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Pembridge Resources - Half-year Report

RNS Number : 1082Y
Pembridge Resources plc
07 September 2020
 

THE INFORMATION CONTAINED IN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE EU MARKET ABUSE REGULATION (596/2014). UPON PUBLICATION OF THE ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN. 

 

7 September 2020

 

Interim results for the period from 1 January 2020 to 30 June 2020

London, United Kingdom - Pembridge Resources plc (LSE: PERE) ("Pembridge" or the "Company") is pleased to present the condensed interim financial statements for Pembridge Resources plc ("Pembridge" or the "Company", and together with its subsidiaries, the "Group") results for the half year ended 30 June 2020. 

 

Recent developments:

·      In March 2020, the COVID-19 pandemic broke out. Canadian and Yukon government measures have had significant impacts on the Minto mine, including mandatory quarantines of employees and contractors entering the Yukon. Such quarantines have disrupted operations and caused above normal operating expenses but have enabled operations to continue while ensuring the safety of the mine's employees. There are significant uncertainties with respect to future developments and impact to Minto related to the COVID-19 pandemic, including the duration, severity and scope of the outbreak and measures taken by government and businesses to contain the pandemic.

·      In December 2019, the other investors, Copper Holdings and Cedro Holdings, called for USD 3 million of new equity capital investment into Minto from Pembridge Resources plc in accordance with the Minto Shareholders' Agreement. Having funded C$4 million of Minto's total obligation to fund C$10 million over ten quarters into the control account, as required by Zurich in association with the Surety Bond associated with Minto's asset retirement obligation and in accordance with the original Shareholders' Agreement, Pembridge believed that it had fulfilled this obligation.  However, in view of the cash position of Minto under the circumstances of the COVID-19 pandemic, the shareholders agreed that a further USD 3 million was needed and that it be funded by Copper Holdings and Cedro Holdings purchasing an additional 484,240,064 of Minto's Class B shares for USD $3 million.  This purchase increased the combined economic ownership of Copper Holdings and Cedro Holdings in Minto from 66.66 percent to 89 percent, and reduced the economic ownership of Pembridge from 33.33 percent to 11 percent.  Minto's USD $10 million 8 percent Notes held by Copper Holdings and Cedro Holdings remain outstanding.  Concurrent with the USD $3 million to be invested by Copper Holdings and Cedro Holdings; Copper Holdings, Cedro Holdings and Pembridge amended the existing Shareholder Agreement reflecting the above matters and other details. Such revisions were executed by the parties at the time of the purchase of the new Class B shares by Copper Holdings and Cedro Holdings, in June 2020.  Under the original Shareholders' Agreement, Pembridge was committed to funding up to a further C$2 million for the control account, in addition to the C$4m funded already on behalf of Minto.  As part of the revised Shareholders' Agreement described above, Pembridge will be relieved of this obligation and such further funding will be made by Minto to complete the C$10 million required.  Minto continues to owe to Pembridge the existing funding of C$4 million, on which interest is payable, and repayment will commence in quarterly stages when Minto fully funds the control account to C$10 million.  In addition, the revised Shareholders' Agreement provides that Minto may fund the deferred consideration payments due from Pembridge to Capstone.

·      On 16 April 2020 the Board of Directors approved the issuance and allotment of 11,175,499 new ordinary shares at a price of 3.3p each, raising proceeds of £368,000.  In order to enable this share issue within the rules of the London Stock Exchange the directors agreed to surrender their share options and the following changes were made to the Convertible Loan Agreement with Pembridge's Chairman and Chief Executive Officer, Gati Al-Jebouri:

removing the right of Mr. Al-Jebouri to convert any of the loans to shares in the Company;

the maturity date of the loans was extended from 25 October 2021 to 31 December 2022. The extension in maturity corresponds with the Company's expectations with regard to inflow of funds from Minto Explorations Ltd to the Company; and

In consideration for these changes, the Company agreed to increase the interest rate on the loan from 8% to 10% with effect from 1st May 2020, with the accumulated interest to be paid only at the maturity date of the loan with no interim payments.

Interim results:

·      The interim financial statements of the Group, as set out in full below, show a loss for the period of US$8,972,000 and equity of US$6,517,000. As at 30 June 2020 the Group had US$5,551,000 in cash reserves. The Board consider it appropriate to maintain the going concern basis in the preparation of these financial statements as the Directors have a reasonable expectation that the Group and Company will be able to raise sufficient funds and therefore continue in operational existence for the foreseeable future.

·      Operating loss of US$7,349,000 is as a result of achieved average prices of $2.32/lb, $972.55/oz and $4.47/oz for copper, gold and silver respectively.

