UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30 June 2014

					Year ended 30 June		Year ended 30 June
					2014		2013
	Note				$'000		$'000
Operating activities
Loss before tax					(1,019)		(236)
Adjustments for:
- Impairment of loans and receivables					-		(1,441)
- Loss on disposal of property, plant and equipment					4		-
- Foreign exchange					(31)		-
- Share based payment					12		12
- Finance income					(1)		(122)
Operating cash flow before movements in working capital					(1,035)		(1,787)
Working capital adjustments:
- Increase in receivables					(475)		(73)
-(Decrease) / increase in payables					(157)		163
Cash used in operations					(1,667)		(1,697)
Finance income					1		22
Net cash used in operating activities					(1,666)		(1,675)
Investing activities
Purchase of intangible assets net of cash acquired					(1,253)		(2,814)
Purchase of property, plant and equipment					(15)		-
Advance of loans and receivables					-		(315)
Advance of related party loan					-		(2,000)
Repayment of related party loan					-		2,000
Finance income - facility fee					-		100
Net cash used in investing activities					(1,268)		(3,029)
Financing activities
Proceeds from issue of share capital					1,615		-
Net cash from financing activities					1,615		-
Net decrease in cash and cash equivalents					(1,319)		(4,704)
Cash and cash equivalents at start of the year					3,488		8,192
Effect of exchange rates on cash and cash equivalents					1
Cash and cash equivalents at end of the year					2,170		3,488

 

Non cash transactions

The principal non cash transactions relate to shares issued in settlement of:

 

			2014		2013
			$'000		$'000
Consultancy fees			150		-
Consideration			-		1,545
			150		1,545

 

 

1. General Information

 

African Potash Limited is incorporated and domiciled in Guernsey.  The nature of the Company's operations and its principal activities are set out in the Chairman's Statement.

 

The presentational currency of the Company is US Dollars as this reflects the Company's business activities in the resource exploration sector in sub-Saharan Africa and therefore the Company's financial position and financial performance.

 

Whilst the information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRSs") as adopted by the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRSs nor constitute statutory financial statements.

 

The financial information is based on the statutory accounts for the financial year ended 30 June 2014. The auditors reported on those accounts: their report was (i) unqualified, (ii) included an emphasis of matter in relation to going concern without qualifying their report, and (iii) did not contain statements where the auditor is required to report by exception.

 

The Company's Annual Report, will be available on the Company's website on 29 December 2014.

 

2. Critical accounting estimates and judgements

 

The preparation of financial statements in conformity with IFRS as adopted in the EU requires the use of certain critical accounting estimates.  It also requires management to exercise its judgement in the process of applying the Group's accounting policies.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below.

 

Intangible exploration and evaluation assets

In February 2013, the group purchased a 70% interest in the Lake Dinga licence which the board believes is highly prospective for commercial deposits of Potash.  Since the year end, the Group has conducted a successful proof of concept drilling campaign confirming laterally extensive potash mineralisation which is characteristic of the Congolese coastal basin and further underpins the Project's potential to host significant potash deposits.  In order to develop the asset and issue a maiden resource statement, the Group will need to raise additional capital to fund a comprehensive drilling programme to support a resource estimate.  The board remains confident that the highly prospective nature of the asset will enable them to raise the additional capital to fund these programmes.  Accordingly there are no indications of impairment and the asset is carried at cost, grossed up for the 30% non controlling interest.

 

The valuation of intangible exploration and evaluation assets is dependent upon the discovery of economically recoverable deposits which in turn is dependent upon the future potash prices, capital expenditures and environmental and regulatory restrictions. 

 

Management's critical judgements in determining the value of assets, liabilities and equity within the financial statements relate to the valuation of intangible exploration and evaluation assets of $14.5m (2013: $13.1m) and the going concern assumptions.

 

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.  Actual results may differ from these estimates.  Estimates and judgements are continually evaluated.  Revisions to accounting estimates are recognised in the period in which the estimates are revised or in future periods if applicable.

 

Going concern

As indicated above, current cash resources and available facilities are not sufficient to enable the Group to complete a full evaluation of the Lac Dinga project.  The board will not commit to a major exploration programme without raising sufficient finance to fund the planned expenditure. 

 

The Board has prepared forecasts for the Group covering the period to 31 December 2015.

