Weatherly International Plc ("Weatherly" or "the Company")

 

Final Results for Year Ended 30 June 2011

 

 

Weatherly is pleased to announce its final results for the year ended 30 June 2011.

Summary highlights

 

 

Financial

 

·     Loss for the year of US$0.5 million

 

·     Mines operating as a stand-alone and profitable business

 

·     Cash at bank US$9.1 million as at 30 June 2011

 

·     Dividends paid to shareholders during the year equivalent to US$12.4 million

 

 

Operational

 

·     Mining resumed at Otjihase and Matchless mines

 

·     18-month programme of forward sales put in place for 35% of budgeted output at an average of US$9,565/t copper

 

·     Tschudi feasibility study on track and due for completion in mid-2012

 

·     Kombat sale completed in December 2010

 

 

Corporate

 

·     John Bryant appointed Chairman in December 2010

 

·     Share placing in November 2010 raised £4.1 million (net) at 5p per share

 

·     Key management appointments

 

·     China Africa Resources plc admitted to AIM

 

·     Local participation with Labour Investment Holdings investment in Ongopolo Mining Ltd

 

Chairman's and Chief Executive's statement

 

The year under review has been one of transformation for our company.  After the difficulties that we encountered in 2008 as a result of the global economic downturn, we have successfully restructured our operations. This has culminated in the reopening of two of our mines - Otjihase and Matchless - on more favourable operating terms, the commissioning of two feasibility studies for the Tschudi open pit and Tsumeb tailings projects, the enhancement of our management team, and the establishment of a new publicly listed company with an important Chinese major shareholder.

 

Financial results

 

The group made a loss before taxation for the year of US$0.5 million, after recognising a US$6.8 million increase in value of Dundee Precious Metals Inc shares. These shares when issued to shareholders as a dividend were worth US$12.4 million. During the past 18 months, we have paid three dividends 'in specie' to our shareholders, the latest being a distribution of shares in China Africa Resources plc (post year-end).

 

At year end, Ongopolo had delivered 2,792 metric tonnes of concentrate to the port at Walvis Bay. As control over the inventory had not passed to our customer at 30 June, the group did not take any sales to account. The inventory had an agreed sales value of US$5.1 million and a profit of US$2.6 million which will be released in the first half of the 2012 financial year. In the second half of the year, when Otjihase and Matchless entered production, the mines reported a loss of US$1.8 million which would have been a profit of US$0.8 million if the inventory delivered to port had been recognised as sales as described above.

 

Excluding the increase in the value of the shares, the group made a loss for the year of US$7.3 million. Costs relating to the start up of the Otjihase and Matchless mines have been recognised as an expense in the profit and loss statement, whereas costs relating to specific development projects within the mines (US$4.7 million) have been capitalised. The US$7.3 million loss excluding the increase in share value can be broken down as a loss on the continuing mining operation of US$4.6 million, UK head office costs of US$3.1 million, net interest payable of US$0.1 million, and profit on the sale of Kombat of US$0.5 million.

 

Review of the year

 

We are once more mining copper. Our production team in Namibia, led by Craig Thomas, has successfully restarted our Central Operations (Otjihase and Matchless mines) which, after some initial commissioning difficulties and delays, are now producing at approximately 74% of the annualised target rate of 7,000 tonnes. In order to protect our profit margin we have instigated a risk management programme that involved putting in place forward sales of up to 35% of our anticipated production output. As at 30 June 2011 the weighted average price of the forward sales was US$9,565/t, well above the current price, for a period of 18 months (to September 2012). It is the current intention of the Board to continue this strategy of maintaining a 15 - 18 month forward position on its copper sales.

 

Our recently recruited Group Executive for Project Development, Dominic Claridge, is leading the Tschudi open pit and the Tsumeb tailings projects, both of which are currently the subject of feasibility studies and which may have some synergies in a combined development.

 

The Tschudi feasibility study is evaluating a project to deliver 13,000 tonnes of copper per annum in a heap leach open pit development.  The first draft of the feasibility study (BFS) is expected to be available in the New Year. We are undertaking additional drilling and test work to satisfy the requirements of financiers with whom we are already in discussions for funding all or part of the project. It is expected that the securing of funding for the project and a final investment decision will be taken in mid-2012.

 

Under the terms of our management services agreement Dominic is also working on the feasibility study for Berg Aukas, the lead/zinc project that was vended into our recently AIM-listed company, China Africa Resources plc (CAR). The major shareholder in CAR is East China Minerals Exploration and Development Bureau for Non-Ferrous Metals (ECE), which brings a wealth of global mining experience and we look forward to building a new and successful mining venture with them, going forward.

 

The placing in November 2010 to raise £4.1 million (net) saw the introduction of some new institutions to our share register - notably Blackrock, which has subsequently increased its holding and is now our largest shareholder with 10.01%.  During the period under review, the share price rose from 2.6p to 9.5p, reaching a high of 15.0p on 4 January, 2011. The directors believe that the recent share price does not reflect the underlying value of the company and we are increasing our investor relations activities across all sectors of the market to address this.

 

While the market has reacted unfavourably to some of the statements coming from the Government of Namibia, we had positive discussions with the President, Mr Hifikipunye Pohami during his recent visit to the UK. Weatherly is well represented in Namibia with some highly respected non-executive directors on the boards of our local operating subsidiaries.  In the absence of a formal black empowerment requirement, we are encouraging our local Namibian partners to participate in our operations by way of direct equity investments in our subsidiary, Ongopolo Mining Limited, up to a total of 20%. Labour Investment Holdings, the investment arm of the National Union of Namibian Workers, is the first group to take up a 2.5% shareholding and has a five year option to increase its interest to 5%.