 

Operations update:

 

The following is an overview of recent developments at the Minto Mine:

 

Production output and cash generation

§ 13,795 wet metric tonnes of concentrate produced

§ First shipment since re-starting Minto mine sent to Japan

§ US$ 28.4m received from Sumitomo (of which US$ 5.4m related to 2019)

COVID-19 impact

§ No cases identified in Minto staff.

§ Yukon border closed and 14 day quarantine periods required.  Effective July 1st, BC residents are no longer required to quarantine.

§ During Q2 and beginning of Q3 2020, underground rotations were extended to 5 weeks to avoid repeated quarantines.

§ Covid-19 has had a limited impact on ore mining operations, resulting in approximately 2 months delay in mining program.

§ Additional hotel costs, arising as a result of the need to quarantine staff coming in from outside the Yukon, and Covid 19 testing were approximately C$600K through July 2020.  This does not include wages paid to staff in quarantine, which are included in normal staff costs.

§ Canadian Employment Wage Subsidy (CEWS) of approximately C$1MM received.

Health and safety

§ Health and safety management system (HSMS) development in progress to support a strong culture of safety.

§ 3 near miss events without injury and 4 first aid reported since completion of the acquisition and restart of the mine, with no long-term injuries.  Learnings and enhanced training followed to reduce potential for future incidents.

§ 181 days free of lost time due to injury.

§ Mine Rescue Certifications completed for 10 new members in June.

Environmental

§ As all mining operations are underground, there are no new land reclamation issues arising during the period.

§ Progressive reclamation planning underway.

Underground operations

§ Minto East ore production sustained after discovery of additional ore, which maintained ore output for milling during Copper Keel final development.

§ Copper Keel 550m ventilation and secondary egress tunnel completed after 74 days.

§ Copper Keel ore production commenced late July, ramping up to expected full production by year end.

§ June 2020 had the highest monthly development meters to date.

§ Longhole drilling commenced in Copper Keel.

§ Started Copper Keel West drilling.

Milling operations

§ The mill continues to operate on a 2-week on, 2-week off schedule based on current ore production.

Exploration

§ Minto owns total claims of 50,000 km2 over a 40 km belt, which in time will be explored for minerals.

§ Exploration and in-fill drilling of 12,500m, costing C$1.9MM was incurred in H1 2020.  An additional C$1.1 approved for H2 2020 for a total of C$3.0MM.

§ Resource and Reserves report is being updated based on the results of the drilling program and is expected to be published in Q4 2020

Gati Al-Jebouri, Chief Executive Officer and Chairman of the Board of Pembridge said:

"These interim financial statements set out the position of our Company at a time when all economic sectors are impacted by the Corona Virus pandemic.  It is very encouraging to report that the Minto operations did not stop during this difficult time and development has continued.  Development was delayed by a few months due to the pandemic, however as of late July 2020 we are mining from a new ore body - Copper Keel.  Copper Keel is a previously identified but not developed ore body.  With the price of copper having recovered from the lows reached earlier this year, Minto is now concentrating on achieving profitable operations at EBITDA and Retained Profit levels." 

ENDS



 

NOTES TO EDITORS

About Pembridge Resources plc

Pembridge is a mining company that is listed on the standard segment of the Official List of the FCA and trading on the main market for listed securities of London Stock Exchange plc. Pembridge has an investment in Minto Explorations Ltd, a British Columbia incorporated business operating the Minto mine in Yukon, Canada.

About Minto Explorations Limited

Minto operates the underground copper-gold-silver mine located in central Yukon, approximately 240 kilometres north of the capital Whitehorse along the Klondike Highway. In excess of US$350 million of capital expenditure has been invested into Minto operations since site construction began in 2006. The Minto mine was in continuous production between 2007 and 2018, when the mine was placed onto temporary care and maintenance. Pembridge acquired Minto from Capstone Mining Corporation in June 2019 and restarted operations in October 2019.

Enquiries:

 

Pembridge Resources plc:                                                              +44 (0)20 7917 2968

Gati Al-Jebouri, Chief Executive Officer and Chairman of the Board

David James, Chief Financial Officer

 

Brandon Hill Capital - United Kingdom:                                       +44 (0)20 3463 5016

Jonathan Evans

 

PEMBRIDGE RESOURCES PLC 

Condensed Interim financial statements for the period from 1 January to 30 June 2020

 

Consolidated statement of comprehensive income for the period 1 January to 30 June 2020

 



6 months


6 months


Year ended



ended

30 June 2020


ended

30 June 2019


31 December 2019


Note

US$'000


US$'000


US$'000



(unaudited)


(unaudited)


(audited)








Revenue

3

25.429 


 -


 12,398








Production costs


(27,475)


-


(14,739)

Royalties


(363)


-


(204)

