Corporate Governance - Accounting

Statement of Accounting Policies

The significant accounting policies adopted by the Group are as follows:

Basis of Preparation
Basis of Accounting
Critical Accounting Estimates and Judgements
Basis of Consolidation
Revenue Recognition
Leases
Foreign Currency
Borrowing Costs
Deferred Development Expenditure
Property, Plant & Equipment
Impairment of Tangible and Intangible Assets
Construction in Progress
Inventories
Financial Instruments
Mine Closure Provision
Share-based Payments

(a) Basis of Preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

(b) Basis of Accounting

The financial statements are prepared in US Dollar under the historical cost convention.

(c) Critical Accounting Estimates and Judgements

The preparation of the financial statements involves the use of judgement and estimation. Information about such judgements and estimation is set out in the accounting policies and notes to the financial statements including Deferred Development Expenditure, Construction in Progress and Mine Closure Provision.

(d) Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and its entities controlled by the Group. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

All intra Group transactions, balances, income and expenses are eliminated on consolidation.

(e) Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for mineral products provided in the normal course of business, net of discounts and other sales related taxes. Sale of mineral products are recognised when mineral products have been delivered and title has passed. Typically, delivery takes place when product is loaded in the customer’s vessel.

Revenue earned during the period of commissioning the mine, before it is capable of operating in the manner intended by management, is offset against costs capitalised in Deferred Development Expenditure.

Finance income represents deposit interest earned. It is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

(f) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Finance Leases
Assets held under finance lease are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the Balance Sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to directly achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s policy on borrowing costs (see below).

Operating Leases
Rentals payable under operating leases are charged to the Income Statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term

(g) Foreign Currency

The individual financial statements of each Group entity are presented in their functional currency, US Dollars. The consolidated financial statements are expressed in US Dollars, which is the functional currency of the Group, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at rates prevailing on the balance sheet date.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the Income Statement for the year.

(h) Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

(i) Deferred Development Expenditure

Mineral exploration and project development costs, including finance costs and lender and advisor fees for the Moma Titanium Minerals Mine during the period before the mine is capable of operating in the manner intended by management are deferred. In addition, expenses, including depreciation net of revenue earned during commissioning the mine in the period before it is capable of operating in the manner intended by management, are deferred. These costs include an allocation of administration and salary costs, including share based payments as determined by management and incurred by Group companies. Interest on borrowings related to the construction or development projects is capitalised until the point when all the activities that are necessary to enable the mine to operate in its intended manner are complete. When the mine is operating in the manner intended by management, the related costs will be written off over the life of the estimated ore reserve on a unit of production basis. Where the project is terminated or an impairment in value has occurred, related costs are written off immediately.

(j) Property, Plant & Equipment

The cost of Property, Plant and Equipment comprises its purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the estimated closure costs associated with the asset. Property, Plant and Equipment is depreciated over its useful life, or over the remaining life of mine if shorter. The major categories of Property, Plant and Equipment are depreciated as follows:

Plant & Equipment            Units of production basis.
Buildings & Airstrip         20 years
Mobile Equipment           3 to 5 years
Fixtures & Equipment      3 to 10 years

Units of production depreciation is calculated using the quantity of material extracted from the mine for processing or sterilised in the period as a percentage of the total quantity of material planned to be extracted in current and future periods based on the mining reserve. In the case of the Moma Titanium Minerals Mine, the mining reserve is a proven and probable reserve which represents approximately a 20 year life at the initial expected production levels.

Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Changes to the estimated residual values or useful lives are accounted for prospectively.

(k) Impairment of Tangible and Intangible Assets

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group’s estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have been adjusted.

If the recoverable amount of the asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(l) Construction in Progress

Construction in progress expenditures for the construction and commissioning of the Moma Titanium Minerals Mine in Mozambique are deferred until, on a section-by-section basis, the facilities are operational, at which point the costs are transferred to Property, Plant and Equipment and depreciated at the applicable rates.

(m) Inventories

Product inventories are stated at the lower of cost and net realisable value. Costs comprise materials, labourvcosts and overheads incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

(n) Financial Instruments

Financial assets and financial liabilities are recognised on the Group’s Balance Sheet when the Group becomes party to a contractual provision of the instrument.

Trade receivables
Trade receivables are measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in income or expenses when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.

Financial liabilities and equity
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Bank Borrowings
Interest-bearing bank loans and overdrafts are initially measured at fair value and are subsequently measured at amortised cost, using the effective rate method. Any difference between the proceeds and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs (see above).

Trade Payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest method.

Equity Instruments
Equity capital issued by the Company is recorded at the value of proceeds received, net of direct issue costs. The only equity instruments of the Group are ordinary share
capital and warrants.

(o) Mine Closure Provision

The mine closure provision represents the Directors’ best estimate of the Group’s liability for close down, dismantling and restoration of the mining and processing
site. A corresponding amount equal to the provision is recognised as part of Property, Plant and Equipment. The costs are estimated on the basis of a formal closure plan and are subject to regular review. The mine closure provision is determined as the net present value of such estimated costs. Changes in the estimated timing or costs are recorded by an adjustment to the provision and corresponding adjustment to Property, Plant and Equipment. The unwinding of the discount on the mine closure provision is recognised as a finance cost and capitalised if eligible.

(p) Share-based Payments

The Group issues share options to certain Directors, employees and consultants. Share options are measured at fair value at the date of grant. The fair value determined at the grant date of the share options is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest and adjusted for the effect of non-market based vesting conditions. Fair value is measured using a Black-Scholes pricing model.