Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

2 May 2018

 

TRI-STAR RESOURCES PLC

 

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

 

Tri-Star Resources plc ("Tri-Star" or the "Company" and together with its subsidiaries the "Group") the independent metal processing and technology company, is pleased to announce its financial results for the year ended 31 December 2017.  The Company's principal activities are in an antimony and gold production facility (the "SPMP Project" or the "Project") being developed in Sohar, Sultanate of Oman by Strategic & Precious Metals Processing Group LLC FZC ("SPMP"), an Omani company in which Tri-Star has a 40% equity interest.

 

Financial highlights:

 

·    Tri-Star saw a near 80% reduction in debt levels to £2.4 million as at 31 March 2018 (2016: £11.4 million).

·    In December 2017, Tri-Star injected a further £4.34m into the SPMP Project in the form of mezzanine debt.

·    Successful completion of an open offer on 10 January 2018 which raised £4.42 million before expenses, of which £2.05 million was further invested into the SPMP Project.

 

Operational highlights:

 

·    There was continued progress in the construction of the SPMP Project in 2017. The SPMP team was successful in completing the Bankable Feasibility Study and achieved process design freeze for the Project.

·    In November 2017, SPMP announced the replacement of Emin Eyi as CEO and a restructuring of the senior management team, with the addition of Jason Peers as interim CEO. Jason has been involved in SPMP since its formation and has managed a large number of major project financings across the Middle East.

·    In March 2018, SPMP entered into a new banking agreement with Alizz Islamic Bank S.A.O.G, which provided $30 million to be used for a combination of project and trade finance for SPMP.

·    The SPMP Project is now close to completion. Cold commissioning commenced in Q2 2018 and hot commissioning is due to start later in Q2 2018. The first outputs of the Project ("First Metal") are due in the summer of 2018.

·    SPMP has entered into contracts for the supply of feedstock and is in ongoing contractual discussions with offtakers. SPMP is seeing high demand for the end products of the Project.

 

Karen O'Mahony, Acting Chief Executive Officer & Chief Financial Officer, said:

 

"We are pleased with the progress of the SPMP Project in Oman which has seen significant construction development over the course of 2017. Financially, we have achieved a healthy reduction in our debt levels while still providing ongoing financial support to the SPMP Project. We have also seen a positive transformation in both Tri-Star and SPMP management teams and continue to be supported by the funds managed by Odey Asset Management. We remain optimistic alongside our joint venture partners in the SPMP Project and look forward to the production of First Metal from the Project in 2018."

 

CHAIRMAN'S STATEMENT

 

2017 represented a pivotal year for Tri-Star. The Company substantially strengthened its financial position, reducing its debt from £11.4 million as of year-end 2016 to £2.4 million as at 31 March 2018 whilst at the same time investing a further $8.8 million (£6.6 million) in the form of a mezzanine loan in SPMP. In carrying out this restructuring, we welcomed the funds managed by Odey Asset Management LLP ("OAM") which collectively became the Company's majority shareholder (together the "OAM Funds").

 

In order to achieve this, Tri-Star negotiated the conversion of the convertible secured loan notes held by the OAM Funds ("Convertible Loan Notes") into the equity share capital of the Company, together with some additional fund raising. This resulted in the OAM Funds collectively taking a 54% stake in Tri-Star, a transaction that required approval by the Takeover Panel as well as shareholders at a general meeting in June 2017. In November 2017, the OAM Funds lent a further $6 million (£4.5 million) to Tri-Star to allow the Company to invest in a mezzanine structure (15% loan facility) into SPMP. The Board elected to replace the majority of this loan with equity and an open offer was announced on 21 December 2017 to raise £4.4m of equity for the Company (the "Open Offer"). As a result of the Open Offer, the OAM funds collective shareholding in Tri-Star increased to 65% and, subsequently, Tri-Star increased its loan to SPMP from $6 million to $8.8 million.

 

SPMP is constructing a roasting facility in Oman to process mixed antimony and gold ores, the SPMP Project. During 2017, SPMP conducted further test work, completing the Bankable Feasibility Study and achieving process design freeze. At the time of writing, construction of the Project is 94% complete and work is focused on connecting the services and control systems in preparation for commissioning. Cold commissioning has already commenced on certain sections of the plant and will continue through to the conclusion of hot commissioning during Summer 2018. It is intended that production of both antimony and gold will then ramp up to a rate of approximately 25,000 tonnes of feedstock per annum by year end or about 50% of design capacity. The precise split of output between antimony and gold will depend on the grade of feedstock being treated at the time.