 

Outlook

 

The current economic uncertainty that seems to have become part of our daily lives looks set to continue for some time.  Despite short-term volatility, we believe that demand for copper will be sustained in the medium term from the emerging countries of Asia Pacific, particularly China and India.

 

Against this background, we believe Weatherly has the essential elements in place for a successful future. We have strong cash flows from our operating mines, protected in part by our prudent risk management strategy, and cash resources of US$ 7.1 million (as at 30 September 2011). We expect to begin a drilling programme towards the end of 2011 at two exploration targets: Tschudi and at Tsumeb West. Building on the success at Central Operations we are preparing plans to increase production by reopening the 'Old Matchless' mine. Previous studies indicate that a significant resource of 1.06 m/t @2.5% Cu (non compliant historic resource) remains below the previously mined out area. We believe that we have projects which should enable us to reach our stated target of 20,000 tonnes per annum of copper production and a growth pipeline which will enable us to realise additional value for our shareholders.

 

We not only have the resources and projects, but we have an experienced board of directors who have steered the company through difficult times. We have in place a strong management team which is delivering on Weatherly's corporate goals, and we are extremely grateful for the commitment and hard work of all our staff.

 

 

 

 

 

 

 

John Bryant                                                                         Rod Webster

Chairman                                                                              Chief Executive Officer

 

11 October 2011

 

 

Review of operations

 

Central Operations

 

The past year has been challenging, but it is very gratifying that the programme we set in motion last year to return to full production is being realised. The board took the decision in July 2010 to reopen the Otjihase and Matchless mines, which had been closed since late 2008, with an ambitious target to recommence production in Q1 2011.

 

The capital cost of reopening the mines including working capital, was US$12 million. 

 

These funds were raised, in part, by way of a US$7 million prepayment agreement entered into by Louis Dreyfus Commodities and our Namibian subsidiary, Ongopolo Mining Limited, which included an offtake and forward sales agreement. This was a financing package in which repayment of the facility is linked to concentrate production, with payments matched to the amount of concentrate delivered and deducted from sales proceeds - thereby reducing risk in the event of any unexpected production delays. Repayments began seven months after the first drawdown of the loan, and all monies outstanding under the terms of the facility are secured against the assets of Ongopolo Mining Limited. The prepayment facility contains a risk management framework which allows Ongopolo Mining Limited to sell forward up to 35% of its output for a period of 18 months.

 

The remaining funds were generated from cash holdings in Namibia, the proceeds of the sale of the Kombat mine, sales from our real estate portfolio and local bank funding.

 

Between January and March, Ongopolo Mining Limited entered into forward sales contracts with Louis Dreyfus Commodities for 3,375 tonnes of copper to be delivered progressively over an 18 month period, at a weighted average price of US$9,565 per tonne. The forward contracts represent approximately 35% of forecast copper production over that period.

 

The ramp-up of the Otjihase and Matchless mines was a slower process than originally planned, owing to a number of commissioning problems. These included the late delivery of key equipment and difficulties with transport exacerbated by extremely wet weather. However, our central operations are now approaching target levels of production (580 tonnes per month or 7,000 tonnes per annum of copper), with costs of production following a typical trend for a ramp-up phase. The initial delays left us a month behind on our previously stated targets, and so in July we announced that we had reduced our production forecast for calendar year 2011 to 4,000 tonnes. Over the coming year, the main objective for the team, ably led by Chief Operating Officer, Craig Thomas, is to consolidate production and improve efficiencies.

 

During Q1 2011/12 (July, August and September 2011) provisional cash costs are US$4707 per tonne (net of credits). Production was at approximately 74% of our target levels and as production increases we would expect net cash costs to fall.

 

The two mines are now operating as a financially independent business, with all capital purchases completed.

 

Northern Operations

 

Tschudi

The Tschudi project which is wholly contained in a granted mining licence (ML 125) located approximately 20km due west of the town of Tsumeb contains a JORC-compliant resource of 47.7 million tonnes grading 0.86% Cu and 10.6 g/t Ag, including the measured and indicated resource of 28.8 million tonnes grading 0.93% Cu and 11.09 g/t Ag (Coffey Mining 2009).

 

Sedgman Limited was engaged to manage the feasibility study for Tschudi, which included supervising the metallurgical test work conducted by Bureau Veritas - Amdel Limited (Amdel) and assessing potential processing routes.

 

This established a compelling case for the development of a stand-alone heap leach operation and enabled the Board to take an early decision to complete the feasibility study based on a heap leach processing route rather than flotation.

 

Accordingly the Sedgman feasibility study will evaluate a stand-alone 2 million tonne per annum open pit utilising a heap leach/SX-EW processing route. Based on existing resources, the project would have a life of at least 10 years and produce approximately 13,000 tonnes of copper annually.

 

In addition to the detailed design and costing of the heap leach option, the scope of the feasibility study will include a new pit design together with any resulting amendments to the environmental permit which was granted in 2003. The proposed heap leaching route will mean that we can produced a final LME-grade copper product within Namibia, which will be an important step in terms of adding value.

 

We made an early start to our financing discussions with the banks, and this has led us to commission additional drilling and leaching test work in order to satisfy their requirements.  Preliminary indications are that debt finance will be available to us at beneficial rates and we expect to be able to complete the financing and make an investment decision by mid-2012.

 

Tsumeb Tailings

We are undertaking a formal investigation into the feasibility of copper production from the old tailings at Tsumeb.

 

Coffey Mining completed an estimate of the resources in the tailings and have concluded that they contain a JORC-compliant measured resource of 12mt grading 0.48% Cu, 0.77% Pb, 0.63% Zn and 12.74g/t Ag.

 

Sedgman has been mandated to complete a feasibility study for this project and to examine synergies that may exist with the development of the Tsumeb project.

 

Tambao, Burkina Faso

We have been unable to progress our rights to the Tambao manganese project, and accordingly we have commenced proceedings in the International Court of Justice.

