Half-Year Report

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

 

(Unaudited – expressed in Great British Pounds)

Notice of No Auditor Review

The accompanying unaudited condensed consolidated interim financial statements of Tethyan Resources Plc. for the six month period ended June 30, 2017 have been prepared by the Company’s management and approved by the Audit Committee and Board of Directors of the Company.

In accordance with Canadian National Instrument 51-102, the Company discloses that its independent auditor has not performed a review of these unaudited condensed consolidated interim financial statements.

 

TETHYAN RESOURCES PLC

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

(Unaudited – expressed in Great British Pounds)

As at

June 30, 2017
(£’000)

December 31, 2016
(£’000)

Assets

Current

Cash and cash equivalents

£

979

£

985

Trade and other receivables

338

338

1,317

1,323

Non-Current Assets

Amounts receivable from related parties

–  

348

Exploration and evaluation assets (Note 4)

245

–  

Property, plant and equipment

41

–  

Total assets

£

1,603

£

1,671

Liabilities

Current

Accounts payable and accrued liabilities

£

407

£

308

Total liabilities

                          407

                         308

Shareholders’ equity

        Share capital (Note 5)

4,132

3,910

        Share premium (Note 5)

27,659

26,881

        Share-based payment reserve

844

812

        Currency translation reserve

(53)

(6)

        Own shares held reserve

(71)

(71)

        Retained losses

(31,315)

(30,163)

Total shareholders’ equity

1,196

1,363

Total liabilities and shareholders’ equity

£

1,603

£

1,671

Nature and continuance of operations (Note 1)

Subsequent events (Note 12)

Approved by the Board of Directors:

On behalf of the Board of Directors

 “Peter Mullens”  Director                                                                 “John Proust”  Director

  The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

TETHYAN RESOURCES PLC

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited – expressed in Great British Pounds)

Three months ended June 30, 2017
(£’000)

Three months ended June 30, 2016
(£’000)

Six months ended June 30, 2017
(£’000)

Six months ended June 30, 2016
(£’000)

Expenses

Consulting

118

13

179

29

Director fees

47

20

55

20

Filing and regulatory

14

–  

56

7

Foreign exchange loss (gain)

1

(8)

4

(4)

General exploration

105

2

113

2

Office and administrative

65

2

80

17

Professional fees

52

–  

116

23

Salaries

65

–  

118

15

Share-based compensation (Note 5)

15

–  

32

–  

Travel

43

–  

70

15

Loss before other items

525

29

823

124

Other items

Loss on asset acquisition (Note 3)

25

317

329

317

25

317

329

317

Net loss for the period

550

346

1,152

441

Exchange difference on translation of foreign currency

(27)

–  

47

–  

Net comprehensive loss for the period

523

346

1,199

441

Loss per share (Note 7)

Basic and diluted loss per share

(0.38)

(0.50)

(0.79)

(0.64)

Weighted average number of shares outstanding (‘000)

146,453

69,384

146,453

69,384

 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

TETHYAN RESOURCES PLC

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Unaudited – Expressed in Great British Pounds)

For the six month period ended

June 30, 2017
(£’000)

June 30, 2016
(£’000)

Cash flows from operating activities

Net loss for the period

(1,152)

(441)

Adjustments for:

Share-based compensation

32

–  

Loss on asset acquisition

329

317

Changes in non-cash working capital items:

Amounts receivable

(1)

6

Accounts payable and accrued liabilities

101

9

Net cash used in operating activities

(691)

(109)

Cash flows from investing activities

Investment in subsidiary

–  

(268)

Cash received from asset acquisition

–  

37

Acquisition of exploration and evaluation assets

(245)

–  

Acquisition of property, plant and equipment

(41)

(4)

Net cash used in investing activities

(286)

(235)

Cash flows from financing activities

Proceeds from private placement

1,000

163

Net cash provided by financing activities

1,000

163

Change in cash during the period

23

(181)

