Interim / Quarterly Report • Mar 9, 2018
Interim / Quarterly Report
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ABN 23 008 677 852
Mr Ian Middlemas Chairman Mr Benjamin Stoikovich Director and CEO Mr Todd Hannigan Alternate Director
Ms Carmel Daniele Non-Executive Director Mr Thomas Todd Non-Executive Director Mr Mark Pearce Non-Executive Director
Mr Dylan Browne Company Secretary
PD Co sp. z. o.o. (Warsaw): Ul. Wspolna, 35 lok. 4 00-519 Warsaw
Karbonia S.A. (Czerwionka – Leszczyny): Ul. 3 Maja 44, 44-230 Czerwionka - Leszczyny
Unit 3C, 38 Jermyn Street London SW1Y 6DN United Kingdom Tel: +44 207 487 3900
Level 9, BGC Centre 28 The Esplanade Perth WA 6000 Tel: +61 8 9322 6322 Fax: +61 8 9322 6558
Poland: DLA Piper Wiater sp.k. United Kingdom:
DLA Piper UK LLP Australia: DLA Piper Australia
Poland: Ernst & Young Audyt Polska sp. z. o.o. Australia: Ernst & Young – Perth
Poland: Bank Zachodni WBK S.A. – Santander Group Australia: Australia and New Zealand Banking Group Ltd
Poland: Komisja Nadzoru Finansowego (KNF) Plac Powstańców Warszawy 1, skr. poczt. 419 00-950 Warszawa Tel: +48 22 262 50 00
Computershare Investor Services PLC The Pavilions, Bridgewater Road Bristol BS99 6ZZ Tel: +44 370 702 0000
Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth WA 6000 Tel: +61 8 9323 2000
Poland: Warsaw Stock Exchange – GPW Code: PDZ United Kingdom: London Stock Exchange (Main Board) – LSE Code: PDZ Australia: Australian Securities Exchange – ASX Code: PDZ
| CONTENTS ZAWARTOŚĆ | Page Strona |
|---|---|
| Directors' Report | 1 |
| Directors' Declaration | 9 |
| Consolidated Statement of Profit or Loss and other Comprehensive Income | 10 |
| Consolidated Statement of Financial Position | 11 |
| Consolidated Statement of Changes in Equity | 12 |
| Consolidated Statement of Cash Flows | 13 |
| Notes to the Consolidated Financial Statements | 14 |
| Auditor's Independence Declaration | 22 |
| Independent Auditor's Review Report | 23 |
The Directors of Prairie Mining Limited present their report on the Consolidated Entity consisting of Prairie Mining Limited ("Company" or "Prairie") and the entities it controlled during the half-year ended 31 December 2017 ("Consolidated Entity" or "Group").
The names and details of the Company's Directors in office at any time during the half-year and until the date of this report are:
| Mr Ian Middlemas | Chairman |
|---|---|
| Mr Benjamin Stoikovich | Director and CEO |
| Ms Carmel Daniele | Non-Executive Director |
| Mr Thomas Todd | Non-Executive Director |
| Mr Mark Pearce | Non-Executive Director |
| Mr Todd Hannigan | Alternate Director |
Unless otherwise shown, all Directors were in office from the beginning of the half-year until the date of this report.
Highlights during, and subsequent to, the end of the half-year include:
(Continued)
Debiensko is a hard coking coal project located in the Upper Silesian Coal Basin in the south west of the Republic of Poland. It is approximately 40 km from the city of Katowice and 40 km from the Czech Republic.
Debiensko is bordered by the Knurow-Szczyglowice Mine in the north west and the Budryk Mine in the north east, both owned and operated by Jastrzębska Spółka Węglowa SA ("JSW"), Europe's leading producer of hard coking coal.
The Debiensko mine was originally opened in 1898 and was operated by various Polish mining companies until 2000 when mining operations were terminated due to a major government led restructuring of the coal sector caused by a downturn in global coal prices. In early 2006 New World Resources Plc ("NWR") acquired Debiensko and commenced planning for Debiensko to comply with Polish mining standards, with the aim of accessing and mining hard coking coal seams. In 2008, the Minister of Environment of Poland ("MoE") granted a 50-year mine license for Debiensko.
Preliminary analysis indicates that a range of premium hard coking coals that will be in high demand from European steelmakers can be produced from Debiensko. This analysis is based on historical data, neighbouring operational coking coal mines and the results of a suite of modern coking tests performed on selected seams from a fully cored borehole drilled by the previous owners in 2015/16. Two premium hard coking coal specifications have been delineated from select seams at Debiensko, namely Medium volatile matter hard coking coal ("Mid-vol HCC") and Low volatile matter hard coking coal ("Low-vol HCC"). Future study phases will determine the precise Debiensko premium hard coking coal quality specification on a year by year basis depending on the final adopted mine plan, mining schedule and extent of coal blending.
