PE Sydney-Smith KC Owen SG Morris JA Anderson E Denis Total remuneration Short-term employee benefits £’000 Annual bonus £’000 Post- employment benefits Share-based payments £’000 £’000 310 220 240 – – 40 33 20 863 275 200 120 208 105 40 20 20 988 – – – – – – – – – 193 140 60 – – – – – 57 75 34 – – – – – 166 56 47 15 – 13 – – – 30 19 22 – – – – – 71 55 53 7 (249) 17 – – – Total £’000 397 314 296 – – 40 33 20 1,100 579 440 202 (41) 135 40 20 20 393 131 (117) 1,395 54 Mwana AR11_Fin_4Aug.indd 54 Mwana AR11_Fin_4Aug.indd 54 2011/08/04 11:17 AM 2011/08/04 11:17 AM 10. Employee benefi ts expense Group Company Wages and salaries Increase in provision Equity-settled share-based payment transactions (see note 31) Compulsory social security contributions Contributions to defi ned contribution plans 2011 £’000 12,213 3,993 139 585 177 2010 £’000 6,435 – 262 359 152 Total employee benefits expense 17,107 7,208 Staff numbers 2011 £’000 1,076 – 91 104 119 1,390 2010 £’000 1,256 – 287 145 91 1,779 Management and administration Operatives Total Number of employees Group 2011 £’000 276 2,715 2,991 2010 £’000 322 2,660 2,982 During the year, increases in minimum wage rates in Zimbabwe were legislated. These increases which mainly impact BNC were applied retrospectively resulting in an increase in the current years expense. The wages and salaries expense for Freda Rebecca increased by £3.4 million as the mine was operational for the full year. Mwana AR11_Fin_4Aug.indd 55 Mwana AR11_Fin_4Aug.indd 55 55 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 11. Impairment The group’s assets, and the impairment charges and reversals recognised in the period, have been allocated to cash-generating units as set out in the table below. Cash Generating Units Freda Rebecca £’000 BNC £’000 Klip- springer Diamond exploration Gold exploration Base metal exploration £’000 £’000 £’000 £’000 2010 Carrying values Recoverable value of assets allocated to the cash generating units as at 1 April 2009 Effect of movements in exchange rates Assets realised during the year Other movements during the year Total carrying values of assets allocated to the cash generating units as at 31 March 2010 Impairment loss Intangible exploration assets Impairment reversal Intangible exploration assets Total impairment reversal/(loss) of assets allocated to the cash generating units for the year ended 31 March 2010 Recoverable value of assets allocated to the cash generating units as at 31 March 2010 2011 Carrying values Recoverable value of assets allocated to the cash generating units as at 1 April 2010 Effect of movements in exchange rates Other movements during the year Total carrying values of assets allocated to the cash generating unit as at 31 March 2011 Impairment reversal 8,161 (465) – 5,493 21,487 (1,223) – 1,285 333 80 – (107) 13,189 21,549 306 – – – – – – – – – 13,189 21,549 306 13,189 (791) 639 21,549 (1,292) 1,204 306 5 (65) 13,037 21,461 246 Property, plant and equipment 11,743 – – – – 11,743 24,780 21,461 246 Total impairment reversal of assets allocated to the cash generating units for the year ended 31 March 2011 Recoverable value of assets allocated to the cash generating units as at 31 March 2011 56 362 (21) (341) – – – – – – – – – – – – – 7,000 (398) (1,886) 2,216 3,000 (171) – 2,219 6,932 5,048 – (2,395) 4,073 – 4,073 (2,395) 11,005 2,653 11,005 (660) 4,767 2,653 (159) 2,693 15,112 5,187 – – – – 15,112 5,187 Mwana AR11_Fin_4Aug.indd 56 Mwana AR11_Fin_4Aug.indd 56 2011/08/04 11:17 AM 2011/08/04 11:17 AM Impairment losses: Exploration and development assets Trade and other receivables Impairment loss for the year Impairment reversals: Property, plant and equipment Exploration and development assets Non-current investments Impairment reversal of trade and other receivables Impairment reversal for the year Net impairment reversal for the year Group 2011 £’000 – – – 11,743 – – – 11,743 11,743 2010 £’000 (2,395) – (2,395) – 4,073 – – 4,073 1,678 Company 2011 £’000 – – – – – 35,981 – 35,981 35,981 2010 £’000 – (2,332) (2,332) – – – 4,331 4,331 1,999 All impairment charges and reversals have been booked to the income statement in 2011 and 2010. The Board has assessed the carrying values of the group’s intangible exploration assets, property, plant and equipment and equity investments for impairment as at 31 March 2011. In addition, the company’s investments in, and loans to subsidiaries have been assessed for impairment as at 31 March 2011. As a result of these assessments, the impairment charges recognised in previous years to reduce the carrying value of property, plant and equipment of Freda Rebecca have been reversed. Impairment charges recognised in previous years to reduce the carrying value of the company’s investment in Mwana Africa Holdings (Pty) Ltd has also been reversed. Freda Rebecca In September 2010, Freda Rebecca exceeded its targeted Phase I monthly production rate of 2,500oz. The consistent achievement of this targeted production rate since September 2010 has resulted in the operations at Freda Rebecca being considered as having achieved steady state during the year. The achievement of steady state has prompted a review of the assets for potential reversal of impairments recognised in previous years. A value in use of US$66 million (£41 million) has been calculated as a present value of future cash fl ows on the basis of the annual production rate of 50,000oz, the operations Phase II target. Gold Exploration Assets Mwana Africa owns gold exploration prospects in the DRC with currently defi ned resources totalling 1,253,766oz (2010: 638,290oz). A 96.4% increase in resource ounces combined with a stable outlook on the price of gold indicate a recoverable value exceeding the carrying value of the assets. Consequently, no further impairment is considered necessary. Base Metal Exploration Assets Mwana Africa holds exploration concessions in the Katanga province of the DRC. As at 31 March 2011, expenditure of £18.7 million (2010: £17.9 million) had been incurred on exploration at