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African Potash Limited ('African Potash' or 'the Company'): Interim Results

African Potash Limited ('African Potash' or 'the Company'): Interim Results

Fri, 31 Mar 2017 14:00:01
: African Potash Limited ('African Potash' or 'the Company'): Interim Results

African Potash Ltd. (-)

31-March-2017 / 15:00 CET/CEST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


African Potash Limited / Epic: AFPO / Sector: Mining

African Potash Limited ('African Potash' or 'the Company')
Interim Results

African Potash, the NEX Growth Market traded exploration company focused on the vertical integration of fertiliser operations in Africa and Sub-Saharan potash assets, announces its results for the six months ended 31 December 2016.

Chairman's Statement

African Potash has spent the past 18 months transforming an exploration company hampered by a steep global downward funding cycle in its sector and its resource (i.e. potash) through the implementation of a strategy to develop the opportunities for generating revenue in the fast developing and related fertiliser industry, with a long term view of ultimately providing access to the market for its resource products.

Fertiliser Trading
In regard to government and government focussed trades introduced by COMESA, a number of constraints continue to prevent conclusion trades under MOUs, primarily because of the severity of the regional drought brought on by El Nino which has decimated demand for product. Heavy rains in RSA further hampered this situation as it prompted the main suppliers to draw stock from their Zambian stockpile to sell to their customers in South Africa. Other issues also affected government demand; elections postponed decisions and most importantly budget restrictions meant that our customers could not, despite assurances to the contrary, secure the necessary payment required either by way of letters of credit or any other satisfactory payment instruments to enable us to conclude the potential trades. It has been announced recently that agricultural subsidies have been withdrawn in Zambia following IMF intervention. As a result, the future of the e-Voucher program remains uncertain.

Since we signed a MOU with the Government of Uganda in June 2016, we have agreed terms, in principle, to deliver 20,000 Mt of NPK product. However budgetary constraints have led to continued delay in the launch by the Government of their fertiliser procurement program, which is focussing on increasing Coffee production.. Despite these changed circumstances we remain available to the Ugandan Government for fertiliser provision and should a contract be concluded, we will update the market accordingly.

Commercial Focus
The Company's primary initial trading focus was on government and government focussed business as a cornerstone of our operations. We remain convinced that there is a very sizeable business opportunity within this area and that we will be well placed to take advantage of it as time progresses as a result of our relationship with COMESA. That said, throughout this period, we have learnt that dealing with governments can be slow and unpredictable. As a result our strategy has developed such that we are now looking towards both wholesale and retail trading, with a view to focussing our operations closer to the end user of fertiliser products.

In this regard, we have taken the decision to 'buy into' an existing business, As announced on 31 March 2017, we have agreed to take a 21% stake in Advanced Agricultural Holdings (Pty) Limited ('Advanced Agri'), an excellent example of a successful fertiliser and speciality input distributor in South Africa. It is a relationship in which one will benefit the other. We will not only be assisting them to diversify into regional markets, but we will be leveraging our supply contacts in the industry to improve their margins. Advanced Agri will provide us with additional agronomic expertise and speciality products which will enable us to distinguish our product offering to larger commercial farming groups and agri-dealers in the region and give us an advantage when concluding deals with governments and multi-laterals.

In July 2016 we commenced trading operations in Zambia with Nutri-Aid Trust ('Nutri-Aid'), which has over 2,500 agro-outlets certified by COMESA. This pilot commenced with a partially secured credit-based model whereby the agri-dealers within the Nutri-Aid network would pay 50% upon collection and the balance within 45 days. The pilot revealed not only the inherent risks in a partially secured credit based model but also showed us that many customers were happy to pay cash on collection. The outcome from the pilot, was that we are entering into an exclusive agreement with Nutri-Aid to lease their network of small community warehouses which had been established in conjunction with US AID, and to use these to build a warehouse and retail business. This project is ongoing and updates will be provided in due course.