Depreciation and amortisation


(4,271)


-


(3,459)

Administrative, legal and professional expenses


(1,262)


  (2,885)


(3,110)

Gain / (loss) on fair valuation of concentrate receivable


341


-


-

Exceptional items - acquisition and re-admission costs


-


-


(2,347)

Foreign exchange gain / (loss)


252


                -  


(357)








Operating loss


(7,349)


  (2,885)


(11,818)








Finance income

4

17


-


-

Finance cost


(1,435)


 -


(1,295)








Loss before taxation


(8,767)


  (2,885)


(13,113)








Income tax

5

(205)


 -  


26








Loss for the period


(8,972)


  (2,885)


(13,087)








Other comprehensive income







Items that may be reclassified to profit or loss







Currency translation differences


(978)


(101)


936








Total comprehensive income for the period


(9,950)


  (2,986)


(12,151)















Loss attributable to non-controlling interest


(7,191)


 (567)


(5,024)

Loss attributable to equity holders of the parent


(1,781)


(2,318)


(8,063)








Total comprehensive income attributable to non-controlling interest


(7,823)


(567)


(4,400)

Total comprehensive income attributable to equity holders of the company


(2,127)


(2,419)


(7,751)








Earnings per share expressed in cents







Basic and diluted earnings per share attributable to the equity holders of the company

6

(5.3c)


 (10.4c)


(33.5c)



 

Consolidated statement of financial position as at 30 June 2020

 



30 June 2020


30 June 2019


31 December 2019


Note

US$'000


US$'000


US$'000



(unaudited)


(unaudited)


(audited)

Assets







Non-current assets







    Property, plant and equipment


51.086


36,378


50,207

    Goodwill


-


7,109


-

    Intangible assets


378


-


394

    Long term deposits


5,437


2,454


4,040

Total non-current assets


56,901


45,941


54,641








Current assets







Trade and other receivables


3,640


598


8,610

Inventory


3,726


2,387


5,710

Cash and cash equivalents


5,551


9,787


964

 Total current assets


12,917


12,772


15,284

Total assets


69,818


58,713


69,925








Non-current liabilities







Borrowings

10

(12,837)


(103)


(10,631)

Lease liabilities


(3,440)


-


(2,734)

Reclamation and closure cost provision


(21,694


(24,774)


(22,438)

Deferred revenue


-


(11,496)


-

Deferred consideration due to Capstone


(4,305)


(10,000)


(4,305)

Deferred tax liability


(465)


(1,658)


(270)

Total non-current liabilities


(42,741)


(48,031)


(40,378)








Current liabilities







Trade and other payables


(11,523)


(5,445)


(8,736)

Borrowings

10

-


(8,312)


-

Lease liabilities


(4,140)


-


(2,899)

Deferred consideration due to Capstone


(4,897)


-


(4,897)

Total current liabilities


(20,560)


(13,757)


(16,532)

Total liabilities


(63,301)


(61,788)


(56,910)








Net assets/(liabilities)


6,517


(3,075)


13,015

 

Equity







Share capital

7

965


295


825

Share premium

7

9,222


2,902


8,900

Capital redemption reserve

7

1,011


1,011


1,011

Translation reserve


(35)


(101)


312

Other reserve


-


66


369

Retained deficit


(19,262)


(8,251)


(13,465)

Equity attributable to shareholders of the parent company


(8,099)


(4,078)


(2,048)

Non-controlling interests

12

14,616


1,003


15,063

Total equity


 6,517


 (3,075)


 13,015

 



 

Consolidated Statement of changes in equity for the period 1 January to 30 June 2020


Share capital

Share premium

Capital Redemption Reserve

Translation

 / Other reserve

Retained deficit

Total

Non-controlling interest

Total

Equity


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000










At 1 January 2020

825

8,900

1,011

681

(13,465)

(2,048)

15,063

13,015

Loss for the period

-

-

-

-

(1,781)

(1,781)

(7,191)

(8,972)

Other comprehensive income - exchange difference on translation

-

-

-

(346)

-

(346)

(632)

(978)

Total comprehensive income for the period

-

-

-

(346)

(1,781)

(2,127)

(7,823)

(9,950)

Proceeds from shares issued

140

322

-

-

-

462

-

462

Equity element of convertible loan

-

-

-

(53)

-

(53)

-

(53)

Investment by non-controlling interest in Minto share capital

-

-

-

-

317

317

2,568

2,885

Change in share of economic interest in Minto

-

-

-

-

(4,808)

(4,808)

4,808

-

Share-based payments

-

-

-

158

-

158

-

158

Transfer to retained earnings after surrender of share options

-

-

-

(475)

475

-

-

-

Total transactions with owners recognised directly in equity

140

322

-

(370)