 

SPMP has entered into contracts for the supply of concentrate with numerous feedstock suppliers so that the plant can be tested on a variety of sources in order to assess its performance and its capacity for variability. Much work has gone into broadening the range of acceptable feedstock specifications and dealing with impurities. It is anticipated that this will be a focus for improving efficiencies once the plant is in production. SPMP is also engaged in ongoing contractual discussions for the offtake of end product, where demand remains high.

 

As previously reported, the capital cost for the project increased during the year, primarily due to the addition of the gold calcine plant. With procurement and construction now close to finalisation, we can confirm that the total cost is expected to be around $112 million.

 

Changes in Board composition in the second half of 2017 reflected the change of control in the Company, general overall cost control and the continued need to support our partners in SPMP. OAM appointed two Directors to the Board of Tri-Star, David Fletcher and Karen O'Mahony, and their support and advice has been invaluable. In July, I became Executive Chairman (previously Non-Executive Chairman) and after many years of service to the Company, Jonathan Quirk retired from the Board and Dr Scott Morrison joined. In December, Emin Eyi, the founder and promoter of the Company stepped down as Deputy Chairman and Director following his resignation as CEO of SPMP.

 

Post year end, the Board continued to focus on reducing operational costs at the parent level and we elected to reduce the Board headcount from six directors to four. Scott Morrison resigned as Director and Guy Eastaugh, former CFO and, for the last two years CEO, stood down. Karen O'Mahony has stepped into the CEO role in an acting capacity whilst we transition the SPMP project through completion and commissioning.

 

The Group recorded a loss from operations during the year of £1,006,000 (2016: £832,000). The Group's share of losses in SPMP was £41,397 (2016: £769,000). The £3.64 million charge on conversion of the convertible secured loan notes was a major factor in the Company's total comprehensive loss of £5,948,000 (2016: £3,373,000). The Directors do not recommend the payment of a dividend.

 

With the Project in Sohar so close to completion, we now look forward to commissioning and production ramp up. We are optimistic that the goal to establish a high cashflow generating plant in Oman is in sight.

 

 

Mark Wellesley-Wood

Executive Chairman

 

 

strategic report

 

Introduction

The Company's principal activities are in the SPMP Project, an antimony and gold production facility. The SPMP Project is based in Sohar, Sultanate of Oman, and is being developed by SPMP, an Omani company in which Tri-Star has a 40% equity interest and an $8.8 million mezzanine loan position accruing 15% interest per annum. The Project is due to become operational in the second half of 2018.

Tri-Star also has antimony exploration licenses in Canada and Turkey and a mining permit in Turkey which are held for their potential contribution of feedstock to the SPMP Project.

SPMP Project

Background

The SPMP Project is a commercial facility which will produce high grade antimony ingots, powdered antimony trioxides ("ATO"), gypsum and gold ore bars. Feedstock will be sourced internationally and will be treated by an environmentally friendly roasting process.

The Project remains an attractive prospect for Tri-Star:       

•   Scale : The Project is the largest antimony roaster outside of China and the world's first clean plant, designed to EU environmental standards. It will have the capacity to produce more than 50,000 oz. of gold per annum and 20,000 tonnes in combined antimony metal and ATO products which represents 12%-15% of average annual world antimony production and will thus establish Oman as a major global producer of antimony.

•   Earnings : The Project will generate significant revenues, divided approximately 60:40 between antimony and gold. In terms of developing end products, antimony derivatives offer the potential for further margin growth over and above the normal conversion margin. 

•   Technology : The Project applies a proprietary antimony and gold roasting technology that is flexible and sophisticated enough to be able to process many types of grade and impurities.

•   Logistics : The Project will supply value added antimony products to customers across the globe. The location of the Project in the Gulf region provides an excellent centralised logistics route, and access to relatively inexpensive energy and modern infrastructure.

•   Demand for product : Antimony is a rare metal with a range of industrial applications. Amongst other things it is used as an additive to flame retardant compounds, utilised in printed circuit boards, computers and other electronic products. Antimony has consistently ranked highly in European and US risk lists for supply of chemical elements or element groups required to maintain the current economy and lifestyle.

