RNS Release - Half Yearly Report

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the period from 1 July 2011 to 31 December 2011

1          GENERAL INFORMATION

The consolidated financial statements incorporate the financial statements of Altus Resource Capital Limited (the "Company) and Altus Global Gold Limited (the "Subsidiary") together known as (the "Group").

The Company is a closed-ended investment company incorporated in Guernsey on 30 April 2009, which listed on the Specialist Fund Market of the London Stock Exchange on 30 June 2009 and on the Channel Islands Stock Exchange ("CISX") on 22 December 2009.

The principal activity of the Group is to realise capital growth from a concentrated portfolio of junior resource equities and to generate a significant capital return to shareholders.

2          ACCOUNTING POLICIES

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

(a)        Basis of Preparation

The consolidated financial statements have been prepared in conformity with International Financial Reporting Standards ("IFRS") as adopted by the EU which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and International Financial Reporting Interpretations Committee ("IFRIC"), together with applicable Guernsey law.  The financial statements have been prepared on a historical cost basis except for the measurement at fair value of certain financial instruments.

The following Standards or Interpretations have been adopted in the current period.  Their adoption has not had any impact on the amounts reported in these financial statements and is not expected to have any impact on future financial positions:

IAS 1 Presentation of Financial Statements (annual amendments)

IFRS 7 Financial Instruments: Disclosures (annual amendments)

IAS 24 Related Party Disclosures (annual amendments)

IAS 34 Interim Financial Reporting (annual amendments)

The following Standards or Interpretations have been issued by the IASB but not yet adopted by the Group:

IFRS 7 Financial Instruments: Disclosures effective for annual periods beginning on or after 1 July 2011.

IFRS 9 Financial Instruments: Classification and Measurement effective for annual periods beginning on or after 1 January 2015.

IFRS 9 Financial Instruments: Accounting for financial liabilities and derecognition effective for annual periods beginning on or after 1 January 2015

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

2          ACCOUNTING POLICIES (continued)

(a)        Basis of Preparation (continued)

IFRS 13 Fair Value Measurement effective for annual periods beginning on or after 1 January 2013.

IAS 1 Presentation of Financial Statements effective for annual periods beginning on or after 1 July 2012.

IAS 32 Financial Instruments: Presentation effective for annual periods beginning on or after 1 January 2014.

The Directors have considered the above and are of the opinion that these Standards and Interpretations are not expected to have an impact on the Group's financial statements except for the presentation of additional disclosures and changes to the presentation of components of the financial statements.  These items will be applied in the first financial period for which they are required.

(b)       Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its Subsidiary.  The Company owns 90.91% of the shares in the Subsidiary and has the power to govern the financial and operating policies of the Subsidiary so as to obtain benefits from their activities.

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

Non-controlling interests in the Subsidiary are identified separately from the Group's equity therein. The interests of non-controlling shareholders are initially measured at the non-controlling interest's proportionate share of the fair value of the acquiree's identifiable net assets. Subsequent to acquisition, the carrying amount of non-controlling interest is the amount of the interest at initial recognition plus the non-controlling interest's share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interest even if this results in the non-controlling interest having a deficit balance.

(c)        Going concern

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  The Directors believe the Group is well placed to manage its business risks successfully despite the current economic climate.  Accordingly, the Directors have adopted the going concern basis in preparing the financial information.

(d)       Taxation

The Company and its Subsidiary have been granted exemption under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 from Guernsey Income Tax, and each entity is charged an annual fee of £600.

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

2          ACCOUNTING POLICIES (continued)

(e)       Expenses

All expenses are accounted for on an accruals basis.

(f)        Interest income

Interest income is accounted for on an accruals basis.

(g)       Cash and cash equivalents

Cash at bank and short term deposits which are held to maturity are carried at cost.  Cash and cash equivalents are defined as call deposits, short term deposits and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.  For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and deposits at bank.