(4,016)

(3,924)

7,376

3,452

At 30 June 2020

965

9,222

1,011

(35)

(19,262)

(8,099)

14,616

6,517










At 1 January 2019

         295

     2,902

           1,011

             66

    (5,933)

    (1,659)

                -

      (1,659)

Loss for the period

-

-

-

-

(8,063)

(8,063)

(5,024)

(13,087)

Other comprehensive income - exchange difference on translation

-

-

-

312

-

312

624

936

Total comprehensive income for the period

-

-

-

312

(8,063)

(7,751)

(4,400)

(12,151)

Proceeds from shares issued

530

6,109

-

-

-

6,639

-

6,639

Direct cost of shares issued


(111)




(111)

-

(111)

Equity element of convertible loan

-

-

-

53

-

53

-

53

Investment by non-controlling interest in Minto share capital

-

-

-

-

531

531

1,059

1,590

Non-controlling interest on acquisition of subsidiary

-

-

-

-

-

-

18,404

18,404

Share-based payments

-

-

-

250

-

250

-

250

Total transactions with owners recognised directly in equity

530

5,998

-

303

531

7,362

19,463

26,825

At 31 December 2019

825

8,900

1,011

681

(13,465)

(2,048)

15,063

13,015



 

Consolidated Statement of changes in equity for the period 1 January to 30 June 2020 (continued)


Share capital

Share premium

Capital Redemption Reserve

Other reserve

Retained deficit

Total

Non-controlling interest

Total

Equity


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

At 1 January 2019

                 295

             2,902

             1,011

                   66

            (5,933)

            (1,659)

                      -

            (1,659)

Loss for the period

 -

 -

 -

 -

        (2,318)

            (2,318)

                      (567)

            (2,885)

Other comprehensive income

 -

 -

 -

 (101)

 -

(101)

                      -

               (101)

Total comprehensive income for the period

 -

 -

 -

 (101)

   (2,318)

   (2,419)

(567) 

    (2,986)

Issue of shares

 -

 -

 -

 -

 -

 -

         1,570

         1,570

At 30 June 2019

                 295

             2,902

             1,011

                   (35)

            (8,251)

            (4,078)

             1,003

            (3,075)

 

 

The following describes the nature and purpose of each reserve within equity:

 

Reserve

Description and purpose

Share capital

Nominal value of shares issued.

Share premium

Amount subscribed for share capital in excess of nominal value, less share issue costs.

Capital redemption reserve

Reserve created on cancellation of deferred shares.

Other reserve

Cumulative fair value of warrants and share options granted, together with the equity element of the convertible loan.

Translation reserve

Cumulative translation adjustment from retranslation of group undertakings with functional currencies other than USD - included with other reserve in the table above.

Retained deficit

Cumulative net gains and losses recognised in the statement of comprehensive income.

Non-controlling interest

Non-controlling interests represent the portion of the equity of a subsidiary not attributable either directly or indirectly to the parent company and are presented separately in the Consolidated Statement of comprehensive income and within equity in the Consolidated statement of financial position, distinguished from parent company shareholders' equity.

 



 

Consolidated Cash flow statement for the period 1 January to 30 June 2020

 



6 months ended


6 months ended


Year ended 31

 



30 June 2020


30 June 2019


December 2019

 



US$'000


US$'000


US$'000

 



(unaudited)


(unaudited)


(audited)

 








 

Cash flows from operating activities







 

Loss for the period


(8,972)


(2,885)


(13,087)

 

Adjusted for:







 

Net finance costs


1,418


-


1,295

 

Unrealised FX on debt included in administrative expenses


140


-


(169)

 

Depreciation


4,271


3


3,459

 

Tax charge / (credit)


205


-


(26)

 

Share based payments


158


-


250

 



(2,780)


(2,882)


(8,278)

 

Movements in working capital







 

Increase)/ decrease in inventories


1,735


-


(3,248)

 

(Increase)/ decrease in trade and other receivables


4,634


(358)


(8,252)

 

Increase/ (decrease) in trade and other payables


2,891


3,348


6,752

 








 

Net cash generated from / (used in) operating activities


6,480


108


(13,026)

 

Cash flows used in investing activities







 

Payments into long-term deposits


(1,503)


1


(1,582)

 

Purchase of property, plant and equipment


(2,837)


-


(490)

 

Purchase of mining claims


-


-


(237)

 

Net cash used in investing activities


(4,340)


1


(2,309)

 

Cash flows used in financing activities







 

Interest payments


(401)


-


(497)

 

Repayment of borrowings


-


-


(647)

 

Proceeds from borrowings


2,042


7,957


10,754

 

Lease payments


(2,544)


-


(1,621)

 

Proceeds from issuance of shares


3,346


1,570


8,149

 

Net cash generated from financing activities


2,443


9,527


16,138

 

Net increase/(decrease) in cash and cash equivalents


4,583


9,636


803

 

Cash and cash equivalents at the beginning of the period


964


151


151

 

Impact of exchange rates on cash balances


4


-


10

 

Cash and cash equivalents at the end of the period


5,551


9,787


964

 



 

Notes to the condensed consolidated financial statements

for the period 1 January to 30 June 2020

 

1.   NATURE OF OPERATIONS AND GENERAL INFORMATION

 

The principal activity of Pembridge Resources plc is that of a mining company. The Company has an investment in and operates the Minto copper-gold-silver mine in Yukon, Canada.