•    Board: SPMP has an experienced and internationally focused Board of Directors who have helped manage the project from inception through to near completion.

Oman joint venture

SPMP was formed in June 2014 to develop and build the Project. Tri-Star has a 40% equity interest in SPMP, with the other joint venture partners being The Oman Investment Fund (40% equity holder) and DNR Industries Limited, part of Dutco Group in Dubai (20% equity holder). Tri-Star also has an $8.8 million mezzanine instrument in SPMP accruing 15% interest per annum, alongside the other joint venture partners who also have mezzanine instruments with SPMP on similar terms.

Significant events

In 2017, several announcements relating to Tri-Star's interest in SPMP were made, most notably:

·    In July 2017, SPMP announced a capital budget update for the Project which included progress on test-work and operational readiness;

·     In November 2017, SPMP announced the replacement of Emin Eyi as CEO and a restructuring of the senior management team, with Jason Peers as interim CEO. Jason has been involved in SPMP since its formation and has managed a large number of major project financings across the Middle East;

·    In November 2017, Tri-Star announced that it had invested a further $6 million in SPMP by way of a Mezzanine Loan to SPMP.

Since its financial year end, Tri-Star has announced further progress by SPMP. This included the announcement in January 2018 that the Company had invested a further $2.8 million in the SPMP Project, again by way of Mezzanine Loan to SPMP. This was part of a total $22 million invested into SPMP by its shareholders. In March 2018, SPMP announced that it had entered into a new banking agreement with Alizz Islamic Bank SAOG for a further $30 million facility, bringing SPMP's total debt facilities to $70 million in addition to the total of $52 million invested by shareholders in the form of mezzanine and equity. To date, Tri-Star has invested $6 million (£4.5 million) by way of equity and $8.8 million (£6.6 million) by way of Mezzanine Loans to SPMP. Details of the terms of these investments are set out in the accompanying notes to the financial statements.

Project status

Cold commissioning (testing of the facility with inert materials) began in Q2 2018 and hot commissioning (testing of the facility with actual feedstock) is expected to start later in Q2 2018. The Project is due to become operational in the second half of 2018.

SPMP is in the process of securing feedstock from a number of providers and is also engaged in detailed discussions with purchasers on the offtake side of the business.  

Antimony

Currently, the principal use of antimony is in flame retardants as antimony trioxide ("ATO"). ATO is most commonly used as a synergist to improve the performance of other flame retardants such as aluminium hydroxide, magnesium hydroxide and halogenated compounds. ATO is used in this way in many products including plastics, textiles, rubber, adhesives and plastic covers for aircrafts and cars. The largest applications for metallic antimony (metal ingots) are as alloying material for lead and tin and for lead antimony plates in lead-acid batteries. Alloying lead and tin with antimony improves the properties of the alloys which are used in solders, bullets and plain bearings. The second most common use of antimony alloy is as a hardener for lead electrodes in lead acid batteries. This use is in decline as the antimony content of typical automotive battery alloys has declined by weight as calcium, aluminium and tin alloys are expected to replace it over time.

An emerging application is the use of antimony in microelectronics.

Refractory Gold

Refractory gold is gold 'ore', where the metal is trapped in sulphide lattice structures that conventional processes are unable to extract. The clean antimony roasting technology developed by Tri-Star and sold to SPMP in 2015 has unlocked the potential of these gold resources, estimated to be 30% - 50% of remaining gold in the ground globally.

Financing

Tri-Star undertook three financing transactions during 2017 to strengthen its financial position and enable further investment by the Company in the SPMP Project.

Conversion of OAM Convertible Loan Notes and private placing

In June 2017, Tri-Star announced that it had reached an agreement with the holders of its Convertible Loan Notes to restructure the Company's financial position. The proposals subsequently put to shareholders entailed all of the outstanding loan notes, amounting to approximately £12.2 million at that time, being converted or redeemed. At the same time the Company raised £1.3 million, before expenses, for general corporate purposes by way of a placing.

The placing and related transactions completed on 20 June 2017. Three funds under the discretionary management of Odey Asset Management LLP, i.e. the Odey Swan Fund, Odey European Inc ("OEI") and OEI MAC Inc ("OMI"), (together the "OAM Funds") became the holders of 54% of the Company's enlarged share capital.