 

Berg Aukas and China Africa Resources

 

During the year, we finalised our joint venture with our Chinese partner, East China Minerals Exploration and Development Bureau for Non-Ferrous Metals (ECE). On 1 August 2011 (post year-end), our new company, China Africa Resources plc was listed on the AIM market of the London Stock Exchange. ECE has a majority holding of 65% of the issued capital, Weatherly is interested in 25% of the issued share capital, and 10% of the share capital was distributed to Weatherly shareholders as a dividend 'in specie'.  Weatherly vended in its Berg Aukas lead/zinc project while ECE made a capital contribution of £4.8 million. These funds are being used to commence a feasibility study with a view to bringing Berg Aukas back into production as soon as possible. The longer term strategy for China Africa Resources is to build a profitable and widely-based resources business. Both Weatherly and ECE hope that the redevelopment and
re-commissioning of Berg Aukas will be the first in a number of projects that will see China Africa Resources develop successfully as an African/Chinese joint venture for the benefit of all its stakeholders. 

 

Corporate developments

 

Following Wolf Martinick's resignation as Chairman, John Bryant was appointed Chairman on 14 December and Alan Stephens was appointed Senior Independent Non-executive Director. We are indebted to Wolf for all the hard work and commitment he has shown in the development of our company, and are very pleased that he will continue to make a valuable contribution as a non-executive member of the board.

 

In November 2010, we raised £4.1 million (net) by placing 89,022,880 ordinary shares at 5p per share. The placing saw the introduction of some new institutions to our share register - notably Blackrock, which has since increased its holding and is now our largest shareholder with 10.01% (post year end).

 

In the last 18 months we have paid three dividends in specie to our shareholders, the first two in shares in Dundee Precious Metals Inc as a result of the sale of the Tsumeb smelter, and the latest a distribution of shares in China Africa Resources plc which occurred post year end.

 

Environment

 

Weatherly is committed to maintaining the highest environmental standards as part of its overall business philosophy. During the forthcoming year, the company will be reviewing its environmental monitoring management and reporting systems to ensure it continues to do so. Weatherly is in full compliance with all appropriate Namibian legislation at all its sites.

 

There were no environmental incidents on any of our sites during the year.

 

Safety

 

Weatherly takes the health and wellbeing of its staff very seriously and maintains high standards of safety on all in sites. Weatherly operates all its sites in full compliance with all appropriate Namibian legislation.

 

	2010/11
Fatalities	0
Lost time injuries	3

 

Management team

 

In Namibia we have been able to build up a strong and experienced management team led by our Chief Operating Officer, Craig Thomas.

 

Dominic Claridge, has recently been recruited as our Group Executive for Project Development. He is an Australian mining engineer with extensive experience in Australia and China in both senior executive and mine management capacities. In addition to our development projects he is also working on the feasibility study for Berg Aukas, the project which is currently the focus of the recently AIM listed company, China Africa Resources plc.

 

In addition Charles (Chuck) Carnie has been appointed as Mining Manager.  Chuck has over 17 years' international experience within the mining and resources industry, including chief technical or senior executive positions in the last seven years.

 

We now have a technical team in place that has the experience and expertise to deliver a successful and growing business for shareholders. We would like to take this opportunity to thank them and all our employees for their hard work and dedication during what has been a challenging couple of years. We have laid the foundations for a strong and viable copper business, and with their continued support and enthusiasm we are confident that we can generate attractive and sustainable returns for our shareholders.

 

 

 

 

John Bryant                                                                         Rod Webster

Chairman                                                                              Chief Executive Officer

 

11 October 2011

 

 

Table A

 

Weatherly Mining Namibia : Ore Reserves as at 30 June 2011
Deposit	Reserve	Reserve Tonnes and Grade						Contained Metal
	Category	Tonnes	Cu (%)	Ag (g/t)	Au (g/t)			Cu (t)	Ag (kg)	Au (kg)
Otjihase	Proven	2,913,962	1.67	7.07	0.30			48,688	20,623	872
	Probable	287,600	1.01	7.57	0.15			2,895	2,177	42
	Total	3,201,562	1.61	7.12	0.29			51,583	22,800	914
	Proven	-	-	-	-			-	-	-
Matchless (West Ext.)	Probable	695,667	1.81	-	-			12,626	-	-
	Total	695,667	1.81	-	-			12,626	-	-
Grand Total  (Proven + Probable)		3,897,229	1.65	5.85	0.23			64,209	22,800	914

 

Table B

 

Weatherly Mining Namibia : Mineral Resources as at 30 June 2011
Deposit	Resource	Insitu Tonnes and Grade						Insitu Metal
	Category	Tonnes	Cu (%)	Ag (g/t)	Au (g/t)	Pb (%)	Zn (%)	Cu (t)	Ag (kg)	Au (kg)	Pb (kg)	Zn (kg)
Otjihase	Measured	3,474,246	2.37	8.91	0.42	-	-	82,272	30,956	1,464	-	-
	Indicated	3,828,064	1.94	7.76	0.32	-	-	74,217	29,639	1,204	-	-
	Inferred	3,718,494	1.41	5.19	0.23	-	-	52,335	19,293	839	-	-
	Total	11,020,804	1.89	7.24	0.32	-	-	208,824	79,888	3,507	-	-
	Measured	-	-	-	-	-	-	-	-	-	-	-
Matchless	Indicated	579,716	2.13	-	-	-	-	12,402	-	-	-	-
Western Extension	Inferred	230,460	2.32	-	-	-	-	5,346	-	-	-	-
	Total	810,176	2.19	-	-	-	-	17,748	-	-	-	-
Tschudi	Measured	4,428,000	1.10	11.15	-	-	-	48,490	49,359	-	-	-
	Indicated	24,416,000	0.90	11.08	-	-	-	218,994	270,419	-	-	-
	Inferred	18,874,000	0.74	9.85	-	-	-	140,482	185,966	-	-	-
	Total	47,718,000	0.86	10.59	-	-	-	407,966	505,744	-	-	-
Tsumeb West	Measured	35,255	2.45	13.00	-	-	-	864	458	-	-	-
	Indicated	520,400	2.24	20.02	-	-	-	11,680	10,417	-	-	-
	Inferred	413,200	1.88	16.35	-	-	-	7,757	6,757	-	-	-
	Total	968,855	2.10	18.20	-	-	-	20,301	17,632	-	-	-
Tsumeb Tailings	Measured	12,000,000	0.48	12.74	-	0.77	0.63	57,600	152,880	-	92,400	75,600
	Indicated	-	-	-	-	-	-	-	-	-	-	-
	Inferred	-	-	-	-	-	-	-	-	-	-	-
	Total	12,000,000	0.48	12.74	-	0.77	0.63	57,600	52,880	-	92,400	75,600
Grand Total : All Categories								712,439	756,144	3,507	92,400	75,600