Both Debiensko's Mid-vol and Low-vol HCC lie within the range of premium hard coking coals produced globally. Indications are that the Mid-vol HCC at Debiensko is present between 850 m to 1,000 m from surface and the Low-vol HCC is present 1,000 m to 1,300 m below surface i.e. at depths similar to adjacent operating mines owned by JSW - the largest coking coal producer in Europe
Prairie notes that during the half-year, the Polish Government appointed a new Prime Minister, Mr Mateusz Morawiecki, who immediately prior to his current role, was Deputy Prime Minister and Minister of Finance in Poland. Prairie also notes that in January 2018, a new Minister of Environment, Mr Henryk Kowalczyk, was appointed as part of a cabinet reshuffle under the new Prime Minister. In Poland, responsibility for exploration and Mining Concessions is the responsibility of the MoE.
Following his appointment, Prime Minister Mateusz Morawiecki, presented the Polish Ministry of Development's "Program for Silesia" ("Program") – a strategic document which anticipated the re-construction of a coking coal mine in the region of Upper Silesia, where Debiensko is located. The Program details the creation of 1,500 direct jobs in the region and indicates the social and economic benefits of re-construction of a coking coal mine, to potentially be funded by foreign and Polish capital.
Following completion of a 28 shallow geo-technical drill program during the period, Prairie continued to analyse the drill hole data which will be used for engineering design of foundations of structures associated with the shafts, coal handling and preparation plant ("CHPP") and other surface facilities. These holes are essential in order to assess the soil conditions, properly design structural foundations and thus provide more accurate pricing in the tenders as required for a feasibility study.
Pre-qualification of contractors for the major components of the next phase of Debiensko studies also continued throughout the period including contractors for the:
(Continued)
Demolition works continued throughout the period specifically targeting old structures including walkways and old administrative buildings. To date, Prairie has completed demolition works on a number of old surface structures of the former Debiensko mine including the bathhouse, switchgear building and locomotive garage.
Prairie's use of modern exploration techniques continues to transform Jan Karski with latest drill results re-affriming the capability of the the project to produce high value ultra-low ash semi-soft coking coal, known as Type 34 coal in Poland.
The coking coal quality results are superior to the drill results announced in May 2017, and further confirm that Jan Karski is a globally significant semi-soft coking coal ("SSCC") / Type 34 coking coal deposit with the potential to produce a high value ultra-low ash SSCC with an exceptional CSR and a high 75% coking coal product split.
An application for issuing the environmental decision together with the ESIA was submitted to the Regional Director for Environmental Protection ("RDOS") in Lublin in October 2017. Taking into account the RDOS's additional comments the motion and ESIA were supplemented in late November 2017. The Environmental Consent process has now officially been initiated by RDOS.
Prairie is now waiting for approval of the ESIA in the form of an Environmental Consent decision, which is the last component to meet all formal requirements to apply for the Mining Concession for construction for Jan Karski.
As part of the environmental permitting process, Prairie initiated public consultations in three municipalities, including Wierzbica, Siedliszcze and Cyców. Presentations on Jan Karski's development plans were given by Mr Miroslaw Taras (Prairie's Group Executive), Witold Wołoszyn (Prairie's Environmental and Planning Manager) and specialists from the international environmental consulting group, Multiconsult Polska who prepared the ESIA. Key advantages for the local community related to employment opportunities and social benefits associated with the development, construction and operation of Jan Karski including:
In November 2017, the Company hosted a delegation in Poland including China Coal No.5 Construction Company Ltd ("China Coal") and the Chinese Government's officially authorised coal mine design institute Jinan Mine Design Institute, during which locally provided content for construction of Jan Karski was finalised alongside domestic Polish specialists, subcontractors and partners who will provide relevant Polish content.
(Continued)
OPERATING AND FINANCIAL REVIEW (Continued)
China Coal's non-JORC technical studies for the construction and funding of the Jan Karski Mine have significantly advanced and Prairie is currently reviewing study documents ("Studies") received from China Coal subsequent to the halfyear end. In accordance with the Strategic Co-operation Agreement between Prairie and China Coal, the Studies will form the basis for provision of debt financing out of China for the construction and development of Jan Karski. The Studies are being undertaken in accordance with Chinese official mine design and banking standards for coal mine projects, and to comply with domestic Polish engineering standards and standards for mechanical and electrical equipment. The terms of the Environmental Consent and Mining Concession for Jan Karski will be incorporated into the final engineering design, as well as results from the latest coal quality and hydrogeological drilling works being conducted by the Company.
Prairie and China Coal continue to advance discussions with Chinese banks to provide debt facilities to fund construction of the Project and enter into a complete Engineering, Procurement, and Construction ("EPC") contract under which China Coal would construct the Jan Karski Mine.
The net loss of the Consolidated Entity for the half-year ended 31 December 2017 was \$5,297,797 (31 December 2016: \$5,337,988). Significant items contributing to the current half-year loss and the substantial differences from the previous half-year include to the following:
(Continued)
At 31 December 2017, the Group had cash reserves of \$15,146,766 (30 June 2017: \$16,826,854) and with CD Capital's right to invest a further \$68 million in the Company as a strategic partner, this places the Group in a strong financial position to continue with its planned development activities at Debiensko and Jan Karski.
At 31 December 2017, the Company had net assets of \$10,634,740 (30 June 2017: \$13,095,130) a decrease of approximately 19% compared with 30 June 2017. This is largely attributable to the decrease in cash, the increase in other financial liabilities coupled with the loss for the six months to 31 December 2017.
Prairie's strategy is to create long-term shareholder value by creating synergies and developing both Debiensko and Jan Karski in Poland.