 

Pembridge Resources plc is incorporated and domiciled in England. The address of Pembridge Resources plc's registered office is 200 Strand, London, WC2R 1DJ. Pembridge Resources plc's shares are admitted to the Standard Segment on the Official List of the London Stock Exchange.

 

Pembridge Resources plc's financial statements are presented in United States dollars (US$), which is

also the functional currency of the Company.

 

These condensed interim unaudited consolidated financial statements for the six-month period ended 30 June 2020 comprise the Company and its subsidiaries (together referred to as the "Group").

 

These condensed interim financial statements were approved for issue by the Board of Directors on 4 September 2020.

 

These condensed interim financial statements for the six months ended 30 June 2020 do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.

 

 

2.   Basis of preparation

 

The unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Statements as adopted by the European Union and the Disclosure and Transparency Rules of the UK Financial Conduct Authority. The condensed interim financial statements should be read in conjunction with the annual financial statements for the period ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The principal accounting policies used in preparing the condensed interim financial statements are unchanged from those disclosed in the Company's Annual Report for the year ended 31 December 2019. 

 

The condensed interim financial statements for the six months ended 30 June 2020 and 30 June 2019 are un-reviewed and unaudited.  Statutory financial statements for the year ended 31 December 2019 were approved by the Board of Directors on 26 June 2020 and delivered to the Registrar of Companies.

 

Changes in accounting policy and disclosures

(a) New and amended standards mandatory for the first time for the financial year beginning 1 January 2020

The following new IFRS standards and/or amendments to IFRS standards are mandatory for the first time for the Company and Group: 

 

Standard


Effective date




IFRS 3 (Amendments)

Business Combinations - revised definition of a business

1 January 2020

IAS 1 (Amendments)

Presentation of Financial Statements

1 January 2020

IAS 8 (Amendments)

Accounting policies, Changes in Accounting Estimates

1 January 2020

IFRS 9, IAS 39 and IFRS 7

(Amendments)

Interest rate benchmark reform

1 January 2020

 

The Directors believe that the adoption of these standards has not had a material impact on the financial statements other than changes to disclosures. 

 

(b) New standards, amendments and Interpretations in issue but not yet effective or not yet endorsed and not early adopted

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the condensed interim financial statements are listed below. The Company intends to adopt these standards, if applicable when they become effective.

 

Standard


Effective date




IFRS 17

Insurance Contracts

1 January 2021*

IAS 1 (Amendments)

Classification of liabilities as current or non-current

1 January 2022*

*Not yet endorsed by the EU.

The Company and Group are evaluating the impact of the new and amended standards above. The Directors believe that these new and amended standards are not expected to have a material impact on the Company's and Group's results or shareholders' funds.

 

Going concern

 

The condensed interim financial statements have been prepared on a going concern basis. In assessing whether the going concern assumption is appropriate, the Directors have taken into account all relevant available information about the current and future position of the Group and Company, including the current and future level of resources. As part of their assessment, the Directors have also taken into account the need for the Company to raise additional funding during the going concern period.

 

The Company has no income stream of its own and is reliant, until it is able to receive an income from its investment in Minto, on further funding through equity raisings or other financial arrangements.  This additional funding is not guaranteed, however, to date the Company has been successful in securing funding when required and its management are confident that it can meet its contracted and committed expenditure for at least the next 12 months.  Minto has received commitments from its other investors, Cedro Holdings and Copper Holdings, that they will support its operations and they have contributed US$ 3 million of equity to Minto in the period.  The need for the Company to raise additional funds during the going concern period indicates that a material uncertainty exists which may cast significant doubt on the Company's ability to continue as a going concern, and therefore its ability to settle its debts and realise its assets in the normal course of business.

 

At present the Group believes that there should be no material disruption to its mining operations from COVID-19, but the Board continues to monitor these risks and Minto's business continuity plans.

