Bellzone Mining plc (“Bellzone” or “the Company”) (AIM:BZM) announces the audited results of the Company for the year ended 31 December 2017. The Company’s Financial Statements will be available on the Company’s website at www.bellzone.com.
· Loss for the year from continuing operations of $5.7 million (2016: $8.0 million)
· Total assets of $20.3 million (2016: $21.7 million)
· Net cash of $2.7 million (2016: $3.1 million) and Secured Loans of $20.0 million (2015: $17.6 million)
After a promising re-set in the previous year, 2017 began by testing our collective resilience and resolve. Our plan to press ahead and finalise the ferronickel feasibility study in 2017, a substantial portion of which was completed and announced in August 2016, was put in abeyance as a result of the lack of clarity with respect to our continuing legal rights and obligations under our 2010 Mining Convention.
As a result, our employees suffered immensely in terms of extended technical leave and deferred remuneration. At the same time, we were very fortunate to enjoy strong support from the communities in Faranah and Konta, as well as from the authorities, counterparties and service providers throughout the year. Our shareholder base too remained firm as Bellzone’s underlying value was recognised more widely and our market value increased; and our major shareholder and sole long-term lender postponed the repayment of all of its loans to the Company to 31 December 2018, and further extended repayment to 31 December 2019 post year end. On behalf of the Board, I thank everyone involved for putting the long-term value of the Company first.
Notwithstanding the bumpy journey, I am pleased to report that 2017 in the end turned out to be an important watershed in Bellzone’s long history in Guinea to date. The signing of the Addendum to the 2010 Mining Convention in November enabled the Company to immediately begin normalising operations and plan for the recommencement of work on the ferronickel feasibility study.
We were also able to bring on board our new broker SVS Securities, who helped us to take advantage of favourable market conditions to successfully place £1.6 million worth of new shares. This meant that we were simultaneously able to expand our financing options beyond sole dependence on our major shareholder, attract new investors and enhance overall trading liquidity.
On the macroeconomic front, Bellzone also benefited from Guinea’s success in negotiating meaningful multilateral institutional financing and attracting significant investment commitments from China, in particular in the bauxite/alumina sector, as well as a US$20 billion long-term infrastructure loan agreement. These positive developments have provided an ongoing boost to the country’s economic prospects and, more importantly, a critical path towards a massive transformation of the resources/mining sector as a whole.
Where it has hitherto been difficult to imagine how vital infrastructure including power, road, rail and port projects will materialise within a reasonable timeframe, concrete and realistic plans can now be made with committed funds to spur country-wide progress. As our Kalia mine is so strategically located along the route to the Simandou iron ore deposit and other large prospects in Guinea’s deep interior, we will no doubt be involved sooner rather than later in at least some of these potential plans.
More broadly, the world economy and China especially are widely expected to experience medium-term benign conditions and commodity prices seem to have firmed somewhat in tandem with this expectation. Base metals and nickel specifically are starting to build in lower inventory and higher demand scenarios, which makes for very good timing for a potential ferronickel project such as ours. As we have already done most of the work required and have made past investments in basic infrastructure, Bellzone stands ready to move swiftly should iron ore economics improve within a short timeframe.
In 2018, we look forward to substantially justifying the faith of all our stakeholders, as we execute on our clear plan to deliver final results with respect to the potential ferronickel project by the end of 2018. Given the manageable size of the project, the fact that power and infrastructure requirements, potential environmental impacts and transportation issues are envisaged to be at the bare minimum and that there is a growing demand for ferronickel, we believe we have good grounds for optimism at this stage, subject to continued financial support to develop our envisaged plans.
As there will be more regular news-flow with the advent of each feasibility study milestone, we intend to engage more extensively and promptly with our shareholders, potential new investors, and the research community. The Board believes more can be done to unlock shareholder value, which for too long has been clouded by future uncertainty and the lack of a published concrete action plan. Bellzone has now entered a new phase of development which should more clearly highlight the financial value of our world-class deposit and our strategic location. Thank you for your support.
OPERATIONS AND FINANCIAL REVIEW
Review of Business in the Year
Operations were significantly minimised from the second quarter of 2017 due to the extended delay prior to the signing of the Addendum to the 2010 Mining Convention and only started to be normalised in December 2017. As a result, operating expenses were reduced by 35 per cent. below 2016 operating expenses of US$7.1 million (excluding non-cash accrued loan interest) to US$4.6 million.