the concessions. Management estimated a recoverable value of £5.2 million on the basis of its fair value less costs to sell. Following impairment of £13.5 million recorded in previous years, no further impairment charge is necessary. Company – Investments The value of investments in subsidiary companies has been adjusted as a result of the impairment reversal of Freda Rebecca’s assets. Investments in subsidiary companies were impaired by £36 million in previous years as a result of the operations of Bindura Nickel Corporation Limited and Freda Rebecca being on care and maintenance. Achievement of steady state production by Freda Rebecca during the year has resulted in an increase in the carrying value of the investment, and consequently, a reversal of the impairments recognised in previous years. Mwana AR11_Fin_4Aug.indd 57 Mwana AR11_Fin_4Aug.indd 57 57 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 11. Impairment (continued) The directors have assessed the carrying value of the group’s investment in BNC in light of the need to raise funds for the planned restart of the Trojan mine and the Zimbabwe Government’s recent indigenisation proposals as set out in more detail in note 2 Basis of preparation ‘going concern’. Given the directors are confi dent that appropriate funding will be secured for the restart and the indigenisation requirements will be met without signifi cant impact on the group’s interest in BNC, no further impairments are considered necessary as at 31 March 2011. 12. Net fi nance income and costs Interest income on bank deposits Investments Finance income Interest costs Foreign exchange differences Finance costs 13. Income tax expense Group 2011 £’000 87 – 87 (555) (1,358) (1,913) 2010 £’000 53 81 134 (428) – (428) Current tax expense Current year tax Prior periods tax Deferred tax expense Origination and reversal of temporary differences Recognition of previously unrecognised tax losses Effect of change in tax rate Total income tax expense Reconciliation of effective tax rate Loss before income tax Income tax using the company’s domestic tax rate – 28% (2010: 28%) Effect of tax rates in foreign jurisdictions Non-deductible expenses Prior year current tax Prior year deferred tax Utilised tax losses brought forward Current year losses for which no deferred tax asset was recognised Other temporary differences not recognised Total tax expense as per consolidated income statement Deferred taxation impacts are described more fully in note 19. Company 2011 £’000 25 – 25 – – – 2011 £’000 – 132 3,916 (688) – 3,360 (3,801) 1,064 (501) (776) (124) 869 (704) (3,636) 448 (3,360) 2010 £’000 37 – 37 – – – 2010 £’000 3 28 (770) 553 253 67 (14,376) 4,025 (714) (1,183) 28 (980) 553 (3,818) 2,022 (67) Signifi cant factors affecting the tax charge relate to the taxation regimes for the mining sector in the UK, Zimbabwe, South Africa and the DRC. Changes in any of these areas could, adversely or positively impact the group’s tax charge in the future. 58 Mwana AR11_Fin_4Aug.indd 58 Mwana AR11_Fin_4Aug.indd 58 2011/08/04 11:17 AM 2011/08/04 11:17 AM 14. Dividends No dividends were declared during the 2011 fi nancial year (2010: nil). 15. Earnings per share Basic earnings per share (EPS) is computed by dividing the profi t or loss after taxation for the year available to ordinary shareholders by the sum of the weighted average number of ordinary shares in issue ranking for dividend during the year. Diluted earnings per share is computed by dividing the profi t or loss after taxation for the year available to ordinary shareholders by the sum of the weighted average number of ordinary shares in issue, adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year. Earnings Loss attributable to ordinary shareholders Weighted average number of shares Issued ordinary shares at the beginning of the year Effect of shares issued Weighted average shares at the end of the year Basic loss per share Diluted loss per share 2011 £’000 2010 £’000 (2,148) (14,520) Number Number 400,433,819 385,707,792 107,522,670 14,726,027 507,956,489 400,433,819 (0.42p) (0.42p) (3.63p) (3.63p) No dilutive effect is recognised for the 2011 fi nancial year as the dilutive potential ordinary shares would reduce the loss per share. Mwana AR11_Fin_4Aug.indd 59 Mwana AR11_Fin_4Aug.indd 59 59 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 16. Property, plant and equipment Smelter and refinery plant and equipment Plant and equipment Exploration assets Building & leasehold Motor vehicles £’000 £’000 £’000 £’000 £’000 Mining assets £’000 Total £’000 68,797 23,817 2,032 2,713 22,265 9,633 129,257 1,787 5,402 (14) 162 – – (3,706) (1,451) 3,969 24 (906) (72) – – – – 61 – (12) 41 2,122 26 – – – – – – – – – 18 – (14) 2,028 5,402 (40) (125) (1,268) (547) (7,056) 2,588 20,997 9,090 129,591 – – – – – – – – – – – – 3,995 24 (906) (72) (4,448) (1,350) (68) (145) (1,259) (545) (7,815) Cost or deemed cost Balance at 1 April 2009 Additions Additions of environmental assets Disposals Effect of movements in exchange rates Additions Additions of environmental assets Write down of environmental assets recognised previously Disposals Effect of movements in exchange rates Balance at 31 March 2010 72,266 22,528 Balance at 31 March 2011 70,833 21,178 2,080 2,443 19,738 8,545 124,817 Depreciation and impairment losses Balance at 1 April 2009 (51,774) (14,181) Depreciation for the year Disposals Effect of movements in exchange rates (1,006) 3 – – 3,302 810 (1,618) (162) 7 46 (2,711) (19,085) (9,500) (98,869) – – – – (24) 3 (1,192) 13 123 1,086 541 5,908 Balance at 31 March 2010 (49,475) (13,371) (1,727) (2,588) (17,999) (8,980) (94,140) Impairment reversal Depreciation for the year Disposals Effect of movements in exchange rates 11,743 (1,124) 41 – – – 2,998 802 – (118) – 73 – – – – – – – (23) – 11,743 (1,265) 41 145 1,079 539 5,636 Balance at 31 March 2011 (35,817) (12,569) (1,772) (2,443) (16,920) (8,464) (77,985) Carrying amounts At 31 March 2009 At 31 March 2010 At 31 March 2011 17,023 22,791 35,016 9,636 9,157 8,609 414 395 308 2 – – 3,180 2,998 2,818 133 110 81 30,388 35,451 46,832 Depreciation on exploration assets was capitalised to intangible assets. The net book value of the company’s property, plant and equipment as at 31 March 2011 amounted to £66,811 (2010: £92,187). Depreciation charged to the income statement of the company during the year amounted to £28,772 (2010: £18,749) and capital expenditure for the year to £3,395 (2010: £53,874). 