 

Having prepared forecasts based on current resources, assessing methods of obtaining additional finance and assessing the possible impact of COVID-19, the Directors believe the Group and Company have sufficient resources to meet its obligations for a period of 12 months from the date of approval of these Financial Statements. Taking these matters into consideration, the Directors continue to adopt the going concern basis of accounting in preparing these Financial Statements. The Financial Statements do not include the adjustments that would be required should the going concern basis of preparation no longer be appropriate.

 

Risks and uncertainties

 

As at 30 June 2020 the key risks that could affect the Company in the medium term and the factors that mitigate those risks have not substantially changed from those set out in the Annual Report and Financial Statements for the year ended 31 December 2019. 

 

Segment reporting

 

In the opinion of the directors the operations of the Company currently represent one segment, and are treated as such, when evaluating its performance. The chief operating decision maker is the Board of Directors. The Board of Directors reviews management accounts prepared for the Company when assessing performance.

2.   REVENUE FROM CONTRACTS WITH CUSTOMERS

 


Six months ended


Six months ended


Year ended


30 June 2020


30 June 2019


31 December 2019


US$'000


US$'000


US$'000







Copper

23,150


-


12,789

Gold

5,381


-


1,579

Silver

180


-


54







Total gross revenue

28,711


-


14,422

Less: treatment and selling costs

(3,282)


-


(2,024)












Revenue

25,429


-


12,398







 

All revenue comprises the sale of metal concentrate to one customer.

 

When considering the recognition of revenue, IFRS 15 requires preparers to go through five steps which will determine the timing and quantum of the revenue recognised at a given time.

 

Identify contract with a customer

Since acquisition, and through 2020, Minto sells its concentrate to its only end customer, which is Sumitomo, under an offtake agreement.  Sales of copper are made direct to Sumitomo and sale of gold and silver are made to Sumitomo via Wheaton, hence the valuation of the gold and silver revenues is determined by Minto's contract with Wheaton but timing of revenue recognition for them is the same as for copper.

 

Identify performance obligation

The performance obligation is the sale of copper, gold and silver concentrate to Sumitomo, including its transportation to a location specified by them in Japan.  At the end of each month, under the offtake agreement, Minto weighs and assays the concentrate it has produced and Sumitomo takes title to it, paying Minto a provisional payment of 90% of its value.  Minto must keep the concentrate separate from any other product in a location approved by Sumitomo and may not sell it to any other party.  From this point, Minto has control over the concentrate and, if it is still physically in Minto's care, Minto is acting as its custodian for Sumitomo.

 

Determine the transaction price

The Company's metal concentrates are sold under a pricing arrangement where final prices are determined by quoted market prices in a period subsequent to the date of sale.  Until prices are final, revenues are recorded based on forward market prices for the expected period of final settlement.  Subsequent variations in the final determination of the metal concentrate weight and assay are recognised as revenue adjustments as they occur until finalised.  Subsequent variations in the final determination of the price are treated as a remeasurement of a financial asset under IFRS 9 and are recognised as revenue adjustments as they occur until finalised. 

 

Allocate price to each performance obligation

There is one overarching performance obligation, which is the delivery of metal concentrates to Sumitomo.  This includes the production of the concentrates and their transportation to Japan.  Their transportation does not carry significant risks or rewards and its cost can be estimated in advance, so the revenue is recognised net of that cost until it is delivered.

 

Recognise revenue when the performance obligation is satisfied by transferring good or service to customer (i.e. the customer obtains control)

Because Sumitomo gains control over the concentrate at the end of each month, even if it is on the Minto site, and its subsequent transportation does not carry significant risks or rewards, the main obligation is satisfied when Sumitomo takes title and the revenue is booked at this time, net of costs such as transportation and refining which will be incurred in completing the transaction.

3.   FINANCE COSTS

 


6 months


6 months


Year ended


ended


ended


31 December


30 June 2020


30 June 2019


2019


US$'000


US$'000


US$'000


(unaudited)


(unaudited)


(audited)







Interest on loans

929


-


727

Discount unwind on provision

196


-


376

Interest from leases

310


-


192














1,435


-


1,295







 

 

4.   INCOME TAX

 

The income tax charge of US$ 205,000 (period to 30 June 2019: nil, year to 31 December 2019: credit US$ 26,000) is payable to the Yukon government under the Quartz Mining Act.

 

 

 

5.   EARNINGS per share

 

The calculation of the earning per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The basic and diluted loss per share are the same as the effect of the exercise of share warrants and options would be anti-dilutive.

 


6 months


6 months


Year ended


ended


ended


31 December


30 June 2020


30 June 2019


2019


US$'000


US$'000


US$'000


(unaudited)


(unaudited)


(audited)







Basic and diluted loss per share (US cents)

(5.3c)


(10.4c)


(33.5c)







Loss for the period

(1,781)


(2,318)


(8,063)













Weighted average number of shares for basic and diluted loss per share

33,427,432


22,384,926


24,063,552

 

 

The basic and diluted loss per share have been calculated using the loss attributable to shareholders of the Company of as the numerator, i.e. no adjustment to loss was necessary. The basic and dilutive loss per share are the same as the effect of the exercise of share options and warrants would be anti-dilutive.

