TIDMENK
1 March 2010 - London: European Nickel PLC ("European Nickel" or the "Company")
(AIM, PLUS: ENK) is pleased to announceits results for the year ended 30
September 2009.
Highlights
* Merger with Rusina to consolidate Philippines asset base and secure Acoje's
future
* Associated placing with the merger to raise US$19.4 million, which will
strengthen the balance sheet and progress Definitive Feasibility Study at
Acoje
* Chinese funding progressing, due diligence completed, JXTC Board approval
for US$20 million equity investment into Ã?alda?, still awaiting provincial
government approval
* Letter of Interest received from Chinese backed credit export agency
* Offtake agreement negotiated with JXTC for 100% of Ã?alda? offtake
* Dialogue with Western Banks reopened and encouraging
Simon Purkiss, Managing Director, commented: "2009 was undoubtedly a challenging
year for businesses worldwide, however we weathered the global financial
economic crisis and have emerged into 2010 stronger.
"The merger with Rusina is a logical transaction which will secure Acoje's
future, consolidates our asset base in the Philippines and strengthens the
management team. The heap leach trial site has finished construction and a
3,000 tonne ore sample will be processed. The associated fund raising provides
us with funds to finalise the financing of Caldag and to progress the Acoje
feasibility study.
"Concluding the Chinese project finance package forÃ?alda? has taken longer than
anticipated, although progress was made during 2009. We have continued to
receive positive assurances during the early part of 2010 in relation to the
progress of the Chinese project financing. However, as a precautionary measure,
we have reopened dialogue with Western banks regarding debt finance and have
been encouraged by the initial reactions in the context of improved credit
market conditions."
Annual Report
The Annual Report will be available shortly on our website www.enickel.co.uk and
will be mailed to shareholders on 5 March 2010.
For more information, please visit www.enickel.co.uk
<http://www.enickel.co.uk/> or contact:
Simon Purkiss or Andrew Lindsay, European Nickel Tel: +44 20 7290 3130
Mike Jones or Andrew Chubb, Canaccord Adams Tel: +44 20 7050 6500
Alex Buck, BuckBias Tel: +44 7932 740 452
Chairman's Statement
Thispast year has been extremely challenging for many businesses as the global
credit crisis took effect and European Nickel was no exception. Despite an
encouraging start to the 2009 calendar year with the receipt of the long awaited
forestry permit and the signing of a Financing Framework Agreement for the
Ã?alda? project, the year has been overshadowed by the delays we have experienced
in the consumation of this investment and project finance package with our
Chinese counterparties. Consequently this has severely strained our position.
However, we have survived the year and emerged into 2010 with the announcement
of a merger with Rusina Mining NL (Rusina) and an associated share placement to
raise US$19.4 million. This will strengthen our balance sheet and management
team, enabling us to continue progressing our two development projects, Ã?alda?
and Acoje, towards construction and, ultimately, production.
At the time we announced the Financing Framework Agreement, there were three
main conditions precedent which required completion;obtaining the forestry
permit, terminating the Ã?alda? offtake agreement with BHP Billiton and the
subsequent signing of an offtake agreement for the full Ã?alda? offtake with
Jiangxi Rare Earth and Rare Metals Tungsten Group Corporation Limited (JXTC) and
obtaining Chinese government and regulatory approvals for JXTC to hold equity in
an offshore entity (namely Sardes Nikel Madencilik, the Turkish project holder).
European Nickel has delivered on the two conditions that it was responsible
for. We are now waiting for JXTC and the Chinese export credit agency to
complete their approvals processes, which despite continuous assurances that the
process is advancing, to date remain uncompleted.
In light of the prolonged period it has taken to obtain finance from our Chinese
partners, we decided last year to appoint Endeavour Financial Corporation as our
debt advisers. With their support, whilst still advancing the Chinese
financing, we have recently started investigating the appetite of the Western
debtmarkets to provide the required finance. We have been encouraged by the
dialogue to date and the banks' interest underlines the commercial
attractiveness of the Ã?alda? project. This alternative avenue of project
financing is of particular interest since the termination agreement with BHP
Billiton for the offtake agreement, as well as the Financing Framework Agreement
both expire at the end of March 2010. Although both agreements may be extended,
their expiry introduces an interesting opportunity to seek alternative finance.