 

 

 

 

Directors' report

 

The directors present their report, together with the group and parent company financial statements and auditor's reports, for the year ended 30 June 2011.

 

Principal activity and review of the business

 

The principal activity of Weatherly International plc during the year was to act as a holding company for the group's activities in mining and production of base metals, primarily copper.

 

The subsidiary and associated undertakings principally affecting the profits or net assets of the group in the year are listed in note 19(a).

 

A review of business can be found in the Chairman's and Chief Executive's statement and the review of operations.

 

The directors

 

The directors during the year ended 30 June 2011 were:

 

J Bryant (Non-executive Chairman)

R J Webster (Chief Executive Officer)

W G Martinick (Non-executive)

A J Stephens (Non-executive)

 

Wolf Martinick resigned as Chairman on 14 December 2010 and John Bryant was appointed Chairman, while Alan Stephens became Senior Independent Non-Executive Director.

 

Going concern

 

The company expects to generate sufficient funds to operate as a going concern for the next 12 months, based on its current production levels and prevailing market conditions.

 

Weatherly has passed two significant milestones in the last six months. First, the business has achieved the successful recommissioning of its Central Operations (Otjihase and Matchless mines); and secondly, these operations have passed the significant 'maximum cash out point' in the recommissioning process and have become a financially independent and cash generative business.

 

Exchange rates and copper prices will continue to have significant impact over the ongoing economics of the projects.  The investment decision over the recommissioning of its Central Operations was made with a financial model using the assumptions of a copper price of US$6,600/tonne and an exchange rate of US$1: N$7.6, with base case assumptions of US$5,500/tonne and US$1:N$8.5. If prevailing prices were to deteriorate significantly from these assumptions, the business would reconsider the continuation of the operations.

 

The business has taken steps to manage its exposure to the commodity markets. It has sold forward approximately 35% of forecast production of copper concentrate at an average price of US$9,565/ tonne of copper, which it is currently delivering into. The group maintains forward contracts extending out to between 15 and 18months. These forward sales were negotiated in an attempt to preserve the profitability of the mines in the face of an economic crisis similar in scale to that of 2008-2009.

 

The business has a debt financing facility of US$7 million with Louis Dreyfus. The loan is linked to an offtake agreement and is structured with repayment terms linked to the production of concentrate at the Central Operations. The board considers this financing model reduces risk by better matching its debt service obligations with projected cash flows. 

 

Results and dividends

 

The consolidated loss for the year after taxation was US$0.5 million

 

Key performance indicators

 

Production: The Board monitors monthly production against budgeted figures, while management monitors it on a daily basis.  Production "head grades" are monitored by management on a shipment basis and the Board monitors ore grades on a monthly basis.  For the year ended 30 June 2011, 59,450 tonnes of ore was extracted producing 664 tonnes of copper.

 

Costs: The board and management monitor actual against budgeted costs on a monthly basis.

 

Finance: The liquidity requirements of the company are monitored on a weekly basis by management, monthly and quarterly by the board, and semi-annually by external parties. 

 

Key risk factors and mitigations

 

Human resources: Attracting and retaining key commercial and technical staff will be a major challenge especially in the light of the company's reopening strategies and current market conditions in the resources sector. The company constantly monitors the employment market and offers competitive packages to its employees.

 

Project development risk: All potential projects are subject to an investment appraisal procedure that involves the board at the key stages of initiation, mandate and sanction. Projects are assessed by their strategic fit and contribution to earnings. All projects are scrutinised for consistency of assumptions and accuracy of modelling prior to presentation to the board.

 

Commodity and Foreign Exchange Risks: The company's revenues and expenses are affected by changes in the price of copper and exchange rate movements between the US dollar and Namibian dollar.

 

Management and directors review trends in the copper price and exchange rates on a regular basis when considering the company's risk management strategy.

 

During the year the company had entered into contracts to sell forward 3,375 tonnes of copper delivered over an 18 month period.  At the 30 June 2011, 375 tonnes had been delivered into these contracts.

 

Forward copper sales: If copper prices were to rise above our forward price and the mines were not able to deliver into these contracts, the group would have a financial obligation.

 

Risks relating to investing in Namibia

 

Political: Namibia is considered one of the lowest-risk economies in the African continent. The government pursues a consistent strategy of encouraging investment in the country, and is keen to keep the climate attractive for foreign investors. Weatherly maintains strong links with the President, Prime Minister, Minister for Mines, and other government members and officials. The board reviews the strategic impact of political changes within the country on an ongoing basis. The President of Namibia, Mr.Hifikepunye Pohami, visited London in summer 2011 and held very positive discussions with Weatherly's Chairman and Chief Executive Officer. 