60 Mwana AR11_Fin_4Aug.indd 60 Mwana AR11_Fin_4Aug.indd 60 2011/08/04 11:17 AM 2011/08/04 11:17 AM 17. Intangible assets Cost or deemed cost Balance at 1 April 2009 Capitalised exploration costs Capitalised depreciation Effect of movements in exchange rates Balance at 31 March 2010 Capitalised exploration costs Capitalised depreciation Effect of movements in exchange rates Balance at 31 March 2011 Amortisation and impairment losses Balance at 1 April 2009 Impairment reversal Impairment loss Effect of movements in exchange rates Balance at 31 March 2010 Effect of movements in exchange rates Development assets Exploration and evaluation assets £’000 £’000 Goodwill £’000 34,782 5,783 – – – – – – 113,836 4,047 141 119 Total £’000 154,401 4,047 141 119 34,782 5,783 118,143 158,708 – – – – – – 7,652 33 (1,887) 7,652 33 (1,887) 34,782 5,783 123,941 164,506 (34,782) (5,783) (105,836) (146,401) – – – – – – 4,073 (2,395) (326) 4,073 (2,395) (326) (34,782) (5,783) (104,484) (145,049) – – 842 842 Balance at 31 March 2011 (34,782) (5,783) (103,642) (144,207) Carrying amounts At 31 March 2009 At 31 March 2010 At 31 March 2011 – – – – – – 8,000 13,659 20,299 8,000 13,659 20,299 The carrying amount of the intangible assets relates to capitalised exploration on the SEMHKAT and Zani-Kodo exploration projects. Mwana AR11_Fin_4Aug.indd 61 Mwana AR11_Fin_4Aug.indd 61 61 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 18. Investments Group Mantle Diamonds Ltd Signature Metals Ltd Others Total investments Ownership % 10.31 5.35 2011 £’000 1,025 997 494 2,516 2010 £’000 1,000 702 374 2,076 Shares in Signature Metals Ltd were sold subsequent to the year-end for a total consideration of £742,751. The group has other investments which include a 20% interest in Société Miniére de Bakwanga (MIBA) in the DRC, an 18% interest in the Camafuca project in Angola, and a 55% interest in the BK16 project in Botswana which will be reduced to 12.5% in terms of an agreement with Firestone Diamonds, once a bankable feasibility study has been completed. These investments are carried at £nil value (2010: £nil) The directors consider that the group does not have signifi cant infl uence over the entities classifi ed as investments, as it cannot infl uence the operating policy of these entities. The group’s exposure to credit, currency and interest rate risks related to other investments is disclosed in note 32. Company Cost At beginning of year Acquisition of investments Disposal of investments Share-based payments to subsidiary employees Reversal of impairment At end of year Net book value At 31 March 2009 At 31 March 2010 At 31 March 2011 Shares in non-group undertakings Shares in group undertakings £’000 £’000 1,000 25 – – – 1,025 – 1,000 1,025 9,602 – (192) 19 35,981 45,410 9,627 9,602 45,410 Total £’000 10,602 25 (192) 19 35,981 46,435 9,627 10,602 46,435 The carrying value of the investment in Mwana Africa Holdings (Pty) Ltd amounted to £44,618,315 as at 31 March 2011. An impairment reversal of £35,980,887 has been recorded during the period against this investment. Mwana Africa Holdings (Pty) Ltd, which is a subsidiary of the company, is the holding company of the group’s Zimbabwean operations. The recoverable value of this investment exceeds its carrying value as a result of the increase in the expected return in the investment relating to the Freda Rebecca mine, requiring a full reversal of previous impairments. Recent developments in the Zimbabwe indigenisation legislation, which are explained in more detail in the Directors’ report on page 22, may have an impact on the recoverable value of the investment in Mwana Africa Holdings (Pty) Ltd. The impact cannot be reliably measured as there are uncertainties regarding the implementation of this legislation and the directors consider there is a material uncertainty which may cast signifi cant doubt over the carrying value of the investment. These fi nancial statements do not include any adjustments that would result from the impact of the Zimbabwe indigenisation legislation on the carrying value of the investment held by the company. In addition to the company’s investments in shares in group undertakings, loans to group undertakings totalling £35,153,734 (2010: £27,126,976) are included in trade and other receivables within note 23. 62 Mwana AR11_Fin_4Aug.indd 62 Mwana AR11_Fin_4Aug.indd 62 2011/08/04 11:17 AM 2011/08/04 11:17 AM The major subsidiaries in which the group’s interest at the year end is more than 20% are as follows: Subsidiary undertakings Alpinore Limited SEMHKAT SPRL† Country Ghana Activity Mining and exploration of gold Democratic Republic of Congo Base metal exploration Bindura Nickel Corporation Limited Zimbabwe Trojan Nickel Mine Limited Freda Rebecca Gold Mine Limited Mwana Africa Holdings Limited Zimbabwe Zimbabwe Mauritius Mwana Africa Holdings (Proprietary) Limited* South Africa Basilik Trading (Proprietary) Limited South Africa Sibeka SA* Mwana Africa Congo Gold SPRL† Diamond Mines Australia (Proprietary) Limited SouthernEra Diamonds Inc Belgium Australia Canada SouthernEra International Limited Cayman Islands Holding company Nickel mining Gold mining Holding company Holding company Management services Holding company Diamond exploration Diamond exploration Holding company Democratic Republic of Congo Exploration of gold SouthernEra Management Services South Africa (Proprietary) Limited SouthernEra RDC† South Africa Democratic Republic of Congo Management services Diamond exploration Percentage of shares held by group 100 100 52.9 52.9 100 100 100 100 100 100 100 100 100 