Effect of foreign exchange on cash

(29)

4

Cash, beginning of the period

985

1,086

Cash, end of the period

979

909

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

TETHYAN RESOURCES PLC

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

FOR SIX MONTHS ENDED JUNE 30, 2017 AND 2016

(Unaudited – Expressed in Great British Pounds)

Share capital
(£’000)

Share premium
(£’000)

Share based payment reserve
(£’000)

Own shares held reserve
(£’000)

Currency translation reserve
(£’000)

 Retained losses
(£’000)

 Total equity
(£’000)

Balance, December 31, 2015

3,735

25,431

736

(71)

–  

(28,772)

1,059

Comprehensive loss for the period

–  

–  

–  

–  

(441)

(441)

Balance, June 30, 2016

3,735

25,431

–  

(71)

–  

(29,213)

618

Share capital
(£’000)

Share premium
(£’000)

Share based payment reserve
(£’000)

Own shares held reserve
(£’000)

Currency translation reserve
(£’000)

 Retained losses
(£’000)

 Total equity
(£’000)

Balance, December 31, 2016

3,910

26,881

812

(71)

(6)

(30,163)

1,363

Shares issued for private placement

222

778

–  

–  

–  

–  

1,000

Share-based compensation

–  

32

–  

–  

–  

32

Net loss for the period

–  

–  

–  

–  

(1,152)

(1,152)

Foreign currency translation

–  

–  

–  

(47)

–  

(47)

Balance, June 30, 2017

4,132

27,659

844

(71)

(53)

(31,315)

1,196

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

1.        NATURE AND CONTINUANCE OF OPERATIONS AND GOING CONCERN

Tethyan Resources plc (the “Company”) is a public limited company incorporated and domiciled in England and its shares are traded on the AIM Market of the London Stock Exchange.  The address of the Company’s registered office is 27-28 Eastcastle Street, London W1W 8DH.  The consolidated financial information of the Company as at June 30, 2017 is comprised of the Company and its subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’). This consolidated financial information comprise ‘non-statutory’ financial information of the Company and is unaudited and do not constitute statutory financial information as defined in section 434 of the UK Companies Act 2006.

The Company is currently in the process of acquiring, exploring and evaluating potential properties in Serbia.

The Company has not generated significant revenues or cash flows from operations. These condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at June 30, 2017, the Company has a working capital of £910,000 representing funds available to cover on-going operating costs. The Company has incurred negative cash flows from operations, recorded a loss of £1,152,000 for the six months ended June 30, 2017, and has an accumulated deficit of £31,315,000 as at June 30, 2017.

The Company’s ability to continue on a going concern basis depends on its ability to successfully raise financing. Although the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company. These condensed consolidated interim financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

 

2.        SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation 

These financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and follow the same accounting policies and methods of application as the Company’s most recent annual financial statements.

These consolidated financial statements were approved for issuance by the Company’s Board of Directors on August 25, 2017.

Basis of consolidation

These condensed consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated on consolidation. The Company consolidates subsidiaries where it has the ability to exercise control. Control over an investee is defined to exist when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Particularly, the Company controls investees, if and only if, the Company has all of the following: power over the investee, exposure or rights to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect its returns.

Functional and presentation currency

The consolidated financial information is presented in GBP Sterling, which is the Company’s functional currency. All information presented in GBP Sterling has been rounded to the nearest thousands, except when otherwise indicated.

Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognized in the income statement.

Non-monetary assets carried at fair value and denominated in foreign currency are translated at the rate prevailing when the fair value was determined.

On consolidation, the assets and liabilities of the Group’s overseas operations that do not have a Sterling functional currency are translated at exchange rates prevailing at the balance sheet date. Income and expense items are translated at the dates of the transactions. Exchange differences arising are recognized in other comprehensive income and the Group’s translation reserve. Such translation differences are reclassified to profit and loss in the period in which the operation is disposed of.

Business combinations

For business combinations, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair value at the date of acquisition.

