Zephyr Energy Plc Annual Report 2016

Plain-text annual report

Rose Petroleum plc Rose Petroleum plc Annual Report and Financial Statements For the year ended 31 December 2016 Contents Directors, Advisers and Oﬃcers Chairman’s Statement Strategic Report Directors’ Report Corporate Governance Statement Statement of Directors' Responsibili7es Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Company Balance Sheet Company Statement of Changes in Equity Company Cash Flow Statement Notes to the Financial Statements No7ce of Annual General Mee7ng 02 03 04 11 14 16 17 19 20 21 22 23 24 25 26 27 60 Annual Report and Accounts for the year ended 31 December 2016 01 Rose Petroleum plc Directors, Advisers and Oﬃcers Non-Execu&ve Chairman Non-Execu&ve Director Chief Execu&ve Oﬃcer Chief Opera&ng Oﬃcer Mining Chief Financial Oﬃcer Directors PE Jeﬀcock KB Sco8 MC Idiens KK He&on CJ Eadie Secretary IH McNeill Registered Oﬃce 20-22 Wenlock Road London N1 7GU Auditor KPMG LLP 15 Canada Square London E14 5GL Registrars Capita Asset Services 34 Beckenham Road Beckenham Kent BR3 4TU Bankers Barclays Bank Plc Level 27 1 Churchill Place London E14 5HP Solicitors Memery Crystal LLP 44 Southampton Buildings London WC2A 1AP Nominated Adviser and Broker Allenby Capital Limited 3 St Helen’s Place London EC3A 6AB Joint Broker Turner Pope Investments Ltd Becket House 36 Old Jewry London EC2R 8DD 02 Annual Report and Financial Statements for the year ended 31 December 2016 Chairman’s Statement In the Company’s Interim Results statement for 2016, published in September 2016, it was outlined that the recent period has been one of restructuring, consolida7on and transforma7on for the Group. This has been a con7nuing theme in the period since, and the Board has con7nued to adopt a strategy to ensure that the Group is posi7oned to create value from its exis7ng assets while being ﬂexible and agile to take advantage of opportuni7es that arise both before and a&er a recovery in the natural resources sector. Conserving exis7ng cash resources has also been a key priority during the period. There is no doubt that the prevailing market condi7ons of the last few years have provided the Board with an extremely challenging backdrop against which to operate, but the decisive ac7on of the Board has sought to de-risk and safeguard the exis7ng asset por6olio, reduced liabili7es and opera7onal overheads and enabled us to iden7fy and chase some very convincing poten7al opportuni7es. Despite the withdrawal from the Mancos acreage, and disposal of the Cisco Dome ﬁeld, associated wells and associated infrastructure during the period, the Board fundamentally believes that the Group’s Oil and Gas (“O&G”) por6olio is of a scale and quality to deliver signiﬁcant shareholder value. The Paradox assets were acquired due to their prospec7vity, size, loca7on and low breakeven price, and despite the downturn in the oil sector, the Board believes that they remain a highly desirable asset. In addi7on, by reducing the size of the Company’s acreage through the disposal of the Mancos acreage, the Board achieved the twin objec7ve of both retaining the core part of the Group’s O&G por6olio and also signiﬁcantly reducing costs and liabili7es. We have kept the market regularly updated on our progress to secure the permit for the 3D seismic survey in the Paradox Basin and we remain on track to shoot the survey by the end of this year. This will be a major step in the process of unlocking value from the Paradox acreage and will hopefully be the precursor for the drilling of our ﬁrst well in the Paradox Basin during 2018. The Board has reviewed numerous poten7al opportuni7es in the natural resources sector since the downturn in the oil price, looking to create shareholder value ahead of the recovery in the sector, and I was delighted that we were able to secure an investment in the Company during the period to pursue some exci7ng prospects in Cuba. The overall economic and poli7cal changes taking place in Cuba present a striking opportunity, with direct foreign investment now being a priority, to realise the country’s an7cipated growth. While there is no certainty that any transac7on will complete, we have had, and con7nue to be in direct discussions with the relevant Government owned corpora7ons in Cuba about poten7al transac7ons in both the Oil and Gas and building materials sectors. Post period end the Company announced that it had entered into nego7a7ons to dispose of its SDA Mill in Mexico. While there is no guarantee that the transac7on will complete, should it do so, the Group will allocate the funds towards the total funds required for the 3D seismic shoot in the Paradox Basin. While the SDA Mill remains a viable standalone business for Rose, albeit with a low level of proﬁtability, the Board believes that the current outlook for US energy is extremely encouraging, and therefore a strategic focus on the Paradox acreage is currently the op7mal way to deliver short-term value to shareholders. While the cost cu9ng across the Group to date has been radical and far-reaching, the Board has ensured that it has retained an opera7onal capability suﬃcient to meet its commitments for the foreseeable future. As well as protec7ng the exis7ng asset base and posi7oning the Group for short-term growth, the Board is also conﬁdent that the Company has the capacity to take advantage of poten7al acquisi7on opportuni7es, such as those that we are currently looking at in Cuba, which we believe will inevitably arise. I am looking forward to the period ahead, and I would like to take this opportunity to thank our investors, advisers and employees for their con7nuing support during this transforma7onal period. The Board is looking forward to upda7ng you on progress throughout 2017, which promises to be an exci7ng period in the Company’s ongoing evolu7on. PE Jeﬀcock 5 June 2017 Annual Report and Financial Statements for the year ended 31 December 2016 03 Rose Petroleum plc Strategic Report The Directors present their strategic report on the Group for the year ended 31 December 2016. Principal Objec0ves and Strategies Rose Petroleum plc is a diversiﬁed Oil & Gas (“O&G”) and Mining Company with explora7on assets and an opera7onal crushing and ﬂota7on mill. The key strategic objec7ve is to deliver shareholder returns through the enhancement of these assets. This key objec7ve will be achieved by various strategies: • • • • • con7nuing development of a Board consis7ng of highly experienced professionals covering O&G, mineral explora7on, mine development, ﬁnancing and ﬁnancial control of public companies; strong and experienced management teams to maximise returns from the Company’s underlying O&G and Mining assets; the poten7al acquisi7on of further interests through acquisi7on, farm-in agreements and joint arrangements to deliver near-term value to stakeholders; considera7on of the capital and ﬁnancing required to achieve our objec7ves and market percep7on; and 7ght ﬁnancial control and cash conserva7on. Review Of Opera0ons Oil & Gas Division U.S.A. During the strong oil price environment of 2014 and early 2015, the Group entered into agreements under which it was able to commence earning into a 75% working interest in approximately 263,000 gross acres in Utah. The area of focus of the acreage was on two unconven7onal oil and gas basins: the Uinta Basin, which targets the Mancos Shale at a maximum depth of approximately 3,200&, and the Paradox Basin that targets the Paradox Clas7cs at a maximum depth of approximately 10,500&. Under the terms of the original agreement, the Group was to carry the seller of the acreage, Rockies Standard Oil Company LLC (“RSOC”), which was to retain a 25% working interest in the leasehold, for the ﬁrst US$17 million expenditure on the projects: US$9.5 million in the Uinta Basin and US$7.5 million in the Paradox Basin. Under the terms of the agreement, the obliga7on is not contractually commi8ed and therefore, no liability or con7ngent liability has been recognized in these ﬁnancial statements. During 2014, and subsequent to the acquisi7on of the Cisco Dome ﬁeld, Ryder Sco8 Company LP (“Ryder Sco8”) completed a reserve report on the Utah leasehold. Based on that reserve report, the Group’s Mean Un-Risked Recoverable Prospec7ve Resources across its total acreage were es7mated to be 1.8 billion barrels of oil (“BO”) and 6.45 trillion cubic feet of gas (“TCFG”). Of these total resources, it was es7mated by Ryder Sco8 that the Paradox acreage contained over 1.1 billion BO (61% of the total BO resources es7mated) and circa 2.2 TCFG (34% of the total gas resources es7mated), whilst the Mancos acreage contained circa 710 million BO (39% of the total BO resources es7mated) and circa 4,260 TCFG (66% of the total gas resources es7mated). In the report, Ryder Sco8 also gave an opinion on the chance of success in the Paradox and Mancos acreage and concluded that the chance of success within the Paradox leases was up to 56%, compared with 30% in the Mancos leases. 04 Annual Report and Financial Statements for the year ended 31 December 2016 Strategic Report con7nued During the la8er part of 2014 and during 2015, the Group concentrated its eﬀorts on the Mancos due to the rela7ve ease of drilling with its shallow depth, low drilling costs, and good infrastructure. The Board was hopeful that a demonstra7on of the prospec7vity of the Mancos could be achieved in quick 7me and that a successful drilling campaign would provide the catalyst of cashﬂow that would enable the commencement of the Paradox ac7vity. However, following the ini7al work programme at the Mancos, the Board concluded that the Paradox Basin presented a lower risk opportunity, with greater scale and a higher chance of success. Revised agreement with RSOC Having considered all of the above, the Board announced in April 2016 that it had entered into an agreement with RSOC to cease earning into the Mancos acreage and dispose of the Cisco Dome ﬁeld, wells, pipelines, gas tap, gas plant, and all the associated equipment and liabili7es to RSOC, with the inten7on of focusing solely on the Group’s Paradox acreage. As part of the revised agreement with RSOC, the Group agreed to cover the cost of the exis7ng plug and abandonment (“P&A”) liability of the four wells already scheduled for P&A with the authori7es, which was calculated to be US$0.3 million and which was se8led in the year. The Group also agreed to leave the exis7ng operator bonds in place with the State of Utah and Bureau of Land Management (“BLM”), which are now refundable to RSOC rather than the Group. RSOC, in turn, agreed to reduce the Group’s obliga7on to earn the 75% working interest in the Paradox acreage by US$2 million to US$5.5 million. Under the terms of the agreement, the obliga7on is not contractually commi8ed and therefore no liability or con7ngent liability has been recognized in these ﬁnancial statements. The revised agreement with RSOC has signiﬁcantly reduced opera7onal costs including lease rental/minimum royalty payments associated to the Mancos leasehold. Further, and poten7ally more importantly, the Group will no longer be liable for the P&A liability of the ﬁ&y plus wells in the Cisco Dome ﬁeld. This reduc7on of acreage has also enabled a reduc7on of headcount and a material reduc7on in opera7ng costs in the O&G Denver oﬃce. Paradox Basin acreage By way of background, the Paradox Basin has been ac7vely exploited by Fidelity Explora7on and Produc7on (“Fidelity”), mainly in the Cane Creek Forma7on, south southeast of the Group’s main group Paradox lease blocks. Fidelity has been the most ac7ve operator in the Paradox Basin over the past two years with average Q1 2015 produc7on of 2,100 barrels of oil equivalent per day (“boepd”). In addi7on to Fidelity’s success, mul7ple wells in the area of the Group’s leases have produced oil and gas to surface from various forma7ons, and it is a combina7on of all these factors that led the Board to the conclusion that it should focus on the Group’s Paradox Basin acreage. Throughout the period under review, and since, the Group has been undertaking the process of securing the permit to enable it to shoot a 3D seismic survey over the Paradox acreage. Consistent with Fidelity, the strategy is to shoot the seismic lines that will assist in iden7fying drilling targets for the Group’s ﬁrst wells in the Paradox. Signiﬁcant progress has been made in the process in recent months and on 7 March 2017, the Group announced that the 15-day public consulta7on period for its 3D seismic shoot permit had formally begun. Following the comple7on of this period, and based on comments received, the Group was informed by the Bureau of Land Management (“BLM”) that certain ques7ons raised in the comments received should have been addressed by the BLM in the original Environmental Assessment Study (“EA”) that supports the permit applica7on. As a result, the Group has now amended the shoot design to accommodate the points raised and resubmi8ed the documents to the BLM for review. Once this review is complete, the revised and updated EA will be published and made available for a further 15-day public consulta7on period. The BLM has assured Rose that the revised 7ming for gran7ng of the permits will not impact the commencement of the proposed physical shoot in H2 2017. Annual Report and Financial Statements for the year ended 31 December 2016 05 Rose Petroleum plc Strategic Report con7nued The Company has also now begun the process of assembling its technical team for the seismic shoot and has engaged the services of two key individuals, Dave List and Todd Fockler. Dave and Todd are geophysicists and both previously worked for Fidelity Explora7on and Produc7on Company on their Paradox seismic shoots and subsequent drilling programmes. Dave and Todd bring with them substan7al relevant exper7se and will help the Group to ensure that the technical and opera7onal aspects of the shoot are managed in the op7mal way. Their extensive opera7onal experience in the Basin will be of signiﬁcant beneﬁt to our programme going forward. Mining Division Gold and Silver Mining Opera0ons, Mexico Throughout most of 2016, the Group con7nued its milling opera7ons through its wholly owned subsidiary, Minerales VANE S.A. de C.V., which owns the SDA Mill. All milling consisted of processing third-party ore (“toll milling”) while joint-venture produc7on opportuni7es were evaluated. A total of approximately 20,300 tonnes of ore were processed during the year which covered the unit’s opera7ng costs. A number of joint venture produc7on opportuni7es were evaluated which resulted in two strong project candidates being pursued, however, factors outside the Company’s control meant that no transac7on was completed. In early 2017, Magellan Gold Corpora7on (OTCBB: MAGE) approached the Company with a view to acquiring the SDA Mill and, in March 2017, the two companies entered into a Memorandum of Understanding (“MOU”) in respect of a transac7on. The transac7on is presently in the due diligence phase. Under the terms of the MOU, the Company has granted Magellan a 90-day op7on period, for a non-refundable US$0.05 million deposit, to purchase the SDA Mill subject to the sa7sfac7on of a number of condi7ons. The MOU also provides Magellan with the op7on of extending this op7on period by a further 60 days in considera7on of an addi7onal US$0.1 million which would be credited against the ﬁnal purchase price should the sale proceed. The total purchase price for the SDA Mill is US$1.5 million, payable as US$1.0 million in cash and US$0.5 million in restricted common stock (shares) in Magellan. On 1 June 2017, the Company announced that Magellan had exercised its op7on to extend the 90-day op7on period for a further 60 days and the non-refundable payment of US$0.1 million has been received. Comple7on of the disposal of the SDA Mill is subject to a number of condi7ons, including, but not limited to, the Group and Magellan entering into a separate asset purchase agreement, the comple7on of sa7sfactory due diligence by Magellan and Rose, Magellan comple7ng a ﬁnancing to acquire the SDA Mill, and an audit by Magellan of the SDA Mill’s ﬁnancial statements at Magellan’s cost. In addi7on, as the SDA Mill has contributed the majority of Rose’s revenue in the past 12 months, any sale would be subject to the approval of the shareholders of Rose at a general mee7ng of the Company. There can therefore be no assurance at this stage that the sale of the SDA Mill will be completed. Base and precious metals explora0on, Mexico The Group’s single explora7on project is the Tango copper/molybdenum porphyry and associated precious metals veins property located 70 kilometres east of Mazatlán in southern Sinaloa. Eﬀorts to fund and organise the permi8ed drilling programme for 2017 are currently being re-evaluated due to the pending SDA Mill sale to Magellan Gold Corpora7on. IVA recovery, Mexico Throughout the period, the Group has been in the process of recovering approximately MX$17.9 million (c.US$1.0 million) of IVA (Mexican value added tax) and associated inﬂa7on adjustment payments owed to it from the Mexican tax authority, Servicio de Administración Tributaria (“SAT”). Post-period, SAT commenced refunding the Group’s IVA claim and approximately MX$9.2 million (c.US$0.5 million) has been received at the date of this report. The Company con7nues to seek the recovery of the remaining MX$8.8 million (c.US$0.5 million) owed to it by SAT. 06 Annual Report and Financial Statements for the year ended 31 December 2016 Strategic Report con7nued Copper explora0on, southwest U.S.A. In April 2016, the Group announced that it had entered into an agreement with privately held Burde8 Gold LLC, to conduct explora7on drilling on the Ardmore copper project which consists of 18 unpatented mining claims located north of Tucson, Arizona. Burde8 assumed control of the claims and is the operator of the project and has commenced explora7on work. Uranium explora0on, U.S.A. The bulk of the Group’s uranium assets are held in a joint venture with Anﬁeld Resources Inc. (TSXV: ARY) covering property holdings in the breccia pipe district of northern Arizona. The Group also owns 100% of the