Bellzone’s operating costs which exclude amortisation, depreciation and gain/loss on disposal of fixed assets fell from US$5.9 million in 2016 to US$5.1 million in 2017. Most of this reduction was due to bigger sacrifices in salaries and technical leave and stringent management of travel and legal costs. Including the additional interest due on the two fully drawn-down loans and the third partially drawn-down loan, the annual loss reduced to US$5.7 million, a reduction of 29 per cent compared to the previous year’s loss of US$8.0 million and no new significant impairments to the statement of financial position or significant provisions have been necessary.
Working capital needs were met by a combination of cash savings from 2016, the final drawdown of US$0.5 million from the first loan facility of US$6.5 million provided by our major shareholder Hudson Global Group Limited (“Hudson”) and announced in December 2015 and the first drawdown of US$0.8 million from the second Hudson loan facility of US$4.0 million announced in December 2016.
Bellzone’s higher market value and positive market conditions allowed the Company to raise £1.6 million (approximately US$2.0 million) with minimal dilution through an equity placement in November 2017, which resulted in Hudson’s voting rights being decreased slightly from 62.4% to 58.2%. The proceeds will be used to meet the majority of planned operating expenses in 2018. This marked an important turning point in the Company’s ability to expand its financing options beyond sole reliance on Hudson. At the same time, a major part of the third loan facility from Hudson remains un-drawn with the availability of the facility extended post year end until 31 December 2019 and the loan repayment dates for all three existing loans extended post year end until 31 December 2019. The Board remains committed to fully exploring all potential financing possibilities in dialogue with Hudson to achieve optimal benefits for all shareholders.
Outlook and Strategy
The main operating objective for 2018 will be to complete the technical work related to the ferronickel project in line with Bellzone’s new commitments pursuant to the newly-signed Addendum to the Mining Convention. If the results are positive, the focus will then be on obtaining the required financing to start construction without delay. This was the same objective as in 2017, but the extended delay in signing the Addendum did not allow any work to commence in that year. Now that clarity has been established, visible milestones can be targeted until the feasibility study is completed within 2018.
In hindsight, the delay has meant we are better able to capitalise on more positive macroeconomic conditions in Guinea as well as more stable iron ore and nickel price outlooks. Re-starting operations in conjunction with the feasibility study will provide useful work for more of our local employees and allow us to re-lay the groundwork for longer-term production so we are ready to move ahead quickly at the right time.
As a large proportion of useful in-country assets have been fully depreciated and under care and maintenance for several years, we intend to undertake a comprehensive asset management programme to monetise where possible non-critical assets through either sale or rental to take advantage of the upturn in local mining activity. This should enable the Company to generate additional cash and reduce our external financing needs. In turn this will allow management to better explore a full range of financing options to find accretive solutions for both our near-term working capital needs and our medium-term debt-servicing requirements.
There have been no changes to the accounting policies adopted by the Group in 2017.
BDO LLP replaced Ernst & Young LLP as the Company’s auditors for the FY2017 audit.
Presentation of Financial Statements
The financial statements are presented in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and are presented in US Dollars (“$”) with all values being rounded to the nearest thousand ($000) unless otherwise stated.
As the Group is in a project-development stage and generates no revenue from mining operations, no dividends have been declared (2016: nil).
Treasury and Cash Flow Management
As at 24 May 2018, funds on hand and available amounted to US$1.06 million excluding $3.20 million available to draw down under the second Hudson loan.
The Board has a Treasury Committee consisting of the Chairman and the Chief Financial Officer. The structuring of the Company’s treasury reduces exposure to currency fluctuations by holding the bulk of the funds in the currency used for budgeted expenditure. The expenditure in Guinean Francs is the only currency which is not managed through this mechanism and is converted on a monthly basis for actual funding requirements.
This announcement and the financial information and accompanying notes to the financial statements do not constitute audited financial statements but are derived from audited financial statements. A copy of the Company’s full audited results for the year ended 31 December 2017 is contained in its audited financial statements, which will be posted to shareholders and made available on the Company’s website at www.bellzone.com and should be read in conjunction with the above.
The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.
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