Any excess of the fair value of the consideration over the fair values of the identifiable net assets acquired is recognized as goodwill, which is subsequently tested for impairment rather than amortized. If the cost of the acquisition is less than the fair value of net assets of the subsidiary acquired, the difference is recognized directly in the income statement.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Use of estimates and judgments

The preparation of the consolidated financial information in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgements, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial information are disclosed below:

·       The Company’s assessment of its ability to continue as a going concern requires judgments about whether sufficient financing will be obtained in the near term. See Note 1.

·       The determination of fair values of shares and share-based compensation which require assumptions with respect to volatility, expected life and discount rates. Changes in these assumptions impact fair value to be recognized in profit and loss. 

New accounting standards and pronouncements

In respect of the financial information, the following IFRS Standards and Interpretations, which have not been applied in the financial information, were in issue but not yet effective. These new Standards, Amendments and Interpretations are effective for accounting periods beginning on or after the dates shown below:

Standard

Description

Date

IFRS 9

Financial Instruments

January 1, 2018

IFRS 15

Revenue from Contracts with Customers

January 1, 2018

IFRS 16

Leases

January 1, 2019

The Company does not expect to apply these standards prior to their mandatory effective date. At this time, the Company does not anticipate that the above standards would have a significant impact on the financial statements of the Company.

 

3.   INVESTMENT IN SUBSIDIARIES

a) Tethyan Resources Serbia d.o.o Acquisition

During the period ended June 30, 2017, the Company acquired the issued and outstanding share capital of Tethyan Resources Serbia d.o.o. This acquisition constitutes an asset acquisition as Tethyan Resources Serbia d.o.o., at the time of the acquisition, did not meet the definition of a business, as defined in IFRS 3 ‘Business Combinations’.

The Company paid a total consideration of £Nil for this acquisition. Fair value of net assets of Tethyan Resources Serbia d.o.o. at acquisition date:

Fair value of net assets of Tethyan Resources Serbia d.o.o. at acquisition date:

Cash

£

92,160

Plant and equipment

814

Amounts receivable

51,782

Accounts payable

(2,101)

Amounts due to company

(477,847)

Net liabilities at acquisition

(335,192)

Foreign exchange adjustment

31,103

Net liabilities after foreign currency adjustment

(304,089)

Consideration for acquisition:

£

–  

Loss on asset acquisition

(304,089)

 

b)    Global Mineral Resources d.o.o Acquisition

On April 3, 2017, the Company acquired the issued and outstanding shares of Global Mineral Resources d.o.o for a nominal amount. At the time of this acquisition, the realizable net liabilities of Global Mineral Resources d.o.o. were £25,921, which was recorded as a loss on acquisition.

c) Kosovo Resources Co. Acquisition

During the period ended June 30, 2017, the Company acquired the issued and outstanding shares of Kosovo Resources Co. for a nominal amount. At the time of this acquisition the realizable net assets of Kosovo Resources Co. were £Nil. 

d)    Tethyan Resources Jersey Ltd Acquisition

In May 2016, the Company acquired the entire issued share capital of Tethyan Resources Jersey Ltd (formerly Moroccan Minerals Ltd). The acquisition constitutes an asset acquisition as Tethyan Resources Jersey Ltd, at the time of the acquisition, did not meet the definition of a business, as defined in IFRS 3 ‘Business Combinations’.