North Wash project in Utah. The land holdings in Arizona consist of a number of drill-proven breccia pipes, some containing mineraliza7on, and breccia pipe targets. The North Wash project in Utah contains a resource of uranium and vanadium. These holdings are being held on care and maintenance while management reviews its op7ons to develop the projects further. With respect to the poli7cal situa7on behind the land withdrawal in northern Arizona which nega7vely impacts all breccia-pipe holdings on federal lands, the elec7on of President Trump provides op7mism for a possible change in the status of those lands during his tenure. In respect of the disposal of the Company’s 50% interest in the Wate breccia pipe deposit to Energy Fuels Resources Inc. (TSE:EFR) in 2015, the Company and EFR further revised the terms of the Purchase and Sale Agreement during the period under review. Under the revised agreement, EFR paid the Company US$50,000 in 2016 and a further US$450,000 is payable on the date on which the ﬁrst Commercial Produc7on from the Wate Project occurs. Cuban Opportuni0es In May 2016, the Group announced that it had raised gross proceeds of US$1.2 million (£0.8 million) from Earth Source Investment Inc, primarily to further develop opportuni7es that had arisen in Cuba and speciﬁcally around the processing and manufacturing of gypsum and associated building materials. As announced on 4 July 2016 and in the period since, Rose, with the assistance of its technical team supported by Grenzebach BSH (GmbH) (“Grenzebach”), has been nego7a7ng with Empressa Materiales de Construccion (“EMC”), the local state company, to construct the proposed gypsum processing and manufacturing facili7es to supply the domes7c and Caribbean market with various gypsum products including, but not limited to, gypsum wall and ceiling panels. Mul7ple models and plant facili7es have been discussed involving various end products and produc7on rates and Rose put forward its proposal on the agreed capacity and products at the end of the year, although the process is no longer exclusive to Rose. Having been through mul7ple versions of both capacity and end product requirements, which was an extremely challenging process, the Board of Rose would like to take this opportunity to thank Grenzebach for its con7nuing support. We are presently engaged in further discussions regarding the transac7on and we will update the market when we have further clarity around the ongoing process. As a result of the Group developing good rela7onships in Cuba, we have now also engaged with the Cuban na7onal oil company, CUPET, and are in early stage discussions regarding oil & gas licences. We feel that the oil and energy sectors in Cuba oﬀer excellent poten7al and hope to be able to progress our discussions. Financial Review Income Statement The Income Statement reports total revenue for the year ended 31 December 2016 of US$0.9 million (2015: US$4.3 million), arising from the Group’s precious mining and milling opera7ons in Mexico. The decrease in revenues was primarily the result of having a near full year of produc7on from the Mina Charay gold and silver project in 2015, which ceased in December 2015. Annual Report and Financial Statements for the year ended 31 December 2016 07 Rose Petroleum plc Strategic Report con7nued The Group reports a net loss a&er tax of US$0.2 million or 0.01 cents per share for the year ended 31 December 2016 (2015: net loss a&er tax US$9.1million or 0.45 cents per share). Due to the radical cost cu9ng programme, administra7ve costs for the year fell to US$2.3 million (2015: US$5.1m). The Group has made a share-based payment charge of US$0.3 million (2015: US$1.5 million). The Group has made a provision for impairment of intangible explora7on and evalua7on assets of US$0.36 million (2015: US$3.7 million) during the year. The charge relates primarily to the Group’s uranium and copper assets in the U.S.A. and Mexico respec7vely. Foreign exchange gains on the restatement of the Company’s loans to its subsidiaries were US$2.5 million (2015: US$0.4 million). This has had a signiﬁcant impact on the results for the year and can be primarily a8ributed to the weakening of sterling since Brexit. The income statement for the year includes a non-cash deferred tax credit of US$1.1m (2015: US$0.8 million). Balance Sheet Total investment in the Group’s intangible explora7on and evalua7on assets at 31 December 2016 was US$10.1 million (2015: US$10.2 million) primarily reﬂec7ng investment in the Utah O&G assets. The carrying value of property, plant and equipment at 31 December 2016 was US$0.3million (2015: US$0.6 million) reﬂec7ng the con7nued deprecia7on of the ore processing mill. Trade and other receivables of US$1.2 million (2015: US$1.5 million) includes US$0.8 million in respect of VAT and tax recoverable in Mexico. Cash and cash equivalents at 31 December 2016 were US$1.3 million (2015: US$2.4 million). During the period, the Company raised gross proceeds of US$2.4 million through the placing of the Company’s Ordinary Shares. Going Concern The Directors have set out in note 3 to the ﬁnancial statements their considera7on of the future ﬁnancing requirements of the Group and acknowledge that the circumstances represent a material uncertainty that may cast signiﬁcant doubt upon the Group and Company’s ability to con7nue as a going concern which has resulted in the auditor including an emphasis of ma8er in their report. Nevertheless, having given considera7on to the uncertain7es, the Directors have a reasonable expecta7on that a sale of the SDA mill will be completed in due course, and the 3D seismic permit will be granted, which will allow the Group to raise suﬃcient funding to con7nue in opera7onal existence for the foreseeable future. Despite challenging capital markets, the Company and Group have been successful historically in raising equity ﬁnance and consider that they have reasonable grounds for believing these past successes will con7nue. For these reasons, they con7nue to adopt the going concern basis in preparing the consolidated ﬁnancial statements. This assessment has been carried out in the light of the guidance issued to the Directors by the Financial Repor7ng Council. Key Performance Indicators The Group measures its progress against a number of key performance indicators (“KPIs”) which are reviewed regularly by the Board. These are set out below: • • • 7ght cost control and monitoring of actual expenditure versus budget; opera7onal eﬃciencies at the Group’s milling opera7on including monitoring gold recoveries from ore; CAPEX controls including the monitoring of overall costs of drilling wells in the Paradox Basin; and • monitoring of G&A expenditure versus budget and peer group. 08 Annual Report and Financial Statements for the year ended 31 December 2016 Strategic Report con7nued Risks and Uncertain0es and Risk Management There are a number of poten7al risks and uncertain7es which could have a material impact on the Group’s long term performance and could cause actual results to diﬀer from expected and historical results. The principal risks and uncertain7es that we face are: Non-Financial Risks • Overseas territories experience varying degrees of poli7cal and civil instability. There can be no assurance that poli7cal and civil stability will con7nue in those countries where the Group currently has, or in the future will have, opera7ons. Poli7cal instability or changes in government law or policies could materially aﬀect the rights and 7tle to the interests held by the Group, and the opera7ons and ﬁnancial condi7on of the Group could be adversely aﬀected. • • • • The U.S.A. Department of Interior has issued a 20-year withdrawal from mineral entry on approximately 1 million acres in the northern Arizona’s uranium breccia pipe district. This order prevents work on our claims located on federal lands. State of Arizona lands, on which the Group is now focusing its eﬀorts, are unaﬀected by this withdrawal. The geographic loca7ons of the Group’s opera7ons can present logis7cal diﬃcul7es in the installa7on, opera7on and maintenance of equipment related to the ac7vi7es of the business. The Group currently generates its income from mining ac7vi7es operated by contractors and is at risk of any disrup7on to mining or milling ac7vi7es for reasons beyond the Group’s control. The Group has excellent rela7onships with mining contractors opera7ng at the mine and has access to alterna7ve contractors if required. The Group’s opera7ons are such that minor and major injuries as well as fatali7es could occur which could result in the temporary closure of the Group’s opera7ons. In certain overseas territories, the Group might be unable to obtain the comprehensive level of insurance cover that would be available in the United Kingdom. Financial Risks • There is a risk that the carrying value of the Group’s assets will not be recovered through future revenues, leading to signiﬁcant impairment losses. The Group manages the recoverability of its assets and assesses the economic viability throughout the explora7on, development and produc7on phases. • • • • The ac7vi7es of the Group are subject to ﬂuctua7ons in prices and demand for commodi7es, which are vola7le and cannot be controlled. Changes in U.S. legisla7on may aﬀect future opera7ons in that royal7es on minerals extracted from federal lands may be imposed. Funds are maintained by the Group in GBP, MXN and USD. There is a risk that purchasing power in Mexico and the U.S.A. is lost through foreign exchange transla7on. The Group considers its foreign exchange risk to be a normal and acceptable business exposure and does not hedge against the risk. There is a risk that there will be insuﬃcient funds to meet all corporate, development and produc7on obliga7ons and ac7vi7es and con7nue as a going concern into the foreseeable future. The Group manages liquidity risk by maintaining adequate cash reserves and monitoring forecast and actual cash ﬂows. Management regularly reviews the Group’s cash ﬂow projec7ons and forecasts. Annual Report and Financial Statements for the year ended 31 December 2016 09 Rose Petroleum plc Strategic Report con7nued On 23 June 2016, the UK electorate voted to discon7nue its membership of the EU. Un7l further details are known regarding the terms on which the UK will exit, the Directors are not able to assess the impact on the Company and the Group, or what impact the wider regulatory and legal consequences of the UK leaving the EU would be on the Company and the Group. Corporate Social Responsibility Employee Recruitment and Reten0on Although the Group had no quan7ta7ve target for the number of employees it needs or retains, this metric is closely monitored. The Group has an excellent record of retaining key staﬀ. Health and Safety It is the objec7ve of the Group to ensure the health and safety of its employees and of any other persons who could be aﬀected by its opera7ons. It is the Group’s policy to provide working environments which are safe and without risk to health and provide informa7on, instruc7on, training and supervision to ensure the health and safety of its employees. Signiﬁcant Rela0onships The Group enjoys good rela7onships with all of its suppliers, professional advisers and opera7onal partners. Future Developments Your Board, management and dedicated teams con7nue to operate the Group’s exis7ng O&G and mining assets and will con7nue to look to enhance the value from these. In addi7on, the Group con7nues to inves7gate and evaluate new opportuni7es to increase shareholder value. We would like to thank all shareholders for their con7nued support. By order of the board MC Idiens Chief Execu&ve Oﬃcer 5 June 2017 10 Annual Report and Financial Statements for the year ended 31 December 2016 Directors’ Report The Directors present the Annual Report and ﬁnancial statements of the Group for the year ended 31 December 2016. Review of the Business A review of the business, future developments and the principal risks and uncertain7es facing the Group is given in the Strategic Report. The key performance indicators, which the Directors consider to be eﬀec7ve in managing the business, are included in the Strategic Report. Dividends The Directors do not recommend the payment of a dividend for the year ended 31 December 2016 (2015: US$nil). Directors The following were Directors during the year and held oﬃce throughout the year, unless otherwise indicated: MC Idiens KK He&on PE Jeﬀcock KB Sco8 CJ Eadie Directors’ interests in shares and share op0ons The Directors who held oﬃce at 31 December 2016 had the following interests, including family interests, in the Ordinary Shares of the Company as follows: MC Idiens KK He&on PE Jeﬀcock KB Sco8 CJ Eadie (1) Beneﬁcial interest held through the Glenville Discre7onary Trust. There have been no changes in these shareholdings since 31 December 2016. Number of Ordinary Shares 31 December 2016 1 January 2016 22,025,744 416,000 20,833,333(1) 20,139,213 416,000 20,833,333(1) – 94,402 – 94,402 Annual Report and Financial Statements for the year ended 31 December 2016 11 Rose Petroleum plc Directors’ Report con7nued Directors’ interests in share op7ons of the Company, including family interests, as at 31 December 2016 were as follows: Date of replacement/ grant MC Idiens KK He&on KK He&on MC Idiens MC Idiens KB Sco8 MC Idiens KK He&on CJ Eadie 28 Sep 2011 28 Sep 2011 30 Sep 2011 30 Sep 2011 3 Sep 2013 3 Sep 2013 10 Oct 2014 10 Oct 2014 13 Feb 2015 No. of shares 5,200,000 4,400,000 1,600,000 800,000 15,800,000 10,933,333 20,000,000 10,000,000 10,000,000 Exercise price 1.125p 1.125p 1.125p 1.125p 1.125p 0.475p 3.425p 3.425p 1.825p Op0on exercise period 28/09/11 to 30/09/21 28/09/11 to 30/09/21 01/09/12 to 29/09/21 01/09/12 to 29/09/21 03/09/14 to 01/09/23 03/09/14 to 01/09/23 10/10/15 to 09/10/24 10/10/15 to 09/10/24 13/03/16 to 12/03/25 The market price of the shares at 31 December 2016 and 31 December 2015 was 0.11p and 0.11p respec7vely and the average during the year was 0.14p. Third party indemnity provision for Directors The Company currently has in place, and had for the year ended 31 December 2016, Directors and oﬃcers liability insurance for the beneﬁt of all Directors of the Company. Substan0al shareholdings Other than the Directors’ interests shown above, the Company has been no7ﬁed of the following substan7al interests as at 1 June 2017: RG Williams Post Balance Sheet Events Number of shares 221,162,668 Percentage of issued share capital 5.9% Events a&er the balance sheet date have been disclosed in the Strategic Report and in note 33 to the ﬁnancial statements. Financial Instruments During the year the Company and its subsidiary undertakings applied ﬁnancial risk management policies as disclosed in note 31 to the ﬁnancial statements. 12 Annual Report and Financial Statements for the year ended 31 December 2016 Directors’ Report con7nued Disclosure of Informa0on to the Auditor The Directors who held oﬃce at the date of approval of this Directors’ report conﬁrm that, so far as they are each aware, there is no relevant audit informa7on of which the Company’s auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit informa7on and to establish that the Company’s auditor is aware of that informa7on. Auditor In accordance with Sec7on 489 of the Companies Act 2006, a resolu7on for the re-appointment of KPMG LLP as auditor of the Company is to be proposed at the forthcoming Annual General Mee7ng. The Strategic Report, Corporate Governance Statement and Report and the Directors’ Report were approved by the Board on 5 June 2017. For and on behalf of the Board MC Idiens Chief Execu&ve Oﬃcer 5 June 2017 Annual Report and Financial Statements for the year ended 31 December 2016 13 Rose Petroleum plc Corporate Governance Statement The policy of the Board is to manage the aﬀairs of the Group using the principles of the QCA Guidance as best prac7ce. This statement describes how the principles of corporate governance are applied to the Group to the extent that the Board considers is appropriate for a group of its size, nature and stage of development. The Board and its Commi1ees Board mee7ngs are scheduled every month with contact between mee7ngs as required. The mee7ngs are held to set and monitor strategy, review explora7on and trading performance, examine acquisi7on possibili7es and cash forecasts and approve reports to shareholders. The ma8ers reserved for the Board include, amongst others, approval of the Group’s long term objec7ves, policies and budgets, changes rela7ng to the Group’s management structure, approval of the Group’s ﬁnancial statements and ensuring maintenance of good systems of internal control. Procedures are established to ensure that appropriate informa7on is communicated to the Board in a 7mely manner to enable it to fulﬁl its du7es. Details of Directors who served during the year are set out in the Directors’ Report. The Board is currently comprised of three execu7ve Directors and two non-execu7ve Directors, one of whom acts as Chairman. There are separate roles for the Chairman and the Chief Execu7ve Oﬃcer. The Board has established an Audit Commi8ee, which comprises of a non-execu7ve Director, PE Jeﬀcock. The structure of the Audit Commi8ee is currently being reviewed. The Audit Commi8ee meets twice a year and the external auditor is invited to mee7ngs where appropriate. The main responsibili7es of the Audit Commi8ee are to review and report to the Board on ma8ers rela7ng to: • • • • • the integrity of the ﬁnancial statements of the Group, including its annual and interim accounts; the eﬀec7veness of the Group’s internal controls and risk management systems; the accoun7ng policies and prac7ces of the Group; audit plans and auditor’s report, including any signiﬁcant concerns the external auditor may have arising from their audit work; and the terms of appointment, remunera7on and independence of the auditor. The Board has established a Remunera7on Commi8ee, which comprises a non-execu7ve Director, PE Jeﬀcock. The structure of the Remunera7on Commi8ee is currently being reviewed. The Remunera7on Commi8ee meets twice a year and reviews the performance of the execu7ve Directors and