Under IFRS, the Company was required to book a loss of £3.6 million in connection with the extinguishment of the Convertible Loan Notes. This loss and how it is derived is explained in detail in the accompanying note 13 to the financial statements. As a consequence of these transactions, the Company's debt and related derivative balances were eliminated, leaving the Company with net assets of £2.2 million as at 30 June 2017.

Issue of secured loan notes to OEI and OMI

In November 2017, Tri-Star announced that it had invested a further $6.0 million (£4.5 million) via a Mezzanine Loan in SPMP to assist in further development of the SPMP Project. The investment in SPMP was financed through the issuance of short-dated secured loan notes to OEI and OMI.

The principal terms of the loan notes are as follows:

·     Principal: $6.0 million;

·     Security: a fixed and floating charge over all the assets of the Company;

·     Term: the notes were originally due to be redeemed on the earlier date of 30 June 2018 or the completion of an equity fundraise however, in April 2018, OAM agreed to extend the maturity date for the notes to 30^th June 2019. This extension constitutes a Post Balance Sheet Event;

·      Interest: the notes accrue interest at 25% per annum, accruing daily, capitalised and added to the outstanding principal amount on the last day of each calendar month and is payable on redemption.

In January 2018, $2.7 million of the $6.0 million secured loan notes were redeemed by means of funds raised through the Open Offer described below. This redemption constitutes a Post Balance Sheet event.

£4.4 million Open Offer to Tri-Star shareholders

Tri-Star announced an Open Offer on 21 December 2017 to raise up to approximately $5.7 million (£4.4 million) before expenses through the issue of new ordinary shares in the Company at an issue price of 0.01 pence per share.

 

The Open Offer provided funds for:

Partial pre-payment of the $6 million of the secured loan notes issued to OEI and OMI in November 2017	£2.00 million
Investment into the SPMP Project ($2.8 million mezzanine loan)	£2.05 million
General corporate purposes	£0.37 million
Total	£4.42 million

 

 

The Open Offer successfully closed on 10 January 2018 having been substantially oversubscribed. As a consequence, the OAM Funds increased their shareholdings in the Company to 65%, in aggregate.

The Open Offer and its impact on the Company constitutes a Post Balance Sheet Event and further information can be found in the relevant note accompanying the financial statements.

Result for the year

The results for 2017 reflect the impact of the extinguishment of the OAM convertible loan liability that took place in June 2017. Administration costs rose by 14% in 2017 to £869,000 from £763,000 in 2016.

 

	2017	2016
Summary Profit and Loss Account	£'000	£'000
Loss from operations	(1,006)	(832)
Share of loss in associate	(41)	(769)
Profit on sale of Globex shares	55	-
Finance expense (net)	(1,333)	(1,978)
Loss before extinguishment of debt	(2,325)	(3,579)
Loss on extinguishment of debt	(3,637)	-
Loss before taxation	(5,962)	(3,579)

 

Share of loss in associate represents Tri-Star's share of SPMP's pre-tax result for the year. SPMP has not been profitable to date as the SPMP Project is only due to commence operations in 2018, with full production forecast for 2020.

Tri-Star made a profit of £55,000 during the year from the sale of 350,000 Globex Mining Enterprises Inc. shares.

Net finance expense of £1,333,000 in 2017 (2016: £1,978,000) predominantly represents the interest payable on the Convertible Loan Notes before redemption in June 2017, amounting to £1,176,000.

The loss on extinguishment of debt of £3,637,000 (2016: £nil) represents the impact on the Company of the redemption and alteration to the conversion terms of the Convertible Loan Notes redeemed in June 2017. This item is also non-cash in nature. Further detail on this amount is set out in the accompanying notes to the financial statements.

Financial position and Going Concern

As at 31 March 2018, the Company had £483,800 in cash. Since 31 December 2017, the Company has reduced its debt position from £4,348,000 to £2,374,000 as at 31 March 2018 whilst increasing its mezzanine investment in SPMP by a further $2.8 million (£2.05 million) in January 2018 to a total investment of $8.8 million.