Lac Dinga
African Potash retains its interest in the exploration side of the fertiliser industry through its 70% interest in La Société des Potasses et des Mines S.A. ('SPM'), which holds the exclusive right to conduct exploration activities for potash salts over the Lac Dinga Project Area ('Lac Dinga' or the 'Project') in highly prospective Kouilou region in the Republic of Congo which has been renewed until 25 April 2016, following which, the license is renewable for a further two years.

The Company is currently seeking partners to farm in to the project to continue exploration and keep the licence in good standing prior to the next renewal date in April 2018 and to thereby realise value from the prospectivity of the Lac Dinga project. During the period, global potash prices have continued to fall, which is an indication of impairment in the carrying value of the asset. Although the Board believes that the Project, like others in the basin, will have lower production costs than other global producers, some of whom may be marginal at these levels, it has conducted an impairment review. The Board considers that a current valuation of the Project at $3m reflects the present state of the general potash market, together with the risks associated with financing an early stage project. Consequently exploration expenditure and the associated administrative costs in the period of $7.3m have been impaired.

Financial Results
Revenue for the 6 months to 31 December 2016 was $103,000 (2015: $59,000). After the impairment charge in respect of exploration assets of $7.3m (2015:$nil), the loss before taxation for the period was $8.2m (2015: $0.7m). Cash balances at 31 December 2015 were $30,000 (2015: $509,000).

Since the period end the Company has raised, by way of placings, $152,000 before expenses, to fund the further development of its fertiliser trading operations.

Outlook
Africa holds an estimated 60% of the global uncultivated arable land and consumes only 2% of world fertiliser production. To meet both regional and global demand for food in future, African agriculture will have to achieve its tremendous growth potential. The effective use of fertiliser will have a fundamental role in realising this, and in meeting the imperatives of alleviating food scarcity and building food security, through improvements in both the overall harvest yields and long-term soil management.

We have seen an increasing trend in the market over the past year whereby commercial farmers are opting to purchase a higher quality 'speciality fertiliser' over and above the more common generic NPK and Urea products being sold on mass, mainly for the production of maize.

African Potash is delighted to have now announced the strategic investment into Advanced Agri, one of Africa's leading speciality fertiliser distributors, based out of South Africa. The Company believes that the investment into Advanced Agri will alleviate a lot of the on-going risks associated with raw material price volatility and the logistic challenges that come with importing and distributing product around Africa, and as a result of the speciality products offered should counter the margin compression which occurs as a result of production and sale of generic products by larger companies. .Advanved Agri also provides exposure to the South African market.

Since restructuring our business model in Zambia we have built a very competent team on the ground dedicated to servicing both the Nutri-Aid network of agri-dealers and the community warehouses which we are rolling out. This new team have made great strides in a very short period of time, as well as generating sales from the agri-dealers, they are now well engaged with three community groups in relation to establishing 'Agri-Hubs' from their respective warehouses.. Initially we will focus on the supply of fertiliser and over time expect this will naturally expand into other agriculture related products Once we have bedded down the most efficient business model at these first three warehouses, the plan is to gradually roll the same model out across the full Nutri-Aid network of 32 community warehouses each of which is situated in the centre of an agricultural region, to give us a significant national distribution platform.

The Board believe that we now have firm foundations from which to build a growing revenue generating business and look forward to continued progress in the second half of the year.

Chris Cleverly
Executive Chairman

31 March 2017

The Directors of the Company accept responsibility for the content of this announcement. For further information, please contact:

Chris Cleverly African Potash Limited +44 (0) 20 7408 9200
Guy Miller / Mark Anwyl Peterhouse Corporate Finance Limited +44 (0) 20 7469 0930
Colin Rowbury Cornhill Capital Limited +44 (0) 20 7710 9610
 

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2016


Unaudited Consolidated Income Statement
For the half year to 31 December 2016

    Unaudited
6 months to
31 December
2016
Unaudited
6 months to
31 December
2015
Unaudited
Year ended
30 June
2016
  Note $'000 $'000 $'000
       