On expiry of the BHP Billiton termination agreement, JXTC will lose the right
to the Ã?alda? offtake and it will revert back to BHP Billiton.
As a result of these delays, we have continued to conserve our cash resources
during the year, which, unfortunately, has meant we have severely restricted
ongoing expenditures in all aspects of our business, including a reduction of
staffing to care and maintenance levels at Ã?alda?. We also put most of our
research and business development on hold as well as reduced management costs
and corporate overheads to the maximum extent compatible with retaining the
capability to resume development of Ã?alda? as soon as financing arrangements are
in place.
However, wedid ensure we have continued to meet our minimum expenditure
requirements for the Acoje joint venture with Rusina. This has enabled us to
continue to progress the project towards a Definitive Feasibility Study (DFS),
which is due for completion during 2011. At the time of writing, we have just
announced our intention to merge with Rusina through a Scheme of Arrangement,
which is discussed in more detail below. We view Acoje as our next development
project after Ã?alda?. The project is proceeding very satisfactorily and the test
heaps and pilot plant have been constructed on site although delays have been
encountered as a result of adverse weather, with the wet season being
particularly heavy this year.
The consequence of the delays encountered in completing the financing
arrangements for the Ã?alda? project, the payment of a substantial fee for the
issuance of the forestry permit and ongoing expenses for the development of the
Acoje project have required us to raise additional funds. This was done by way
of a private placement in April 2009 to raise US$6 millon and through a bridging
loan with Endeavour Finance in July 2009 to raise US$4.0 million, subsequently
increased to US$5.0 million in December 2009. We were also obliged to dispose of
a portion of our holding in Toledo Mining Corporation Plc (Toledo) in January
2010 to raise a further US$950,000, which has reduced our holding in Toledo to
7.7% and our beneficial interest in Berong Nickel Corporation (BNC) (the
underlying development project) to 23.0%.
The pre-tax loss for the year was 39% less than last year at US$14.4 million
reflecting the significant reduction in spending during the year. The Company
cut costs across the Group with total staff numbers being reduced by 58% to 72
by the end of the year. Most of the staff cuts were in Turkey where direct ore
shipping had ceased in early 2008 and the Company's demonstration plant was put
on care and maintenance. Consequently there was no revenue generated during the
year compared with revenue last year of US$5.6 million.
In line with our strategy to obtain equityinterests in attractive heap leach
treatable nickel laterite resources, to eliminate the expenditure premium
consequent in the current joint venture and to strengthen the management of our
developing interests in the Philippines, we have announced an agreement to merge
with Rusina under the terms of an Australian Scheme of Arrangement.
The Boards of both companies believe the merger rationale is logical and
compelling as it consolidates the Acoje project into a simpler structure,
increases European Nickel's interest in the project to 92%, thereby enabling the
orderly development of the project after Ã?alda?, and strengthens the management
team with the appointment of Robert Gregory as European Nickel's Managing
Director. Robert Gregory has operated in South East Asia for a number of years
and he willreport to Mr Simon Purkiss who will become Executive Deputy Chairman.
The Rusina board has recommended the merger to its shareholders.
ThisScheme is subject to the approval by the Australian courts, by Rusina's
shareholders and to the agreement of European Nickel's shareholders for the
issuance of new shares required to complete the merger. If the merger is
approved and completed, Rusina shareholders will subsequently hold approximately
27% of the enlarged European Nickel business.
In conjunction with the merger agreement, we have also completed a private
placement of shares to raise US$19.4 million in two tranches. The first tranche
of US$8.6 million was placed on 2 February 2010 and part of the proceeds were
used to repay the Endeavour bridging loan. The second tranche of US$10.8 million
will be received on completion of the merger with Rusina. With this additional
funding and Rusina's current treasury, the Company will be in a position to
progress the DFS at Acoje and to complete the project finance for the
construction of the Ã?alda? project.