100 100 * Companies in which Mwana Africa PLC has a direct holding. † The year-end of these subsidiaries is 31 December as required by DRC legislation and appropriate adjustments were made to recognise movements to 31 March, to bring the reporting date of these entities in line with the group’s fi nancial year-end. The group holds a 66.7% interest (2010: 65%) in the Klipspringer diamond mine joint venture situated in South Africa’s Limpopo Province. Information regarding the loss from the joint venture has been disclosed in accordance with IAS31 Interests in Joint Ventures and can be found in note 6. The group had no other material interest in an associate or joint venture. Mwana AR11_Fin_4Aug.indd 63 Mwana AR11_Fin_4Aug.indd 63 63 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 19. Deferred tax assets and liabilities Net deferred tax liability at beginning of year Charge to the income statement Exchange rate adjustment Net deferred tax at end of the year Deferred tax assets Deferred tax liabilities The elements of deferred taxation are as follows: Difference between accumulated depreciation and amortisation and capital allowances Unutilised losses Other timing differences 2011 £’000 669 3,228 (134) 3,763 (1,575) 5,338 10,255 (4,063) (2,429) 3,763 2010 £’000 670 36 (36) 670 – 670 8,919 (5,091) (3,158) 670 The deferred tax liability represents the difference between the carrying amount of property, plant and equipment and the corresponding tax bases on those assets. The deferred tax liability principally relates to Freda Rebecca. Unrecognised deferred taxes Deferred taxes have not been recognised in respect of the following items: Difference between accumulated depreciation and amortisation and capital allowances Tax losses Other timing differences 2011 £’000 930 15,546 370 16,846 2010 £’000 74 24,053 425 24,552 Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profi t will be available against which the group can utilise the benefi ts. Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Asset Liability 2010 £’000 2011 £’000 2010 £’000 Net 2011 £’000 – – – – – (10,255) (8,919) (10,255) 1,976 3,181 (240) (5,338) 3,353 5,091 (195) (670) 2,628 4,063 (199) (3,763) 2010 £’000 (8,919) 3,353 5,091 (195) (670) Property, plant and equipment Mine rehabilitation provision Tax loss Others Total 2011 £’000 – 652 882 41 1,575 64 Mwana AR11_Fin_4Aug.indd 64 Mwana AR11_Fin_4Aug.indd 64 2011/08/04 11:17 AM 2011/08/04 11:17 AM 20. Non-current receivables Loans and other receivables Environmental investment 21. Cash and cash equivalents Cash at bank and on hand Call deposits Cash and cash equivalents Group 2011 £’000 19 929 948 2010 £’000 139 866 1,005 Company 2011 £’000 – – – Group Company 2011 £’000 4,592 – 4,592 2010 £’000 6,300 8,856 15,156 2011 £’000 1,279 – 1,279 Net cash and cash equivalents were represented by the following major currencies: Australian dollar British pound Euro South African rand United States dollar Net cash and cash equivalents Group Company 2011 £’000 – 352 5 369 3,866 4,592 2010 £’000 272 7,330 5 244 7,305 15,156 2011 £’000 – 352 – 34 893 1,279 £69,027 (2010: £67,946) represents restricted cash and is being held by various institutions as guarantees. The group’s exposure to interest rate risks and sensitivity analysis for fi nancial assets and liabilities is disclosed in note 32. 22. Inventories Raw materials and consumables Work in progress Finished goods 2011 £’000 4,159 265 173 4,597 2010 £’000 – – – 2010 £’000 – 8,856 8,856 2010 £’000 – 7,330 – – 1,526 8,856 2010 £’000 3,544 – 130 3,674 During the year, raw materials, consumables and changes in fi nished goods and work in progress recognised as cost of sales amounted to £10,422,100 (2010: £21,471,968), with raw materials written down by £64,905 (2010: nil) to net realisable values. Mwana AR11_Fin_4Aug.indd 65 Mwana AR11_Fin_4Aug.indd 65 65 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 23. Trade and other receivables Trade receivables Receivables from group undertakings Loans and other receivables Pre-payments Tax receivable Group Company 2011 £’000 2,785 – 5,987 719 91 9,582 2010 £’000 3,751 – 7,347 1,042 57 2011 £’000 – 35,154 2,220 98 – 2010 £’000 – 27,127 2,878 108 – 12,197 37,472 30,113 All current trade and other receivables are due within 12 months of the fi nancial year-end. Receivables from group undertakings are due and payable on demand. Of the £35,153,734 (2010: £27,126,923) above being receivable from group undertakings, £201,437 (2010: £81,831) is due from BNC and £7,970,231 (2010: £8,704,958) is due from Freda Rebecca. The directors have considered the recoverability of these amounts in light of the cash resources at BNC and the need for fi nancing for the restart of Trojan and the uncertainty around the potential impact of the Zimbabwe indigenisation law on both BNC and Freda Rebecca. The directors are satisfi ed that these amounts are due and will be received. The group’s exposure to credit and currency risks and impairment losses related to trade and other receivables is disclosed further in note 32. 24. Available-for-sale fi nancial assets Equity investments 2011 £’000 – 2010 £’000 2,250 Investments in shares on the Zimbabwean Stock Exchange were made in previous years to preserve the value of Zimbabwean dollar surpluses held by Bindura Nickel Corporation Limited. These investments were all disposed of during the year for a profi t of £1.0m, and the proceeds of £1.8 million used to fund ongoing care and maintenance costs. 25. Assets held for sale Capitalised exploration costs 2011 £’000 – 2010 £’000 108 Exploration interests valued at US$227,334 (2010: US$162,147) were transferred to investments following completion of conditions precedent relating to the agreement of a sale. 66 Mwana AR11_Fin_4Aug.indd 66 Mwana AR11_Fin_4Aug.indd 66 2011/08/04 11:17 AM 2011/08/04 11:17 AM 26. Issued share capital Number of shares Nominal value of shares 2011 2010 2011 £’000 2010 £’000 Authorised Ordinary shares of 10 pence each Unlimited 65,000,000 Unlimited 65,000 Allotted, called up and fully paid Opening balance Issued during the year Closing balance 488,774,359 400,433,819 46,367,401 88,340,540 535,141,760 488,774,359 48,877 4,637 53,514 40,043 8,834 48,877 During the year the company issued 46,367,401 ordinary 10 pence shares for 11 pence per share (2010: 88,340,540 ordinary 10 pence shares for 10 pence per share) raising total consideration of £5,100,414 (2010: £8,834,054). No shares were issued but not fully paid as at 31 March 2011 (2010: nil). 