Revenue 4 113 59 59
Cost of sales   (103) (46) (44)
Gross margin   10 13 15
Operating expenses   (782) (622) (5,078)
Impairment of exploration and evaluation costs 6 (7,284) - (758)
Other losses   (19)   (47)
Operating loss   (8,075) (609) (5,868)
Net finance expense   (113) (107) (202)
Loss before taxation   (8,188) (716) (6,070)
Income tax expense   - - -
Loss for the period   (8,188) (716) (6,070)
         
Attributable to :        
Owners of the parent company   (6,658) (716) (6,070)
Non-controlling interests   (1,530) - -
    (8,188) (716) (6,070)
Loss per share: basic and diluted
Attributable to :
5      
Owners of the parent company (0.63 cents) (0.09 cents) (0.76 cents)
Non-controlling interests (0.14 cents) - -
 

All results relate to continuing activities

Unaudited Consolidated Comprehensive Income Statement
For the half year to 31 December 2016

    Unaudited
6 months to
31 December
2016
Unaudited
6 months to
31 December
2015
Unaudited
Year ended
30 June
2016
    $'000 $'000 $'000
Loss for the period   (8,188) (716) (6,070)
Other comprehensive income        
Exchange translation differences on foreign operations   (103) 61 (27)
Total comprehensive income for the period   (8,291) (655) (6,097)
         
Attributable to :        
Owners of the parent company   (6,761) (655) (6,097)
Non-controlling interests   (1,530) - -
    (8,291) (655) (6,097)
         
 


Unaudited Consolidated Statement of Financial Position
As at 31 December 2016

    Unaudited
31 December
2016
Unaudited
31 December
2015
Unaudited
30 June
2016
  Note $'000 $'000 $'000
         
Non-current assets        
Intangible assets: exploration activities 6 3,000 10,424 10,000
Investment in quoted companies 28   47
Property plant and equipment 92 134 111
Total non-current assets   3,120 10,558 10,158
         
Current assets        
Inventory   26 - -
Trade and other receivables   39 406 76
Cash and cash equivalents   30 509 298
Total current assets   95 915 374
         
Total assets   3,215 11,473 10,532
         
Current liabilities        
Trade and other payables   (1,025) (615) (829)
Deferred consideration   (800) (800) (800)
Loan note   (1,111) (1,150) (1,004)
Net (liabilities)/assets   279 8,908 7,899
         
Equity        
Issued capital 7 18,202 15,956 17,531
Shares to be issued   2,800 2,800 2,800
Share based payment reserve   2,637 1,141 2,637
Foreign exchange translation reserve (726) 191 (623)
Retained earnings   (22,634) (11,984) (15,976)
Total equity attributable to equity holders   279 7,378 6,369
Non controlling interests   - 1,530 1,530
Total equity   279 8,908 7,899
         
         
 


Unaudited Statement of Changes in Equity

  Ordinary share capital
$'000
Shares
to be issued $'000
Share based payment reserve $'000 Foreign exchange translation reserve $'000 Retained earnings
$'000
Total
$'000
Non-
controlling interest $'000
Total
$'000
Balance at 1 July 2015 15,864 2,800 1,141 (596) (11,268) 7,941 1,530 9,471
Loss for the period - - - - (716) (716) - (716)
Other comprehensive income                
Exchange translation differences on foreign operations - - - 61 - 61 - 61
Total comprehensive income for the period - - - 61 (716) (655) - (655)
Transactions with owners                
Issue of shares 92 - - - - 92 - 92
Total transactions with owners 92
-
- - - 92 - 92
Balance at 31 December 2015 15,956
2,800
1,141 (535) (11,984) 7,378 1,530 8,908
Loss for the period - - - - (5,354) (5,354) - (5,354)
Other comprehensive income                
Exchange translation differences on foreign operations - - - (88) - (88) - (88)
Total comprehensive income for the period - - - (88) (5,354) (5,442) - (5,442)
Transactions with owners                
Issue of shares 1,575 - - - - 1,575 - 1,575
Lapse / exercise of share based payments - - (1,362) - 1,362 - - -
Share based payment charge - - 2,858 - - 2,858 - 2,858
Total transactions with owners 1,575 - 1,496 - 1,362 4,433 - 4,433
Balance at 1 July 2016 17,531 2,800 2,637 (623) (15,976) 6,369 1,530 7,899
Loss for the period - - - - (6,658) (6,658) (1,530) (8,188)
Other comprehensive income                
Exchange translation differences on foreign operations - - - (103) - (103) - (103)
Total comprehensive income for the period - - - (103) (6,658) (6,761) (1,530) (8,291)
Transactions with owners                
Issue of shares 671 - - - - 671 - 671
Total transactions with owners 671 - - - - 671 - 671
Balance at 31 December 2016 18,202 2,800 2,637 (726) (22,534) 279 - 279
                 