To date, the Group has not commenced production of any minerals. To achieve its objective, the Group currently has the following business strategies and prospects:
All of these activities are inherently risky and the Board is unable to provide certainty of the expected results of these activities, or that any or all of these likely activities will be achieved. The material business risks faced by the Group that could have an effect on the Group's future prospects, and how the Group manages these risks, include the following:
The Company's activities will require further capital in future years – As at 31 December 2017, the Company has cash in excess of \$15 million which places it in an excellent position to conduct its current planned exploration and development activities at Debiensko and Jan Karski. However, the ability of the Company to finance capital investment in future years for the construction and future operation of the Company's projects is dependent, among other things, on the Company's ability to raise additional future funding either through equity or debt financing. Any failure to obtain sufficient financing in the future may result in delaying or indefinite postponement of any future construction of the projects or even a loss of property interest (in the future). The key items which the Company would require further funding in future years would be for the construction of the mines at each project.
In this regard, and pursuant to the CD Capital investment agreement, CD Capital has a first right to invest a further \$55 million in any future fund raise conducted by the Company, plus CD Capital will have the ability to inject a further \$13 million through the exercise of \$0.60 options ("CD Options") to be held in the Company. There is however no guarantee that CD Capital would take up this right in the future (or exercise the CD Options). There is also a risk that the Company's obligation to offer CD Capital a first right of refusal on any future fund raising could prejudice the Company's ability to raise funds from investors other than CD Capital. However, the Company considers that it would not be necessary to undertake such development actions until it has secured financing to do so and the timing for commencement of such actions would accordingly depend on the date that such financing is secured. If, in the unlikely event that future financing cannot be secured, the Group has the flexibility and ability to significantly reduce its ongoing expenditure.
The Company has also signed a Strategic Co-operation Agreement with China Coal for the financing and construction of Jan Karski. Subsequent to the end of the half-year, China Coal and Prairie continue to advance towards completion the Studies, which will provide the basis for an EPC contract and finalising a term sheet with Chinese financing institutions for a construction funding package for Jan Karski.
(Continued)
Furthermore, the Company's Board of Directors has a successful track record of fundraising for natural resources projects, including large scale coal projects, and has completed successful financing transactions with strategic partners, large institutional fund managers, off-take partners and traders and project finance lenders.
There is however no guarantee that the then prevailing market conditions will allow for a future fundraising or that new investors will be prepared to subscribe for ordinary shares or at the price at which they are willing to do so in the future. Failure to obtain sufficient future financing may result in delaying or indefinite postponement of appraisal and any development of the Company's projects in the future, a loss of the Company's personnel and ultimately a loss of its interest in the projects. There can be no assurance that additional future capital or other types of financing will be available, if needed, or that, if available, the terms of such future financing will be favourable to the Company.
If the Company obtains debt financing in the future, it will be exposed to the risk of leverage and its activities could become subject to restrictive loan and lease covenants and undertakings. If the Company obtains future equity financing other than on a pro rata basis to existing Shareholders, the future percentage ownership of the existing Shareholders may be reduced, Shareholders may then experience subsequent dilution and/or such securities may have preferred rights, options and pre-emption rights senior to the Ordinary Shares. There can be no assurance that the Company would be successful in overcoming these risks in the future or any other problems encountered in connection with such financings.
Risk of maintaining project concessions - The Company's mining exploration and development activities at Debiensko and Jan Karski are dependent upon the alteration of, or as the case may be, the maintenance of appropriate licences, concessions, leases, claims, permits and regulatory consents which may be withdrawn or made subject to limitations. The maintaining of concessions, obtaining renewals, or attaining concessions alterations, often depends on the Company being successful in obtaining required statutory approvals for its proposed activities and that the licences, concessions, leases, claims, permits or consents it holds will be renewed and altered as and when required. In this regard the Company has made an application to the Polish MoE, in December 2016, to amend the Debiensko Mining Concession (which is valid until 2058) to alter the commencement of production from 1 January 2018 to 2025. Not commencing production by January 2018 does not immediately infringe on the validity and expiry date of the current Mining Concession, however, the concession authority has the right to request the concession holder to reasonably remove any infringements related to non-conformance with the conditions of a Mining Concession and determine a reasonable date for removal of the infringements (under Polish law, the concession authority is required to provide a reasonable timeframe to remedy any non-compliance taking into account the nature of the non-conformance). Failure to remedy the infringements within any reasonable time frame prescribed by the concession authority may lead to commencement of proceedings to limit or withdraw a concession. A decision from the MoE on the Company's amendment application is currently pending following a change of the Polish Prime Minister in December 2017 and the appointment of a new Minister of Environment in January 2018. Under Poland's Geological and Mining Law, the MoE is required to view any application to modify a concession in the same manner as any initial application for a concession, in that the award of the concession is not in detriment to public interest (building a mine is considered to be in the best interest of the public), does not particularly breach any environmental laws (Karbonia was awarded with Environmental Consent prior to being granted a Mining Concession) and is not in breach of the spatial development plan (Karbonia was granted with spatial approval prior to the award of the Debiensko Mining Concession).