Turning to the nickel market, it has undergone some interesting changes over the
past couple of years. The spike in the nickel price in 2007 to over US$20 per
pound prompted a new source of nickel to be developed with the Chinese utilising
numerous small blast furnaces and ferronickel smelters to produce a brand new
product, nickel pig iron or low grade ferronickel. This new product and the
significant quantities needed prompted nickel laterite deposit holders to open
up their deposits and Direct Ore Shipment (DOS) operations were started all over
South East Asia. This, coupled with Chinese traders purchasing ore at any
grade, prompted a boom to bust cycle in the DOS market when nickel prices fell
below the US$10 per pound required by some of the high cost producers. These new
nickel units have had the effect of capping the nickel price upside for any
length of time at US$10-12 per pound. Whilst the nickel price did drop to
approximately US$6 per pound, it recovered to an average range of US$7-8 per
pound for the year. Looking ahead to the rest of 2010, industry consensus is
that nickel demand will strengthen over the previous year and that the price
will range around US$8 per pound.
After an extremely difficult period over the past twelve months, I believe
European Nickel is now positioned to move forward again, to resume our
endeavours to develop Ã?alda? into a high quality and profitable heap leach
operation and to successfully complete the DFS at Acoje, leading on to its
development. After the merger with Rusina, we will have a strengthened
management team and the financial resources to achieve this.
Once again I want to convey my sincere appreciation of the efforts of all of our
employees, the forebearance of our partners and the support of our shareholders
under the very difficult circumstances that theCompany has had to endure since
my last report to shareholders. I believe we are now well positioned to move
forward successfully to achieve our main strategic goals, to create value for
our shareholders and to become a growing and profitable nickel producer.
Thank you all,
David Whitehead
CONSOLIDATED INCOME STATEMENT
2009 2008
Audited Audited
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Note US$000 US$000
=-------------------------------------------------------------------------
Revenue - 5,606
Cost of sales - (4,778)
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Gross profit - 828
Administrative expenses (9,215) (16,253)
Other operating costs (2,585) (7,497)
Other operating income 123 250
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Operating loss (11,677) (22,672)
Other interest receivable and similar income 82 3,232
Interest payable and similar charges (1,288) (469)
Share of results of associates and joint ventures (1,486) (3,427)
=-------------------------------------------------------------------------
Loss on ordinary activities before taxation (14,369) (23,336)
Tax on loss on ordinary activities - (27)
=-------------------------------------------------------------------------
Loss for the financial year (14,369) (23,363)
=-------------------------------------------------------------------------
Loss per share - basic and diluted 3 ($0.03) ($0.06)
=-------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
2009 2008
------------------------------------
Audited Audited
=-------------------------------------------------------------------------------
Note US$000 US$000 US$000 US$000
=-------------------------------------------------------------------------------
Assets
Goodwill 1,096 1,096
Intangible assets 2,641 2,944
Property, plant and equipment 4 78,553 75,545
Investments accounted for using the
equity method 5 50,169 51,623
Advance payments for investments - 1,598
Available for sale financial assets 865 692
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Total non-current assets 133,324 133,498
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Inventories 102 101
Trade and other receivables 6 16,549 17,034
Cash and cash equivalents 7 1,530 8,791
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Total current assets 18,181 25,926
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Liabilities
Interest-bearing loans (3,922) -
Trade and other payables (3,073) (2,452)
=-------------------------------------------------------------------------------
Total current liabilities (6,995) (2,452)
Net current assets 11,186 23,474
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Provisions (2,400) (2,400)
=-------------------------------------------------------------------------------
Total non-current liabilities (2,400) (2,400)
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Net assets 142,110 154,572
=-------------------------------------------------------------------------------
Called up share capital 8,480 7,216
Share premium account 207,496 202,851
Merger reserve 776 776
Translation reserve (355) (552)
Fair value reserve (1,278) (1,451)
Accumulated losses (73,009) (54,268)
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Shareholders' funds 142,110 154,572