The Company acquired all of the issued and outstanding common shares of Tethyan Resources Jersey Ltd, being 17,974,054 shares, by issuing 75,850,508 shares of the Company in a 4.22 to 1 ratio. In addition 105,560 warrants were issued with a strike price of 0.348 p per share. As the acquisition was deemed to be for an asset acquisition and not a business combination, the excess of the consideration over the net assets or liabilities acquired is expensed to the income statement and is not treated as goodwill arising on the acquisition. The ‘loss on asset acquisition’ expensed in the income statement is arrived at as follows:

Fair value of net assets of Tethyan Resources Jersey Ltd at acquisition date:

Cash

£

37,215

Plant and equipment

4,792

Prepaid expenses

11,787

Amounts due from related parties

85,727

Accounts payable

(55,330)

Amounts due to company

(135,340)

Net liabilities at acquisition

(51,149)

Consideration for acquisition:

75,850,508  shares at 0.35p per share

£

265,477

Loss on asset acquisition

(316,626)

 

4.         EXPLORATION AND EVALUATION ASSETS

Suva Ruda Project

Gokcanica Project

Other

Total

£’000

£’000

£’000

£’000

Opening balance, December 31, 2016

Geological work

173

173

Geological samples

51

51

Geological equipment

1

1

Geophysics

4

4

Geological reports

2

2

Licenses

12

2

14

Balance, as at June 30, 2017

243

2

245

In October 2016, Tethyan signed an option agreement with Deep Research d.o.o (“Deep Research”), a private Serbian company, that gives Tethyan the sole and exclusive right to acquire (the “Option”) a license over the Suva Ruda Project in Serbia (the “License”). The License is located in Southern Serbia near the town of Raska (30,000 inhabitants), 170 km directly south of Belgrade and within the Raska Ore district. The License comprises one exploration permit with a surface area of 87 km2.

The Company completed 4 diamond drill holes for a total of 2,318 meters on the Rudnitza copper-gold porphyry prospect within the Suva Ruda exploration permit located in Serbia in December 2016.

In May 2016, the Company executed an option agreement with Rockstone Group LLC (“RSG”) to which Tethyan can earn up to 80% interest in the Gokcanica project licenses in Southern Serbia (“the Gokcanica Permits).

The Gokcanica Permits consist of two adjoining permits with a combined area of 110km² located in southern Serbia, 5 km to the north of the town Josaniska Banja. The area is located within the 500 km² Rashka ore field. A Jurassic ophiolite sequence intruded and overlain by Tertiary andesitic volcanics and intermediate stocks covers the area. The board of Tethyan believes that good potential for porphyry and epithermal style mineralisation as well as deeper-level replacement base metal and gold deposits exists throughout the license.

 

5.         SHARE CAPITAL

Authorized capital

The Company is authorized to issue an unlimited number of common and preferred shares without par value. There are currently no preferred shares issued and outstanding.

 June 30, 2017

December 31, 2016

Number

£’000

Number

£’000

Allotted, called up and fully paid

Ordinary shares of 0.1p each

168,182,052

368

145,959,829

146

Deferred A shares of 0.9p each

368,716,729

3,318

368,716,729

3,318

Deferred A shares of 0.9p each

89,193,163

446

89,193,163

446

4,132

3,910

In July 2016, the Company’s ordinary shares were consolidated on a 1 to 6 basis. The Deferred Shares are not listed on any Stock Exchange and have no rights to vote at any meeting of the Company. These Deferred Shares do not have any rights to dividends nor any other form of distribution other than a maximum of 0.9 pence per share on a return of capital on a winding up of the Company (provided the Company has sufficient cash after the holders of the New Ordinary Shares have been paid an aggregate amount of the paid up capital thereon being 0.1 pence plus 10,000,000 for each Ordinary Share).

 

Changes in issued Share Capital and Share Premium

Number

Nominal value

Share premium

Total

of shares

£’000

£’000

£’000

At December 31, 2015 – Ordinary shares of 0.1p each

416,308,470

3,734

25,431

29,165

Shares issued at £0.038 each in April 2016

Shares issued at £0.038 each in May 2016

Shares issued at £0.043 each in May 2016

30,000,000

13,000,000

75,850,508

30

13

76

84

37

190

114

50

266

Total Pre Share Reorganisation on July 20, 2016

Ordinary A shares of 0.1p each

Ordinary B shares of 0.9p each

Ordinary B shares of 0.5p each

 