the scale and structure of their remunera7on having due regard to the interests of the shareholders. The Commi8ee is also responsible for awards under the share op7on plan. No Director is involved in any decision rela7ng to his own remunera7on. Communica0on with Shareholders The Board encourages regular dialogue with shareholders. All shareholders are invited to the AGM at which Directors are available for ques7oning. The no7ce of AGM is sent to all shareholders at least 21 clear days before the mee7ng. The number of proxy votes received for and against each resolu7on is disclosed at the AGM and a separate resolu7on is proposed on each item. Financial and other informa7on about the Company is available on the Company’s website www.rosepetroleum.com. 14 Annual Report and Financial Statements for the year ended 31 December 2016 Corporate Governance Statement con7nued Internal Controls The Board is responsible for establishing the Group’s system of internal controls and for reviewing its eﬀec7veness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objec7ves, and can only provide the Board with reasonable and not absolute assurance against material misstatement or loss. The key procedures that have been established, and which are designed to provide eﬀec7ve internal control are as follows: • • • • each of the Group’s subsidiaries is managed by an execu7ve Director and there is a management repor7ng process in place to enable the Board to monitor the performance of the Group on a regular basis; an annual forecast is prepared and formally adopted by the Board. This is reviewed on a regular basis and actual performance against forecast is closely monitored; the Board reviews the major business risks faced by the Group and determines the appropriate course of ac7ons required to manage those risks; the Board approves proposals for the acquisi7on of new businesses and sets guidelines for the development of new proper7es. Capital expenditure is regulated and wri8en proposals must be submi8ed to the Board for any expenditure above speciﬁed levels; and • consolidated management informa7on is prepared on a regular basis. The Board reviews the eﬀec7veness of the system of internal controls and the control environment. No signiﬁcant control deﬁciencies were reported during the year and no weaknesses in internal controls have resulted in any material losses, con7ngencies or uncertainty which would require disclosure as recommended by the guidance for Directors on repor7ng on internal controls. The Board has reviewed the need for an independent internal audit func7on and has concluded that the Group is not large enough to warrant this at the present 7me. Annual Report and Financial Statements for the year ended 31 December 2016 15 Rose Petroleum plc Statement of Directors’ Responsibili7es The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the ﬁnancial statements in accordance with applicable law and regula7ons. Company law requires the Directors to prepare group and parent company ﬁnancial statements for each ﬁnancial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group ﬁnancial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company ﬁnancial statements on the same basis. Under company law the Directors must not approve the ﬁnancial statements unless they are sa7sﬁed that they give a true and fair view of the state of aﬀairs of the Group and parent company and of their proﬁt or loss for that period. In preparing each of the Group and parent company ﬁnancial statements, the Directors are required to: • select suitable accoun7ng policies and then apply them consistently; • make judgements and accoun7ng es7mates that are reasonable and prudent; • • state whether they have been prepared in accordance with IFRSs adopted by the EU; and prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will con7nue in business. The Directors are responsible for keeping adequate accoun7ng records that are suﬃcient to show and explain the Parent Company’s transac7ons and disclose with reasonable accuracy at any 7me the ﬁnancial posi7on of the Parent Company and enable them to ensure that its ﬁnancial 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 irregulari7es. The Directors are responsible for the maintenance and integrity of the corporate and ﬁnancial informa7on included on the Company’s website. Legisla7on in the UK governing the prepara7on and dissemina7on of ﬁnancial statements may diﬀer from legisla7on in other jurisdic7ons. 16 Annual Report and Financial Statements for the year ended 31 December 2016 Independent Auditor’s Report to the members of Rose Petroleum plc We have audited the ﬁnancial statements of Rose Petroleum plc for the year ended 31 December 2016 set out on pages 19 to 59. The ﬁnancial repor7ng framework that has been applied in their prepara7on is applicable law and Interna7onal Financial Repor7ng Standards (IFRSs) as adopted by the EU and, as regards the parent company ﬁnancial 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 ma8ers we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permi8ed 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. Respec0ve Responsibili0es of Directors and Auditor As explained more fully in the Directors’ Responsibili7es Statement set out on page 16, the Directors are responsible for the prepara7on of the ﬁnancial statements and for being sa7sﬁed that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the ﬁnancial statements in accordance with applicable law and Interna7onal Standards on Audi7ng (UK and Ireland). Those standards require us to comply with the Audi7ng Prac7ces Board’s Ethical Standards for Auditors. Scope of the audit of the Financial Statements A descrip7on of the scope of an audit of ﬁnancial statements is provided on the Financial Repor7ng Council’s website at h8p://www.frc.org.uk/auditscopeukprivate Opinion on Financial Statements In our opinion • • • • the ﬁnancial statements give a true and fair view of the state of the Group’s and of the parent company’s aﬀairs as at 31 December 2016 and of the Group’s loss for the year then ended; the Group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company ﬁnancial 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 ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Emphasis of Ma1er: Going Concern In forming our opinion on the ﬁnancial statements, which is not modiﬁed, we have considered the adequacy of the disclosures in note 3 to the ﬁnancial statements concerning the Group and Company’s ability to con7nue as a going concern; in par7cular, the 7ming and amount of proceeds from the planned sale of the SDA Mill and the successful raising of suﬃcient addi7onal equity funding. These condi7ons, together with the other ma8ers described in note 3 indicate the existence of a material uncertainty that may cast signiﬁcant doubt upon the Group’s and Company’s ability to con7nue as a going concern. The ﬁnancial statements do not include any adjustments that would result if the Group and Company were unable to con7nue as a going concern. Annual Report and Financial Statements for the year ended 31 December 2016 17 Independent Auditor’s Report to the members of Rose Petroleum plc con7nued Opinion on other ma1ers prescribed by the Companies Act 2006 In our opinion the informa7on given in the Strategic Report and the Directors’ Report for the ﬁnancial year for which the ﬁnancial statements are prepared is consistent with the ﬁnancial statements. Based solely on the work required to be undertaken in the course of the audit of the ﬁnancial statements and from reading the Strategic Report and the Directors’ report: • • we have not iden7ﬁed material misstatements in those reports; and in our opinion those reports have been prepared in accordance with the Companies Act 2006. Ma1ers on which we are required to report by excep0on We have nothing to report in respect of the following ma8ers where the Companies Act 2006 requires us to report to you if, in our opinion: • • • • adequate accoun7ng 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 ﬁnancial statements are not in agreement with the accoun7ng records and returns; or certain disclosures of Directors’ remunera7on speciﬁed by law are not made; or we have not received all the informa7on and explana7ons we require for our audit. Ashley Rees (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants KPMG LLP 15 Canada Square London E14 5GL 5 June 2017 18 Annual Report and Financial Statements for the year ended 31 December 2016 Consolidated Income Statement For the year ended 31 December 2016 Con0nuing opera0ons Revenue Cost of sales Gross proﬁt Opera7ng and development expenses Administra7ve expenses Project development expenses Impairment of intangible explora7on and evalua7on assets Foreign exchange gains Loss on disposal of assets held for sale Opera0ng loss Finance income Finance costs Loss before taxa0on Taxa7on Loss for the year a1ributable to owners of the parent company Loss per Ordinary Share Basic and diluted, cents per share Notes 2016 US$’000 2015 US$’000 5 7 8 9 24 10 11 12 15 16 898 (820) 78 (600) (2,313) (580) (360) 2,496 – (1,279) 9 – (1,270) 1,120 (150) 4,320 (3,806) 514 (1,522) (5,123) – (3,694) 438 (485) (9,872) 13 (5) (9,864) 797 (9,067) (0.01) (0.45) The notes on pages 27 to 59 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2016 19 Rose Petroleum plc Consolidated Statement of Comprehensive Income For the year ended 31 December 2016 Loss for the year a1ributable to owners of the parent company Other comprehensive income Items that may be subsequently reclassiﬁed to proﬁt or loss, net of tax Foreign currency transla7on diﬀerences on foreign opera7ons Total comprehensive income for the year a1ributable to owners of the parent company 2016 US$’000 (150) 2015 US$’000 (9,067) 6,498 6,498 904 904 6,348 (8,163) The notes on pages 27 to 59 form part of the ﬁnancial statements. 20 Annual Report and Financial Statements for the year ended 31 December 2016 Consolidated Balance Sheet At 31 December 2016 Company No 04573663 Non-current assets Intangible assets Property, plant and equipment Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabili0es Trade and other payables Provisions Taxa7on payable Non-current liabili0es Provisions Total liabili0es Net assets Equity Share capital Share premium account Share-based payment reserve Cumula7ve transla7on reserves Retained deﬁcit Equity a1ributable to owners of the parent company Notes 17 18 21 22 23 25 27 27 28 2016 US$’000 10,117 337 10,454 – 1,236 1,273 2,509 2015 US$’000 10,221 620 10,841 19 1,484 2,399 3,902 12,963 14,743 (524) (110) (1) (635) – – (635) 12,328 40,362 32,183 3,028 (8,376) (54,869) 12,328 (684) – (3) (687) (192) (192) (879) 13,864 38,765 31,471 2,899 (4,384) (54,887) 13,864 The ﬁnancial statements on pages 19 to 59 were approved by the Directors and authorised for issue on 5 June 2017 and are signed on its behalf by: CJ Eadie, Chief Financial Oﬃcer The notes on pages 27 to 59 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2016 21 Rose Petroleum plc Consolidated Statement of Changes in Equity For the year ended 31 December 2016 Share Share capital US$’000 premium payment reserve US$’000 account US$’000 Share- based Cumula0ve transla0on reserves US$’000 Retained deﬁcit US$’000 Total US$’000 As at 1 January 2015 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to retained earnings in respect of forfeit op7ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla7on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla7on diﬀerences on equity at historical rates 37,130 28,471 1,540 (2,258) (45,937) 18,946 1,635 – – – – 3,271 (271) – – – 1,523 – – (117) (47) 1,635 3,000 1,359 – – – – – – – – – – – – – – – – – – – – – – – – – 117 – 4,906 (271) 1,523 – (47) 117 6,111 (9,067) (9,067) 904 904 904 – – 904 904 (9,067) (8,163) (3,030) – (3,030) As at 1 January 2016 38,765 31,471 2,899 (4,384) (54,887) 13,864 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to retained earnings in respect of forfeit op7ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla7on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla7on diﬀerences on equity at historical rates 1,597 – – – – 783 (71) – – – – – 326 (168) (29) 1,597 712 129 – – – – – – – – – – – – – – – – – – – – – – – – – 168 – 2,380 (71) 326 – (29) 168 (150) 2,606 (150) 6,498 6,498 6,498 – – (150) 6,498 6,498 6,348 (10,490) – (10,490) As at 31 December 2016 40,362 32,183 3,028 (8,376) (54,869) 12,328 The notes on pages 27 to 59 form part of the ﬁnancial statements. 22 Annual Report and Financial Statements for the year ended 31 December 2016 Consolidated Cash Flow Statement For the year ended 31 December 2016 Opera0ng ac0vi0es Loss before taxa7on Finance income Finance costs Adjustments for: Deprecia7on of property, plant and equipment Loss on disposal of property, plant and equipment Impairment of Intangible explora7on and evalua7on assets Loss on disposal of assets held for sale Share-based payments Unrealised foreign exchange Opera7ng ou6low before movements in working capital Decrease in inventories Decrease/(increase) in trade and other receivables Decrease in trade and other payables Cash used in opera7ons Income tax paid Net cash used in opera0ng ac0vi0es Inves0ng ac0vi0es Interest received Purchase of property, plant and equipment Purchase of intangible explora7on and evalua7on assets Proceeds on disposal of property, plant and equipment Proceeds on disposal of intangible assets Proceeds from disposal of assets held for sale Net cash used in inves0ng ac0vi0es Financing ac0vi0es Proceeds from issue of shares Expenses of issue of shares Net cash from ﬁnancing ac0vi0es Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Eﬀect of foreign exchange rate changes Cash and cash equivalents at end of year 2016 US$’000 2015 US$’000 (1,270) (9,864) (9) – 201 17 360 – 326 (2,626) (3,001) 19 100 (163) (3,045) – (3,045) 4 – (272) 9 5 50 (204) 2,380 (71) 2,309 (940) 2,399 (186) 1,273 (13) 5 234 – 3,694 485 1,523 (725) (4,661) 38 (514) (171) (5,308) (10) (5,318) 13 (67) (5,433) – – 250 (5,237) 4,906 (302) 4,604 (5,951) 8,408 (58) 2,399 The notes on pages 27 to 59 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2016 23 Rose Petroleum plc Company Balance Sheet As at 31 December 2016 Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabili0es Trade and other payables Total liabili0es Net assets Equity Share capital Share premium account Share op7on reserve Cumula7ve transla7on reserves Retained deﬁcit Total equity Company No 04573663 Notes 2016 US$’000 2015 US$’000 19 22 23 25 28 15,063 17,393 69 1,185 1,254 16,317 (164) (164) 322 1,582 1,904 19,297 (204) (204) 16,153 19,093 40,362 32,183 3,028 (9,368) (50,052) 16,153 38,765 31,471 2,899 (6,232) (47,810) 19,093 The ﬁnancial statements on pages 19 to 59 were approved by the Directors and authorised for issue on 5 June 2017 and are signed on its behalf by: CJ Eadie, Chief Financial Oﬃcer The notes on pages 27 to 59 form part of the ﬁnancial statements. 24 Annual Report and Financial Statements for the year ended 31 December 2016 Company Statement of Changes in Equity For the year ended 31 December 2016 As at 1 January 2015 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to retained earnings in respect of forfeit op7ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla7on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla7on diﬀerences on equity at historical rates Share capital US$’000 Share premium account US$’000 Share Cumula0ve op0on transla0on reserves reserve US$’000 US$’000 Retained deﬁcit US$’000 Total US$’000 37,130 28,471 1,540 (5,161) (39,029) 22,951 1,635 – – – – 3,271 (271) – – – 1,523 – – (117) (47) 1,635 3,000 1,359 – – – – – – – – – – – – – – – – – – – – – – – – – 117 – 4,906 (271) 1,523 – (47) 117 6,111 (8,898) (8,898) 1,959 1,959 1,959 – – 1,959 1,959 (8,898) (6,939) (3,030) – (3,030) As at 1 January 2016 38,765 31,471 2,899 (6,232) (47,810) 19,093 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to retained earnings/capital contribu7on in respect of forfeit op7ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla7on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla7on diﬀerences on equity at historical rates 1,597 – – – – 783 (71) – – – – – 327 (168) (30) 1,597 712 129 – – – – – – – – – – – – – – – – – – – – – – – – – (13) – 2,380 (71) 327 (181) (30) (13) 2,425 (2,229) (2,229) 7,354 7,354 7,354 – – (2,229) 7,354 7,354 5,125 (10,490) – (10,490) As at 31 December 2016 40,362 32,183 3,028 (9,368) (50,052) 16,153 The notes on pages 27 to 59 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2016 25 Rose Petroleum plc Company Cash Flow Statement For the year ended 31 December 2016 Opera0ng ac0vi0es Loss before taxa7on Finance income Adjustments for: Impairment of investments in subsidiary undertakings Share-based payments Unrealised foreign exchange Opera7ng cash ou6low before movements in working capital Decrease in trade and other receivables (Decrease)/increase in trade and other payables Net cash used in opera0ng ac0vi0es Inves0ng ac0vi0es Interest received Loans to subsidiary undertakings Net cash used in inves0ng ac0vi0es Financing ac0vi0es Proceeds from the issue of shares Expenses of issue of shares Net cash from ﬁnancing ac0vi0es Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Eﬀect of foreign exchange rate changes Cash and cash equivalents at end of year 2016 US$’000 2015 US$’000 (2,229) (542) 1,522 342 (182) (1,089) 254 (40) (875) 3 (1,654) (1,651) 2,380 (71) 2,309 (217) 1,582 (180) 1,185 (8,898) (589) 8,186 701 (504) (1,104) 120 7 (977) 10 (8,232) (8,222) 4,906 (302) 4,604 (4,595) 6,229 (52) 1,582 The notes on pages 27 to 59 form part of the ﬁnancial statements. 26 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements For the year ended 31 December 2016 1. Corporate Informa0on Rose Petroleum plc (the “Company” and, together with its subsidiaries, the “Group”) is domiciled and incorporated in the United Kingdom under the Companies Act 2006. The address of the registered oﬃce is 20-22 Wenlock Road, London, N1 7GU. The nature of the Group’s opera7ons and its principal ac7vi7es are the explora7on and development of O&G resources together with the evalua7on and acquisi7on of other mineral explora7on targets, principally gold, silver, uranium and copper, and the development and opera7on of mines in Mexico. As permi8ed by sec7on 408 of the Companies Act 2006, the parent company’s income statement and statement of other comprehensive income have not been included in these ﬁnancial statements. The loss for the Company for the year ended 31 December 2016 is US$2.2 million (2015: US$8.9 million). 