27. Loan payable Total liability Current portion (included in note 29, provisions and other payables) Long-term portion 2011 £’000 2,368 (449) 1,919 2010 £’000 – – – Freda Rebecca has drawn down US$4 million (£2.5 million) of a US$10 million IDC loan facility for its Phase I capital project. An additional amount of US$6 million (£3.7 million) which relates to the Phase II project remains undrawn due to unfulfi lled conditions precedent. This portion will be drawn down once conditions have been satisfi ed. The loan is secured by a mortgage bond registered over moveable and immovable assets of Freda Rebecca Gold Mine. 28. Rehabilitation provisions Balance at beginning of the year Exchange rate adjustments Provisions made during the year Provisions reversed during the year Unwinding of discount Balance at end of the year 2011 £’000 13,954 (770) 52 (2,157) 122 11,201 2010 £’000 5,580 (22) 8,396 – – 13,954 The rehabilitation provision relates principally to the estimated closure and rehabilitation costs of the business operations of BNC, Freda Rebecca, and the Klipspringer diamond mine joint venture. Mwana AR11_Fin_4Aug.indd 67 Mwana AR11_Fin_4Aug.indd 67 67 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 29. Provisions and other payables 2011 Legal provision Other provisions Provisions Other payables and accrued expenses Current portion of non-current loan payable Total provisions and other payables 2010 Legal provision Other provisions Provisions Other payables and accrued expenses Total provisions and other payables Provisions at beginning of year Effect of movements in exchange rates Additional provisions Provisions at end of year £’000 £’000 £’000 £’000 819 423 1,242 120 378 498 (49) (22) (71) (28) (22) (50) 1,232 3,875 5,107 727 67 794 2,002 4,276 6,278 13,291 449 20,018 819 423 1,242 12,036 13,278 The company’s other payables and accrued expenses as at 31 March 2011 amounted to £1,284,837 (2010: £1,052,928). 30. Pension scheme Group Certain of the group’s Zimbabwean subsidiaries contribute towards defi ned contribution plans, details of which are provided below. Mining Industry Pension Fund The Mining Industry Pension Fund is a defi ned contribution plan. The group’s obligations under the scheme are limited to 5% of pensionable emoluments for lower grade employees and 10% for higher grade employees. Others The group contributes towards personal pension schemes of certain of its employees, including certain directors in the United Kingdom. The pension charge for the year represents contributions payable by the group to the various schemes and amounted to £177,264 (2010: £151,695). There were no un-accrued or pre-paid contributions at either the beginning or end of the fi nancial year. Company The company does not operate any pension schemes, but does make contributions towards personal pension schemes of its employees, including certain directors. The pension charge for the year represents contributions payable by the company to the personal pension schemes and amounted to £119,003 (2010: £90,775). There were no un-accrued or pre-paid contributions at either the beginning or end of the fi nancial year. 68 Mwana AR11_Fin_4Aug.indd 68 Mwana AR11_Fin_4Aug.indd 68 2011/08/04 11:17 AM 2011/08/04 11:17 AM 31. Share-based payments Share options – employees The company has outstanding options under an unapproved share option scheme adopted in 1997 which expired in September 2007 (the 1997 Scheme) and a new scheme which was approved by shareholders at the company’s annual general meeting on 31 July 2007 (the 2007 Scheme). 1997 Scheme The company has operated this scheme since 1997 where options were granted to any employee, offi cer or director of the company or any subsidiary of the company. The limit for options granted under this scheme was not to exceed 15% of the number of issued ordinary shares from time to time. The Board granted options at its discretion. The subscription price was fi xed by the Board at the price per share on the dealing day preceding the date of grant. For the directors, these options vest immediately and may be exercised at any time within a seven-year period from the date of the grant, unless the Board determines otherwise. The options lapse if not exercised by the seventh anniversary of the grant. For the employees, there is a vesting period of one to three years from the date of grant. Once vested, the options may be exercised at any time within a seven-year period from date of grant, unless the Board determines otherwise. The options lapse if not exercised by the seventh anniversary of the grant. The right to exercise an option terminates on the holder ceasing to be a participant, subject to certain exceptions, which broadly apply in the event of death of the option holder or where the option holder ceases to be a participant due to retirement, ill health, accident or redundancy. In such a case, the option may be exercised within six months of such event provided such exercise will take place within seven years of the original date of grant. 