 

The number of shares and loss per share for the six months to 30 June 2019 have been restated to reflect the impact of the consolidation in December 2019 of every 10 existing ordinary shares of nominal value 0.1 pence each into one Ordinary Share of nominal value 1p.

 



 

6.   SHARE CAPITAL AND PREMIUM                                             

 


Number of ordinary Shares


Number of deferred shares

Share Capital- Ordinary

Share   Premium

Capital redemption reserve

Total





US$'000

US$'000

US$'000

US$'000









At 1 January 2020

63,231,494


825

8,900

1,011 

10,736

At 30 June 2020 

74,406,993


-

965

9,222

1,011 

11,198

 

 

Ordinary shares have attached to them full voting, dividend and capital distribution rights (including on a winding up).

 

 

 

7.   RELATED PARTY TRANSACTIONS

 

The Company has paid remuneration of US$ 181,500 to its Directors for the six months ending June 30, 2020 (six months to 30 June 2019: US$154,000, year to 31 December 2019: US$ 1,997,000).

 

As previously disclosed in the financial statements for the Year Ended 31 December 2019, on 30 October 2019, the Company entered into a convertible loan facility of with Gati Al-Jebouri, to be repaid by 25 October 2021 and carrying interest at an annual rate of 8%.  The Company also pays an arrangement fee in the amount of 6% of the amounts drawn down under the Convertible Loan.  On 16 April 2020, the terms of this loan were changed as follows:

 

·      removing the right of Mr. Al-Jebouri to convert any of the loans to shares in the Company;

·      the maturity date of the loans was extended from 25 October 2021 to 31 December 2022. The extension in maturity corresponds with the Company's expectations with regard to inflow of funds from Minto Explorations Ltd to the Company; and

·      In consideration for these changes, the Company agreed to increase the interest rate on the loan from 8% to 10% with effect from 1st May 2020, with the accumulated interest to be paid only at the maturity date of the loan with no interim payments.

 

Under this facility, £3.1 million had been borrowed at 30 June 2020.

 



 

8.   BUSINESS ACQUISITION                                            

                                   

Acquisition of Minto Explorations Ltd

On 3 June 2019 the company acquired all of the outstanding common shares of Minto Explorations Ltd (Minto) from Capstone Mining Corp (Capstone) ("Minto Acquisition").

 

The consideration for the Minto Acquisition, which is unconditional, comprises up to US$20 million in total payments due to Capstone payable out of future cash flows and realisations from Minto and based on certain hurdles linked to production levels at Minto as well as future copper prices as detailed below.

 

1.   First payment to Capstone of US$5 million will be due once production at Minto has reached a steady state 60% of mill capacity.

 

2.   Second payment to Capstone of US$5 million will be due once production at Minto has reached 60% of mill capacity and the copper price has averaged over US$3.00/lb (US$6,615/t) for two consecutive quarters

 

3.   Final payment to Capstone of US$10 million will be due upon the copper price achieving an average of US$3.50/lb (US$7,717/t) for two consecutive quarters.

 

On the same day, to fund the re-starting of mine operations, Pembridge made an agreement with two other investors, Copper Holdings and Lion Point, who each acquired non-voting B shares in Minto which represent a one third economic interest each in Minto.

Pembridge published an initial estimate of the fair value of certain assets and liabilities acquired in its interim reporting in 2019, and has since fully determined the fair value of both the net assets acquired and the consideration payable pursuant to the Minto acquisition in accordance with IFRS 3, as shown below. This process, known as a purchase price allocation exercise, resulted in material changes to the amounts previously shown for assets, liabilities and goodwill.

 

The Company calculated a fair value for the total consideration due for the Minto Acquisition as US$9.2 million, and accordingly a liability of $9.2 million is recorded in the consolidated statement of financial position.  The fair values of identifiable assets and liabilities of Minto as at the date of acquisition were:

 


 Provisional fair value


 US$'000

Cash and cash equivalents

                            1

Inventory

                    2,325

Long term deposits

2,371

Current Assets

                    4,697



Mineral properties

20,370

Plant Property and Equipment

                 22,986

Construction in progress

1,954

Non-current assets

45,310

Total assets

50,007



Income and mining tax

(317)

Reclamation and closure cost provision

(22,084)

Total liabilities

(22,401)



Net Assets acquired

27,606                   

 

 

The Company's one third economic interest in Minto on acquisition means that it had an interest in 33% of the above net assets, which is US$9.2m.  Consequently there is no goodwill on the acquisition.