2. Adop0on of New and Revised Standards Standards aﬀec0ng presenta0on and disclosure In the current year, the following new and revised Standards have been adopted but have not had any material impact on the amounts reported in these ﬁnancial statements: Amendments to IFRS 10 and IAS 28 Sale of contribu&on of assets between an investor and its associates or joint venture Amendments to IFRS 10, IFRS 12 and IAS 28 Investment en&&es: applying the consolida&on excep&on Amendments to IFRS 11 Amendments of IAS 1 Amendments to IAS 16 and IAS 38 Accoun&ng for acquisi&ons of interests in joint opera&ons Presenta&on of ﬁnancial statements – disclosure ini&a&ve Clariﬁca&on of acceptable methods of deprecia&on and amor&sa&on Amendments to IAS 27 Equity method of separate ﬁnancial statements IFRS 1 Annual improvements 2012-14 cycle At the date of authorisa7on of the ﬁnancial statements, the following Standards and Interpreta7ons which have not been applied in the ﬁnancial statements were in issue but not yet eﬀec7ve (and in some cases, had not yet been adopted by the EU): Amendments to IFRS 2 IFRS 9 Share-based payments Financial instruments Amendments to IFRS 15 Revenue from contracts with customers IFRS 16 Amendments of IAS 7 Amendments of IAS 12 IFRIC 22 IFRS 1 Leases Statement of cash ﬂows – disclosure ini&a&ve Recogni&on of deferred tax assets for unrealised losses Foreign currency transac&ons and advance transac&ons Annual improvements to IFRSs 2012-2014 cycle The Directors do not expect that the adop7on of these Standards or Interpreta7ons in future periods will have a material impact on the ﬁnancial statements of the Company or the Group. Annual Report and Financial Statements for the year ended 31 December 2016 27 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies Basis of Accoun0ng The ﬁnancial statements have been prepared in accordance with Interna7onal Financial Repor7ng Standards (“IFRS”) as issued by the Interna7onal Accoun7ng Standards Board (“IASB”) and as adopted by the European Union (“EU”). The ﬁnancial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the considera7on given in exchange for assets. The Directors con7nue to adopt the going concern basis in preparing the consolidated ﬁnancial statements. The ﬁnancial statements do not include any adjustment that would result from the basis of prepara7on being inappropriate. The principal accoun7ng policies adopted are set out below. Going Concern In the period under review, the Group generated its revenue from third-party toll milling opera7ons from the Group owned mill (“SDA mill” or “mill”) in Mexico. Toll milling ceased in March 2017 and since then the Group has been genera7ng revenue from the processing of historic tailings produced at the mill site. Also in March 2017, the Group announced that it had entered into a memorandum of understanding (“MOU”) with Magellan Gold Corpora7on (“Magellan”) for the poten7al disposal of the mill and its associated assets, licences and agreements for a total considera7on of US$1.5 million (US$1.0 million cash and US$0.5 million in restricted common stock in Magellan). Under the terms of the MOU, the Group granted Magellan a 90-day op7on period, for a non-refundable US$0.05 million deposit, already paid by Magellan, to purchase the mill subject to the sa7sfac7on of a number of condi7ons. The MOU also provided Magellan with the op7on of extending the period by a further 60 days in considera7on of an addi7onal US$0.1 million, which will be credited against the ﬁnal purchase price should the sale proceed. At the date of signing of the accounts, Magellan has exercised its op7on to extend the MOU period by 60 days which expires on 31 July 2017. During the year, the Group has been undertaking the process of securing the permit to enable it to complete a 3D seismic shoot over the Paradox acreage, which will enable the Group to iden7fy future drilling targets. The applica7on for the 3D shoot permit is currently under considera7on by the Bureau of Land Management (“BLM”) following the applica7on being resubmi8ed to address points raised by the BLM in the ﬁrst submission. As primarily an explora7on Group, the Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the explora7on programme, and raise addi7onal working capital on an ad hoc basis to support the Group’s ac7vi7es. The Group has no bank facili7es and has been mee7ng its working capital requirements from cash resources. At the year end, the Group had cash and cash equivalents amoun7ng to US$1.3 million (2015: US$2.4 million). The Directors have prepared cash ﬂow forecasts for the Group for the period to June 2018 based on their assessment of the prospects of the Group’s opera7ons. These cash ﬂow forecasts include its normal opera7ng costs for all opera7ons, discre7onary and non-discre7onary explora7on and development expenditure (including the 3D seismic shoot under the assump7on that the permit will be issued by the BLM), and the sale of the SDA mill. These forecasts indicate that the Group will be required to raise addi7onal equity funding in the forecasted period. In the event that the sale of the SDA mill does not proceed, or is completed at reduced considera7on, and the Group ceases all discre7onary expenditure (including the 3D seismic shoot), the forecasts s7ll indicate that the Group will require addi7onal equity funding in the foreseeable future. The ability of the Company to raise suﬃcient addi7onal equity funding in the foreseeable future may be aﬀected by market condi7ons and may be subject to shareholder approval. 28 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued The Directors acknowledge that the circumstances detailed above represent a material uncertainty that may cast signiﬁcant doubt upon the Group and Company’s ability to con7nue as a going concern and that therefore the Group and Company may be unable to realise their assets and discharge their liabili7es in the normal course of business. Nevertheless, having given considera7on to the uncertain7es described above, the Directors have a reasonable expecta7on that a sale of the SDA mill will be completed in due course, and the 3D seismic permit will be granted, which will allow the Group to raise suﬃcient funding to con7nue in opera7onal existence for the foreseeable future. Despite challenging capital markets, the Company and Group have been successful historically in raising equity ﬁnance and consider that they have reasonable grounds for believing these past successes will con7nue. For these reasons, the Directors con7nue to adopt the going concern basis in preparing the consolidated ﬁnancial statements. The ﬁnancial statements do not include any adjustment that would result from the basis of prepara7on being inappropriate. Basis of Consolida0on The consolidated ﬁnancial statements incorporate the ﬁnancial statements of the Company and its subsidiary undertakings (together, ‘the Group’) made up to 31 December each year. Subsidiary undertakings are those en77es controlled directly or indirectly by the Company. Control is achieved when the Company is exposed to, or has rights to, variable returns from its involvement with the en7ty and has the ability to aﬀect those returns through its power over the en7ty. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date on which control is transferred to the Group or, up to the date that control ceases, as appropriate. Where necessary, adjustments are made to the ﬁnancial statements of subsidiaries to bring accoun7ng policies used into line with those used by the Group. The Group applies the acquisi7on method to account for business combina7ons. The considera7on for each acquisi7on is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabili7es incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquire. Where applicable, the considera7on for the acquisi7on includes any asset or liability resul7ng from a con7ngent considera7on arrangement, measured at its acquisi7on-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisi7on where they qualify as measurement period adjustments. All other subsequent changes in the fair value of con7ngent considera7on classiﬁed as an asset or liability are accounted for in accordance with relevant IFRSs. Con7ngent considera7on that is classiﬁed as equity is not re-measured, and its subsequent se8lement is accounted for within equity. Acquisi7on-related costs are recognised in proﬁt or loss as incurred. On acquisi7on, the assets and liabili7es and con7ngent liabili7es of a subsidiary are measured at their fair values at the date of acquisi7on. Any excess of the cost of the acquisi7on over the fair values of the iden7ﬁable net assets acquired is recognised as goodwill. Any deﬁciency of the cost of acquisi7on below the fair values of the iden7ﬁable net assets acquired (i.e. discount on acquisi7on) is credited to the income statement in the period of acquisi7on. Where a business combina7on is achieved in stages, the Group’s previously-held interests in the acquired en7ty are re-measured at fair value at the acquisi7on date and the resul7ng gain or loss, if any, is recognised in proﬁt or loss. Amounts arising from interests in the acquiree prior to the acquisi7on date that have previously been recognised in other comprehensive income are reclassiﬁed to proﬁt or loss, where such treatment would be appropriate if that interest were disposed of. All intra-group transac7ons, balances, income and expenses are eliminated on consolida7on. Annual Report and Financial Statements for the year ended 31 December 2016 29 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Joint Arrangements The Group iden7ﬁes joint arrangements as those arrangements in which two or more par7es have joint control, where joint control is evidenced by the contractually agreed sharing of control of an arrangement, which exists where the decisions about the relevant ac7vi7es require the unanimous consent of the par7es sharing control. Investments in joint arrangements are classiﬁed as either joint opera7ons or joint ventures depending on the contractual rights and obliga7ons of each investor. Joint opera7ons are iden7ﬁed as those agreements whereby the par7es have rights to the assets and obliga7ons for liabili7es rela7ng to the arrangement. Joint opera7ons are accounted for by recognising the operator’s relevant share of assets, liabili7es, revenues and expenses. Joint ventures are iden7ﬁed as those agreements whereby the par7es have rights to the net assets of the arrangement and are accounted for using equity accoun7ng in accordance with IAS 28. Interest in joint ventures are ini7ally recognised at cost and adjusted therea&er to recognise the Group’s share of the post-acquisi7on proﬁts or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obliga7ons or made payments on behalf of the joint venture. The Group has assessed the nature of its joint arrangements and determined them to be joint opera7ons. The Group’s share of the assets, liabili7es, income and expenses of jointly controlled en77es is combined with the equivalent items in the consolidated ﬁnancial statements on a line-by-line basis. Non-Current Assets held for sale Non-current assets (and disposal groups) classiﬁed as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classiﬁed as held for sale if their carrying amount will be recovered through a sale transac7on rather than through con7nuing use. This condi7on is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condi7on. Management must be commi8ed to the sale which should be expected to qualify for recogni7on as a completed sale within one year from the date of classiﬁca7on. When the Group is commi8ed to a sale plan involving loss of control of a subsidiary, all of the assets and liabili7es of that subsidiary are classiﬁed as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary a&er the sale. Investments Long term investments represen7ng interests in subsidiary undertakings are stated at cost less any provision for impairment in the value of the non-current investment. Intangible Explora0on and Evalua0on Assets The Group applies the full cost method of accoun7ng for Explora7on and Evalua7on (“E&E”) costs, having regard to the requirements of IFRS 6 Explora&on for and Evalua&on of Mineral Resources. Under the full cost method of accoun7ng, costs of exploring for and evalua7ng mineral resources are accumulated by reference to appropriate cost centres being the appropriate licence area, but are tested for impairment on a cost pool basis as described below. 30 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued E&E assets comprise costs of (i) E&E ac7vi7es that are on-going at the balance sheet date, pending determina7on of whether or not commercial reserves exist and (ii) costs of E&E that, whilst represen7ng part of the E&E ac7vi7es associated with adding to the commercial reserves of an established cost pool, did not result in the discovery of commercial reserves. Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as they are incurred. Explora(cid:29)on and evalua(cid:29)on costs All costs of E&E are ini7ally capitalised as E&E assets. Payments to acquire the legal right to explore, costs of technical services and studies, seismic acquisi7on, exploratory drilling and tes7ng are capitalised as intangible E&E assets. Intangible costs include directly a8ributable overheads together with the cost of other materials consumed during the explora7on and evalua7on phases. Treatment of E&E assets at conclusion of appraisal ac(cid:29)vi(cid:29)es Intangible E&E assets related to each explora7on licence/project are carried forward un7l the existence (or otherwise) of commercial reserves has been determined. If commercial reserves have been discovered, the related E&E asset are assessed for impairment on a cost pool basis as set out below and any impairment is recognised in the income statement. The carrying value, a&er any impairment loss, of the relevant E&E assets is then reclassiﬁed as development and produc7on assets. Intangible E&E assets that related to E&E ac7vi7es that are determined not to have resulted in the discovery of commercial reserves remain capitalised as intangible E&E assets at cost less accumulated amor7sa7on, subject to mee7ng a pool-wide impairment test in accordance with the accoun7ng policy for impairment of E&E assets set out below. Such E&E assets are amor7sed on a unit-of-produc7on basis over the life of the commercial reserves of the pool to which they relate. Impairment of Intangible Explora0on and Evalua0on Assets E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such indicators include, but are not limited to, those situa7ons outlined in paragraph 20 of IFRS 6 Explora&on for and Evalua&on of Mineral Resources and include the point at which a determina7on is made as to whether or not commercial reserves exist. Where there are indica7ons of impairment, the E&E assets concerned are tested for impairment. Where the E&E assets concerned fall within the scope of an established full cost pool, the E&E assets are tested for impairment together with all development and produc7on assets associated with that cost pool, as a single cash genera7ng unit. The aggregate carrying value is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash ﬂow expected to be derived from produc7on of commercial reserves. Where the E&E assets to be tested fall outside the scope of any established cost pool, there will generally be no commercial reserves and the E&E assets concerned will generally be wri8en oﬀ in full. If the recoverable amount of a cash-genera7ng unit is es7mated to be less than its carrying amount, the carrying amount of the cash-genera7ng unit is reduced to its recoverable amount. An impairment loss is recognised immediately in proﬁt or loss. Annual Report and Financial Statements for the year ended 31 December 2016 31 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued When an impairment loss subsequently reverses, the carrying amount of the cash-genera7ng unit is increased to the revised es7mate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the cash- genera7ng unit in prior years. A reversal of an impairment loss is recognised immediately in proﬁt or loss. The Group considers each area of explora7on, gold and silver, uranium, copper and oil & gas on a geographical basis to be a separate cost pool and therefore aggregates all speciﬁc assets for the purposes of determining whether impairment of E&E assets has occurred. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated deprecia7on and accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any costs directly a8ributable to bringing the asset into use. Deprecia7on is recognised so as to write oﬀ the cost of assets less their residual values over their useful lives at the following rates: Ore processing mill over the life of the mill Plant and machinery over 5 to 10 years The es7mated useful lives, residual value and deprecia7on method are reviewed at the end of each repor7ng period, with the eﬀect of any changes in es7mate accounted for on a prospec7ve basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁts are expected to arise from the con7nued use of the asset. Any gain or loss arising on the disposal or re7rement of an item of property, plant and equipment is determined as the diﬀerence between the sales proceeds and the carrying amount of the asset and is recognised in proﬁt and loss. Impairment of Property, Plant and Equipment At each repor7ng date, the Group reviews the carrying amounts of its property, plant and equipment with ﬁnite lives to determine whether there is any indica7on that those assets have suﬀered an impairment loss. If any such indica7on exists, the recoverable amount of the asset is es7mated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash ﬂows that are independent from other assets, the Group es7mates the recoverable amount of the cash genera7ng unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the es7mated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the 7me value of money and the risks speciﬁc to the asset for which the es7mates of future cash ﬂows have been adjusted. If the recoverable amount of an asset (or cash-genera7ng unit) is es7mated to be less than its carrying amount, the carrying amount of the asset (cash-genera7ng unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-genera7ng unit) is increased to the revised es7mate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-genera7ng unit) in prior years. A reversal of an impairment loss is recognised as income immediately. 