2007 Scheme The 2007 Scheme allows for both tax approved options (approved options) to be made to employees resident in the United Kingdom and unapproved options (unapproved options), which can be made to both resident and non-resident employees. The company has operated this scheme since December 2007 where options may be granted to full-time employees and directors of the company or any subsidiary of the company. The overall limit for options granted under this scheme and any other employees’ share scheme adopted by the company is, in any rolling ten-year period, 10% of the issued ordinary share capital (including treasury shares) of the company for the time being plus 8,100,000 ordinary shares. There is an individual limit of ordinary shares to a maximum of £30,000 in value in respect of approved options. Options may be granted when the Remuneration Committee determines, within 42 days of the announcement by the company of its full or interim results. Options may be granted outside the 42-day period if the Remuneration Committee considers there to be exceptional circumstances. Options must be granted subject to performance conditions being satisfi ed. The performance conditions must be objective and, save where the Remuneration Committee determines there to be exceptional circumstances, the performance conditions must relate to the overall fi nancial performance of the company or the market value of ordinary shares over a period of at least three years. The performance conditions can be waived or amended by the Remuneration Committee if it determines that a change of circumstances means that the performance conditions cannot reasonably be met. No consideration is payable on the grant of an option and no option may be granted after 31 July 2017. The Remuneration Committee determines the exercise price before the options are granted and it cannot be less than the market value of the shares on the date of grant. The options can only be exercised on or after the third anniversary of the date of grant provided the performance conditions have been satisfi ed or waived by the Remuneration Committee. The options lapse if not exercised by the tenth anniversary of the grant. Mwana AR11_Fin_4Aug.indd 69 Mwana AR11_Fin_4Aug.indd 69 69 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 31. Share-based payments (continued) These options lapse when the option holder ceases to be an eligible employee. In the case of death, a participant’s personal representatives may exercise his/her options within 12 months after the date of death. Where an option holder ceases to be an employee by reason of injury, disability, redundancy, the company that employs the option holder ceasing to be a subsidiary of the company, retirement, pregnancy or in any other circumstances determined by the Remuneration Committee, the options may be exercised within six months of the termination of employment or such longer period as may be determined by the Remuneration Committee. Other share-based payments At the time of the acquisition of Freda Rebecca Gold Mine in 2005, the group agreed to sell a 15% interest in the company with a value of US$375,000 to a local investor. This option has vested immediately on inception and can be exercised at any time. Documentation and completion of the sale have yet to be concluded. Share incentives The share incentive scheme was approved by shareholders at the company’s annual general meeting on 31 July 2007 (the Share Incentive Scheme). The Share Incentive Scheme is designed to complement the Share Option Scheme to facilitate awards to selected executives and managers. The Share Incentive Scheme permits the award of any one or a combination of the following incentives: • the sale of ordinary shares on deferred payment terms; • share awards as part of a bonus scheme by way of nil cost options in consideration of cash bonuses forgone on terms that would be determined by the Remuneration Committee of the company; and • the issue of share appreciation rights either by the company or EBT (as defi ned below). The company has also adopted an Employees’ Benefi t Trust (EBT) which will operate in conjunction with the Share Option Scheme and Share Incentive Scheme. The EBT has not yet been utilised for this purpose and there have been no awards under the Share Incentive Scheme since it was approved by shareholders. The share options have been valued using a Black Scholes model. 70 Mwana AR11_Fin_4Aug.indd 70 Mwana AR11_Fin_4Aug.indd 70 2011/08/04 11:17 AM 2011/08/04 11:17 AM Unapproved Options – 1997 Scheme Outstanding at beginning of the year Granted during the year Exercised during the year Lapsed/cancelled during the year Outstanding at end of the year Exercisable at end of the year Unapproved Options – 2007 Scheme Outstanding at beginning of the year Granted during the year Exercised during the year Lapsed/cancelled during the year Outstanding at end of the year Exercisable at end of the year Approved Options – 2007 Scheme Outstanding at beginning of the year Granted during the year Exercised during the year Lapsed/cancelled during the year Outstanding at end of the year Exercisable at end of the year 2011 2010 Weighted average exercise price Number of options Weighted average exercise price Number of options 54p 19,565,000 48p 19,770,000 – – 84p 53p 53p – – (275,000) 19,290,000 19,290,000 26p 17,988,408 – – 27p 25p 40p – – (1,587,693) 16,400,715 7,390,000 26p 550,438 – – 33p 24p 40p – – (92,307) 458,131 183,846 – – 48p 54p 54p 43p 13p – 47p 26p – 40p 14p – 55p 26p – – – (205,000) 19,565,000 19,565,000 14,597,648 9,760,715 – (6,369,955) 17,988,408 – 331,198 274,285 – (55,045) 550,438 – The total expenses recognised for the year arising from share-based payments related to share options is £139,310 (2010: £261,927). No options were exercised during current or previous year. The options outstanding at the year-end have a range of exercise prices of 10p to 79p (2010: 10p to 125p) and a weighted average contractual life of 5.0 years (2010: 6.0 years). For share option grants made in the current and prior year: Weighted average fair value at measurement date Weighted average share price Weighted average exercise price Expected volatility Expected option life Expected dividends Risk-free interest rate 2011 – – – – – – – 2010 4p 13p 13p 35% 4.5 years – 4.0% The expected volatility is primarily based on the historic volatility. Since the year-end, 750,000 share options have been awarded, 50,000 share options have lapsed and no share options have been exercised. Mwana