Shares issued at 0.1p each in August 2016

Shares issued at 0.1p each in November 2016

535,158,978

89,193,163

368,716,729

89,193,163

 

1,166,666

55,600,000

3,853

89

3,318

446

 

1

56

25,742

2,998

22,744

 

1,139

29,595

3,087

26,062

446

 

1

1,195

As at December 31, 2016 – Ordinary shares of 0.1p each

145,959,829

3,910

26,881

30,791

Ordinary A shares of 0.1p each

22,222,223

222

778

1,000

As at June 30, 2017 – Ordinary shares of 0.1p each

168,182,052

4,132

27,659

31,791

 

Share options

Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the period are as follows:

June 30, 2017

December 31, 2016

WAEP

WAEP

Number

Pence

Number

Pence

Outstanding at the beginning of and at

the end of the period

11,100,000

0.29

28,400,000

3.14

Cancelled during the period

 (28,400,000)

3.14

Issued during the period

11,100,000

0.29

Exercisable at the period end

11,100,000

0.29

18,400,000

0.29

The fair value of options granted was estimated using a simple simulation pricing model, the inputs to which were as follows: Share options outstanding at June 30, 2017 had a weighted average exercise price of 3.14 pence (2016: 1.04 pence) and a weighted average contractual life of 4.25 years (2016: 5.35 years). The expected volatility was 50% and the risk free rate used was 2.56%, giving a fair value at date of grant of £59,350 during the previous period ended December 31, 2016.

To date no share options have been exercised. There are no market based vesting conditions attaching to any share options outstanding at June 30, 2017.

At June 30, 2017 the total number of options over ordinary shares outstanding was as follows:

Weighted

average

exercise

price

Exercise period

Number

(pence)

Exercisable until 2021

11,100,000

0.29

Exercisable at the year end

11,100,000

0.29

Joint Share Ownership Plan (“JSOP”)
The Employee Benefit Trust (“EBT”) is administered by Equiom (Guernsey) Limited as trustees. The trustees hold the shares for the purpose of entering into incentive awards and other arrangements within the terms of its trust deed. The EBT has an interest free loan from the Company to buy shares.
Under the terms of the JSOP which the EBT has entered into, each participant enters into a joint ownership of the respective shares together with the EBT. The interest of the participant relates to the increase in value of the shares above a ‘Hurdle Value’. The JSOP may be realised on certain events, including a ‘change of control’ of the Company, or after the earliest date for realisation set out below, but before the expiry date set out below. The amount that can be realised under the award depends on the nature of the event.

In the event that the JSOP award is realised by a sale of the shares, the difference between the Hurdle Value and the sales price will be held by the EBT and may be applied either to repay the loan outstanding with the Company or to provide further benefits to its beneficiaries.

References in the statement of financial position and changes in equity to own shares held by EBT relate to those shares issued as part of the JSOP. Due to the conditions described above this is considered an equity settled share-based payment transaction.

The number of shares granted and outstanding as June 30, 2017 is as follows:

Weighted

average

exercise

price

Exercise period

Number

(pence)

Outstanding as at December 31, 2016

1,333,333

45.3

Outstanding as at June 30, 2017

1,333,333

45.3

The fair value of this incentive was measured at the date of the award using a binomial option valuation model and is considered the most appropriate method taking into account the effect of the vesting conditions, the expected exercise period and the dividend policy of the Company. There are no market vesting conditions attached to these awards.