On 1 July 2015, the Company announced that it had secured the Exclusive Right to apply for a Mining Concession for Jan Karski. As a result of its geological documentation for the Jan Karski deposit being approved, Prairie is currently the only entity that can lodge a Mining Concession application over Jan Karski within a three (3) year period up and until 2 April 2018. The approved geological documentation covers an area comprising of all four of the original Exploration Concessions granted to Prairie (K-4-5, K-6-7, K-8 and K-9) and includes the full extent of the targeted resources within the mine plan for Jan Karski. In this regard, no beneficial title interest was surrendered by the Company when the K-6-7 Exploration Concession expired in 2017. Under Polish mining law, and owing to the Exclusive Right the Company has secured, Prairie is currently the only entity that may apply for and be granted a Mining Concession with respect to the K-6-7 area (the Exclusive Right also applies to the K-4-5, K-8 and K-9 areas of Jan Karski). There is no requirement for the Company to hold an Exploration Concession in order exercise the Exclusive Right and apply for a Mining Concession. In addition, Prairie has the right to apply for and be granted, within 3 months of making an application, a mining usufruct agreement for an additional 12 month period that precludes any other parties being granted a licence over all or part of the Jan Karski concessions. Prairie applied for a mining usufruct agreement in December 2017 with the decision from the Polish MoE still pending. In the event that a mining usufruct agreement is not made available to the Company on acceptable terms or the Company does not enter in to a mining usufruct agreement for any other reason, other parties may be able to apply for a Mining Concession for all or part of the Jan Karski license area.
(Continued)
If, however, in a scenario where the MoE does not grant the Company with a mining usufruct in the required timeframe, legal advice sought by Company outlines that the Group will be in a position to file a civil law claim against the Polish authorities which could overturn the authority's decision not to grant Prairie a mining usufruct. In any event, The Company intends to submit a Mining Concession application over the mine plan area at Jan Karski (which includes K-6-7), which is subject to the approval of the MoE, within the coming weeks subject to the Company being issued with Environmental Consent. There is no assurance that the Company will be issued Environmental Consent, however the Company believes that the Environmental Consent application, as submitted in October 2017 and supplemented in November 2017, was complete and complied with formal requirements of the relevant Polish environmental regulations.
There is also no assurance that such applications (or renewals or alterations) of the concessions will be granted or that such applications, renewals, alterations, rights and title interests will not be revoked or significantly altered. If such applications, renewals or alterations of concessions applied for are not granted or are in fact revoked in the future, there is a risk that this may have a material adverse effect on the financial performance and operations at Jan Karski, Debiensko, the Company and on the value of the Company's securities.
Other than the above, there were no significant events occurring after balance date requiring disclosure.
Prairie Mining Limited Interim Financial Report for the Half-Year Ended 31 December 2017 7
(Continued)
Section 307C of the Corporations Act 2001 requires our auditors, Ernst and Young, to provide the Directors of Prairie Mining Limited with an Independence Declaration in relation to the review of the half-year financial report. This Independence Declaration is on page 22 and forms part of this Directors' Report.
Signed in accordance with a resolution of the Directors.
BEN STOIKOVICH Director
9 March 2018
This report may include forward-looking statements. These forward-looking statements are based on Prairie's expectations and beliefs concerning future events. Forward looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of Prairie, which could cause actual results to differ materially from such statements. Prairie makes no undertaking to subsequently update or revise the forward-looking statements made in this release, to reflect the circumstances or events after the date of that release.
In accordance with a resolution of the Directors of Prairie Mining Limited, I state that:
In the reasonable opinion of the Directors and to the best of their knowledge:
On behalf of the Board
BEN STOIKOVICH Director
9 March 2018
| Note | Half-Year Ended 31 December 2017 \$ |
Half-Year Ended 31 December 2016 \$ |
|
|---|---|---|---|
| Revenue | 4(a) | 441,023 | 403,179 |
| Other income | 4(b) | - | 325,000 |
| Exploration and evaluation expenses | (4,047,621) | (2,565,889) | |
| Employment expenses | (66,680) | (68,774) | |
| Administration and corporate expenses | (487,870) | (238,129) | |
| Occupancy expenses | (211,273) | (194,583) | |
| Share-based payment expenses | (200,422) | (167,060) | |
| Business development expenses | (512,267) | (484,478) | |
| Other expenses | - | (500,236) | |
| Fair value movements | 5 | (212,687) | (1,847,018) |
| Loss before income tax | (5,297,797) | (5,337,988) | |
| Income tax expense | - | - | |
| Net loss for the period | (5,297,797) | (5,337,988) | |
| Net loss attributable to members of Prairie Mining Limited | (5,297,797) | (5,337,988) | |
| Other comprehensive income | |||
| Items that may be reclassified subsequently to profit or loss: |
|||
| Exchange differences on translation of foreign operations | 42,842 | (150,679) | |
| Total other comprehensive income/(loss) for the period | 42,842 | (150,679) | |
| Total comprehensive loss for the period | (5,254,955) | (5,488,667) | |
| Total comprehensive loss attributable to members of Prairie Mining Limited |
(5,254,955) | (5,488,667) | |
| Basic and diluted loss per share (cents per share) | (3.16) | (3.52) |
The above Consolidated Statement of Profit or Loss and other Comprehensive Income should be read in conjunction with the accompanying notes.