The Company is not yet revenue generating and is reliant upon funds raised from issuing loans and shares. The holders of the secured loan notes have agreed to extend the term of the notes to 30 June 2019. However, an additional cash requirement of £430,000 in unavoidable running costs was identified based on cash flow forecasts for the period ending 31 May 2019, as prepared by the Directors. The Directors consider that there are a number of options to cover this deficit:

1)   SPMP arrange refinancing and make early repayment of part or all of its loan from Tri-Star which amounts to approximately $9 million ($8.8 million capital plus rolled up interest) (£6.4 million) at 31 March 2018.

2)   SPMP makes the $2 million (approximately £1.5 million) payment in respect of its acquisition from Tri-Star of the intellectual property ("IP") of the Project.

3)   Tri-Star raises further funds by way of an equity or debt placing or a further loan from the OAM Funds.

The Directors are confident that the Company will secure the funds required from one of the above sources. Accordingly, the Directors believe that it is appropriate to prepare accounts on a going concern basis. However, there is no certainty that they will be able to do so. These matters along with the matter set forth above mean that there is a material uncertainty which may cast significant doubt on the Group's and the Company's ability to continue as a going concern and, therefore, that the Group and Company may not be able to realise its assets or discharge its liabilities as they fall due.

Future prospects

We expect the remainder of 2018 to be challenging, but Tri-Star will remain focussed on the active management of its 40% interest in SPMP as the Project moves forward into the commissioning phase. We will also remain focused on cutting costs at the Group (i.e. the Company and its subsidiaries) level in order to maintain a lean operation.

Karen O'Mahony

Acting Chief Executive Officer & Chief Financial Officer

Enquiries:

 

Tri-Star Resources plc                                                      Tel: + 44 (0) 20 7653 6290

Karen O'Mahony, Chief Executive Officer                              Email: [email protected]       

 

SP Angel Corporate Finance (Nomad and Broker)          Tel: +44 (0) 20 3470 0505

Robert Wooldridge / Jeff Keating                                           

 

Yellow Jersey PR Limited (Media Relations)                    Tel: +44 (0)776 932 5254

Charles Goodwin / Joseph Burgess              

 

 

Tri-Star Resources plc

 

Consolidated Statement of Comprehensive Income

 

For the year ended 31 December 2017	Notes	2017		2016
		£'000		£'000
Share based payments		(135)		(66)
Amortisation and impairment of intangible assets		(2)		(3)
Administrative expenses		(869)		(763)
Total administrative expenses and loss from operations		(1,006)		(832)
Profit on sale of available for sale asset		55		-
Share of loss in associate company		(41)		(769)
Finance income	2	31		133
Loss on extinguishment of debt	5	(3,637)		-
Finance cost	2	(1,364)		(2,111)
Loss before taxation		(5,962)		(3,579)
Taxation	3	80		179
Loss after taxation, and loss attributable to the equity holders of the Company		(5,882)		(3,400)
Loss after taxation attributable to
Non-controlling interest		(1)		-
Equity holders of the parent		(5,881)		(3,400)
Other comprehensive expenditure
Items that will be reclassified subsequently to profit and loss
Recycle to income statement on disposal of available for sale asset		(47)		-
Increase in value of available for sale asset		-		47
Exchange loss on translating foreign operations		(19)		(20)
Other comprehensive income for the period, net of tax
		(66)		27
Total comprehensive loss for the year, attributable to owners of the company		(5,948)		(3,373)
Total comprehensive loss attributable to
Non-controlling interest		(1)		-
Equity holders of the parent		(5,947)		(3,373)
Loss per share
Basic and diluted loss per share (pence)	4	(0.04)		(0.04)

 

Tri-Star Resources plc

 Consolidated Statement of Financial Position

 

At 31 December		2017		2016
ASSETS	Notes	£'000		£'000
Non-current
Intangible assets		12		17
Investment in associates		1,421		1,483
Loan to associate		4,439		-
Property, plant and equipment		21		43
		5,893		1,543
Current
Cash and cash equivalents		485		447
Available for resale asset		-		89
Trade and other receivables		106		37
Total current assets		591		573
Total assets		6,484		2,116
LIABILITIES
Current
Trade and other payables		77		74
Short term loans		4,348		-
Financial liability	5	-		969
Total current liabilities		4,425		1,043
Loans repayable after one year
Loans	5	-		10,429
Deferred tax liability		130		148
Total liabilities		4,555		11,620
EQUITY
Issued share capital		3,160		2,601
Share premium		31,347		14,525
Share based payment reserve		1,105		1,130
Other reserves		(6,953)		(6,887)
Retained earnings		(26,726)		(20,870)
		1,933		(9,501)
Non-controlling interest		(4)		(3)
Total equity		1,929		(9,504)
Total equity and liabilities		6,484		2,116