 

Black Economic Empowerment and local participation: There is currently no Black Economic Empowerment legislation embodied in Namibian law; however the government encourages local participation through a number of avenues. Weatherly has adopted a proactive stance in making equity in its projects available to appropriate empowerment groups. Accordingly, we have entered into an agreement with Labour Investment Holdings Inc, the investment arm of the National Union of Namibian Workers, to sell a 2.5% stake in Ongopolo Mining Ltd, Weatherly's wholly owned subsidiary which owns and operates our Namibian mines. There is an option to purchase a further 2.5%. Additionally, discussions are taking place for the Government of Namibia's 5.09% shareholding in Weatherly to be transferred to Epangelo, the state owned mining company. These arrangements will be for the long-term benefit of the community and the company.

 

Exchange controls: The company maintains a consistent and compliant approach to exchange regulations within Namibia.

 

Currency and exchange rate fluctuations: Weatherly manages its treasury function through its London office. Treasury balances the needs of the Namibian subsidiary against fluctuations in the currency and optimises transfer through its advisers, drawing down funds on a prudent basis.

 

Market risk: Future profitability of the group is dependent upon global demand for, and the market price of, copper. We have put agreements in place to sell a proportion of our future production forward, with the aim of providing some shelter in the event of a significant negative movement in the copper price.

 

At year end the company had outstanding forward contracts equating to approximately 35% of forecast production delivered periodically over 15 months at an average price of US$9,565 per tonne.

 

Infrastructure: Weatherly's operations are serviced by good regional infrastructure, and the board reviews its infrastructure requirements on an ongoing basis. Any challenges relating to the supply of electricity, water or rail links are incorporated into investment decisions and addressed as needed in the overall projects. Any infrastructure requirements outside the project scope are addressed through dialogue with the government and the relevant parastatal institutions.

 

Other matters

 

Section 311 Creditors

On the 31^st July 2011 the compromise agreement with the creditors expired and  no payments to the creditors were outstanding. Although a judgment had been obtained in the courts in Namibia we have received a legal opinion that the judgment is flawed and the appeal that we have lodged to set it aside should succeed. The matter will be kept under review to consider the appropriate time to release the provision.

 

Substantial holdings

 

Shareholdings of 3% and more of the issued share capital of the company were extracted from the shareholders' register at close of business on 30 September 2011 as follows:

 

Major shareholders	Number of ordinary 0.5p shares
Blackrock	53,175,813	10.01%
Government of Republic of Namibia	27,364,986	5.09%
R J Webster	27,343,800	5.09%
Legal & General UK Alpha Trust	20,000,000	3.70%
W G Martinick	19,263,200	3.60%
Ezenet Ltd	18,281,200	3.40%

 

 

Post balance sheet events

 

China Africa Resources listing

During the year we continued our work with East China Minerals Exploration and Development Bureau for Non-Ferrous Metals (ECE) to form the joint venture company. The company, China Africa Resources plc (CAR), was floated on the Alternative Investment Market (AIM) of the London Stock Exchange, with the first day of trading on 1 August 2011. ECE has a majority holding in CAR, with 65% of the issued share capital. Weatherly holds 25% and 10% was distributed to Weatherly shareholders as a dividend in specie. Weatherly contributed the Berg Aukas lead/zinc project into the joint venture while ECE put in £4.8million. These funds are to be used firstly on a feasibility study to bring Berg Aukas back into production. The remaining funds are being used in assessing other projects that CAR may develop.

 

Labour Investment Holdings

On 26 September 2011, Weatherly sold a 2.5 per cent shareholding in its Namibian subsidiary Ongopolo Mining Limited (OML) to Labour Investment Holdings (Pty) Ltd (LIH), the investment arm of the National Union of Namibian Workers.

 

The sale price for the shares is N$7.2m (approximately US$1 million) and will be provided for through a vendor financing agreement whereby OML will lend LIH the consideration for the shares, and the repayments including interest will be deducted from LIH's future dividends. Under the agreement, LIH also has a five year option to increase its shareholding to 5 per cent. Payment for the second 2.5 per cent tranche would be in cash, with the price based on an independent valuation of OML at the time of exercise.

 

Future developments

 

Discussion of future developments can be found in the Chairman's and Chief Executive's statement and the review of operations.

 

Company's policy on payment of creditors

 

It is the group's policy to settle terms of payment with suppliers when agreeing the terms of each transaction, to ensure that suppliers are made aware of these terms of payment, and to endeavour to adhere to them. Trade creditors of the group at 30 June 2011 were equivalent to 37 days' purchases (2010: 48 days), based on the average daily amount invoiced by suppliers during the year. The company does not have significant trade creditor balances.

 

Exchange rates

 

The following rates have been used in the compilation of the financial statements and notes supporting the accounts:

 

	Translation	2011	2010
Year end	1 GBP - USD	1.6018	1.5067
Average	1 GBP - USD	1.5898	1.5789
Year end	1 USD - ZAR	6.8310	7.6529
Average	1 USD - ZAR	7.0076	7.5904

 

 Statement of directors' responsibilities - group

 

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the group for that period. In preparing these financial statements, the directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgments and estimates that are reasonable and prudent;

·     state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

In so far as each of the directors is aware:

·     there is no relevant audit information of which the company's auditors are unaware; and

·     the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

 

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Auditor

 

Grant Thornton UK LLP have expressed their willingness to continue in office as auditor, and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.

 

On behalf of the board:

 

Rod Webster

Chief Executive Officer

 

11 October 2011

 

Corporate governance report

 

Introduction

 

The board of directors is committed to high standards of corporate governance.

 

The board is accountable to its shareholders for good governance, and the statement below is based on the review of corporate governance that was carried out by the Audit Committee and describes how the principles of good governance have been applied.