| 31 December 2017 |
30 June 2017 |
||
|---|---|---|---|
| Note | \$ | \$ | |
| ASSETS Current Assets |
|||
| Cash and cash equivalents | 15,146,766 | 16,826,854 | |
| Trade and other receivables | 6 | 991,479 | 1,094,997 |
| Total Current Assets | 16,138,245 | 17,921,851 | |
| Non-Current Assets | |||
| Property, plant and equipment | 7 | 2,444,548 | 2,779,526 |
| Exploration and evaluation assets | 8 | 2,699,523 | 2,603,172 |
| Total Non-Current Assets | 5,144,071 | 5,382,698 | |
| TOTAL ASSETS | 21,282,316 | 23,304,549 | |
| LIABILITIES | |||
| Current Liabilities | |||
| Trade and other payables | 9 | 2,011,403 | 2,109,127 |
| Provisions | 11(a) | 616,795 | 580,129 |
| Other financial liabilities | 10(a) | 1,841,338 | 1,783,283 |
| Non-cash other financial liabilities | 10(b) | 4,813,433 | 4,600,746 |
| Total Current Liabilities | 9,282,969 | 9,073,285 | |
| Non-Current Liabilities | |||
| Provisions | 11(b) | 1,136,134 | |
| Total Non-Current Liabilities | 1,364,607 | ||
| 1,364,607 | 1,136,134 | ||
| TOTAL LIABILITIES | 10,647,576 | 10,209,419 | |
| NET ASSETS | 10,634,740 | 13,095,130 | |
| EQUITY | |||
| Contributed equity | 12 | 61,071,856 | 58,477,713 |
| Reserves | 13 | 2,501,603 | 2,258,339 |
| Accumulated losses | (52,938,719) | (47,640,922) | |
| TOTAL EQUITY | 10,634,740 | 13,095,130 |
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
Prairie Mining Limited Interim Financial Report for the Half-Year Ended 31 December 2017 11
| Contributed Equity |
Share-based Payments Reserve |
Foreign Currency Translation |
Accumulated Losses |
Total Equity |
|
|---|---|---|---|---|---|
| Reserve | |||||
| \$ | \$ | \$ | \$ | \$ | |
| Balance at 1 July 2017 | 58,477,713 | 1,529,894 | 728,445 | (47,640,922) | 13,095,130 |
| Net loss for the period | - | - | - | (5,297,797) | (5,297,797) |
| Other comprehensive income for the half-year | |||||
| Exchange differences on translation of foreign | |||||
| operations | - | - | 42,842 | - | 42,842 |
| Total comprehensive income/(loss) for the | |||||
| period | - | - | 42,842 | (5,297,797) | (5,254,955) |
| Transactions with owners recorded directly in equity |
|||||
| Issue of convertible notes (Loan Note 2) (Note 12) | 2,627,430 | - | - | - | 2,627,430 |
| Convertible note issue costs | (27,418) | - | - | - | (27,418) |
| Share issue costs | (5,869) | - | - | - | (5,869) |
| Forfeiture of performance rights | - | (1,134,010) | - | - | (1,134,010) |
| Recognition of share-based payments | - | 1,334,432 | - | - | 1,334,432 |
| Balance at 31 December 2017 | 61,071,856 | 1,730,316 | 771,287 | (52,938,719) | 10,634,740 |
| Balance at 1 July 2016 | 51,298,932 | 3,010,300 | 33,193 | (36,526,665) | 17,815,760 |
| Net loss for the period | - | - | - | (5,337,988) | (5,337,988) |
| Other comprehensive income for the half-year | |||||
| Exchange differences on translation of foreign operations |
- | - | (150,679) | - | (150,679) |
| Total comprehensive income/(loss) for the | |||||
| period | - | - | (150,679) | (5,337,988) | (5,488,667) |
| Transactions with owners recorded directly in equity |
|||||
| Issue of ordinary shares | 50,000 | - | - | - | 50,000 |
| Share issue costs | (1,918) | - | - | - | (1,918) |
| Forfeiture of performance rights | - | (396,001) | - | - | (396,001) |
| Recognition of share-based payments | - | 513,061 | - | - | 513,061 |
| Balance at 31 December 2016 | 51,347,014 | 3,127,360 | (117,486) | (41,864,653) | 12,492,235 |
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
| Note | Half-Year Ended 31 December 2017 \$ |
Half-Year Ended 31 December 2016 \$ |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| Payments to suppliers and employees | (5,078,182) | (4,890,288) | |
| Proceeds from property and gas sales | 248,859 | 94,849 | |
| Interest revenue from third parties | 202,758 | 231,437 | |
| Net cash outflow from operating activities | (4,626,565) | (4,564,002) | |
| Cash flows from investing activities | |||
| Purchase of plant and equipment | (60,008) | - | |
| Proceeds from sale of property | 495,008 | - | |
| Purchase of controlled entity | 14 | - | (742,367) |
| Proceeds from sale of base metals project | - | 325,000 | |
| Net cash inflow/(outflow) from investing activities | 435,000 | (417,367) | |
| Cash flows from financing activities | |||
| Proceeds from issue of convertible note | 2,627,430 | - | |
| Payments for issue of convertible note | (54,611) | - | |
| Payments for share issue costs | (61,342) | - | |
| Net cash inflow from financing activities | 2,511,477 | - | |
| Net decrease in cash and cash equivalents | (1,680,088) | (4,981,369) | |
| Net foreign exchange differences | - | (4,980) | |
| Cash and cash equivalents at the beginning of the period | 16,826,854 | 18,063,119 | |
| Cash and cash equivalents at the end of the period | 15,146,766 | 13,076,770 |
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
The interim consolidated financial statements of the Group for the half-year ended 31 December 2017 were authorised for issue in accordance with the resolution of the Directors on 7 March 2018.