 

 

Tri-Star Resources plc

Consolidated Statement of Changes in Equity

 

		Share capital	Share premium	Other reserves	Share based payment reserves	Trans-lation reserve	Retained earnings	Total attributable to owners of parent	Non-control-ling interest	Total equity
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2016		2,601	14,515	(6,156)	1,074	(758)	(17,470)	(6,194)	(3)	(6,197)
Share based payments		-	-	-	56	-	-	56	-	56
Issue of share capital		-	10	-	-	-	-	10	-	10
Transactions with owners		-	10	-	56	-	-	66	-	66
Exchange difference on translating foreign operations		-	-	-	-	(20)	-	(20)	-	(20)
Increase in value of available for sale asset		-	-	47	-	-	-	47	-	47
Loss for the year		-	-	-	-	-	(3,400)	(3,400)	-	(3,400)
Total comprehensive loss for the period		-	-	47	-	(20)	(3,400)	(3,373)	-	(3,373)
Balance at 31 December 2016		2,601	14,525	(6,109)	1,130	(778)	(20,870)	(9,501)	(3)	(9,504)
Issue of share capital		559	13,062	-	-	-	-	13,621	-	13,621
Share issue costs		-	(54)	-	-	-	-	(54)	-	(54)
Transfer on lapse of options		-	-	-	(25)	-	25	-	-	-
Fair value on extinguishment of loan		-	3,814	-	-	-	-	3,814	-	3,814
Transactions with owners		559	16,822	-	(25)	-	25	17,381	-	17,381
Exchange difference on translating foreign operations		-	-	-	-	(19)	-	(19)	-	(19)
Transfer on sales of available for sale asset		-	-	(47)	-	-	-	(47)	-	(47)
Loss for the period		-	-	-	-	-	(5,881)	(5,881)	(1)	(5,882)
Total comprehensive loss for the period		-	-	(47)	-	(19)	(5,881)	(5,947)	(1)	(5,948)
Balance at 31 December 2017		3,160	31,347	(6,156)	1,105	(797)	(26,726)	1,933	(4)	1,929

 

Tri-Star Resources plc

Consolidated Statement of Cashflows

 

For the year ended 31 December	2017		2016
	£'000		£'000
Cash flow from operating activities
Continuing operations
Loss after taxation	(5,882)		(3,400)
Amortisation and impairment of intangibles	2		3
Depreciation	20		20
Finance income	(31)		(2)
Finance cost	1,312		2,111
Loss from associates	41		769
Fees paid by shares	135		10
Loss on extinguishment of loans	3,637		-
Share based payments	-		56
Movement on fair value of derivatives	52		(131)
Profit on disposal of AFSA	(55)		-
(Increase)/ decrease in trade and other receivables	(10)		116
Decrease in trade and other payables	(15)		(448)
Net cash outflow from operating activities	(794)		(896)
Cash flows from investing activities
Finance income	-		2
Cash invested in subsidiaries	-		-
Loans made to associate	(4,511)		-
Investment in AFSA	-		(41)
Net receipts on sale of AFSA	96		-
Purchase of property, plant and equipment	-		(1)
Purchase of intangible assets	-		(20)
Net cash outflow from investing activities	(4,415)		(60)
Cash flows from financing activities
Proceeds from issue of share capital	1,300		-
Share issue costs	(54)		-
Finance costs	(498)		-
New loans	4,511		-
Net cash inflow from financing activities	5,259		-
Net change in cash and cash equivalents	50		(956)
Cash and cash equivalents at beginning of period	447		1,308
Exchange differences on cash and cash equivalents	(12)		95
Cash and cash equivalents at end of period	485		447

 

BASIS OF PREPARATION

The Group and Company financial statements have been prepared under the historical cost convention except for the derivative financial instrument which is at fair value and in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). The Company's ordinary shares are quoted on AIM, a market operated by the London Stock Exchange. The Company applies the Companies Act 2006 when preparing its annual financial statements.