 

Share Warrants

As at June 30, 2017, there were 2,447,060 warrants outstanding with a weighted average exercise price of 1.31 pence per share. Details were as follows:

Weighted

average

exercise

price

Exercise period

Number

(pence)

Exercisable until October 4, 2018

105,560

3.48

Exercisable until December 12, 2019

2,341,500

2.20

Exercisable at the period ended June 30, 2017

2,447,060

2.26



6.      LOSS PER SHARE

Basic loss per share

The calculation of basic loss per share for the period ended June 30, 2017 was based on the loss attributable to ordinary shareholders of £1,152,000 (June 30, 2016: loss £441,000) and the weighted average number of ordinary shares in issue of 146,453,656 (June 30, 2016: 69,384,745), calculated as follows:

Loss attributable to ordinary shareholder (basic)

June 30, 2017

June 30, 2016

Total

Total

£’000

£’000

Loss for the period, attributable to owners of the Company

(1,152)

(441)

Weighted average number of ordinary shares (basic)

June 30, 2017

June 30, 2016

Issued ordinary shares at January 1, 2017

145,959,829

61,452,788

Shares issued on March 28, 2017

493,827

7,931,957

Issued ordinary shares at June 30, 2017

146,453,656

69,384,745

Diluted loss per share

There is no difference between the diluted loss per share and the basic loss per share presented. Share options granted to employees could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share as they are anti- dilutive for the period presented.

The diluted weighted average number of shares in issue and to be issued is 157,553,656.

 

7.     CONTINGENT LIABILITIES

Contingent deferred consideration, estimated at £100,000 (December 31, 2016: £100,000), becomes payable if either of the following events crystallise:

a.   the Group discovering a proven deposit of at least three million ounces of gold or gold equivalent at the Pu Sam Cap operation in Vietnam and such deposit having been proven to be capable of extraction by bulk-mining methods; or

b.   a bona fide takeover offer having been made for the entire issued share capital of the Company which values the Company at no less than £133,333,333.

In the event either of the above events crystallise, any liability would be settled by further payment in the form of a share issue equal to the lesser of:

•     33,333,333 Consideration Shares of 1p each issued at the market value at the date of issue; or

•     such number of Consideration Shares as will be equal to 7.5% of the number of Ordinary Shares in issue.

As the likelihood of these events happening is presently considered remote the deferred consideration has not been recognised as a liability. The contingency arose when the Company acquired the Larchland Group from the vendors in the year ended 31st March 2005 and was part of the terms of the sale and purchase agreement with Candice Holdings Limited.

 

8.         CAPITAL COMMITMENTS

As at June 30, 2017, the Group has not been notified of any capital commitments by its joint venture partners (December 31, 2016: nil). Tethyan has long term option deals on two projects located in Serbia, Suva Ruda and Gokcanica. These are option deals and Tethyan is not obligated to continue with either deal should they desire to terminate the deals.

On the Suva Ruda deal the first 2000 meters of drilling was completed in December 2016 and the first payment of €100,000 was completed by June 30, 2017.

As of the date of approval of this financial information, both deals are currently in good standing.

Suva Ruda agreement

Under the terms of the Agreement, Tethyan is entitled to purchase 100% of the License or Deep Research (at Tethyan’s discretion) for a cash payment of €6 million, plus a percentage of the eventual capital cost of building the mine (details set out below), at any time during the total duration of the License and any future extensions of the License (a minimum of 7 years from the date of the Agreement).

The decision whether or not to exercise the Option during this period is at the sole discretion of the Company. The percentage of the capital costs payable by Tethyan in relation to the building of the mine, will only become payable if Tethyan exercises the Option, secures the necessary financing and proceeds with the building of the mine. The percentage of these costs due to Deep Research will be calculated as follows:

·      4% of CAPEX up to €200m;

·      2% of CAPEX between €200 – 500m;

·      1% of CAPEX in excess of €500m.

Gokcanica option agreement

Tethyan may earn up to an 80% interest in the Gokcanica project by completing the following:

(a)     Stage 1:

             In order to earn a 51% interest in the Gokcanica Permits, Tethyan must commit a minimum expenditure of USD 500,000 on an exploration program that will include a drilling of a minimum of 1,000m of either reverse circulation and/or diamond drilling within 2 years. This could include, but is not restricted to, mapping, trenching, rock-chip sampling, soil sampling, remote sensing, geophysics as well as other relevant items such as logistics and administration.