This general purpose condensed financial report for the interim half-year reporting period ended 31 December 2017 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001.
This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report of Prairie Mining Limited for the year ended 30 June 2017 and any public announcements made by the Group and its controlled entities during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.
The financial statements have been prepared on the basis of historical cost, except for the derivative financial instruments that are measured at fair value. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars.
The accounting policies and methods of computation adopted in the preparation of the consolidated half-year financial report are consistent with those adopted and disclosed in the company's annual financial report for the year ended 30 June 2017, other than as detailed below.
In the current period, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the "AASB") that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2017.
New and revised Standards and amendments thereof and Interpretations effective for the current half-year that are relevant to the Group include:
The adoption of these new and revised standards has not resulted in any significant changes to the Group's accounting policies or to the amounts reported for the current or prior periods. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Consolidated Entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.
The Consolidated Entity operates in one segment, being mineral exploration. This is the basis on which internal reports are provided to the Chief Executive Officer for assessing performance and determining the allocation of resources within the Consolidated Entity.
FOR THE HALF-YEAR ENDED 31 DECEMBER 2017 (Continued)
| Half-Year ended 31 December 2017 \$ |
Half-Year Ended 31 December 2016 \$ |
||
|---|---|---|---|
| 4. | REVENUE AND OTHER INCOME | ||
| (a) | Revenue | ||
| Interest Income | 189,164 | 208,330 | |
| Gas and property lease income | 251,859 | 194,849 | |
| 441,023 | 403,179 | ||
| (b) | Other Income | ||
| Sale of base metals project | - | 325,000 | |
| - | 325,000 |
| Note | Half-Year ended 31 December 2017 \$ |
Half-Year Ended 31 December 2016 \$ |
|
|---|---|---|---|
| 5. FAIR VALUE MOVEMENTS |
|||
| Fair value loss on financial liabilities at fair value through profit and loss1 |
12(a) | (212,687) | (1,847,018) |
Notes:
1
The fair value movements are a result of the fair value measurements of the conversion rights (the issue of Ordinary Shares and subsequent issue of CD Options on conversion of Loan Note 1) of Loan Note 1 that needs to be considered and accounted for separately. This financial liability increases in size as the share price of the Company increases. With the share price increasing by approximately 8% during the half-year, the size of the loss attributable to the financial liability has also increased. When Loan Note 1 converts into shares and the CD Options are issued, the liability will be reclassified from a liability to equity and will require no cash settlement by the Company. Please refer to Notes 10 and 12(a) for further disclosure.
| 31 December 2017 \$ |
30 June 2017 \$ |
|
|---|---|---|
| 6. TRADE AND OTHER RECEIVABLES |
||
| Trade Receivables | 238,271 | 266,389 |
| Accrued interest | 61,582 | 75,229 |
| Deposits/prepayments | 370,851 | 585,485 |
| GST and other receivables | 320,775 | 167,894 |
| 991,479 | 1,094,997 |
FOR THE HALF-YEAR ENDED 31 DECEMBER 2017 (Continued)
| 31 December | 30 June | ||
|---|---|---|---|
| Note | 2017 \$ |
2017 \$ |
|
| 7. PROPERTY, PLANT AND EQUIPMENT |
|||
| (a) Property, Plant and Equipment |
|||
| Gross carrying amount at cost | 2,635,598 | 2,970,271 | |
| Accumulated depreciation | (191,050) | (190,745) | |
| Carrying amount at end of the period | 2,444,548 | 2,779,526 | |
| (b) Reconciliation |
|||
| Carrying amount at beginning of the period, net of accumulated depreciation |
2,779,526 | 98,140 | |
| Acquired on acquisition of controlled entity | 14 | - | 2,527,356 |
| Additions | 60,008 | 184,896 | |
| Disposals | (448,101) | - | |
| Depreciation charge | (53,187) | (65,899) | |
| Exchange differences on translation of foreign operations | 106,302 | 35,033 | |
| Carrying amount at end of the period | 2,444,548 | 2,779,526 | |
| 31 December | 30 June | ||
| 2017 | 2017 | ||
| Note | \$ | \$ | |
| 8. EXPLORATION AND EVALUATION ASSETS |
|||
| (a) Areas of Interest |
|||
| Jan Karski Mine | 530,000 | 530,000 | |
| Debiensko Mine | 2,169,522 | 2,073,172 | |
| Carrying amount at end of the period1 | 2,699,522 | 2,603,172 | |
| (b) Reconciliation |
|||
| Carrying amount at beginning of the period | 2,603,172 | 530,000 | |
| Acquired on acquisition of controlled entity | 14 | - | 2,047,034 |
| Exchange differences on translation of foreign operations | 96,350 | 26,138 | |
| Carrying amount at end of the period1 | 2,699,522 | 2,603,172 | |
| Notes: |
The ultimate recoupment of costs carried for exploration and evaluation expenditure is dependent on the successful development and commercial exploitation or sale of the respective areas.