32 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Inventories Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present loca7on and condi7on. Cost is calculated using the weighted average method. Net realisable value represents the es7mated selling price for inventories less all es7mated costs of comple7on and costs to be incurred in marke7ng, selling and distribu7on. Revenue Recogni0on Revenue from the sale of minerals and oil and gas products is recognised when persuasive evidence of an arrangement exists, usually in the form of an executed sales agreement, indica7ng that there has been a transfer of risks and rewards to the customer, no further work or processing is required by the Group, the quan7ty and quality of the goods has been determined with reasonable accuracy and the goods have been delivered. This is when 7tle is determined to pass. Revenue is measured at the fair value of the considera7on received or receivable. Royalty payments are recognised as a cost of sale when the related produc7on revenue is recognised. Interest income from a ﬁnancial asset is recognised when it is probable that the economic beneﬁts will ﬂow to the Group and the amount of income can be measured reliably. Interest income is accrued on a 7me basis, by reference to the principal outstanding and at the eﬀec7ve interest rate applicable. Opera0ng Expenses Costs incurred prior to obtaining the legal rights to explore an area together with any costs which cannot be allocated to a speciﬁc explora7on project are expensed directly to the income statement and included as opera7ng expenses. Opera7ng expenses in respect of oil and gas ac7vi7es include lease opera7ng expenses, produc7on taxes, general and administra7ve expenses and oil and gas deprecia7on, deple7on and amor7sa7on. Lease opera(cid:29)ng expenses Costs incurred in respect of maintaining and opera7ng property and equipment on a producing oil and gas lease are included as lease opera7ng expenses. Development Expenses Costs incurred in respect of mining ac7vi7es, prior to the commencement of produc7on, are expensed directly to the income statement and included as development expenses. Project Development Expenses Costs incurred by the Group in respect of the assessment and pursuit of poten7al new projects are expensed directly to the income statement and, where material are disclosed on a separate line in the income statement. Leasing Rentals payable under opera7ng leases are charged to income on a straight-line basis over the term of the relevant lease. Lease incen7ves received are recognised in the income statement as an integral part of the total lease expense. Foreign Currencies For the purpose of the consolidated ﬁnancial statements, the results and ﬁnancial posi7on are expressed in United States dollar, which is the presenta7on currency for both company and consolidated ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2016 33 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued In preparing the ﬁnancial statements of the individual companies, transac7ons in currencies other than the func7onal currency of each group company (“foreign currencies”) are translated into the func7onal currency at the rates of exchange prevailing on the dates of the transac7ons. At each repor7ng date, monetary assets and liabili7es that are denominated in foreign currencies are retranslated into the func7onal currency at the rates prevailing on the repor7ng date. Non-monetary assets and liabili7es carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Foreign exchange diﬀerences are recognised in the proﬁt or loss in the period in which they arise, except for foreign exchange diﬀerences on monetary items receivable from or payable to a foreign opera7on for which se8lement is neither planned nor likely to occur and which, therefore, form part of the net investment in the foreign opera7on. Foreign exchange diﬀerences arising on the transla7on of the Group’s net investment in foreign opera7ons are recognised as a separate component of shareholders’ equity via the statement of other comprehensive income. On disposal of foreign opera7ons and foreign en77es, the cumula7ve transla7on diﬀerences are recognised in the income statement as part of the gain or loss on disposal. For the purpose of presen7ng company and consolidated ﬁnancial statements, the assets and liabili7es of the Company, and the Group’s opera7ons which have a func7onal currency other than United States dollar, are translated using exchange rates prevailing at the end of each repor7ng period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates ﬂuctuate signiﬁcantly during that period, in which case the exchange rates at the date of transac7ons are used. Foreign exchange diﬀerences arising, if any, are recognised in other comprehensive income and accumulated in equity. Equity items are translated at the exchange rates at the date of transac7ons and foreign exchange diﬀerences arising, if any, are accumulated directly in equity. On the disposal of a foreign opera7on (i.e. a disposal of the Group’s en7re interest in a foreign opera7on, a disposal involving loss of control over a subsidiary that includes a foreign opera7on or loss of joint control over a jointly controlled en7ty that includes a foreign opera7on), all of the accumulated exchange diﬀerences in respect of that opera7on a8ributable to the Group are reclassiﬁed to proﬁt or loss. Where there is no change in the propor7onate percentage interest in an en7ty then there has been no disposal or par7al disposal and accumulated exchange diﬀerences a8ributable to the Group are not reclassiﬁed to proﬁt and loss. Fair value adjustments arising on the acquisi7on of a foreign opera7on are treated as assets and liabili7es of the foreign opera7on and translated at the rate of exchange prevailing at the end of each repor7ng period. Exchange diﬀerences arising are recognised in equity. Re0rement Beneﬁts The Group makes contribu7ons to the personal pension schemes for some of its employees and Directors. Payments to these schemes are charged as an expense in the income statement in respect of pension costs payable in the year. There were no unpaid contribu7ons at the period end. Taxa0on The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable proﬁt for the year. Taxable proﬁt diﬀers from proﬁt as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deduc7ble in other years and items that are never taxable or deduc7ble. The Group’s liability for current tax is calculated using tax rates that have been enacted or substan7vely enacted by the repor7ng date. 34 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Deferred tax is recognised on temporary diﬀerences between the carrying amounts of assets and liabili7es in the consolidated ﬁnancial statements and the corresponding tax bases used in the computa7on of taxable proﬁt. Deferred tax liabili7es are generally recognised for all taxable temporary diﬀerences and deferred tax assets are generally recognised for all deduc7ble temporary diﬀerences to the extent that it is probable that taxable proﬁts will be available against which those deduc7ble temporary diﬀerences can be u7lised. Such deferred tax assets and liabili7es are not recognised if the temporary diﬀerence arises from goodwill or from the ini7al recogni7on (other than in a business combina7on) of other assets and liabili7es in a transac7on which aﬀects neither the taxable proﬁt nor the accoun7ng proﬁt. Deferred tax liabili7es are recognised for taxable temporary diﬀerences associated with 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. Deferred tax assets arising from deduc7ble temporary diﬀerences associated with such investments and interest are only recognised to the extent that it is probable that there will be suﬃcient taxable proﬁts against which to u7lise the beneﬁts of the temporary diﬀerences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each repor7ng date and reduced to the extent that it is no longer probable that suﬃcient taxable proﬁts will be available to allow all or part of the assets to be recovered. Deferred tax liabili7es and assets are measured at the tax rates that are expected to apply in the period in which the liability is se8led or the asset realised, based on tax rates that have been enacted or substan7vely enacted at the repor7ng date. Current and deferred tax are recognised in proﬁt or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respec7vely. Where current tax or deferred tax arises from the ini7al accoun7ng for a business combina7on, the tax eﬀect is included in the accoun7ng for the business combina7on. Deferred tax assets and liabili7es are oﬀset when there is a legally enforceable right to set oﬀ current tax assets against current tax liabili7es and when they relate to income taxes levied by the same taxa7on authority and the Group intends to se8le its current tax assets and liabili7es on a net basis. Financial Instruments Recogni(cid:29)on of ﬁnancial assets and ﬁnancial liabili(cid:29)es Financial assets and ﬁnancial liabili7es are recognised on the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. Derecogni(cid:29)on of ﬁnancial assets and ﬁnancial liabili(cid:29)es The Group derecognises a ﬁnancial asset only when the contractual rights to cash ﬂows from the asset expire, or it transfers the ﬁnancial asset and substan7ally all the risks and rewards of ownership of the asset to another en7ty. If the Group neither transfers nor retains substan7ally all the risks and rewards of ownership and con7nues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Group retains substan7ally all the risks and rewards of ownership of a transferred ﬁnancial asset, the Group con7nues to recognise the ﬁnancial asset and also recognises a collateralised borrowing for the proceeds received. The Group derecognises ﬁnancial liabili7es when the Group’s obliga7ons are discharged, cancelled or expired. Annual Report and Financial Statements for the year ended 31 December 2016 35 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Financial Assets Trade and other receivables Trade and other receivables are measured at ini7al recogni7on at fair value, and are subsequently measured at amor7sed cost less any provision for impairment. Cash and cash equivalents Cash and cash equivalents comprise cash-in-hand and on-demand deposits and other short-term highly liquid investments that are readily conver7ble to a known amount of cash with three months or less remaining to maturity and are subject to an insigniﬁcant risk of changes in value. Financial liabili(cid:29)es and equity instruments Financial arrangements entered into. liabili7es and equity instruments are classiﬁed according to the substance of the contractual Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group a&er deduc7ng all of its liabili7es. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. The costs of an equity transac7on are accounted for as a deduc7on from equity to the extent they are incremental costs directly a8ributable to the equity transac7on that would otherwise have been avoided. Trade and other payables Trade and other payables are ini7ally measured at their fair value, and are subsequently measured at amor7sed cost using the eﬀec7ve interest rate method. Provisions Provisions are recognised when the Group has a legal or construc7ve obliga7on, as a result of past events, for which it is probable that an ou6low of economic resources will result and that ou6low can be reliably measured. The amount recognised as a provision is the best es7mate of the considera7on required to se8le the present obliga7on at the end of the repor7ng period, taking into account the risks and uncertain7es surrounding the obliga7on. When a provision is measured using the cash ﬂow es7mated to se8le the present obliga7on, its carrying amount is the present value of those cash ﬂows. When some or all of the economic beneﬁts required to se8le a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receipt can be measured reliably. Decommissioning Provision for decommissioning is recognised in full when the related facili7es are installed. The decommissioning provision is calculated as the net present value of the Group’s share of the expenditure expected to be incurred at the end of the producing life of the facility in the removal and decommissioning of the produc7on, storage and transporta7on facili7es currently in place. The cost of recognising the decommissioning provision is included as part of the cost of the relevant asset and is thus charged to the income statement in accordance with the Group’s policy for deprecia7on of property, plant and equipment. Period charges for changes in the net present value of the decommissioning provision arising from discoun7ng are included in ﬁnance costs. 36 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Share-Based Payments The Group has applied the requirements of IFRS 2 Share-based Payment for all grants of equity instruments. The Group operates an equity-se8led share op7on plan and a share-based compensa7on plan in respect of certain Directors, employees and consultants. Equity-se8led share-based payments are measured at fair value (excluding the eﬀect of non-market based ves7ng condi7ons) at the date of grant. The fair value of the service received in exchange for the grant of op7ons and equity is recognised as an expense. The fair value determined at the grant date of equity-se8led share-based payment is expensed on a straight-line basis over the ves7ng period, based on the Group’s es7mate of shares that will eventually vest and adjusted for the eﬀect of non-market based ves7ng condi7ons. Fair value of op7on grants is measured by use of the Black Scholes model for non-performance based op7ons. The expected life used in the model has been adjusted, based on management’s best es7mate, for the eﬀect of non- transferability, exercise restric7ons and behavioural considera7ons. The grant by the Company of op7ons and share-based compensa7on plans over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribu7on. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the ves7ng period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent en7ty accounts. Segmental Repor0ng Opera7ng segments are reported in a manner consistent with the internal repor7ng provided to the chief opera7ng decision maker. The chief opera7ng decision maker, who is responsible for alloca7ng resources and assessing performance of the opera7ng segments and making strategic decisions, has been iden7ﬁed as the Board of Directors. 4. Cri0cal Accoun0ng Judgements and Key Sources of Es0ma0on Uncertainty In the applica7on of the Group’s accoun7ng policies, which are described in note 3, the Directors are required to make judgements, es7mates and assump7ons about the carrying amounts of the assets and liabili7es that are not readily apparent from other sources. The es7mates and associated assump7ons are based on historical experience and other factors that are considered to be relevant. Actual results may diﬀer from these es7mates. The es7mates and underlying assump7ons are reviewed on an on-going basis. Revisions to accoun7ng es7mates are recognised in the period in which the es7mate is revised if the revision aﬀects only that period or in the period of the revision and future periods if the revision aﬀects both the current and future periods. Annual Report and Financial Statements for the year ended 31 December 2016 37 Rose Petroleum plc Notes to the Financial Statements con7nued 4. Cri0cal Accoun0ng Judgements and Key Sources of Es0ma0on Uncertainty con7nued The following are the cri7cal judgements and es7ma7ons that the Directors have made in the process of applying the Group’s accoun7ng policies and that have the most signiﬁcant eﬀect on the amounts recognised in the ﬁnancial statements: Recoverability of Intangible Explora0on and Evalua0on Assets Determining whether an explora7on and evalua7on asset is impaired requires an assessment of whether there are any indicators of impairment, including by reference to speciﬁc impairment indicators prescribed in IFRS 6 Explora&on for and Evalua&on of Mineral Resources. If there is any indica7on of poten7al impairment, an impairment test is required based on the recoverable amount of the asset. The value in use calcula7on requires the en7ty to es7mate the future cash ﬂows expected to arise from the cash-genera7ng unit and a suitable discount rate in order to calculate present value. At 31 December 2016, the Directors determined that there were indicators of impairment in respect of the Group’s intangible O&G explora7on and evalua7on assets held in Germany and of the Group’s uranium and copper explora7on and evalua7on assets held in U.S.A and Mexico, on the basis that the carrying amount of these assets may not be recovered in full. The Directors therefore considered that it was appropriate to make a provision for impairment in respect of these assets at the year end. The carrying amount of intangible explora7on and evalua7on assets at the balance sheet date was US$10.1 million (2015: US$10.2 million) and an impairment of US$0.36 million (2015: US$3.7 million) was iden7ﬁed and recognised in the year to 31 December 2016, US$0.34 in respect of uranium and copper assets and US$0.02 in respect of O&G assets held in Germany. Recoverability of Loans to Subsidiary Undertakings The Company has outstanding loans from its directly held subsidiaries which have then made a number of loans to their own subsidiaries as the primary method of ﬁnancing the ac7vity of those subsidiaries. The principal loans are shown in the Company balance sheet on the basis that the loans incur interest at a commercial rate according to the Group’s inter-company loan policy, which is being rolled up un7l such 7me as the subsidiaries are in a posi7on to se8le. However, there is a risk that the indirectly held subsidiaries will not commence revenue- genera7ng ac7vi7es and that the carrying amount of the Company’s investment will, therefore, exceed the recoverable amount. The Board have assessed the recoverability of its loans based on this risk and the Directors consider that, in considera7on of the losses currently being generated and the impairment of the Group’s intangible explora7on and evalua7on assets which was recognised at 31 December 2016, a provision of US$1.5 million (2015: US$8.2 million) should be recognised by the Company in the year to 31 December 2016. 