 

Constitution of the board

 

During the year ended 30 June 2011, the board was comprised of the following:

John Bryant                Chairman (appointed 14 December 2010)

Rod Webster              Chief Executive Officer

Alan Stephens           Senior Independent Non-executive Director (appointed 14 December 2010)

Wolf Martinick             Non-executive Director

 

Non-executive directors

 

During the year, the board had three non-executive directors: Alan Stephens, John Bryant, and Wolf Martinick. Wolf Martinick resigned as Chairman on 14 December and was replaced by John Bryant. Wolf Martinick has continued as a non-executive director. Alan Stephens and John Bryant were considered to be 'independent' and, with John Bryant becoming Chairman, Alan Stephens has taken over as the senior independent non-executive director. Due to the size of Wolf Martinick's shareholding of 3.60% and his ability to influence Ezenet Ltd's holding of 3.40%, he is not considered to be an independent director. The relatively small number of share options that has been granted to the other two non-executive directors does not, in the opinion of Weatherly's advisers or its directors, impair their independence.

 

Committees of the board

 

The board has three standing committees, each of which has terms of reference setting out its authority and duties, as follows:

 

The Audit Committee was made up of John Bryant as Chairman and Alan Stephens for the year ended 30 June 2011.

 

The Audit Committee meets as required. It reviews the financial reports and accounts and the preliminary and interim statements, including the board's statement on internal financial control in the annual report, prior to their submission to the board for approval. The Audit Committee also reviews corporate governance within the group and reports on this to the board. In addition, it assesses the overall performance of the external auditor including scope, cost effectiveness and objectivity of the audit.

 

The Audit Committee is also charged with reviewing the independence of the external auditor and monitors the level of non-audit fees. These fees are disclosed in note 10 to the accounts. In the opinion of the Audit Committee, which has reviewed these fees and the procedures that Grant Thornton UK LLP have in place to ensure they retain their independence, the auditor's independence is not compromised. The Audit Committee met three times during the period, and John Bryant and Alan Stephens were present on all occasions.

 

The Audit Committee can meet for private discussion with the external auditor, who attends its meetings as required.  The Company Secretary acts as secretary to the committee.

 

The Remuneration Committee was made up of Alan Stephens as Chairman and John Bryant during the year, with the Company Secretary serving as secretary.

 

The Remuneration Committee determines, on behalf of the board, the group's policy on executive remuneration and the remuneration packages for executive directors. It also approves and administers the executive share option scheme, the long term incentive plan (LTIP) and the grant of options as part of the remuneration package. The Remuneration Committee met four times during the period, with Alan Stephens and John Bryant in attendance on each occasion.

 

The Nominations Committee is made up of John Bryant and Rod Webster with either Wolf Martinick or Alan Stephens.

 

In addition to its role of considering the appointment of directors and senior managers, the Nominations Committee is also charged with reporting to the board on the effectiveness of the board, its sub-committees and its directors, and it does this at the end of the annual audit cycle. The Nominations Committee did not meet formally during the year.

 

In accordance with the Quoted Companies Alliance Guidance, the board nominated Alan Stephens as the senior independent non-executive director on 14 December 2010 following John Bryant's appointment as Chairman. At the same board meeting, the directors also adopted the guidance on Corporate Governance for AIM Listed Companies by the Quoted Company Alliance and in future will be reporting our performance against the guidance.

 

Attendance at meetings

 

During the year, there were a large number of substantive board meetings. Directors' attendance at meetings of the board and its sub-committees during the period was as follows:

 

John Bryant                Board        21/21             Audit Committee      2/2               Remuneration Committee  5/5

Rod Webster              Board        21/21

 

Alan Stephens           Board        20/21            Audit Committee       2/2                 Remuneration Committee  5/5

Wolf Martinick             Board        16/21           

 

Of the 21 board meetings, nine were of a procedural nature and 12 were substantive meetings.

 

The Nominations Committee did not meet formally during the year; however, such matters that arose within its term of reference were dealt with in full board meetings.

 

Internal control

 

The board is responsible for reviewing and approving the adequacy and effectiveness of the group's internal controls, including financial and operational control, risk management and compliance.

 

In order to establish effective procedures for internal control and communicate these throughout the group, including its subsidiaries, the board has issued two important documents to all staff known as the Board Protocol and the Manual of Internal Control.

 

The key elements of the group's internal control are set out in these documents, and contain:

·     a clearly defined structure for the group, its subsidiaries and management teams;

·     powers which the board has reserved to itself. These include the approval of all business plans and budgets for the group and all its subsidiaries, the establishment of subsidiary companies and appointment of directors to them, and the process for project approval and capital expenditure;

·     terms of reference for the Audit, Remuneration and Nominations Committees, which define the roles of their members;

·     information about how often the board should meet (as a minimum) and an annual cycle of meetings. This covers the process for the preparation of board agendas and board papers, and their prior consideration by the management team at its weekly meetings;

·     detailed business plans and budgets to be approved annually and performance monitored by the management team and the board at its monthly meetings; and

·     procedures for the approval of expenditure, the levels of authority and the management controls.

 

The directors acknowledge their responsibility for the group's system of internal financial control and risk management, and place considerable importance on maintaining this. The Manual of Internal Control and the process for authorisation that it imposes, together with the Board Protocol setting out the process for authorising business plans, budgets and projects, form an important part of our decision-making process; however, this can only provide reasonable and not absolute assurance against material errors, losses or fraud.

 

There is currently no internal audit function within the group owing to the small size of the administrative function. However, there is a high level of review by directors and a clear requirement for them to authorise transactions. Should the need for a separate internal audit function become apparent, the board will establish one.

 

The Board Protocol and the Manual of Internal Control have both been updated and refined as Weatherly's business evolves and grows.