 


Unaudited Consolidated Statement of Cash Flows

For the half year to 31 December 2016 Unaudited
6 months to
31 December
2016
Unaudited
6 months to
31 December
2015
Unaudited
year ended
30 June
2016
Operating activities   $'000 $'000 $'000
Loss before tax   (8,188) (716) (6,070)
Adjustments for:        
Impairment of evaluation and exploration assets 7,284 - 758
Impairment of investments 19   47
Share based payment change - - 3,010
Movements in exchange (84) - (113)
Net interest expense   113 107 202
Operating cash flow before movements in working capital (856) (609) (2,166)
Working capital adjustments:      
- (Increase) / decrease in inventory (26) - -
- Decrease / (increase) in receivables 36 (307) (23)
- Increase / (decrease) in payables 277 87 302
Cash used in operations   (569) (829) (1,841)
Net interest paid   (113) (107) (202)
Net cash outflow from operating activities (682) (936) (2,043)
         
Investing activities        
Purchase of evaluation and exploration assets (398) (363) (756)
Purchase of investments   - - (106)
Purchase of property, plant and equipment (1) - (11)
Net cash flow from investing activities (399) (363) (873)
       
Financing activities      
Issue of shares 622 90 1,515
Draw down of loan note 191 1,150 1,127
Net cash flow from financing activities 813 1,240 2,642
Net decrease in cash and cash equivalents (268) (59) (274)
Cash and cash equivalents at start of the period 298 571 571
Effect of foreign exchange rates - (3) 1
Cash and cash equivalents at end of the period 30 509 298
 

 

Notes to the Unaudited Interim Financial Statements

1. General information
 


African Potash Limited ('African Potash' or the 'Company') has an investing policy to acquire potash (and associated minerals) assets in Africa and is seeking to develop an integrated African focussed fertiliser operation. African Potash is a public limited company incorporated and domiciled in the Guernsey. The address of its registered office is Richmond House, St Julians Avenue, St Peter Port, Guernsey GY1 1GZ.

The Company is admitted to trading on the NEX Exchange Growth market.

The unaudited interim financial statements for the 6 months ended 31 December 2016 were approved for issue by the board on 30 March 2016.

The interim financial statements for the 6 months ended 31 December 2016 and the 6 months ended 31 December 2015 are unaudited and do not constitute full accounts. The comparative figures for the year ended 30 June 2016 are extracts from the annual report and do not constitute statutory accounts.

The unaudited interim financial statements have been prepared in US Dollars as this is the currency of the primary economic environment in which the Group operates.

2. Basis of preparation
 

The condensed consolidated financial statements of the Group for the six months ended 31 December 2016, which are unaudited and have not been reviewed by the Company's auditor, have been prepared in accordance with the International Financial Reporting Standards ('IFRS'), as adopted by the European Union, accounting policies adopted by the Group and set out in the annual report for the year ended 30 June 2016 (available at www.africanpotash.com). The Group does not anticipate any additional significant change in these accounting policies for the year ended 30 June 2016. References to 'IFRS' hereafter should be construed as references to IFRSs as adopted by the EU.