 

The comparative numbers for 30 June 2019 relating to the Minto acquisition were initial estimates which were revised to the values above for the year end financial statements as at 31 December 2019.

9.   BORROWINGS

 

The Company and Copper Holdings, LLC, a New York based private equity group and Cedro Holdings I, LLC, an entity managed by Lion Point Capital, L.P. (together, the ''Investor Consortium'') entered into the Investor Consortium Financing Agreement on 3 June 2019, pursuant to which the Investor Consortium  advanced $10 million to Minto to finance the recommencement of operations. The Investor Consortium shall be entitled to be repaid from all free cash-flows and realisations arising from Minto until the holders of the loan note (i.e., the Investment Consortium, their assignors and successors) have received US$10,000,000 plus interest at a rate of 8% per annum. The Investor Consortium have been granted security over the assets of Minto until such time as the holders of the loan note have been repaid.

 

As described in note 8, the Company has entered into a convertible loan facility of with Gati Al-Jebouri.  Under this facility, £3.1 million had been borrowed at 30 June 2020.

 

 


6 months


6 months


Year ended


ended 30 June 2020


ended 30 June 2019


31 December 2019


US$'000


US$'000


US$'000


(unaudited)


(unaudited)


(audited)







Loan notes

8,741


8,312


8,582

Loans from directors - non-current

4,096


-


2,049













Borrowings - non-current

12,837


8,312


10,631







Loans from directors - current

-


103


-













Total borrowings

12,837


8,415


10,631







 

 

10.  RECONCILIATION OF MOVEMENT IN NET DEBT

 

 


At 1 January

New borrowing

Interest added to debt

Debt repaid

Other cash flows

Foreign exchange

At 30 June


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000









Cash at bank and in hand

964

2,042

-

(2,544)

5,085

4

5,551









Borrowings -








by the Company

(2,049)

(2,042)

(221)

-

-

216

(4,096)

by Minto

(8,582)

-

(159)

-

-

-

(8,741)










(10,631)

(2,042)

(380)

-

-

216

(12,837)









Lease liabilities

(5,633)

(4,406)

(310)

2,544

-

225

(7,580)









Net debt

(15,300)

(4,406)

(690)

-

5,085

445

(14,866)

















 



 

11.  NON-CONTROLLING INTEREST IN MINTO EXPLORATIONS LTD

 

In June 2020, the Company and its fellow investors agreed changes to the terms of the Shareholders' Agreement.  These changes resulted in new investment into Minto by Copper Holdings and Cedro Holdings of US$ 3 million and relieved the Company of some large financial obligations.  They also resulted in a change in relative economic interests in Minto, increasing the combined economic ownership of Copper Holdings and Cedro Holdings in Minto from 66.66 percent to 89 percent and reducing the economic ownership of Pembridge from 33.33 percent to 11 percent.  The Company considers that, although it now has an economic interest of considerably less than 50% in Minto's results and net assets, it has control over Minto through holding 100% of voting rights and having control of the Minto Board, which means that it is able to control the day-to-day operations of the mine.  On this basis it continues to consolidate the results of Minto.

 

Movements in the non-controlling interest in the period are set out below.

 


6 months ended 30 June 2020


Year ended 31 December 2019


 $'000


 $'000





Balance at start of period

15,063


-





On acquisition of 67% economic interest of subsidiary

-


18,404

Investment by non-controlling interest in Minto share capital

2,568


1,059

Change in share of economic interest in Minto

4,808


-

Share of loss for the period

(7,191)


(5,024)

Share of exchange difference on translation

(632)


624





Balance at end of period

14,616


15,063

 

Summarised financial information for Minto in the period is set out below.

 


6 months ended 30 June 2020


Year ended 31 December 2019

Summarised income statement

 $'000


 $'000





Revenue

25,429


12,398





Operating loss

(6,524)


(6,345)

Loss before income tax

(7,874)


(7,562)

Income tax

(205)


26

Loss for the year

(8,079)


(7,536)





Summarised statement of financial position








Non-current assets

53,526


52,726

Current assets

12,640


13,789

Non-current liabilities

(34,339)


(34,024)

Current liabilities

(15,404)


(9,896)

Net assets

16,423


22,595





Cash flow statement








Cash flows from operating activities

7,878


(6,884)

Cash flows from investing activities

(2,861)


(559)

Cash flows from financing activities

(60)


7,998

Net increase in cash and cash equivalents

4,957


555





Cash and cash equivalents at 1 January 2020

565


1

Impact of exchange rates on cash balances

4


9

Cash and cash equivalents at 30 June 2020

5,526


565

 

 

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