5. Revenue The external revenue of the Group arises from the sale of precious minerals arising from ac7vi7es in Mexico. The revenue reported during the year ended 31 December 2016 of US$0.9 million relates to the milling of third party ore in Mexico. 38 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 6. Segmental Informa0on For management purposes, the Group is organised into three opera7ng divisions based on its principal ac7vi7es of gold and silver mining, research and evalua7on of poten7al uranium and copper proper7es and the explora7on and development of O&G resources. These divisions are the basis on which the Group reports its segment informa7on. Segment informa7on about these divisions is presented below. Income statement Revenue Gold and silver O&G Segmental results Uranium and copper Gold and silver O&G Total segment results Loss on disposal of assets held for sale Unallocated results Current and deferred tax Loss a&er taxa7on 2016 US$’000 2015 US$’000 898 – 898 (483) (454) 1,544 607 – (1,877) 1,120 (150) 4,129 191 4,320 (3,470) (698) (1,975) (6,143) (485) (3,236) 797 (9,067) The unallocated results of US$1.87 million include costs associated with the Cuba project (refer to note 8), Directors remunera7on and other general and administra7ve costs incurred by the Company. Deprecia0on Uranium and copper Gold and silver O&G Impairment Uranium and copper O&G 2016 US$’000 2015 US$’000 2 164 35 201 2 182 50 234 2016 US$’000 2015 US$’000 344 16 360 3,141 553 3,694 Annual Report and Financial Statements for the year ended 31 December 2016 39 Rose Petroleum plc Notes to the Financial Statements con7nued Employees The average numbers of employees for the year for each of the Group’s principal divisions were as follows: Uranium and copper Gold and silver O&G Total segment employees Unallocated employees Total employees Balance Sheet Segment assets Uranium and copper Gold and silver O&G Total segment assets Unallocated assets including cash and cash equivalents Total assets Segment liabili0es Uranium and copper Gold and silver O&G Total segment liabili7es Unallocated liabili7es Current and deferred tax Total liabili7es Segment net assets Uranium and copper Gold and silver O&G Total segment net assets Unallocated net assets including cash and cash equivalents Total net assets 2016 Number 2015 Number 1 36 2 39 2 41 2 41 9 52 2 54 2016 US$’000 2015 US$’000 60 1,410 10,237 11,707 1,256 12,963 5 192 105 302 332 1 635 55 1,217 10,132 11,404 924 12,328 467 2,318 10,289 13,074 1,669 14,743 3 306 163 472 404 3 879 464 2,009 10,126 12,599 1,265 13,864 40 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 7. Opera0ng and Development Expenses Opera7ng expenses – mining Opera7ng expenses – O&G Development expenses 2016 US$’000 162 405 33 600 2015 US$’000 364 818 340 1,522 Development expenses represent expenditure incurred by the Group in respect of mining ac7vi7es prior to the commencement of produc7on. 8. Project Development Expenses Cuba project 2016 US$’000 580 2015 US$’000 – Project development expenses represent expenditure incurred by the Group in respect of the assessment and pursuit of new projects. 9. Impairment of Intangible Expora0on and Evalua0on Assets Uranium and copper assets O&G assets 2016 US$’000 344 16 360 2015 US$’000 3,141 553 3,694 During 2016, the Group relinquished its interest in its hydrocarbon licences in the Weiden Basin, located in the State of Bavaria, southeast Germany. The assets were impaired in full during the year, resul7ng in an impairment charge of US$0.01 million being recognised in the year, and the Group ceased to recognise the assets at 31 December 2016. See note 17. At 31 December 2016, there were indicators of impairment of both the Group’s intangible uranium assets held in the U.S.A. and its intangible copper assets held in Mexico. The Directors consider that there is reasonable uncertainty that the Group will recover the carrying value of these assets and as a result an impairment charge of US$0.3 million has been recognised in the year. In April 2016, the Board announced that it had entered into an agreement with Rockies Standard to terminate its earn-in rights to the Mancos acreage and dispose of the Cisco Dome ﬁeld and related assets. The Group had a number of operator bonds in place with the State of Utah and Bureau of Land Management (“BLM”), and under the terms of this agreement the Group agreed to leave these bonds in place for the beneﬁt of Rockies Standard. The Board determined that it was appropriate to make a provision for impairment in respect of these bonds, and as a result an impairment charge of US$0.006 million (2015: US$0.4 million) has been recognised in the year. The remaining intangible explora7on and evalua7on assets have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. These assets are not amor7sed un7l technical feasibility and commercial viability is established. Annual Report and Financial Statements for the year ended 31 December 2016 41 Rose Petroleum plc Notes to the Financial Statements con7nued 10. Finance Income Interest on bank deposits Unwinding of discount on provisions 11. Finance Costs Unwinding of discount on provisions 12. Loss before Taxa0on The loss for the year has been arrived at a&er charging/(credi7ng): Deprecia7on of property, plant and equipment Loss on disposal of property, plant and equipment Staﬀ costs excluding share-based payments Share-based payments Opera7ng leases – land and buildings Net foreign exchange gains 13. Auditor’s Remunera0on 2016 US$’000 2015 US$’000 4 5 9 13 – 13 2016 US$’000 – 2015 US$’000 5 2016 US$’000 201 17 1,409 326 166 (2,496) 2015 US$’000 234 – 2,788 1,523 284 (438) Amounts payable to the external auditors and their associates in respect of both audit and non-audit services: Audit of these ﬁnancial statements Amounts receivable by the Company’s auditor and its associates in respect of: Audit of ﬁnancial statements of subsidiaries of the Company 14. Staﬀ Costs The average monthly number of employees (including Execu7ve Directors) was: Oﬃce and management Opera7ons 2016 US$’000 2015 US$’000 23 41 64 23 46 69 2016 Number 2015 Number 2 39 41 6 48 54 42 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 14. Staﬀ Costs con7nued Their aggregate remunera7on comprised: Wages and salaries Social security costs Other pension costs Share-based payments 2016 US$’000 1,204 177 29 210 1,620 2015 US$’000 3,079 294 129 1,398 4,900 There were no wages and salaries capitalised to intangible explora7on and evalua7on assets during the year ended 31 December 2016 (2015: US$0.7 million). The remunera7on of the highest paid Director was US$0.2 million (2015: US$0.3 million) and pension contribu7ons of US$0.02 were made on their behalf. 15. Taxa0on Current tax: Current year Total current tax Deferred tax: Origina7on and reversal of temporary diﬀerences Total deferred tax Tax credit on loss for the year 2016 US$’000 2015 US$’000 8 8 (1,128) (1,128) (1,120) 10 10 (807) (807) (797) 9,864 (1,998) 960 (407) 309 734 (395) (797) The credit charge for the year can be reconciled to the loss per the income statement as follows: Loss before tax 1,270 Loss mul7plied by rate of corpora7on tax for UK companies of 20% (2015: 20.25%) (254) Eﬀects of: Expenses not deduc7ble for tax purposes Temporary diﬀerences Share-based payments Unrelieved tax losses carried forward Diﬀerence in foreign tax rates Tax credit on loss for the year 153 (605) 65 42 (521) (1,120) There has been no impact due to changes in UK taxa7on rates during the years reported. Unrelieved tax losses carried forward, as detailed in note 26, have not been recognised as a deferred tax asset, as there is currently insuﬃcient evidence that the asset will be recoverable in the foreseeable future. The losses must be u7lised in rela7on to the same opera7ons. Tax for other jurisdic7ons is provided at rates prevailing in those countries. Annual Report and Financial Statements for the year ended 31 December 2016 43 Rose Petroleum plc Notes to the Financial Statements con7nued 15. Taxa0on con7nued Income tax charge included in other comprehensive income during the year is: Foreign tax on net investment in foreign opera7ons 16. Loss per Ordinary Share 2016 US$’000 1,128 2015 US$’000 1,212 Basic loss per Ordinary Share is calculated by dividing the net loss for the year a8ributable to owners of the parent company by the weighted average number of Ordinary Shares in issue during the year. The calcula7on of the basic and diluted loss per Ordinary Share is based on the following data: Losses Losses for the purpose of basic loss per Ordinary Share being net loss a8ributable to owners of the parent company 2016 US$’000 2015 US$’000 (150) Number ’000 (9,067) Number ’000 Number of shares Weighted average number of shares for the purpose of basic loss per Ordinary Share 3,008,811 2,037,308 Loss per Ordinary Share Basic and diluted, cents per share (0.01) (0.45) Due to the losses incurred in the years reported, there is no dilu7ve eﬀect from the exis7ng share op7ons, share based compensa7on plan or warrants. 44 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 17. Intangible Assets Cost At 1 January 2015 Addi7ons Relinquishment of licences Exchange diﬀerences At 1 January 2016 Addi7ons Disposals Relinquishment of licences Exchange diﬀerences At 31 December 2016 Impairment At 1 January 2015 Impairment charge Relinquishment of licences Exchange diﬀerences At 1 January 2016 Impairment charge Disposals Relinquishment of licences Exchange diﬀerences At 31 December 2016 Carrying amount At 31 December 2016 At 31 December 2015 Explora0on and evalua0on assets US$’000 15,433 4,010 (887) (45) 18,511 276 (607) (2,303) (54) 15,823 5,486 3,694 (887) (3) 8,290 360 (602) (2,303) (39) 5,706 10,117 10,221 Rockies Standard Earn-In Agreement In March 2014, the Group signed an agreement under which its subsidiary, Rose Petroleum (Utah) LLC (“Rose Utah”), acquired the right to commence earning into a 75 per cent working interest of certain oil, gas and hydrocarbon leases in Grand and Emery Coun7es, Utah, from Rockies Standard Oil Company LLC (“RSOC”), which retains the remaining 25 per cent working interest. Farm-in costs incurred by the Group are accounted for as required by the relevant accoun7ng standards including the capitalisa7on of intangible explora7on and evalua7on assets in accordance with IFRS 6. In April 2016, the Group entered into a revised agreement with RSOC to cease earning into the Mancos acreage and dispose of the Cisco Dome ﬁeld, wells, pipelines, gas tap, gas plant and all the associated equipment and liabili7es. Annual Report and Financial Statements for the year ended 31 December 2016 45 Rose Petroleum plc Notes to the Financial Statements con7nued 17. Intangible Assets con7nued As part of the revised agreement the Group agreed to cover the cost of the exis7ng plug and abandonment liability of the four wells already scheduled with the authori7es for the sum of US$0.3 million, and this obliga7on was se8led during the year. The Group also agreed to leave the exis7ng operator bonds in place with the State of Utah and Bureau of Land Management, which are now refundable to RSOC rather than the Group. RSOC has, in turn, agreed to reduce the Group’s carry obliga7on to earn the 75 per cent working interest in the Paradox acreage by US$2.0 million to US$5.5 million. Under the terms of the agreement, the obliga7on is not contractually commi8ed and therefore no liability or con7ngent liability has been recognised in these ﬁnancial statements. The Group was also given an exclusive op7on to acquire RSOC’s 25 per cent interest in the Paradox acreage for a one-7me payment of US$1.0 million at any 7me prior to 30 June 2016, however, this op7on was not exercised. The Group has not recognised any disposal of its intangible explora7on and evalua7on assets, other than the bonds, as it considers its total expenditure on the project as one cost pool whose carrying value is supported by the remaining acreage in the Paradox. The Group’s total expenditure in respect of its U.S.A. O&G assets, included within intangible explora7on and evalua7on assets, as at 31 December 2016 is US$10.1 million (2015: US$9.9 million). Tango Project On 25 August 2014, Minerales VANE S.A. de C.V., a wholly owned subsidiary of the Group, entered into an agreement with Minera Camargo S.A de C.V. (“Camargo”), in respect of both gold and silver and base metal explora7on. Under the terms of the agreement MV has the right to operate gold and silver mining ac7vi7es at concessions owned by Camargo with gross margin earned to be allocated on the basis of 50 per cent to MV and 50 per cent to Camargo. In addi7on, MV has the op7on to earn a 75 per cent ownership of the base metals (porphyries) by inves7ng US$5.0 million in work expenditures over a period of 5 years. Under the terms of the agreement, the op7on to earn-in is not contractually commi8ed and therefore no liability or con7ngent liability has been recognised in these ﬁnancial statements. The Directors consider that there is reasonable uncertainty that the Group will recover the carrying value of these assets and as a result they have been impaired in full at 31 December 2016. German Licences At 31 December 2015, the Group had relinquished, and ceased to recognise its interest in two hydrocarbon licences in south-western Germany. During 2016, the Group has further relinquished its interest in its hydrocarbon licences in the Weiden Basin, located in the State of Bavaria, southeast German, and has ceased to recognise them at 31 December 2016. U.S.A. Copper Projects On 2 March 2016, the Group entered into an agreement with Burde8 Gold LLC (“Burde8”) to conduct explora7on drilling on the Ardmore copper project. The terms included a cash payment of US$5,350 and the Group retained a 15 per cent net proﬁt interest in the Ardmore project and any other claims that Burde8 might acquire within a three-mile area. In May 2016, the Group assigned its interest in the Bouse copper project to a third party. No compensa7on was received in respect of this assignment. All remaining licences rela7ng to U.S.A. copper projects were relinquished during the year and have ceased to be recognised at 31 December 2016. 46 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 18. Property, Plant and Equipment Diablito mine US$’000 Ore processing mill US$’000 Plant and machinery US$’000 Cost At 1 January 2015 Addi7ons De-recogni7on Exchange diﬀerences At 1 January 2016 Addi7ons Disposals Exchange diﬀerences At 31 December 2016 Accumulated deprecia0on At 1 January 2015 Charge for the year De-recogni7on Exchange diﬀerences At 1 January 2016 Charge for the year Disposals Exchange diﬀerences At 31 December 2016 Carrying amount At 31 December 2016 At 31 December 2015 6,752 – (6,343) (409) – – – – – 6,752 – (6,343) (409) – – – – – – – 797 56 – (119) 734 10 – (120) 624 543 79 – (88) 534 93 – (96) 531 93 200 930 66 – (117) 879 – (64) (110) 705 361 155 – (57) 459 108 (38) (68) 461 244 420 Total US$’000 8,479 122 (6,343) (645) 1,613 10 (64) (230) 1,329 7,656 234 (6,343) (554) 993 201 (38) (164) 992 337 620 The deprecia7on has been charged to the income statement as follows: Cost of sales Opera7ng and development expenses Administra7ve expenses 2016 US$’000 2015 US$’000 124 38 39 201 110 69 55 234 Annual Report and Financial Statements for the year ended 31 December 2016 47 Rose Petroleum plc Notes to the Financial Statements con7nued 19. Investments Cost At 1 January 2015 Addi7ons Capital contribu7on Exchange diﬀerences At 1 January 2016 Addi7ons Capital contribu7on Exchange diﬀerences At 31 December 2016 Impairment At 1 January 2015 Impairment charge Exchange diﬀerences At 1 January 2016 Impairment charge Exchange diﬀerences At 31 December 2016 Carrying amount At 31 December 2016 At 31 December 2015 Shares in subsidiary undertakings US$’000 Company Loans to subsidiary undertakings US$’000 6,040 – – (283) 5,757 – – (958) 4,799 – – – – 3,572 (320) 3,252 1,547 5,757 34,268 8,810 797 (1,629) 42,246 2,194 (195) (7,079) 37,166 23,800 8,186 (1,376) 30,610 (2,050) (4,910) 23,650 13,516 11,636 Total US$’000 40,308 8,810 797 (1,912) 48,003 2,194 (195) (8,037) 41,965 23,800 8,186 (1,376) 30,610 1,522 (5,230) 26,902 15,063 17,393 The Company has a number of loans made to its subsidiaries which incur interest at a commercial rate, according to the Group’s inter-company loan policy. However, there is a risk that the subsidiaries will not commence revenue-genera7ng ac7vi7es and that the carrying amount of the investments exceed the recoverable amount. The Board have assessed the recoverability of these loans and consider that a provision of US$1.5 million (2015: US$8.2 million) should be recognised in the period. 