While the financial figures included in this report have been computed in accordance with IFRSs applicable to interim periods, this report does not contain sufficient information to constitute an interim financial report as that term is defined in IFRSs.

The financial information contained in this report also does not constitute statutory accounts under the Companies (Guernsey) Law 2008, as amended.

3. Significant accounting policies
 

Basis of accounting
The unaudited interim financial statements have been prepared on the historical cost basis except for financial instruments measured at fair value. The principal accounting policies adopted are consistent with those of the financial statements for the year ended 30 June 2016.

4. Segment reporting
 

The directors consider that the Group's activities comprise the segments of fertiliser trading and potash exploration and othe unallocated expenditure in one Geographical segment, Africa.

Revenue represents sales to external customers. Unallocated expenditure relates to central costs and any items of expenditure that can not be directly attributed to an individual segment.

6 months ending
31 December 2016
  Trading Exploration Unallocated Total
    $'000 $'000 $'000 $'000
           
Revenue   113 - - 113
Segment results          
- Operating loss   (454) - (318) (772)
- Impairment   - (7,284) (19) (7,303)
- Interest expense   - - (113) (113)
Loss before tax   (454) (7,284) (450) (8,188)
           
Income tax   - - - -
Loss after tax   (454) (7,284) (450) (8,188)
           
 
6 months ending
31 December 2015
  Trading Exploration Unallocated Total
    $'000 $'000 $'000 $'000
           
Revenue   59 - - 59
Segment results          
- Operating loss   (232) - (378) (610)
- Interest expense   - - (107) (107)
Loss before tax   (232) - (485) (716)
           
Income tax   - - - -
Loss after tax   (232) - (485) (716)
           
Year ending 30 June 2016   Trading Exploration Unallocated Total
    $'000 $'000 $'000 $'000
           
Revenue   59 - - 59
Segment results          
- Operating loss   (1,385) - (3,678) (5,063)
- Impairment   - (758) (47) (805)
- Interest expense   - - (202) (202)
Loss before tax   (1,385) (758) (3,927) (6,070)
           
Income tax   - - - -
Loss after tax   (1,385) (758) (3,927) (6,070)
           
 
Year ending 30 June 2016   Trading Exploration Unallocated Total
    $'000 $'000 $'000 $'000
           
Revenue   59 - - 59
Segment results          
- Operating loss   (1,385) - (3,678) (5,063)
- Impairment   - (758) (47) (805)
- Interest expense   - - (202) (202)
Loss before tax   (1,385) (758) (3,927) (6,070)
           
Income tax   - - - -
Loss after tax   (1,385) (758) (3,927) (6,070)
           
 

Segment assets consist primarily of intangible assets, property, plant and equipment, other receivables and cash and cash equivalents. Segment liabilities comprise operating liabilities.

Capital expenditure comprises of additions to property, plant and equipment and intangibles.

The segment assets and liabilities at 31 December 2016 and capital expenditure for the year then ended are as follows:

    Trading Exploration Unallocated Total
    $'000 $'000 $'000 $'000
           
Assets   26 3,087 102 3,215
Liabilities   (65) (1,455) (1,417) (2,936)
Capital expenditure   - 399 - 399
 

Segment assets and liabilities are reconciled to Group assets and liabilities as follows:

At 31 December 2016     Assets Liabilities
      $'000 $'000
Segment assets and liabilities     3,133 1,520
Unallocated:        
Investments     28 -
Other receivables     48 -
Cash     26 -
Trade and other payables     - 305
Loan Note     - 1,111
Total     3,215 2,936
 


The segment assets and liabilities at 31 December 2016 and capital expenditure for the year then ended are as follows:

    Trading Exploration Unallocated Total
    $'000 $'000 $'000 $'000
           
Assets   270 10,590 613 11,473
Liabilities   (30) (1,056) (1,478) (2,565)
Capital expenditure   - 363 - 363
 

Segment assets and liabilities are reconciled to Group assets and liabilities as follows:

At 31 December 2015     Assets Liabilities
      $'000 $'000
Segment assets and liabilities     10,860 1,026
Unallocated:        
Investments     - -
Other receivables     109 -
Cash     504 -
Trade and other payables     - 389
Loan Note     - 1,150
Total     11,473 2,565
 

The segment assets and liabilities at 30 June 2016 and capital expenditure for the year then ended are as follows:

    Trading Exploration Unallocated Total
    $'000 $'000 $'000 $'000
           
Assets   - 10,136 396 10,532
Liabilities   - 1,235 1,398 2,633
Capital expenditure   - 767 - 767
 

Segment assets and liabilities are reconciled to Group assets and liabilities as follows:

At 30 June 2016     Assets Liabilities
      $'000 $'000
Segment assets and liabilities     10,136 1,235
Unallocated:        
Investments     47 -
Other receivables     54 -
Cash     295 -
Trade and other payables     - 394
Loan Note     - 1,004
Total     10,532 2,633
 

 

5. Earnings per share
 


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

    Unaudited
6 months to
31 December
2016
Unaudited
6 months to
31 December
2015
Unaudited
year ended
30 June
2016
    $'000 $'000 $'000
Loss for the purpose of basic loss per share:
-attributable to equity holders
- attributable to non-controlling interests
(6,658)
(1,530)
(716)
-
(6,070)
-
Number of shares        
Weighted average number of ordinary shares for the purposes of calculating basic and diluted loss per share 1,056,847,527 763,776,007 794,037,824
       
Basic and diluted loss per share (cents)
-attributable to equity holders
- attributable to non-controlling interests
(0.63c)
(0.14c)
(0.09c)
-
(0.76c)
-
 
     
6. Intangible assets     Evaluation and exploration costs
        $'000
At 1 July 2015       10,000
Additions       363
Exchange rate adjustment       61
At 31 December 2015       10,424
Additions       422
Impairment provision       (758)
Exchange rate adjustment       (88)
At 30 June 2016       10,000
Additions       398
Impairment provision       (7,284)
Exchange rate adjustment       (114)
At 31 December 2016       3,000
 

Evaluation and exploration costs are capitalised in accordance with IFRS6

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. The initial three year licence period expired on 3 December 2015 and was renewed for a further 2 years on 25 April 2016. Upon expiry, the license is renewable for a further two years if the Company can demonstrate that it has continued to meet its obligations under the mining code which require it to continue exploration activity.

During the period, global potash prices have continued to fall, an indication of impairment. Although the Board believe that the project, like others in the basin, will have lower production costs than other global producers, some of whom may be marginal at these levels, it has conducted an impairment review and considers that a valuation of $3m reflects the current state of the general potash market, together with the risks associated with financing an early stage project. Consequently exploration expenditure and the associated administrative costs in the period of $7.3m has been impaired.

Planning for the next phase of exploration is underway and the board continues to seek partners to enable it to develop the project.

7. Share Capital
 
      Ordinary shares of no par value
      Allotted and fully paid
      Number $'000
         
At 1 July 2015   743,842,643 15,864
Issue of shares     32,891,303 92
At 31 December 2015   776,733,946 15,956
Issue of shares   112,229,412 1,575
At 1 July 2016   888,963,358 17,531
Issue of shares     253,202,363 671
At 31 December 2016     1,142,165,711 18,202
 


On 11 August 2015 11,641,303 shares were issued to non executive directors in lieu of arrears of fees at 0.552p

On 4 September 2015 10,000,000 warrants were exercised at 0.3p and 1,250,000 shares were issued to settle advisory fees at 3.0p per share.

On 30 September 2015 a further 10,000,000 warrants at 3.0p were exercised.
On 12 January 2016 48,529,412 shares were issued at 1.7p to fund the working capital requirements of the group.

On 27 June 2016 63,700,000 shares were issued at 0.3p following the exercise of warrants by Bergen

On 1 September 2016 235,294,118 shares were issued at 0.2125 pence to fund the working capital requirements of the group. In addition, the Company issued 17,908,235 shares to settle an outstanding historic liability.

 




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