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CONSOLIDATED CASH FLOW STATEMENT
2009 2008
Audited Audited
Note US$000 US$000
=-------------------------------------------------------------------------------
Operating loss (11,677) (22,672)
Depreciation and amortisation 877 876
Loss on disposal of property plant and equipment - 13
Impairment loss on available for sale financial asset - 402
Effect of exchange rate fluctuations 1,455 -
Share-based payment expense 1,025 938
=-------------------------------------------------------------------------------
Operating cash outflow before movements in working
capital (8,320) (20,443)
(Increase)/decrease in stocks (1) 1,838
Decrease/(increase) in trade and other receivables 489 (3,786)
Increase/(decrease) in trade and other payables 621 (1,506)
=-------------------------------------------------------------------------------
Net cash used in operating activities (7,211) (23,897)
=-------------------------------------------------------------------------------
Interest and similar income received 82 3,232
Interest and similar charges paid (180) (263)
Purchase of property, plant and equipment (3,937) (5,940)
Purchase of intangible fixed assets (13) (313)
Purchase of investments in associates - (55,050)
Purchase of investments in joint ventures (4,861) -
Advance payments for investments - (1,598)
Purchase of investments - (510)
Loan to associate (221) -
=-------------------------------------------------------------------------------
Net cash flows used in investing activities (9,130) (60,442)
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Gross proceeds from issue of ordinary share capital 6,290 976
Expenses incurred issuing ordinary share capital (381)
Interest-bearing loans 4,000 -
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Net cash flows from financing activities 9,909 976
=-------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (6,432) (83,363)
Cash and cash equivalents at beginning of the year 8,791 92,860
Effect of exchange rate fluctuations on cash held (829) (706)
=-------------------------------------------------------------------------------
Cash and cash equivalents at end of the year 1,530 8,791
=-------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE
Note 2009 2008
US$000 US$000
=-------------------------------------------------------------------------------
Loss for the financial year (14,369) (23,363)
Exchange difference arising on translation of foreign
operations 197 (488)
Gain/(loss) on available for sale investments 173 (1,640)
Loss on deemed disposal of investment in associate 5 (5,755) -
=-------------------------------------------------------------------------------
Total recognised gains and losses relating to the
financial year (19,754) (25,491)
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Notes
1. The financial information set out in this announcement does not constitute
statutory accounts within the meaning of Section 434 of the Companies Act 2006
for the year ended 30 September 2009 or Section 240 of the Companies Act 1985
for the year ended 30 September 2008, but is derived from those accounts. The
financial statements for 2009 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors have not yet
reported on these accounts. They anticipate that their report will be
unqualified and will not contain statements under the Companies Act 2006,
s498(2) or 498(3). They expect to include an emphasis of matter paragraph in
their audit report regarding going concern, theavailability of project finance
and the assumptions adopted for the Berong impairment review.
2.Summary of significant accounting policies:
Basis of preparation
The consolidated financial statements and Company financial statements have been
prepared in accordance with International Financial Reporting Standards (IFRS)
and their interpretations issued by the International Accounting Standards Board
(IASB), as adopted by the European Union. They have also been prepared with
those parts of the Companies Act 2006 applicable to companies reporting under
IFRS.
Going concern and availability of project finance
The Group incurred losses of US$14.37 million in the year and at the year end
had cash balances of US$1.53 million and refundabledeposits of US$5.85 million.
In common with many exploration and development companies the Group raises
equity funds in discrete tranches in order to fund its activities and in
February 2010 the Company raised approximately US$8.6 million by way of share
placement with a further US$10.75 million raised subject to the completion of
the merger with Rusina Mining NL (Rusina), shareholder approval at the AGM
(which the Board believe will be forthcoming), approval for the merger by
Rusina's shareholders and regulatory approval. The Board have reviewed the
forecast working capital requirements of the Group for the period to 31 March
2011 and believe that with this additional funding the Group will have
sufficient financial resources for going concern purposes and to progress its
projects. The Board has therefore concluded that it is appropriate to prepare
these financial statements on a going concern basis.