 

The Group and the Company financial statements have been prepared under IFRS and the principal accounting policies adopted remain unchanged from those adopted by the Group and the Company in preparing its financial statements for the prior year.

 

GOING CONCERN

The Company is not yet revenue generating and is reliant upon funds raised from issuing loans and shares. The holders of the secured loan notes have agreed to extend the term of the notes to 30 June 2019. However, an additional cash requirement of £430,000 in unavoidable running costs was identified based on cash flow forecasts for the period ending 31 May 2019, as prepared by the Directors. The Directors consider that there are a number of options to cover this deficit:

1)   SPMP arrange refinancing and make early repayment of part or all of its loan from Tri-Star which amounts to approximately $9 million ($8.8 million capital plus rolled up interest) (£6.4 million) at 31 March 2018.

2)   SPMP makes the $2 million (approximately £1.5 million) payment in respect of its acquisition from Tri-Star of the intellectual property ("IP") of the Project.

3)   Tri-Star raises further funds by way of an equity or debt placing or a further loan from the OAM Funds.

The Directors are confident that the Company will secure the funds required from one of the above sources. Accordingly, the Directors believe that it is appropriate to prepare accounts on a going concern basis. However, there is no certainty that they will be able to do so. These matters along with the matter set forth above mean that there is a material uncertainty which may cast significant doubt on the Group's and the Company's ability to continue as a going concern and, therefore, that the Group and Company may not be able to realise its assets or discharge its liabilities as they fall due.

 

BASIS OF CONSOLIDATION

The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to the statement of financial position date. Subsidiaries are entities which are controlled by the Group. Control is achieved when the Group has power over the investee, has the right to variable returns from the investee and has the power to affects its returns. The Group obtains and exercises control through voting rights and control is reassessed if there are indications that the status of any of the three elements have changed.

 

Unrealised gains on transactions between the Company and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

 

The Group's investment in associated undertakings is accounted for using the equity method. The consolidated income statement includes the Group's share of the associated profits and losses while the Group's share of net assets of associates is shown in the consolidated statement of financial position.

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1              SEGMENTAL REPORTING

 

An operating segment is a distinguishable component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group's chief operating decision maker to make decisions about the allocation of resources and an assessment of performance and about which discrete financial information is available.

 

The Board considers that the Group comprises only one operating segment, that of mining, development and operations.

 

In respect of the non-current assets, £12,000 (2016: £27,000) arise in the UK, and £5,881,000 (2016: £1,516,000) arise in the rest of the world.

 

 

2              FINANCE INCOME AND COSTS

 

	2017		2016
	£'000		£'000
Finance income
Bank interest	-		2
Interest on loan to associate	31		-
Movement in derivative	-		131
	31		133

 

	2017		2016
	£'000		£'000
Finance costs
Interest and fees payable on short term loans	136		-
Movement in derivative	52		-
Interest payable on convertible loan	1,176		2,111
	1,364		2,111

 

Further details regarding the movement in fair value of derivatives and interest payable on the loans are set out in note 5.

 

 

3              TAXATION

 

Unrelieved tax losses of approximately £4.99 million (2016: £4.21 million) remain available to offset against future taxable trading profits. The related deferred tax asset arising at 31 December 2017 is £847,456 (2016: £842,505) and has not been provided on the grounds that it is uncertain when taxable profits will be generated by the Group to utilise those losses.

 

The unrelieved tax losses and related associated deferred tax asset were incorrectly stated as being £15.58 million and £3,932,000 in the Company's 2016 annual report and financial statements and accordingly have been restated.

 

 

The tax charge for the year comprises:

 

	2017		2016
	£'000		£'000
Research and development taxation relief	62		151
Deferred taxation in respect of transition to IFRS	18		28
	80		179

 

The tax assessed for the period differs from the standard rate of corporation tax in the UK as follows:

 

	2017		2016
	£'000		£'000
Loss before taxation	(5,962)		(3,579)
Loss multiplied by standard rate	(1,148)		(716)
of corporation tax in the UK of 19.25% (2016: 20.00%)
Effect of:
Expenses not deductible for tax purposes	31		16
Overseas loss not recognised	34		172
R&D tax rebate	62		151
Interest disallowed	952		396
Unrelieved tax losses	149		160
Total tax charge for year	80		179

 

 

4              LOSS PER SHARE

 

The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the period.