AR11_Fin_4Aug.indd 71 Mwana AR11_Fin_4Aug.indd 71 71 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 32. Financial instruments The directors determine, as required, the degree to which it is appropriate to use fi nancial instruments, commodity contracts, other fi nancial instruments or techniques to mitigate risks. The principal risks for which such instruments may be appropriate are interest rate risk, liquidity risk, foreign currency risk and commodity price risk. The most signifi cant of these is foreign currency risk which comprises transactional exposure on operating activities. Some translation exposure also exists in respect of the investments in overseas operations, since these have functional currencies other than the group’s reporting currency. The group is also exposed to commodity price risk since its sales are dependent on the price of gold, nickel and diamonds. The group has not currently engaged any instruments in order to mitigate or hedge any such risks, although the directors keep this regularly under review. Trade receivables of £1,799,860 (2010: £884,583) were due to Freda Rebecca by the Zimbabwean Chamber of Mines, none of which was outstanding past its due date. Trade receivables of £848,863 (2010: £2,866,294) were receivable from a well-established commodities trader. None of the trade receivables was outstanding past its due date. Based on historical default rates, the group believes that no impairment allowance is necessary in respect of trade receivables as explained in note 4. Exposure to currency risk The group’s exposure to currency risk was as follows based on notional amounts: 2011 2010 USD ZAR GBP Other Total USD ZAR GBP Other Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Receivables Net cash and cash equivalents 8,766 3,866 466 369 350 352 – 5 9,582 4,592 9,522 7,305 924 244 1,743 7,330 8 12,197 277 15,156 Payables (26,287) (761) (1,290) – (28,338) (20,217) (764) (1,171) (5) (22,157) Gross balance sheet exposure (13,655) 74 (588) 5 (14,164) (3,390) 404 7,902 280 5,196 The following signifi cant exchange rates applied against the British pound during the year: AUD EUR USD ZAR Average rate Balance sheet rate 2011 1.6510 1.1769 1.5561 2010 1.8859 1.1296 1.5963 2011 1.5551 1.1372 1.6033 2010 1.6397 1.1204 1.5072 11.2093 12.5117 10.9642 11.1420 Sensitivity analysis A 10% weakening of the British pound against the following currencies at 31 March and the average rate for the year ended 31 March would have increased/(decreased) equity and results before minority interest by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2010. USD AUD ZAR Equity Results 2011 £’000 2,587 – (3,279) 2010 £’000 3,083 20 (579) 2011 £’000 587 – (385) 2010 £’000 698 33 (154) A 10% strengthening of the British pound against the above currencies would have had a similar but opposite effect to the amounts shown above, on the basis that all other variables remain constant. 72 Mwana AR11_Fin_4Aug.indd 72 Mwana AR11_Fin_4Aug.indd 72 2011/08/04 11:17 AM 2011/08/04 11:17 AM Commodity price risk For the 2011 fi nancial year, the group’s earnings were mainly exposed to changes in the prices of gold and nickel. A 10% increase and decrease in these prices would have increased/(decreased) equity and results by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2010. 10% increase in nickel price 10% decrease in nickel price 10% increase in gold price 10% decrease in gold price Equity Results 2011 £’000 257 (257) 2,260 (2,260) 2010 £’000 624 (624) 598 (598) 2011 £’000 265 (265) 2,328 (2,328) 2010 £’000 1,180 (1,180) 598 (598) Liquidity risk The group analysis of the liquidity risk is based on an 18-month term cash fl ow projection. This is disclosed in detail in note 4, along with the risks and uncertainties included within the forecasts. Financial risk management Fair values Fair value is defi ned as the amount at which a fi nancial instrument could be exchanged in an arm’s length transaction between informed and willing parties. Wherever possible, fair value is calculated by reference to quoted prices in active markets for identical instruments. Where no such quoted prices are available, other observable inputs are used and if there are no observable inputs then fair values are calculated by discounting projected future cash fl ows at prevailing rates translated at year-end exchange rates. Fair values for fi nancial assets and liabilities recognised at cost in the group balance sheet Book value Fair value Financial assets Investments Non-current receivables Trade and other receivables Cash and cash equivalents Financial liabilities Trade and other payables Other payables 2011 £’000 2,516 948 9,582 4,592 9,188 19,568 2010 £’000 2,076 1,005 12,197 15,156 8,879 12,036 2011 £’000 2,516 948 9,582 4,592 2010 £’000 2,076 1,005 12,197 15,156 9,188 19,568 8,879 12,036 33. Events after the reporting period At an extraordinary general meeting held on 9 June 2011, the shareholders approved a capital reorganisation under which the existing ordinary shares with a nominal value of 10p each were subdivided into one new ordinary share of 1p and one deferred share of 9p. Immediately following the capital reorganisation, every shareholder held one new ordinary share and one deferred share in place of any existing share held. On 9 June 2011 the company successfully placed 185,425,548 shares at a price of 5p for a total consideration of £8.8 million net of costs. Mwana AR11_Fin_4Aug.indd 73 Mwana AR11_Fin_4Aug.indd 73 73 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes to the annual fi nancial statements for the year ended 31 March 2011 cont. 34. Related party disclosures Group Transactions between group subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Company The company provided funding to subsidiary companies which are disclosed as current receivables in note 23. During the period March to September 2010, Mr Oliver Baring incurred costs of a personal nature on his company credit card, a balance which is settled by the company on a monthly basis. £82,288 including interest charged at 3% per annum was repaid on 30th of September 2010. 