In February 2009 the Company received approval for the forestry permit for the
Ã?alda? project. It has also signed a financingframework agreement with Jiangxi
Rare Earth and Rare Metals Tungsten Group Company Limited (JXTC) for it to
acquire a 20% equity interest in the Ã?alda? project for US$20 million and for
China Tianchen Engineering Corporation (TCC) to assist in arranging debt funding
for the development of the Ã?alda? project. Upon completion of these financing
arrangements the Board considers that the Company will have sufficient financing
available to proceed with the construction of the Ã?alda? mine and associated
processing plant. The framework financing agreement expires on 31 March 2010
but may be extended.
Completion of the arrangements is conditional on Chinese State approval of the
transaction, which is currently being sought.Should the financing arrangements
with JXTC and TCC not be completed the Company would need to put in place
alternative financing arrangements to proceed with the construction of the
Ã?alda? mine and associated processing plant. To this end encouraging
discussions have recentlytaken place with a view to raising the debt financing
from western banks. The Board believe that the necessary finance will be
forthcoming in time, however, there can be no certainty in this regard and
should these arrangements not be finalised in time the Company's ability to
progress the Ã?alda? project could be adversely affected such that it would lead
to an impairment of the Group's Ã?alda? related assets.
Property, plant and equipment
Assets in the course of construction include pre-production and development
expenditure incurred once commercial viability of the respective projects has
been established. Depreciation will commence upon commercial production.
Investments in associates and joint ventures
A joint venture is an entity over which the Group has joint control. Joint
control is the contractually agreed sharing of control over an economic
activity, and exists only when the strategic financial and operating decisions
relating to the activity require the unanimous consent of the parties sharing
control. The investment in the joint venture is initially recognised at cost
and adjusted for the Group's share of the changes in net assets of the joint
venture after the date of acquisition, and for any impairment in value. If the
Group's share of losses of a joint venture exceeds its interest in the joint
venture, the Group discontinues recognising its share of further losses.
An associate is an entity over which the Group has significant influence and
that is neither a subsidiary nor an interest in a joint venture. Significant
influence is the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control over those
policies. The investment in an associate is initially recognised at cost and
adjusted for the Group's share of the changes in the net assets of the investee
after the date of acquisition, and for any impairment in value which includes
access to mineral rights identified on acquisition. If the Group's share of
losses of an associate exceeds its interest in the associate, the Group
discontinues recognising its share of further losses.
Impairment
The carrying amounts of the Group and Company's assets are reviewed at each
balance sheet date to determine whether there is any indication of impairment.
Goodwill is allocated to cash generating units where this is practical. If there
is any indication that an asset may be impaired, its recoverable amount is
estimated. The recoverable amount is the higher of its net selling price and its
value in use. In assessing value in use, the expected future cash flows from the
asset are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. Impairment losses are recognised in the income statement.
A previously recognised impairment loss is reversed if the recoverable amount
increases as a result of a change in the estimates used to determine the
recoverable amount but not to an amount higher than the carrying amount that
would have been determined (net of depreciation) had no impairment loss been
recognised in prior years.
3. Loss per share
The calculation of loss per share is based on a loss attributable to equity
holders of the parent of US$14,369,000 (year to 30 September 2008: loss
US$23,363,000) and on 425,725,117 ordinary shares (year to 30 September
2008: 384,556,704), being the weighted average number of shares in issue during
the year.
There is no difference between the diluted loss per share and the loss per share
presented. Share options are not included in the calculation of diluted earnings
per share as they are anti-dilutive for the period presented.
Further significant share issues occurred after the end of the period.
4. Property, plant and equipment includes "assets under construction" amounting
to US$76,183,000 (2008: US$72,652,000) which relates to expenditure on the
Ã?alda? project.
5.Investments accounted for using the equity method includes US$23,633,000
relating to the 19.3% share in Toledo Mining Corporation Plc and US$26,906,000
relating to the 18.7% share in Berong Nickel Corporation, both acquisitions took
place on 27 June 2008.