48 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 19. Investments con7nued The Company had investments in the following subsidiary undertakings as at 31 December 2016 which principally aﬀected the losses and net assets of the Group: Place of incorpora0on (or registra0on) and opera0on Propor0on of ownership interest Propor0on of vo0ng power held Principal ac0vity Directly owned: VANE Minerals (UK) Limited Rose Petroleum (UK) Limited Rose Cuba Limited Rose Resources Limited Indirectly owned: AVEN Associates LLC VANE Minerals (US) LLC Minerales VANE S.A. de C.V. Minerales VANE Operaciones S.A. de C.V. Naab Energie GmbH Rose Petroleum (US) LLC Rose Petroleum (Utah) LLC Rose Gypsum Limited UK UK UK UK U.S.A. U.S.A. Mexico Mexico Germany U.S.A. U.S.A. UK 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Holding company Holding company Holding company Holding company Explora7on Explora7on Mining Mining Explora7on Holding company Explora7on Holding company Parkyn Energy Germany GmbH, a wholly owned subsidiary of Rose Petroleum (UK) Limited, was dissolved on 11 August 2015 and the required period of liquida7on was completed on 31 December 2016. Parkyn Energy (Holdings) plc and Parkyn Energy (Germany) Limited were struck oﬀ by the Company during the year. The registered oﬃce address of all companies incorporated in the United Kingdom is 20-22 Wenlock Road, London, N1 7GU. The registered oﬃce address for VANE Minerals (US) LLC and AVEN Associates LLC is 8987 E. Tanque Verde Road, Tucson, Arizona 85749. The registered oﬃce address for all companies registered in Mexico is Humboldt No. 121, Colonia del Valle, C.P. 78200, San Luis Potosi, S.L.P. The registered oﬃce address for Rose (US) LLC and Rose Petroleum (Utah) LLC is 383 Inverness Parkway, Ste 330, Englewood, CO 80112. The registered oﬃce address for Naab Energie GmbH is Merzhauser Strasse 4, D-79100 Freiburg, Germany. Annual Report and Financial Statements for the year ended 31 December 2016 49 Rose Petroleum plc Notes to the Financial Statements con7nued 20. Joint Opera0ons Arizona Project On 1 September 2008, the Group entered into a Mining Venture Agreement with Uranium One Americas Inc. (“U1”). The terms of this agreement created a Joint Venture Agreement (“JVA”) between VANE Minerals (US) LLC (“VANE”) and U1, with each partner holding a 50 per cent interest. The Mining Venture Agreement was amended on 15 July 2013 to extend the terms of the agreement to 31 December 2017. During the year ended 31 December 2015, U1 sold its 50 per cent interest to Anﬁeld Resources Inc. (“Anﬁeld”). The JVA established an agreed sharing of control with decisions about the relevant ac7vi7es requiring the unanimous consent of VANE and Anﬁeld. The par7es have rights to the assets and obliga7ons for liabili7es rela7ng to the arrangement and the JVA has, therefore, been accounted for as a joint opera7on recognising the Group’s relevant share of assets, liabili7es, revenues and expenses as appropriate. The JVA combined interests in over 60 breccia pipe targets, including 10 known mineralised pipes, in northern Arizona and also secured access to U1’s Ticaboo Mill in Utah for ore developed on JV proper7es. The aggregate amounts related to the joint opera7on included within the consolidated accounts are: Net assets Expenses 21. Inventories Work in progress 2016 US$’000 47 (3) 2015 US$’000 53 (3) 2016 US$’000 – Group 2015 US$’000 19 22. Trade And Other Receivables Group 2016 US$’000 2015 US$’000 Company 2016 US$’000 2015 US$’000 Trade receivables Amounts owed by Group companies Amounts owed by joint arrangement partners VAT recoverable Tax recoverable Other receivables Prepayments & accrued income – – 35 608 263 35 295 12 – 35 683 311 161 282 1,236 1,484 – – – 25 – 3 41 69 – 242 – 16 – 15 49 322 At 31 December 2015, other receivables included the sum of US$0.05 million in respect of the disposal of assets held for sale at 31 December 2014 and which was received during the year ended 31 December 2016. See note 24. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. 50 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 23. Cash and Cash Equivalents Cash and cash equivalents held by the Group and the Company as at 31 December 2016 were US$1.3 million and US$1.2 million respec7vely (2015: US$2.4 million, US$1.6 million). The Directors consider that the carrying amount of these assets approximate to their fair value. 24. Assets held for Sale At 31 December 2014, the Board had resolved to dispose of the Group’s interest in Wate Mining Company LLC and these opera7ons were classiﬁed as non-current assets held for sale and presented separately in the balance sheet. On 17 February 2015 (the “closing”), the Company completed the sale of its 50 per cent interest in Wate Mining Company LLC (“Wate”) to EFR Arizona Strip LLC (“EFR”). As considera7on for the 50 per cent interest EFR agreed to pay a total of US$1.75 million, consis7ng of an immediate cash payment of US$0.25 million, a US$0.5 million non-interest bearing promissory note, payable in two equal instalments of US$0.25 million on each of the ﬁrst and second anniversaries of the closing, a further US$0.5 million condi7onal cash, and 2 per cent produc7on royalty on EFR’s stake in the project. The royalty can be purchased by EFR upon payment to the Company of an addi7onal sum of US$0.75 million, less any royal7es previously paid. The Company received the immediate cash payment of US$0.25 million on closing, however, prior to payment of the ﬁrst instalment of the non-interest bearing promissory note due, an addendum to the terms of the original agreement was agreed with EFR. Under the terms of this addendum it was agreed that EFR would make a payment of US$0.05 million in respect of the US$0.25 million due on 17 February 2016 and defer the remainder of all payments due under the non-interest bearing promissory note un7l the commencement of commercial produc7on. No further payments have fallen due during the year ended 31 December 2016. Due to the uncertainty surrounding the commencement of commercial produc7on and receipt of further funds the Company has only recognised those funds of which there was certainty, when calcula7ng the loss on disposal of Wate. The net assets of Wate at the date of disposal were: Intangible explora7on and evalua7on assets Loss on disposal Proceeds on disposal 17 February 2015 US$’000 785 (485) 300 Wate Mining Company LLC did not contribute to the Group’s net opera7ng cash ﬂows during the year ended 31 December 2015. Annual Report and Financial Statements for the year ended 31 December 2016 51 Rose Petroleum plc Notes to the Financial Statements con7nued 25. Trade and Other Payables Trade payables Amounts owed to Group companies VAT payable Taxes and social security Other payables Accruals Group 2016 US$’000 2015 US$’000 Company 2016 US$’000 2015 US$’000 102 – 7 40 – 375 524 134 – 14 38 – 498 684 55 – – 17 – 92 164 58 31 – 16 – 99 204 Trade payables and accruals principally comprise amounts outstanding for trade purchases and on-going costs. The average credit period taken for trade purchases is 30 days (2015: 30 days). The Group has ﬁnancial risk management policies to ensure that all payables are paid within the credit 7me frame. The Directors consider that the carrying amount of trade and other payables approximates to their fair value. No interest is generally charged on balances outstanding. 26. Deferred Tax There are unrecognised deferred tax assets in rela7on to: UK tax losses U.S.A. tax losses German tax losses Mexican tax losses Republic of Ireland tax losses 2016 US$’000 5,252 15,952 – 2,271 – 23,475 2015 US$’000 5,428 17,355 57 1,953 41 24,834 The unrecognised deferred tax asset in rela7on to tax losses in the Company at 31 December 2016 was US$0.8 million (2015: US$0.5 million). There has been no impact due to changes in UK taxa7on rates during the years reported. 52 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 27. Provisions At 1 January Addi7ons On disposal Unwinding of discount Exchange diﬀerences At 31 December Current provision Non-current provision At 31 December Group Decommissioning 2016 US$’000 2015 US$’000 192 10 (87) (5) – 110 110 – 110 52 143 – 5 (8) 192 – 192 192 In accordance with the Group’s environmental policy and applicable legal requirements, the Group expects to restore sites where it has carried on ac7vi7es, following ﬁnal conclusion of those ac7vi7es. Under the terms of the revised agreement with RSOC, the Group no longer has any restora7on obliga7ons in respect of its O&G assets. See note 17. A provision is required to cover the decommissioning costs for the ore processing mill and the Directors’ assump7ons are that restora7on of the Mill will take place within twelve months of the Balance Sheet date. 28. Share Capital Authorised Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Allo1ed, issued and fully paid Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Group and Company 2016 Number ‘000 7,779,297 190,108 7,969,405 3,764,471 190,108 3,954,579 US$’000 9,599 23,223 32,822 5,722 34,640 40,362 2015 Number ‘000 7,779,297 190,108 7,969,405 2,550,185 190,108 2,740,293 US$’000 11,515 27,858 39,373 4,125 34,640 38,765 The Deferred Shares are not listed on AIM, do not give the holders any right to receive no7ce of, or to a8end or vote at, any general mee7ngs, have no en7tlement to receive a dividend or other distribu7on or any en7tlement to receive a repayment of nominal amount paid up on a return of assets on a winding up nor to receive or par7cipate in any property or assets of the Company. The Company may, at its op7on, at any 7me redeem all of the Deferred Shares then in issue at a price not exceeding £0.01 from all shareholders upon giving not less than 28 days’ no7ce in wri7ng. Annual Report and Financial Statements for the year ended 31 December 2016 53 Rose Petroleum plc Notes to the Financial Statements con7nued 28. Share Capital con7nued Issued Ordinary Share Capital On 6 May 2016, the Company issued 500,000,000 Ordinary Shares of 0.1p each at a price of 0.16p per share, raising gross proceeds of US$1.16 million (£0.8 million). On 26 October 2016, the Company issued 714,285,714 Ordinary Shares of 0.1p each at a price of 0.14p per share, raising gross proceeds of US$1.22 million (£1.0 million). In addi7on, for every two shares issued the subscriber received a warrant to subscribe for a new Ordinary Share at a price of £0.25p per share, resul7ng in the issue of 357,142,857 warrants which are exercisable at any 7me un7l October 2019. Considering the Company’s average share price during the year in rela7on to the exercise price of the warrants, no value has been a8ributed to the warrants and the full value of the considera7on received for the share placing has been allocated to share capital. At 1 January 2015 Allotment of shares At 1 January 2016 Allotment of shares At 31 December 2016 29. Share-Based Payments Ordinary Shares Number ‘000 1,510,185 1,040,000 2,550,185 1,214,286 3,764,471 Equity Se1led Share Op0on Plan The Company has a Share Op7on Plan under which op7ons to subscribe for the Company’s shares have been granted to certain Directors and to selected employees and consultants. The Rose Petroleum plc Share Op7on Plan was originally adopted by the Company on 25 May 2004, and in August 2013, was replaced by the adop7on of the 2013 Share Op7on Plan Part A (employees) and 2013 Share Op7on Plan Part B (non-employees). No share op7ons were granted during the year ended 31 December 2016 (2015: 20 million). At 31 December 2016, 130.8 million op7ons had been granted under the terms of the Share Op7on Plans and not exercised. The Company has no legal or construc7ve obliga7on to repurchase or se8le the op7ons in cash. The latest date for exercise of the op7ons is 15 March 2025 and the op7ons are forfeited if the employee or consultant leaves the Group before the op7ons vest, or if those op7ons which have vested are not exercised within three months of leaving. Details of the share op7ons outstanding at the end of the year were as follow: Outstanding at 1 January Granted Forfeited/cancelled Outstanding at 31 December Exercisable at 31 December Number of op0ons ‘000 155,533 – (24,750) 130,783 104,950 2016 Weighted average exercise price 2015 Number of op0ons ‘000 Weighted average exercise price 1.938p – 2.437p 1.843p 1.615p 183,200 20,000 (47,667) 155,533 71,967 1.725p 1.800p 1.062p 1.938p 1.596p 54 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 28. Share Capital con7nued The op7ons outstanding and not yet vested at 31 December 2016 had an es7mated weighted average remaining contractual life of 0.7 years (2015: 1 year), with an exercise price ranging between 1.625p and 3.425p. Share-Based Compensa0on Under the terms of a contract of employment the Company agreed to issue Ordinary Shares in the Company to a Director in return for services provided. The fair value of the services provided can be measured directly, and accordingly, an expense of US$0.05 million was recognised in the year ended 31 December 2015. No further expense has been recognised in the current year. Warrants On 26 October 2016, the Company issued 42,857,142 warrants to Turner Pope Investments, in respect of broker services provided by them in rela7on to the placing of the Company’s shares which took place on the same date. The warrants permit the holder to subscribe for one new Ordinary Share at a price of 0.25 pence per share and are exercisable at any 7me un7l October 2019. As the fair value of the services provided by the warrant holder cannot be measured directly, the Company has measured the value of the services by reference to the fair value of the equity instruments granted as considera7on, using the Black-Scholes model. The signiﬁcant inputs into the model for the IFRS 2 valua7on were as follows: Exercise price (pence) Expected vola7lity (%) Expected life (years) Risk free rates (%) Expected dividends Performance condi7on Grants in year 42,857,142 warrants 0.25 105-117 2.52 0.19-0.27 – None Expected vola7lity was calculated considering Rose Petroleum plc share price movements over a period commensurate with the expected term immediately prior to the issue date. The fair value of the warrants issued during the year was US$0.05 million (2015: US$ nil). In the year ended 31 December 2016, the Company recognised a total expense of US$0.32 million (2015: US$1.5 million) related to equity-se8led share-based payment transac7ons. This represented US$0.27 million (2015: US$1.45 million) in respect of the Share Op7on Plan, US$0.05 million (2015: US$ nil) in respect of warrants and US$ nil (2015: US$0.05) in respect of share-based compensa7on. Annual Report and Financial Statements for the year ended 31 December 2016 55 Rose Petroleum plc Notes to the Financial Statements con7nued 30. Commitments under Opera0ng Leases The Group has entered into commercial leases on certain proper7es. The future minimum rentals payable under non-cancellable opera7ng leases are as follows: Land and buildings Amounts due within one year Amounts due in 2-5 years 31. Financial Instruments Group 2016 US$’000 2015 US$’000 Company 2016 US$’000 2015 US$’000 74 83 157 126 232 358 6 83 89 59 163 222 Capital Risk Management The Group manages its capital to ensure that en77es in the Group will be able to con7nue as going concerns, while maximising the return to shareholders through the op7misa7on of the debt and equity balance. The Group’s overall strategy remains unchanged from 2015. The capital structure of the Group consists of cash and cash equivalents and equity a8ributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group is not subject to externally imposed capital requirements. The Group plans its capital requirements on a regular basis and as part of this review the Directors consider the cost of capital and the risks associated with each class of capital. Signiﬁcant Accoun0ng Policies Details of the signiﬁcant accoun7ng policies and methods adopted, including the criteria for recogni7on, the basis of measurement, the basis on which income and expenses are recognised, in respect of each class of ﬁnancial asset, ﬁnancial liability and equity instrument are disclosed in note 3. Categories of Financial Instruments Financial assets measured at amor0sed cost Cash and cash equivalents Trade receivables Amounts owed by joint arrangement partners Other receivables Loans to subsidiary undertakings Financial liabili7es measured at amor7sed cost Trade payables Group 2016 US$’000 2015 US$’000 1,273 – 35 35 – 1,343 2,399 12 35 161 – 2,607 Group 2016 US$’000 2015 US$’000 102 102 134 134 2016 US$’000 1,185 – – 3 13,599 14,787 2016 US$’000 55 55 Company Company 2015 US$’000 1,582 242 – 15 11,636 13,475 2015 US$’000 89 89 56 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 31. Financial Instruments con7nued On 26 October 2016, the Company issued 714,285,714 Ordinary Shares of 0.1p each at a price of 0.14p per share, raising gross proceeds of US$1.22 million (£1.0 million). In addi7on, for every two shares issued the subscriber received a warrant to subscribe for a new Ordinary Share at a price of £0.25p per share, resul7ng in the issue of 357,142,857 Warrants which are exercisable at any 7me un7l October 2019. Considering the Company’s average share price during the year in rela7on to the exercise price of the warrants, no value has been a8ributed to the warrants and the full value of the considera7on received for the share placing has been allocated to share capital. Fair Value of Financial Instruments The Directors consider that the carrying amount of its ﬁnancial instruments approximates their fair value. Financial Risk Management Objec0ves Management provides services to the business, co-ordinates access to domes7c and interna7onal ﬁnancial markets and monitors and manages the ﬁnancial risks rela7ng to the opera7ons of the Group. These risks include foreign currency risk, credit risk, liquidity risk and cash ﬂow interest rate risk. The policies for managing these risks are regularly reviewed and agreed by the Board. The Group does not enter into or trade ﬁnancial instruments, including deriva7ve ﬁnancial instruments, for specula7ve purposes. Foreign Exchange Risk and Foreign Currency Risk Management The Group undertakes certain transac7ons denominated in foreign currencies, with the result that exposure to exchange rate ﬂuctua7ons arise. The Group does not normally hedge against the eﬀects of movements in exchange rates. The Group policy is not to repatriate any currency where there is the requirement or obliga7on to spend in the same denomina7on. When foreign exchange is required the Group purchases using the best spot rate available. As