35. Commitments and contingent liabilities Commitments Capital commitments at the end of the fi nancial year relating principally to property, plant and equipment for BNC and Freda Rebecca, for which no provision has been made, are as follows: Contracted Group Company 2011 £’000 1,801 2010 £’000 1,390 2011 £’000 – The group and company have the following total minimum lease payments under non-cancellable operating leases: Operating leases which expire: Within one year Two to fi ve years Over fi ve years Contracted Group 2011 £’000 198 153 – 351 2010 £’000 236 351 – 587 Company 2011 £’000 130 153 – 283 2010 £’000 – 2010 £’000 130 283 – 413 Contingent liabilities The group and company monitor contingent liabilities, including, inter alia, those relating to taxation in the various jurisdictions in which the group and company operate, environmental, closure and other contingent liabilities, on an ongoing basis. Provision for such liabilities is raised in the fi nancial statements when the necessary recognition criteria have been satisfi ed. The following contingencies exist at the year-end: Group • There are a number of legal claims which have been brought against BNC and Freda Rebecca. Company • The company has committed to a death in service benefi t of fi ve times executive annual salary for Mr KK Mpinga. Twice the annual salary is covered by an insurance policy leaving the company with a remaining exposure of three years. • The company has issued a guarantee to the Industrial Development Corporation of South Africa for the loan given to Freda Rebecca. 74 Mwana AR11_Fin_4Aug.indd 74 Mwana AR11_Fin_4Aug.indd 74 2011/08/04 11:17 AM 2011/08/04 11:17 AM Notes Mwana AR11_Fin_4Aug.indd 75 Mwana AR11_Fin_4Aug.indd 75 75 2011/08/04 11:17 AM 2011/08/04 11:17 AM Corporate information Registration number 02167843 Offi ces Registered and Corporate Devon House 12-15 Dartmouth Street London SW1H 9BL United Kingdom Telephone: +44 (0)207 654 5580 Facsimile: +44 (0)207 654 5581 Johannesburg Third Floor East Wing Standard Bank Building 11 Alice Lane Johannesburg South Africa PO Box 78278 Sandton South Africa Telephone: +27 (0)11 883 9550/1 Facsimile: +27 (0)11 883 9511 Directors OAG Baring KK Mpinga DAR McAlister SG Morris JA Anderson E Denis Company secretary BP Tuck Auditors KPMG Audit Plc 15 Canada Square London E14 5GL United Kingdom Bankers Barclays Bank Plc Nominated advisor and joint broker Ambrian Partners Limited Old Change House 128 Queen Victoria Street London EC4V 4BJ United Kingdom Joint broker XCAP Securities plc 24 Cornhill London EC3V 3ND Public relations Merlin 11 Ironmonger Lane London EC2V 8EY United Kingdom 76 Mwana AR11_Fin_4Aug.indd 76 Mwana AR11_Fin_4Aug.indd 76 2011/08/04 11:17 AM 2011/08/04 11:17 AM Forward-looking statements This report has been issued by, and is the sole responsibility of Mwana Africa PLC. This report includes ‘forward-looking statements’. Words such as ‘anticipates’, ‘expects’, ‘intends’, ‘plans’, ‘forecasts’, ‘projects’, ‘budgets’, ‘believes’, ‘seeks’, ‘estimates’, ‘could’, ‘might’, ‘should’, and similar expressions identify forward-looking statements. All statements other than statements of historical facts included in this report, including, without limitation, those regarding Mwana Africa’s business strategy and plans and objectives of management for future operations and acquisition opportunities, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors which could cause the actual results, performance or achievements of Mwana Africa or the markets and economies in which Mwana Africa operates to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements, including, without limitation, political, regulatory and economic factors. Factors that would cause actual results or events to differ from current expectations include, among other things, changes in commodity prices, changes in equity markets, failure to establish estimated mineral resources, political risks, changes to regulations affecting Mwana Africa’s activities, delays in obtaining or failures to obtain required regulatory approvals, failure of equipment, uncertainties relating to the availability and costs of fi nancing needed in the future, the uncertainties involved in interpreting drilling results and other geological data, delays in obtaining geological results, and other risks involved in the mineral exploration industry. Mwana Africa believes that the assumptions inherent in the forward-looking statements are reasonable; however, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein. Mwana Africa does not assume any responsibility to update any of such forward-looking statements, save as required by relevant law or regulatory authority. This report contains information regarding the results of various exploration activities. Where a mineral resource has not been defi ned, it should be noted that the potential quantity and grade is conceptual in nature, there has been insuffi cient exploration to defi ne a mineral resource, and that it is uncertain if further exploration will result in the target being delineated as a mineral resource. Charl du Plessis, Executive Vice President Exploration of Mwana Africa, who holds a PhD and is a Member of the AusIMM, and, James Arthur, Executive Vice President Operations of Mwana Africa, Fellow of the Southern African Institute of Mining and Metallurgy, are ‘Qualifi ed Persons’ as defi ned in the AIM Rules. The exploration and resource information contained in this report pertaining to Zani-Kodo and SEMHKAT has been reviewed and verifi ed by Dr Du Plessis, and, the resource information contained in this report pertaining to Trojan mine, Shangani mine, Hunters Road and Freda Rebecca Gold Mine has been reviewed and verifi ed by Mr Arthur. Mwana AR11_Fin_4Aug.indd 77 Mwana AR11_Fin_4Aug.indd 77 2011/08/04 11:17 AM 2011/08/04 11:17 AM www.mwanaafrica.com Mwana AR11_Fin_4Aug.indd 78 Mwana AR11_Fin_4Aug.indd 78 2011/08/04 11:17 AM 2011/08/04 11:17 AM