(h)       Share issue costs

The share issue costs borne by the Company are recognised in the Statement of Changes in Equity, as the Company's ordinary shares have no fixed redemption date.

(i)         Investments

All investments and derivative financial instruments have been designated as financial assets "at fair value through profit and loss".  Investments are initially recognised on the date of purchase at cost, being the fair value of the consideration given, excluding transaction costs associated with the investment.  After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Statement of Comprehensive Income. When a share exchange takes place, the fair value of the original holding is carried over to the new holding as the original holding is deemed to be disposed. Commissions paid on the sale or purchases of investments are recognised in the Statement of Comprehensive Income as incurred.

Fair value is the amount for which the financial instruments could be exchanged, or a liability settled, between knowledgeable willing parties in an arms length transaction.  Fair value also reflects the credit quality of the issuers of the financial instruments.

For investments actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices as at the close of business on the reporting date.  If no quoted market bid price is available as at the close of business on the reporting date, the last available market bid price is used.

Valuations of unquoted trade investments and warrants are based on valuations provided to the Group by Altus Capital Limited (the "Investment Manager").  These valuations are intended to be an indication of the fair value of those investments, using valuation techniques designed to reflect the best estimation of the price at which they could be sold, even though there is no guarantee that a willing buyer might be found if the Group chose to sell the relevant investment. 

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

2          ACCOUNTING POLICIES (continued)

(i)         Investments (continued)

The indicative fair values of the investments are based on an approximation of the market value of the investments.  As the investments are not traded in an active market, the indicative fair value is determined by using valuation techniques.  The Investment Manager uses a variety of methods and makes assumptions that are based on market conditions existing at the reporting date.  Different assumptions regarding these factors, combined with different valuation techniques and models used, could lead to different valuations of the financial instruments by different parties.

(j)         Trade date accounting

All "regular way" purchases and sales of financial assets are recognised on the "trade date", i.e. the date that the entity commits to purchase or sell the asset.  Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset within the time frame generally established by regulations or convention in the market place.

(k)        Segmental reporting

The Directors are of the opinion that the Group is engaged in a single segment of business, being investment business and operates solely from Guernsey, therefore no segmental reporting is provided.

3          OPERATING INCOME

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

4          OPERATING EXPENSES

*No fee was charged on the Company's investment in the Subsidiary in the period and future fees payable will be waived.

5          DIRECTORS' REMUNERATION

The Directors of the Company are paid £20,000 per annum (Dec 2010: £15,000).  In addition to £20,000 per annum, Nicholas Falla receives an additional fee of £5,000 (Dec 2010: £3,750) as Chairman and Robert Milroy receives an additional fee of £3,000 as Chairman of the audit committee.

The Chairman of the Subsidiary receives a fee of £18,000 per annum.  Each other Director of the Subsidiary receives a fee of £15,000 per annum. 

6          EARNINGS PER SHARE

Earnings per Ordinary Share is calculated by dividing the net loss for the period attributable to holders of ordinary shares of the Company ("Shareholders") of £5,651,311 (31 Dec 2010: gain £38,302,372) by the weighted average number of ordinary shares in issue during the period (39,719,569 (31 Dec 2010: 39,231,324)).  There are no dilutive instruments and therefore basic and diluted earnings per ordinary share are identical.

7          SUBSIDIARIES

The Company owns 90.91% of the Subsidiary.  The Subsidiary is an authorised open-ended investment company with registered number 54069.  The Subsidiary was incorporated on 10 October 2011 and listed on CISX on 1 November 2011.  The financial year end of the Subsidiary is 30 June, which is co-terminus with the financial year end of the Company.

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

8          INVESTMENTS

IFRS 7 requires the fair value of investments to be disclosed by the source of inputs, using a three-level hierarchy as detailed below:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2);

Inputs for the asset or liability that not based on observable market data (unobservable inputs) (Level 3).