a result, there is limited currency risk within the Group and the carrying amount of the Group’s currency denominated monetary assets and liabili7es at the repor7ng date are not material. Interest Rate Risk Management The Group’s policy on interest rate management is agreed at Board level and is reviewed on an on-going basis. The Group has no substan7al exposure to ﬂuctua7ng interest rates on its liabili7es. The Group has no liabili7es which a8ract interest charges at 31 December 2016. Liquidity Risk Management Ul7mate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long- term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate cash reserves and by con7nuously monitoring forecast and actual cash ﬂow. Credit Risk Management Credit risk refers to the risk that a counterparty will default on its contractual obliga7ons resul7ng in ﬁnancial loss to the Group. The Group does not have any signiﬁcant credit risk exposure on trade receivables. The Group makes allowances for impairment of receivables where there is an iden7ﬁed event which, based on previous experience, is evidence of a reduc7on in the recoverability of cash ﬂows. The credit risk on liquid funds (cash) is considered to be limited because the counterpar7es are ﬁnancial ins7tu7ons with high and good credit ra7ngs assigned by interna7onal credit-ra7ng agencies. The carrying amount of ﬁnancial assets recorded in the ﬁnancial statements represents the Group’s maximum exposure to credit risk. Annual Report and Financial Statements for the year ended 31 December 2016 57 Rose Petroleum plc Notes to the Financial Statements con7nued 32. Related Party Transac0ons Amounts Due from Subsidiaries Balances and transac7ons between the Company and its subsidiaries which are related par7es, have been eliminated on consolida7on and are not disclosed in this note. The Company has entered into a number of unsecured related party transac7ons with subsidiary undertakings. The most signiﬁcant transac7ons carried out between the Company and their subsidiary undertakings are management charges for services provided to the subsidiary company and long-term ﬁnancing. Details of these transac7ons are as follows: Loans Management charges Interest (1.5%) Capital contribu7on 2016 2015 Transac0ons in the year US$’000 1,092 562 539 (195) Amounts owing US$’000 29,787 2,783 3,712 884 Transac0ons in the year US$’000 7,162 1,070 578 797 Amounts owing US$’000 34,422 2,664 3,865 1,295 During the year, Group companies entered into the following transac7ons with related par7es who are not members of the Group: Accommoda7on and oﬃce rent 2016 2015 Transac0ons in the year US$’000 10 Amounts owing US$’000 4 Transac0ons in the year US$’000 – Amounts owing US$’000 – The related party is a rela7ve of a Director of the Company. Remunera0on of Key Management Personnel The remunera7on of key management personnel of the Group is set out below in aggregate for each of the categories speciﬁed in IAS 24 Related Party Disclosures. Short-term employee beneﬁts Consultancy payments Post-employment beneﬁts Share-based payments 2016 2015 Purchase of services US$’000 Amounts owing US$’000 Purchase of services US$’000 Amounts owing US$’000 473 1 29 324 827 – 1 8 – 9 867 34 52 850 1,803 – – 2 – 2 The amounts outstanding are unsecured and will be se8led in cash. No guarantees have been given or received. All transac7ons with related par7es have been conducted on an arm’s length basis. Included in the amounts for the year ended 31 December 2015 is the sum of US$159,989 paid to JM Blair under the terms of his termina7on agreement. 58 Annual Report and Financial Statements for the year ended 31 December 2016 Notes to the Financial Statements con7nued 32. Related Party Transac0ons Directors’ Emoluments Remunera7on paid to Directors during the year was as follows: Execu0ve Directors MC Idiens KK He&on KB Sco8 CJ Eadie Non-execu0ve Directors PE Jeﬀcock Emoluments en0tlement US$’000 Emoluments1 taken US$’000 Bonus US$’000 Consultancy US$’000 Pension US$’000 Total US$’000 2016 164 78 382 92 452 417 171 108 – 97 17 393 34 – – – – 34 – – 1 – – 1 16 4 – 9 – 29 221 112 1 106 17 457 1 Emoluments include beneﬁts-in-kind which are not included in emoluments en7tlement 2 PE Jeﬀcock and KB Sco8 waived their rights to certain emoluments during the year Emoluments en0tlement US$’000 Emoluments1 taken US$’000 Bonus US$’000 Consultancy US$’000 Pension US$’000 Total US$’000 2015 Execu0ve Directors MC Idiens KK He&on KB Sco8 JM Blair CJ Eadie Non-execu0ve Directors Rt Hon Earl of Kilmorey PC PE Jeﬀcock 306 157 46 632 206 69 53 900 274 164 – 67 189 52 40 786 – – – – – – – – – – 34 – – – – 34 26 7 – – 18 – – 51 300 171 34 67 207 52 40 871 1 Emoluments include beneﬁts-in-kind which are not included in emoluments en7tlement Emolument to the date of resigna7on on 22 April 2015 The remunera7on of Directors and key execu7ves is decided by the remunera7on commi8ee having regard to comparable market sta7s7cs. Certain Directors operate in the capacity of consultant as described above. Directors share op7ons are detailed in the Directors Report. Directors’ pensions The number of Directors to whom re7rement beneﬁts are accruing under money purchase schemes was 33. Post Balance Sheet Events 2016 No. 2 2015 No. 2 All ma8ers rela7ng to events since the balance sheet date have been disclosed elsewhere in the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2016 59 Rose Petroleum plc No7ce of Annual General Mee7ng No7ce is hereby given that the Annual General Mee7ng of Rose Petroleum plc (“the Company”) will be held at the oﬃces of Allenby Capital Limited, 3 St Helen’s Place, London EC3A 6AB on 29 June 2017 at 9:30 AM at which the following ma8ers will be dealt with: Ordinary Business 1. 2. 3. 4. To receive the Reports of the Directors and Auditors and the Financial Statements for the Year ended 31 December 2016. To re-elect Ma8hew Idiens, who re7res by rota7on, as a Director of the Company. To re-elect Kelly Sco8, who re7res by rota7on, as a Director of the Company. To re-appoint KPMG LLP as auditors of the Company to hold oﬃce from the conclusion of this mee7ng un7l the conclusion of the next Annual General Mee7ng at which the requirements of sec7on 437 and 438 of the Companies Act 2006 (“2006 Act”) are complied with. 5. To authorise the Directors of the Company to agree the remunera7on of the auditors. Special Business As Special Business to consider and, if thought ﬁt, to pass the following resolu7ons, of which resolu7on number 6 will be proposed as an ordinary resolu7on and resolu7on number 7 will be proposed as a special resolu7on: 6. THAT the Directors of the Company be and are hereby generally and uncondi7onally authorised for the purposes of sec7on 551 of the 2006 Act, to issue and allot ordinary shares of 0.1 pence each in the share capital of the Company (“Ordinary Shares”) or grant rights to subscribe for or to convert any security into shares in the Company (together “Rights”) up to a maximum nominal amount of £1,254,823 to such persons at such 7mes and on such terms as they think proper, provided that this authority shall expire on the date falling 15 months from the date of passing of this resolu7on, or if earlier, on the date of the next Annual General Mee7ng of the Company to be held a&er the passing of this resolu7on (unless renewed, varied or revoked by the Company prior to or on that date), save that the Company may make an oﬀer or agreement before the expiry of this authority which would or might require Ordinary Shares to be allo8ed or Rights to be granted a&er such expiry and the Directors may allot Ordinary Shares or grant Rights pursuant to any such oﬀer or agreement as if the authority conferred by this resolu7on had not expired. This authority is in subs7tu7on for all previous authori7es conferred on the Directors in accordance with sec7on 551 of the 2006 Act. 7. THAT, subject to and condi7onal upon the passing of resolu7on 6 above, in accordance with sec7on 570 of the Act, the Directors be and are hereby generally empowered to allot for cash or otherwise equity securi7es (as deﬁned in sec7on 560 of the Act) of the Company pursuant to the authority conferred by resolu7on 7 above (as varied from 7me to 7me by the Company in general mee7ng) as if sec7on 561 of the Act did not apply to such allotment provided that this power shall be limited to: a. the allotment of equity securi7es in connec7on with any other oﬀer (whether by way of rights issue, open oﬀer or otherwise) to holders of Ordinary Shares in the capital of the Company in propor7on (as nearly as may be) to their exis7ng holdings of such shares, subject only to any exclusions or other arrangements which the Directors may deem necessary or expedient to deal with frac7onal en7tlements, legal or prac7cal problems arising in any overseas territory or the requirements of any regulatory body or stock exchange in any territory; 60 Annual Report and Financial Statements for the year ended 31 December 2016 No7ce of Annual General Mee7ng con7nued b. c. the allotment of equity securi7es pursuant to the terms of any share schemes for Directors and employees of the Company or any of its subsidiaries; and the allotment otherwise than pursuant to subparagraphs (a) to (b) (inclusive) above of equity securi7es not exceeding in aggregate the nominal amount of £752,894, and provided that this power shall expire at the conclusion of the next Annual General Mee7ng of the Company a&er the passing of this resolu7on or, if earlier, the date falling 15 months from the date of passing this resolu7on (unless renewed, varied or revoked by the Company prior to or on that date), save that the Company may make an oﬀer or agreement before the expiry of this power which would or might require equity securi7es to be allo8ed for cash a&er such expiry and the Directors may allot equity securi7es for cash pursuant to any such oﬀer or agreement as if the power conferred by this resolu7on had not expired. This authority is in subs7tu7on for all previous authori7es conferred on the Directors in accordance with sec7on 570 of the 2006 Act. By Order of the Board 5 June 2017 Ian McNeill Company Secretary Rose Petroleum plc 20-22 Wenlock Road London N1 7GU Annual Report and Financial Statements for the year ended 31 December 2016 61 Rose Petroleum plc No7ce of Annual General Mee7ng con7nued Notes: En0tlement to a1end and vote 1 Only those members registered on the Company’s register of members at: • • close of business on 27 June 2017; or if this annual general mee7ng is adjourned, at close of business on the day two days prior to the adjourned mee7ng, shall be en7tled to a8end and vote at the annual general mee7ng. Appointment of proxies 2 A member is en7tled to a8end, speak and vote at the above mee7ng and is en7tled to appoint one or more proxies to a8end, speak and vote in his stead. A proxy need not be a member of the Company. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. If you wish your proxy to speak on your behalf at the annual general mee7ng you will need to appoint your own choice of proxy (not the Chairman) and give your instruc7ons directly to them. 3 4 5 6 7 8 9 10 You may appoint more than one proxy provided each proxy is appointed to exercise rights a8ached to diﬀerent shares. You may not appoint more than one proxy to exercise rights a8ached to any one share. To appoint more than one proxy, each diﬀerent proxy appointment form must be received by Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU not less than 48 hours before the 7me appointed for the mee7ng. A vote withheld is not a vote in law which means that the vote will not be counted in the calcula7on of votes for or against the resolu7on. If no vo7ng indica7on is given, your proxy will vote or abstain from vo7ng at his or her discre7on. Your proxy will vote (or abstain from vo7ng) as he or she thinks ﬁt in rela7on to any other ma8er which is put before the annual general mee7ng. A prepaid envelope is enclosed. To be valid any form of proxy and power of a8orney or other authority under which it is signed or a notarially cer7ﬁed or oﬃce copy of such power of authority must be lodged with the Company’s Registrars: Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to be received not less than 48 hours before the 7me appointed for the mee7ng or any adjourned mee7ng. The return of a form of proxy will not preclude a member from a8ending and vo7ng at the mee7ng in person should he subsequently decide to do so. CREST members who wish to appoint a proxy or proxies by u7lising the CREST electronic proxy appointment service may do so for the annual general mee7ng and any adjournment(s) thereof by u7lising the procedures described in the CREST manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a vo7ng service provider(s), should refer to their CREST sponsor or vo7ng service provider(s), who will be able to take the appropriate ac7on on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruc7on) must be properly authen7cated in accordance with Euroclear UK & Ireland Limited’s (EUI) speciﬁca7ons and must contain the informa7on required for such instruc7ons, as described in the CREST manual. The message must be transmi8ed so as to be received by the issuer’s agent (Capita Registrars, ID RA10) not less than 48 hours before the 7me appointed for the mee7ng. For this purpose, the 7me of receipt will be taken to be the 7me (as determined by the 7mestamp applied to the message by the CREST applica7ons host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. CREST members and, where applicable, their CREST sponsors or vo7ng service providers should note that EUI does not make available special procedures in CREST for any par7cular messages. Normal system 7mings and limita7ons will therefore apply in rela7on to the input of CREST proxy instruc7ons. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a vo7ng service provider(s), to procure that his CREST sponsor or vo7ng service provider(s) take(s)) such ac7on as shall be necessary to ensure that a message is transmi8ed by means of the CREST system by any par7cular 7me. In this connec7on, CREST members and, where applicable, their CREST sponsors or vo7ng service providers are referred, in par7cular, to those sec7ons of the CREST manual concerning prac7cal limita7ons of the CREST system and 7mings. The Company may treat as invalid a CREST proxy instruc7on in the circumstances set out in Regula7on 35(5)(a) of the Uncer7ﬁcated Securi7es Regula7ons 2001. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submi8ed by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the ﬁrst-named being the most senior). 62 Annual Report and Financial Statements for the year ended 31 December 2016 No7ce of Annual General Mee7ng con7nued Changing proxy instruc0ons 11 To change your proxy instruc7ons simply submit a new proxy appointment using the methods set out above. Note that the cut-oﬀ 7me for receipt of proxy appointments (see above) also apply in rela7on to amended instruc7ons; any amended proxy appointment received a&er the relevant cut-oﬀ 7me will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instruc7ons using another hard-copy proxy form, please contact Capita Asset Services on 0871 664 0300 in the UK (Calls cost 12p per minute plus your phone company’s access charge. If you are outside the United Kingdom, please call +44 (371 664 0300. Calls outside the United Kingdom will be charged at the applicable interna7onal rate. We are open between 9.00 am to 5.30 pm, Monday to Friday excluding public holidays in England and Wales). If you submit more than one valid proxy appointment, the appointment received last before the latest 7me for the receipt of proxies will take precedence. Termina0on of proxy appointments 12 In order to revoke a proxy instruc7on you will need to inform the Company by sending a signed hard copy no7ce clearly sta7ng your inten7on to revoke your proxy appointment to Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU. In the case of a member which is a company, the revoca7on no7ce must be executed under its common seal or signed on its behalf by an oﬃcer of the Company or an a8orney for the Company. Any power of a8orney or any other authority under which the revoca7on no7ce is signed (or a duly cer7ﬁed copy of such power or authority) must be included with the revoca7on no7ce. The revoca7on no7ce must be received by Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 48 hours prior to the mee7ng. If you a8empt to revoke your proxy appointment but the revoca7on is received a&er the 7me speciﬁed then, subject to the paragraph directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from a8ending the annual general mee7ng and vo7ng in person. If you have appointed a proxy and a8end the annual general mee7ng in person, your proxy appointment will automa7cally be terminated. Corporate representa0ves 13 A corpora7on which is a member can appoint one or more corporate representa7ves who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representa7ve exercises powers over the same share. Issued shares and total vo0ng rights 14 As at 6:00 pm on 4 June 2015, the Company’s issued share capital comprised 3,764,470,841 Ordinary Shares of 0.1p each. Each Ordinary Share carries the right to one vote at a general mee7ng of the Company and, therefore, the total number of vo7ng rights in the Company as at 6:00 pm on 4 June 2015 is 3,764,470,841. Communica0on Except as provided above, members who have general queries about the annual general mee7ng should contact the Company Secretary at Rose Petroleum plc, 20-22 Wenlock Road, London, N1 7GU or on +44 (0) 207 225 4590 (no other methods of communica7on will be accepted). You may not use any electronic address provided either: • • in this no7ce of annual general mee7ng; or any related documents (including the Chairman’s le8er and proxy form), to communicate with the Company for any purposes other than those expressly stated. Annual Report and Financial Statements for the year ended 31 December 2016 63 Printed by Michael Searle & Son Limited Rose Petroleum plc Head Oﬃce: 4th Floor 3 Shepherd Street London W1J 7HL www.rosepetroleum.com

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