| 31 December 2017 \$ |
30 June 2017 \$ |
|
|---|---|---|
| 9. TRADE AND OTHER PAYABLES |
||
| Trade and other payables | 2,011,403 | 2,109,127 |
| 2,011,403 | 2,109,127 |
1
| Note | 31 December 2017 \$ |
30 June 2017 \$ |
||
|---|---|---|---|---|
| 10. | OTHER FINANCIAL LIABILITIES | |||
| Financial liabilities at fair value through profit or loss: | ||||
| (a) | Cash settlement required | |||
| Contingent consideration carried at amortised cost | 14 | 1,841,338 | 1,783,283 | |
| (b) | Non-cash settlement required | |||
| Derivative liability - conversion right attached to Loan Note 1 at fair value through profit and loss1 |
12(a) | 4,813,433 | 4,600,746 |
Notes:
1In September 2015, Prairie completed an Investment Agreement with CD Capital by way of a private placement by PDZ Holdings (a wholly-owned subsidiary of Prairie which indirectly holds the Jan Karski Mine) of non-interest bearing convertible loan notes with an aggregate principal amount of \$15 million to CD Capital, exchangeable for ordinary shares in Prairie at \$0.335 per share (Loan Note 1). The \$83 million transaction was approved by shareholders and is structured as follows:
Due to the conversion terms of the Loan Note 1 and the agreement to issue the CD Options, the Company is required under the accounting standards to account for this conversion factor as a financial derivative liability though profit and loss, despite the Company only having to issue unlisted options (the CD Options) and there being no obligation to extinguish Loan Note 1 using the Company's cash and cash equivalents.
| 31 December 2017 \$ |
30 June 2017 \$ |
|
|---|---|---|
| 11. PROVISIONS |
||
| (a) Current Provisions: |
||
| Provisions for the protection against mining damage at Debiensko1 | 199,374 | 245,587 |
| Annual leave provision | 198,011 | 124,876 |
| Other2 | 219,410 | 209,666 |
| 616,795 | 580,129 | |
| (b) Non-Current Provisions: |
||
| Provisions for the protection against mining damage at Debiensko1 | 1,364,607 | 1,136,134 |
Notes:
1
2
With Debiensko being an operating mine previously, Karbonia is required to pay out mining land damages to any surrounding land owner who makes a legitimate claim under Polish law.
In April 2012, Karbonia signed a power connection contract with the local power grid operator. The purpose of the contract was to connect Karbonia's future mining facilities at Debiensko to the power operator's power lines. The operator has incurred expenses amounting to PLN597,614 (\$219,410) of which Karbonia would owe to the operator in the event that the contract is terminated (which both parties are entitled to do), or if power is not purchased from Tauron prior to 30 November 2019.
1,364,607 1,136,134
| Note | 31 December 2017 \$ |
30 June 2017 \$ |
|
|---|---|---|---|
| 12. CONTRIBUTED EQUITY |
|||
| (a) Issued and Unissued Capital |
|||
| 167,498,969 (30 June 2017: 167,498,969) fully paid ordinary shares |
12(b) | 45,370,939 | 45,376,808 |
| Loan Note 1 exchangeable into fully paid ordinary shares at \$0.335 per share1 |
15,000,000 | 15,000,000 | |
| Conversion right attached to Loan Note 12 | (968,236) | (968,236) | |
| Loan Note 2 exchangeable into fully paid ordinary shares at \$0.46 per share3 |
2,627,430 | - | |
| Costs incurred to issue the loan notes | (958,277) | (930,859) | |
| Total Contributed Equity | 61,071,856 | 58,477,713 |
1In September 2015, Prairie completed an Investment Agreement with CD Capital by way of a private placement by PDZ Holdings (a wholly-owned subsidiary of Prairie which indirectly holds the Jan Karski Mine) of non-interest bearing convertible loan notes with an aggregate principal amount of \$15 million to CD Capital, exchangeable for ordinary shares in Prairie at \$0.335 per share (Loan Note 1). The \$83 million transaction was approved by shareholders and is structured as follows:
2Under AASB 132, the conversion rights (the issue of Ordinary Shares and subsequent issue of CD Options on conversion of Loan Note 1) of the Convertible Note needs to be considered and accounted for separately. This embedded derivative is required to be carried at fair value through profit and loss and the fair value movements of the conversion rights are to be recognised in profit and loss for the period. The fair value of the derivative liability at 30 June 2017 and 31 December 2017 was assessed to be \$4,600,746 and \$4,813,433, respectively. The non-cash fair value loss arising from the movement in the derivative was \$212,687. Please refer to Note 5 and 10(b) for further disclosure.
CD Capital may assign, transfer or encumber in whole or in part (in amounts of at least A\$1 million) its rights under Loan Note 2 to any third party by giving written notice to Prairie provided the third party has provided a deed of assumption. Assignment of Loan Note 2 will not result in the assignment of the rights and obligations under the subscription agreement or investment agreement from Loan Note 1.