On 4 August 2009 Toledo Mining Corporation issued 12,000,000 new shares at 38p
each. The Group did not participate in the placing, reducing the Group's
holding to 13.7%. The reduction in holding is a deemed disposal of 29% of the
original stake (US$6,805,000) less the Group's share of the deemed proceeds of
the placing based on the new holding (US$1,050,000). The net loss on disposal
is therefore US$5,755,000 which was taken to reserves.
6.Trade and other receivables:
Group Group
2009 2008
US$000 US$000
=-----------------------------------------------------------
Trade receivables - 221
Other receivables 9,118 8,744
Refundable deposits 5,845 5,845
Prepayments and accrued income 1,586 2,224
=-----------------------------------------------------------
16,549 17,034
=-----------------------------------------------------------
Group other receivables includes an amount of US$7,719,000 (2008: US$8,115,000)
recoverable in over one year. This represents input VAT incurred in Turkey,
which will in due course be recovered against taxable sales in that country.
7. Reconciliation of cash and cash equivalents:
Group Group
2009 2008
US$000 US$000
=-----------------------------------------------------------------
Cash on hand and balances with banks 1,484 885
Short-term investments 46 7,906
=-----------------------------------------------------------------
Term deposits - -
=-----------------------------------------------------------------
1,530 8,791
=-----------------------------------------------------------------
The term deposit is pledged as a security for a similar borrowing by a
subsidiary company and is not available for use.
9.Impairment review:
The present circumstances of the Group's projects having both project financing
risk (Ã?alda?) and being at an early stage of development (Berong), led the
directors to carry out an impairment review of the Group's principal resource
assets Ã?alda? and Berong, which is partly held through the investment in Toledo.
Separate impairment reviews on a value in use basis have been carried out for
each asset and, based on these reviews, the directors have concluded that no
impairment against the carrying value of these assets has occurred.
In carrying out the impairment review the directors have selected a discount
rate which reflects the estimated weighted average cost of capital for each
project and which reflects the level and cost of debt that, based on current
discussions with potential funders, they expect would be available to develop
each project taking into account the specific assets (including location). The
directors have estimated a pre-tax weighted average cost of capital of 10% for
Ã?alda? and 15% for Berong to reflect that Berong is at an earlier stage of
development.
The directors have prepared cash flow forecasts covering the expected life of
each project based on the level of resource for Ã?alda? and estimated resource
for Berong. This represents 14 years in respect of Ã?alda? and 33 years in
respect of Berong.In carrying out the impairment the directors have used a
commodity price of US$13,230/tonne. A recent consensus of independent brokers
estimates of the three year selling price for nickel at US$18,150/tonne compared
to the spot rate on 17 February 2010 of US$19,575/tonne.
In deriving an estimate of the value in use in respect of Ã?alda? and Berong the
directors have calculated a net present value (NPV) of the projected cash flow
to be derived from the exploitation of the known reserves of 375,000 tonnes and
154,224 tonnes of contained nickel respectively.
The impairment review for Berong assumes that operations will commence in four
years time and costs are based on current cost estimates. Because the Berong
project is at an early stage of evaluation and the estimated resource level is
not yet JORC compliant the capital and operating costs and revenue assumptions
are based on an initial concept study. Further resource evaluation and a
feasibility study will need to be funded and undertaken before the project can
be developed. As such the estimates and assumptions used in the initial concept
study may change significantly.The results of the impairment review for Berong,
which is partly held through Toledo, indicate that the NPV of the project
attributable to the Company is close to the current carrying value of the
project. Therefore adverse changes to keyassumptions could lead to an
impairment arising. The table below indicates the impairments that may arise
from adverse changes in key assumptions.
US$000
Reduce nickel price by 10% to $5.40/lb 5,705
Increase capex by 15% -
Increase opex by 15% -
Increase capex and opex by 15% 11,800
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=-----------------------------------------------------------
10.The directors do not recommend the payment of a dividend (2008: nil).
[HUG#1389368]
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