 

The directors are confident that with the current cash and at least a further $1m remaining to be drawn under the facility with Bergen Opportunity Fund, LP ("Bergen"), there will be sufficient cash resources to enable the Group to pay debts as they fall due and to continue its operations for the foreseeable future and thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

 

As set out in note 18 the Company has the right to at any time to terminate the Bergen facility. Should the share price fall below 1.5p, then Bergen, under certain circumstances, have the right to postpone a draw down by up to 60 days and, should the share price not recover to above 1.5p, Bergen may, by notice to the Company, immediately terminate the facility.

 

3. Earnings per share

 

The calculation of the basic and diluted earnings per share is based on the following data:

 

	2014		2013
	$'000		$'000
Loss for the purposes of basic earnings per share	(1,019)		(236)
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted loss per share	233,784,359		208,478,170
Loss per share	(0.44c)		(0.11c)

 

Due to the loss incurred during the year, there is no dilutive effect of share options.

 

4. Intangible assets			Evaluation and exploration costs
					$'000
At 1 July 2012					-
On acquisition					12,454
Additions					617
Exchange rate adjustment					(14)
At 1 July 2013					13,057
Additions					1,411
Exchange rate adjustment					55
At 30 June 2014					14,523

 

The asset comprises the Lac Dinga exploration licence in the Republic of Congo held by La Societé des Potasses et des Mines SA ("SPM") in which the Group has a 70% interest.

 

5. Share capital

		Allotted and fully paid
Ordinary shares of no par value		Number	$'000
At 1 July 2012		198,700,000	10,911
Issue of shares		27,883,062	1,545
At 30 June 2013		226,583,062	12,456
Issue of shares		58,410,520	1,441
At 30 June 2014		284,993,582	13,897

 

The Company has one class of ordinary share which carries no right to fixed income.

 

On 22 February 2013, 27,883,062 ordinary shares were issued at 3.6p per share as part of the initial consideration for the acquisition of AFPM with a fair value of $1.5m.

 

On 12 May 2014, 53,762,073 were issued at 1.9p for cash to fund the Phase 1 drilling and exploration programme.

 

On 12 May 2014 4,648,447 were issued at 1.9p under the terms of the management agreement with Hedgestone Advisory (Pty) Ltd to lead and facilitate the infrastructure and logistics operations supporting the drilling programme.

 

6. Post balance sheet events

 

On 8 August 2014 the company announced that it had entered into a convertible securities issuance deed (the "Deed") with Bergen Opportunity Fund, LP ("Bergen"), an institutional investment fund managed by Bergen Asset Management, LLC, a New York asset management firm, in connection with an issuance by the Company of zero coupon convertible securities having a nominal amount of up to US$3,750,000 (the "Convertible Securities").

 

The Convertible Securities will (subject to the satisfaction of certain conditions) be issued in four tranches and the Company will make an announcement of the issue of each Convertible Security. The initial Convertible Security issued on 14 August 2014 had a nominal value of US$830,000 and a purchase price of $750,000. Each of the three subsequent tranches of Convertible Securities will be issued 90 days after the date of issuance of the previous Convertible Security and have a nominal value of between US$500,000 and US$1,000,000.

 

The Convertible Securities will have a term ending on 7 February 2017.

 

African Potash will have the right to repurchase the Convertible Securities for cash at 105% of their nominal value (and without a fee or penalty) within a certain redemption period. The Company will additionally have the right to terminate the Agreement at any time and not to issue the remaining Convertible Securities on payment of a modest termination fee.

 

The Convertible Securities will (subject to the satisfaction of certain conditions) be convertible into ordinary shares of African Potash (the "Shares"), in whole or in part, at the option of Bergen. The Company will make an announcement each time any Convertible Securities are converted in whole or in part and will specify in such announcement the relevant conversion price, which will be the lower of (a) 91% of the average of five daily volume-weighted average prices ("VWAPs") of the Shares on AIM during a specified period preceding the relevant conversion and (b) 140% of the average of the daily VWAPs of the Shares for the 20 consecutive trading days preceding the date of execution of the Deed.

 

Bergen has agreed to certain limitations on its ability to dispose of the Shares following a conversion of the Convertible Securities. Additionally, Bergen has agreed to limitations on its ability to convert the Convertible Securities, including a limit on how much of the Convertible Securities can be converted in a particular time period. Further, the Investor will not, and has agreed not to, and to cause its affiliates not to, short-sell the Shares.

 

If the daily VWAPs per Share fall below 1.5p for any two consecutive trading days during the term of this Deed, Bergen may, by notice to the Company, postpone a subsequent tranche by up to 60 calendar days.  If during this period the VWAP does not recover to be above 1.5p for 10 consecutive days, then Bergen may, by notice to the Company, immediately terminate this Deed.