FOR THE HALF-YEAR ENDED 31 DECEMBER 2017 (Continued)
| Date | Details | Number of Shares |
\$ |
|---|---|---|---|
| 1 Jul 17 | Opening Balance | 167,498,969 | 45,376,808 |
| Jul 17 to Dec 17 | Share issue costs | - | (5,869) |
| 31 Dec 17 | Closing Balance | 167,498,969 | 45,370,939 |
| Note | 31 December 2017 \$ |
30 June 2017 \$ |
|
|---|---|---|---|
| 13. RESERVES |
|||
| Share-based payments reserve | 1,730,316 | 1,529,894 | |
| Foreign currency translation reserve | 771,287 | 728,445 | |
| 2,501,603 | 2,258,339 |
| Date | Details | Number of Incentive Options |
Number of Performance Rights |
\$ |
|---|---|---|---|---|
| 1 Jul 17 | Opening Balance | 2,700,000 | 6,800,000 | 1,529,894 |
| 21 Aug 17 | Grant of Performance Rights | - | 5,775,000 | - |
| 15 Sep 17 | Grant of Incentive Options | 500,000 | - | - |
| 31 Dec 17 | Forfeiture of Performance Rights | - | (3,150,000) | (1,134,010) |
| Jul 17 to Dec 17 | Share-based payments expense | - | - | 1,334,432 |
| 31 Dec 17 | Closing Balance | 3,200,000 | 9,425,000 | 1,730,316 |
The Incentive Options outstanding at the end of the half-year have the following exercise prices and expiry dates:
The Performance Rights outstanding at the end of the financial year have the following expiry dates:
The Company also as a number of other unlisted securities on issue which includes the following:
On 10 October 2016, the Company completed the acquisition of Karbonia S.A. which holds Debiensko. The transaction was deemed not to be a Business Combination in accordance with AASB 3 Business Combinations and was been accounted for as an asset acquisition.
The total cost of the acquisition was \$2,524,047 and comprised as follows:
| Relative Value on acquisition \$ |
|
|---|---|
| Exploration and evaluation assets | 2,047,034 |
| Cash and cash equivalents | 27,232 |
| Trade and other receivables | 2,387,537 |
| Property, plant & equipment | 2,527,356 |
| Trade and other payables | (2,355,738) |
| Provisions | (2,109,374) |
| Net Assets Acquired | 2,524,047 |
| Cost of Acquisition: | |
| Cash consideration | 742,367 |
| Contingent consideration1 | 1,781,680 |
| 2,524,047 |
Notes:
1The Company acquired 100% of the shares of Karbonia for upfront cash consideration of €500,000 (\$742,367) and by agreeing to pay a contingent cash consideration component of €1,500,000 upon certain project specific milestones being achieved, including approval of an amendment of the Debiensko Mining Concession to extend the start date of commencement of mining operations beyond 2018 (with a decision still pending), and therefore facilitating Prairie's forward work program aimed at defining a "bankable" project at Debiensko according to international standards. As at the acquisition date, the fair value of the contingent consideration was estimated to be €1,200,000 (\$1,781,680) based on the probability of meeting the project milestones and being granted approval to amend the Debiensko Mining Concession. As at the reporting date, and due to fluctuations in the foreign exchange rates between the Euro and Australian Dollar, the carrying value of the contingent consideration was estimated to be \$1,841,338 and is disclosed as an other financial liability in Note 10(a). The loss arising from the remeasurement in the carrying value of the contingent consideration was \$18,926 for half-year. Exchange differences on translation of foreign operations for the half-year amounted to \$39,129.
There have been no changes to contingent assets or liabilities since the date of the last annual report.
The Group's financial assets and liabilities, which comprise of cash and cash equivalents, trade and other receivables, trade and other payables and other financial liabilities, may be impacted by foreign exchange movements. At 31 December 2017 and 30 June 2017, the carrying value of the Group's financial assets and liabilities approximate their fair value. Please refer to notes 5, 10, 14 and below for further disclosure.
An option pricing model was used to fair value the conversion rights attached to the Convertible Note. This fair value measurement is determined at Level 2 of the fair value hierarchy. For the purposes of valuing the conversion right, the fair value has been determined to be the price that would be received to transfer a liability in an orderly transaction between market participants at the measurement date. The assumptions used to determine the fair value of the conversion rights attached to Loan Note 1 is as follows:
FOR THE HALF-YEAR ENDED 31 DECEMBER 2017 (Continued)
| 31 December 2017 Assumptions | |||
|---|---|---|---|
| Exercise price | \$0.600 | ||
| Valuation date share price | \$0.540 | ||
| Dividend yield1 | - | ||
| Volatility2 | 90% | ||
| Risk-free interest rate | 2.13% | ||
| Number of CD Options | 22,388,060 | ||
| Issue date | 21 Sep 2015 | ||
| Estimated Expiry date | 20 Sep 2020 | ||
| Expected life of CD Option3 | 2.73 years | ||
| Discount Applied3 | 25% | ||
| Fair value | \$0.215 |
Notes:
1 The dividend yield reflects the assumption that the current dividend payout will remain unchanged.
2 The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome
3 Based on management's best estimates.
No dividend has been paid or provided for during the half-year (31 December 2016: nil).
Other than the above, there were no significant events occurring after balance date requiring disclosure.
(Continued)
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