(b)     Stage 2:

             In order to earn a 70% interest in the Gokcanica Permits, in addition to the drilling commitment outlined above, Tethyan must complete a Pre-Feasibility Study (“PFS”) within 5 years. 

(c)     Stage 3:

             In order to earn an 80% interest in the Gokcanica Permits, in addition to the drilling commitment and PFS, Tethyan must complete a Bankable Feasibility Study (“BFS”) within the time-frame of the exploration permits, their renewals or conversion to a mining permit.

 

9.         RELATED PARTIES

Key management and personnel compensation

Key management personnel include the directors of the Company. Key management compensation consists of the following:

Six months ended June 30, 2017

(£’000)

Six months ended June 30, 2016

(£’000)

P Mullens

55

20

C Goss

4

22

F Baker

37

19

S Thacker

32

6

D Fohlen

35

11

G Kantarcigil

6

163

84

The Directors consider that although the balances are recoverable in full they are not repayable on demand and so are regarded as long term in nature (i.e. due in more than one year). The Company engaged the services of J. Proust & Associates Inc., a company controlled by John Proust, a director of both the Company and Southern Arc, its 29.91% shareholder, to provide finance, accounting and administrative services to the Company for a total amount estimated at £25,000. As at June 30, 2017, a balance of £9,300 remains payable.

The above transactions occurred during the normal course of operations and are recorded at the consideration established and agreed to by the related parties.

10.      FINANCIAL INSTRUMENTS

The nature of the Company’s operations exposes the Company to liquidity risk and market risk, which may have a material effect on cash flows, operations and comprehensive income.

The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and to monitor market conditions and the Company’s activities. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and policies.

Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due. All of the Company’s financial liabilities such as accounts payable and accrued liabilities are classified as current. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. See also Note 1.

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company currently does not have any significant credit risk.

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices. The Company is currently exposed to interest rate risk to the extent that the cash and short-term investment maintained at the financial institutions are subject to a floating rate of interest. The interest rate risk on the Company’s cash and short-term investment is minimal.

The Company also operates in Serbia and is subject to foreign currency fluctuations primarily on its cash and accounts payable and accrued liabilities denominated in Serbian Dinar.

At June 30, 2017, the Company had Dinar 1.46M (approximately £11,000) in cash, and Dinar 2.44M (approximately £17,000) in accounts payable and accrued liabilities. As at June 30, 2017, Dinar amounts were converted at a rate of 0.00729 to £1.

Fair value

IFRS requires disclosure about fair value measurements for financial instruments and liquidity risk using a three-level hierarchy that reflects the significance of the inputs used in making the fair value measurements. The three-level hierarchy is as follows:

Level 1 –

Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 –

Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 –

Inputs that are not based on observable market data.

The carrying values of the Company’s receivables and investments and accounts payable and accrued liabilities approximate their fair values.

 

 11.       CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the exploration and development of unproven mineral properties, and to maintain a flexible capital structure. The Company considers items included in shareholders’ equity as capital, which consists of shares issued to its parent company and deficit. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Company may issue new shares or return capital to its shareholder.

The Company currently does not produce any revenue and has relied on existing cash balances and capital financing to fund its operations. The Company is currently not subject to externally imposed capital requirements.

There were no changes in the Company’s approach to capital management in the period ended June 30, 2017.

 

12.        SUBSEQUENT EVENTS

On August 17, 2017, the Company obtained a receipt in connection with the filing of a non-offering final prospectus in the province of British Columbia, Canada. As a result, the Company is now a reporting issuer in the province of British Columbia. In addition, the TSX Venture Exchange (“TSX-V”) has conditionally approved the Company’s application to list its ordinary shares on the TSX-V. Final approval of listing on the TSX-V is subject to the Company satisfying certain customary conditions required by the TSX-V.

On August 25, 2017, the Company appointed Fabian Baker, the Chief Operating Officer, to the board of directors of the Company. The Company also appointed Sol Thacker, the Chief Financial Officer, as Corporate Secretary.