 

Bribery Act compliance

 

In response to the introduction of the Bribery Act 2010 and in order to ensure compliance, the Board approved a suite of documentation that included a policy statement on anti-corruption and bribery, a code of conduct for employees, a set of management procedures, a note defining responsibilities within the company and an implementation plan which has been rolled out in the company. Progress on the implementation has been reported to the Audit Committee. The Audit Committee noted that documentation had been circulated and meetings to explain the procedures had been held with all staff and contractors on site including our operating mines in Namibia. Notices had been displayed at our locations with the 'whistle blowing' procedure. The implementation and effectiveness of these procedures will be continually monitored and reported to the board.

 

Relations with shareholders

 

The company endeavours to maintain regular communications with shareholders through regulatory announcements, via the Weatherly International website and by direct contact with its major shareholders. Rod Webster has also participated in conference calls with groups of smaller shareholders. The board values the views of its shareholders and fosters continuing dialogue with investment and fund managers, other investors and equity analysts to ensure that the investing community receives an informed view of the group's prospects, plans and progress.

 

 

Directors' remuneration report

 

Remuneration Committee

 

The company has established a Remuneration Committee which is constituted in accordance with the recommendations of the UK Corporate Governance Code (June 2010). The members of the Committee for the year ended 30 June 2011 were Alan Stephens and John Bryant, who are both independent non-executive directors, and the Committee was chaired by Alan Stephens.

 

Neither member of the Committee has any personal financial interest (other than as a shareholder), conflicts of interests arising from cross-directorships, or day-to-day involvement in running the business. The Committee makes recommendations to the board. No director plays a part in any discussion about his own remuneration.

 

In determining the directors' remuneration for the year, the Committee consulted Rod Webster (Chief Executive) and Max Herbert (Company Secretary) about its proposals. The Committee also appointed PricewaterhouseCoopers to provide options valuation advice.

 

Remuneration policy for the executive directors

 

Executive remuneration packages are designed to attract, motivate and retain directors of the highest calibre to lead the company and to reward them for enhancing value to shareholders. The performance management of the executive directors and key members of senior management, and the determination of their annual remuneration package, are undertaken by the Committee.

 

There are five main elements of the remuneration package for executive directors and senior management:

·     Basic annual salary

·     Benefits-in-kind

·     Annual bonus payments

·     Share option incentives

·     Pension arrangements.

 

The company's policy is that a substantial proportion of the remuneration of the executive directors should be performance-related. Executive directors may earn an annual bonus payment together with the benefits of participation in share option schemes.

 

Basic salary

 

An executive director's basic salary is reviewed by the Committee prior to the beginning of each year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee considers the group as a whole and relies on objective research which gives up-to-date information on a comparator group of companies. In considering the Chief Executive's basic salary, the Remuneration Committee took into account his extended role since the departure of the Chief Financial Officer and the lack of executive support.

 

Benefits-in-kind

 

The executive director receives benefits-in-kind, principally private medical insurance. 

 

Annual bonus payments

 

The Committee establishes the objectives that must be met for each financial year if a cash bonus is to be paid. In setting appropriate bonus parameters, the Committee refers to the objective research on a comparator group of companies, as noted above. The Committee believes that any compensation awarded should be tied to the interests of the company's shareholders and that the principal measure of those interests is total shareholder return. Account is also taken of the relative success of the different parts of the business for which the executive directors are responsible and the extent to which the strategic objectives set by the board are being met. The maximum performance-related bonus that can be achieved is 100% per cent of basic annual salary. The strategic objectives, control system and indicators are also aligned to total shareholder return.

 

Share options

 

The company has issued share options to its staff under two incentive schemes: an unapproved share option scheme and a long term incentive plan. The Remuneration Committee has responsibility for the administration of these schemes and the grant of options under its terms. This includes setting the performance criteria that must be met and the strike price of the options, which is at a premium to market price at the time of grant. The details of these awards are set out below and their accounting treatment is dealt with in note 31 to the financial statements.

 

On 11 October 2011, the directors agreed to change the rules of the Weatherly International plc 2006 unapproved share option plan under the terms of Rule 25 so that under Rule 23 invested share options that have been awarded will vest immediately on a change of control of ownership of the business.

 

Pension arrangements

 

Executive directors receive pension contributions to their own private pension schemes.

 

Directors' contracts

 

All the directors have signed contracts with the company. Rod Webster's appointment does not have a fixed term but is subject to 12 months' notice by either party. The non-executive directors are appointed for a fixed term, John Bryant and Wolf Martinick for two years and Alan Stephens three years. These may be terminated by giving two months' notice, without compensation for loss of office. All newly appointed directors are required to offer themselves for election at the next Annual General Meeting of the company and their appointments are subject to them being so elected. Non-executive remuneration is determined by the board within the limits set by the Articles of Association and is based on independent salary surveys of fees paid to non-executive directors of similar companies. The basic fee paid to each non-executive director in the year was £30,000. The non-executive directors receive further fees for additional work performed for the company on the basis of the number of additional days worked.

 

Aggregate directors' remuneration

 

The total amounts for directors' remuneration, paid by Weatherly International plc and its subsidiaries, were as follows:

 

	Salary and		Bonus		Benefits-		Pension		Total
	fees				In-kind
	US$'000		US$'000		US$'000		US$'000		US$'000
2011
Executive
R J Webster	363		-		4		61		428
Non-executive
W G Martinick	56		-		-		-		56
J Bryant	80		-		-		-		80
A Stephens	80		-		-		-		80
	579		-		4		61		644
2010
Executive
R J Webster	359		53		3		51		466
Non-executive
W G Martinick	63		-		-		-		63
J Bryant	81		-		-		-		81
A Stephens	89		-		-		-		89
	592		53		3		51		699

 

 

Directors' share options

 

Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the company granted to or held by the directors. Details of the options during the year are as follows:

 

Name of director	30 June 2010		Warrants/ options issued/(expired)			30 June 2011	Warrant/option price pence
R J Webster	1,248,489		(1,248,489)			-
	1,248,491		(1,248,491)			-
	2,500,000					2,500,000	3.0
W G Martinick	1,248,490		(1,248,490)			-
	1,248,488		(1,248,488)			-
	750,000					750,000	3.0
J Bryant	750,000					750,000	3.0
A Stephens	750,000					750,000	3.0
	9,743,958		(4,993,958)			4,750,000

 

 

* Each director's options are exercisable one third on 1/4/2011, one third on 1/4/2012, and one third on 1/4/2013, and remain exercisable over a 10-year period.