 

	2017		2016
	£'000		£'000
(Loss) attributable to owners of the Company after tax	(5,882)		(3,400)
	2017		2016
	Number		Number
Weighted average number of ordinary shares for calculating basic loss per share	14,378,618,913		8,464,881,335
	2017		2016
	Pence		Pence
Basic and diluted loss per share	(0.04)		(0.04)

 

Dilutive earnings per share is the same as basic loss per share in each year because the potential shares arising under the share option scheme and share warrants are anti-dilutive. The weighted average number of ordinary shares excludes deferred shares which have no voting rights and no entitlement to a dividend.

 

5          SECURED LOAN NOTES (GROUP AND COMPANY)

 

Issue of secured loan notes to OEI and OMI

 

Current Loan Notes comprise short-dated secured loan notes issued to OEI and OMI, two of the three OAM funds. The Loan Notes are secured on a debenture comprising a fixed and floating charge over all the assets of Tri-Star Resources plc.

 

The Loan Notes carry an annual interest rate of 25% and had an original repayment date of 30 June 2018 or equity placement whichever is earlier. As an equity placement took place in January 2018, the loans technically fell due, but OEI and OMI have agreed to extend repayment to 30 June 2019 or earlier at the Company's discretion.

 

Conversion of OAM Convertible Loan Notes and private placement

 

On 1 June 2017, Tri-Star announced that it has reached an agreement with OAM to restructure the Company's balance sheet and raise additional working capital (the "Proposals"). The Proposals, which were subject to shareholder approval, entailed all of the previously outstanding Convertible Loan Notes being converted or redeemed. The Company also raised £1.3 million, before expenses, for general working capital purposes. Full details of the Proposals were set out in the circular to Tri-Star shareholders dated 1 June 2017 and were approved by shareholders at a general meeting on 20 June 2017.

 

Under the Proposals, the OAM funds converted approximately £4.4 million of Convertible Loan Notes into 3,614 million new ordinary shares of the Company (the "Conversion") at a conversion price of 0.121855p and participated in a placing of 7,453 million new ordinary shares in the Company (the "Placing") also at 0.121855p per ordinary share (the "Placing Price"). Approximately £7.8 million of the Placing proceeds were then to be applied to redeem the balance of the Convertible Loan Notes with the remaining £1.3 million of proceeds being used to meet expenses of the transaction and for general working capital purposes.

 

IFRS requires that the difference between the carrying amount of financial liability (or part of financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed should be recognised in profit and loss. Additionally, equity instruments issued to the creditor to extinguish the liability should be measured at the fair value of the instruments issued. The fair value of the shares issued in respect of both the Conversion and the Placing in respect of the extinguishment of the Convertible Loan Notes has been measured at 0.16p per ordinary share, being the closing price on 31 May 2017, the day prior to the agreement with OAM being reached. The difference between the Conversion and Placing Price (0.121855 pence per ordinary share) and the fair value of the ordinary shares issued (0.16 pence per ordinary share) amounts to £3,814,000.

 

The loss on extinguishment recorded in the income statement is measured as follows:

 

		£'000
Book value of debt		12,626
Repaid by issue of 3,613,884,866 shares		(4,404)
Repaid via shares purchased by OAM Funds		(7,782)
Fair value adjustment for shares issued for conversion and repayment		(3,814)
Costs incurred		(263)
Loss on extinguishment of loan		(3,637)

 

6        ANNUAL REPORT AND ACCOUNTS

 

The financial information set out in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

 

The Consolidated Statement of Financial position at 31 December 2017, the Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and associated notes for the year then ended have been extracted from the Group's 2017 financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 498(2) or (3) of the Companies Act 2006. Whilst the auditor's opinion is unqualified, their report does contain an emphasis of matter paragraph relating to going concern, as set out in the going concern paragraph in this announcement.

 

The accounts for the year ended 31 December 2017 will be posted to shareholders shortly and laid before the Company at the Annual General Meeting, details of which will be announced in due course. Following publication, a copy of the accounts will also be available on the Company's website ( www.tri-starresources.com ) in accordance with AIM Rule 26, and will be delivered to the Registrar of Companies in due course.