 

The share price movements during the year were as follows: high of 15 pence, low of 2.6 pence and a closing share price at 30 June 2011 of 9.5 pence.

 

There have been no variations to the terms and conditions or performance criteria for share options during the financial year.

 

Approval

 

This report was approved by the board of directors on 11 October 2011 and signed on its behalf by:

 

 

Rod Webster

Chief Executive Officer

 

 

Independent auditor's report to the members of Weatherly International plc

 

We have audited the group financial statements of Weatherly International plc for the year ended 30 June 2011 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statementand the related notes.  The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of directors and auditor

As explained more fully in the directors' responsibilities statement the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

 

Opinion on financial statements

In our opinion the group financial statements:

·      give a true and fair view of the state of the group's affairs as at 30 June 2011 and of its loss for the year then ended;

·      have been properly prepared in accordance with IFRS as adopted by the European Union; and

·      have been prepared in accordance with the requirements of the Companies Act 2006

 

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report, in the financial year for which the group financial statements are prepared is consistent with the group financial statements.

 

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

 

·      certain disclosures of directors' remuneration specified by law are not made; or

·      we have not received all the information and explanations we require for our audit.

 

Other matter

We have reported separately on the parent company financial statements of Weatherly International plc for the year ended 30 June 2011.

 

 

Nicholas Page

Senior Statutory Auditor

for and on behalf of Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

Gatwick

 

11 October 2011

 

Consolidated statement of comprehensive income

For the year ended 30 June 2011

			Year ended		Year ended
			30 June 2011		30 June 2010
	Note		US$'000		US$'000
Revenue	5		16		145
Cost of sales			(4,714)		(5,405)
Gross loss			(4,698)		(5,260)
Other operating income	6		184		275
Administrative expenses			(4,111)		(5,819)
Profit/(loss) on sales of assets	9		660		(246)
Operating loss	9		(7,965)		(11,050)
Profit on settlement of noteholder loans			-		559
Profit on disposal of investments	19(c)		6,828		-
Settlement of compound financial instrument			-		469
Foreign exchange gain			227		316
Finance costs	13		(188)		(1,291)
Finance income	12		52		19
Loss on continuing operations			(1,046)		(10,978)
Profit from discontinued operations	8		508		20,047
(Loss)/profit for the year before taxation			(538)		9,069
Income tax expense	14		-		-
(Loss)/profit for the year			(538)		9,069
Exchange differences on translation of foreign operations			2,702		(68)
Fair value movement of investments in the year	19(c)		4,675		2,153
Reclassification adjustment on disposal of investments	19(c)		(6,828)		-
Other comprehensive income for the year net of tax			549		2,085
Total comprehensive income for the year			11		11,154
(Loss)/profit attributable to:
Owners of the parent			(535)		9,307
Non- controlling interests			(3)		(238)
			(538)		9,069
Total comprehensive income attributable to:
Owners of the parent			14		11,392
Non- controlling interests			(3)		(238)
			11		11,154
Total and continuing (loss)/earnings per share
Basic (loss)/earnings per share (US cents)
Loss from continuing activities	16		(0.21c)		(2.43c)
Earnings from discontinued activities	16		0.10c		4.53c
Total	16		(0.11c)		2.10c
Diluted (loss)/earnings per share (US cents)
Loss from continuing activities	16		(0.21c)		(2.43c)
Earnings from discontinued activities	16		0.10c		4.53c
Total	16		(0.11c)		2.10c

 

The notes form part of these financial statements.

 

Consolidated statement of financial position

At 30 June 2011

			As at		As at
			30 June  2011		30 June 2010
	Note		US$'000		US$'000
Assets
Non-current assets
Property, plant and equipment	18		32,819		22,803
Intangible assets	17		414		3
Investment in associates	19 (b)		57		-
Total non-current assets			33,290		22,806
Current assets
Investments	19 (c)		-		7,724
Inventories	21		3,367		52
Trade and other receivables	22		2,922		579
Cash and cash equivalents	23		9,091		6,984
			15,380		15,339
Non-current assets held for sale	20		1,197		3,764
			16,577		19,103
Total assets			49,867		41,909
Current liabilities
Trade and other payables	25		4,364		10,574
Unsecured payables subject to a compromise on acquisition	25		3,223		3,118
Loans	24		5,548		-
Total current liabilities			13,135		13,692
Non-current liabilities
Unsecured payables subject to a compromise on acquisition	26		1,964		1,900
Loans	24		6,120		-
Provisions	27		293		262
Total non-current liabilities			8,377		2,162
Total liabilities			21,512		15,854
Net assets			28,355		26,055
Equity
Issued capital	28		4,581		3,860
Share premium			6,092		-
Merger reserve			18,471		18,471
Share-based payments reserve			303		556
Foreign exchange reserve			(6,989)		(9,691)
Retained earnings			6,138		13,097
Equity attributable to shareholders of the parent company			28,596		26,293
Non-controlling interests	29		(241)		(238)
			28,355		26,055

 

 

 

On behalf of the board:

 

 

 

R J Webster

Chief Executive Officer

 

Approved by the board on 11 October 2011

 

The notes form part of these financial statements.