Investments held by the Group have been classified as Level 1, for those investments that are quoted and are valued using quoted market bid prices and Level 2, for those unquoted investments that are valued using standard modelling techniques by the Investment Manager using observable inputs and Level 3 for the private equity investments that are valued at purchase price, after taking account of foreign exchange movements.  This is in accordance with the fair value hierarchy.

Details of the value of each classification are listed in the table below.  Values are based on the market value of the investments as at the reporting date:

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

8          INVESTMENTS (continued)

The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period:

There have been no transfers between Level 1 and Level 2 of the fair value hierarchy during the period under review.

9          TRADE AND OTHER RECEIVABLES

The above carrying value of receivables is equivalent to its fair value.

10        TRADE AND OTHER PAYABLES

The above carrying value of payables is equivalent to its fair value.

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

11        SHARE CAPITAL

Holders of ordinary shares are entitled to receive, and participate in, any dividends out of income; other distributions of the Company available for such purposes and resolved to be distributed in respect of any accounting period; or other income or right to participate therein.

On a winding up, Shareholders are entitled to the surplus assets remaining after payment of all the creditors of the Company.

Shareholders also have the right to receive notice of and to attend, speak and vote at general meetings of the Company and each Member being present in person or by proxy or by a duly authorised representative at a meeting shall upon a show of hands have one vote and upon a poll each such holder present in person or by proxy or by a duly authorised representative shall have one vote in respect of every ordinary share held by him.

12        SHARE PREMIUM

Under IAS 32 'Financial Instruments: Presentation', transaction costs of an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

13        NON-CONTROLLING INTEREST

As detailed in Note 7 above, the Subsidiary has a 9.09% non-controlling interest.

14        FINANCIAL INSTRUMENTS

The Group's main financial instruments comprise:

(a)        Cash and cash equivalents that arise directly from the Group's operations; and

(b)       Quoted and unquoted investment securities.

15        FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The main risks arising from the Group's financial instruments are market price risk, credit risk, liquidity risk, interest rate risk, foreign exchange risk and capital management risk.  The Board regularly review and agrees policies for managing each of these risks and these are summarised below:

(a)        Market Price Risk

Market price risk arises mainly from uncertainty about future prices of financial instruments held.  It represents the potential loss the Group might suffer through holding market positions in the face of price movements.  The Investment Manager actively monitors market prices and reports to the Board as to the appropriateness of the prices used for valuation purposes.  A list of the top 10 investments held by the Group is shown in the Schedule of Top 10 Investments on page 32.

If the value of the Group's investment portfolio were to increase by 30%, it would represent a gain of £16,414,225 (30 Jun 2011: £17,881,517).  This would cause the net asset value of the Group to rise by 22.97% (30 Jun 2011: 23.34%).

If the value of the Group's investment portfolio were to decrease by 30%, it would represent a decrease of £16,414,225 (30 June 2011: £17,881,517).  This would cause the net asset value of the Group to fall by 22.97% (30 Jun 2011: 23.34%).

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

15        FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(b)       Credit Risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.  The Directors receive financial information on a regular basis which is used to identify and monitor risk.

It is Group policy not to invest more than 20% of the gross assets of the Group in the securities of any one company or group at the time the investment is made.

The Group has no significant concentration of credit risk, with exposure spread over a large number of investments.  At 31 December 2011 the Group's largest exposure to a single investment counterparty was £5,113,882 (30 Jun 2011: £5,529,295), which represents 9.35% (30 Jun 2011: 9.28%) of the total market value of the Group's investments.

Investors should be aware that the prospective returns to Shareholders mirror the returns under the investments held or entered into by the Group and that any default by an issuer of any such investment held by the Group would have a consequential adverse effect on the ability of the Group to pay some or all of the entitlement to Shareholders.  Such a default might, for example, arise on the insolvency of an issuer of an investment.

The Group's financial assets exposed to credit risk are as follows:

The Group is exposed to credit risk in respect of its cash and cash equivalents, arising from possible default of the relevant counterparty, with a maximum exposure equal to the carrying value of those assets.  The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.  The Group monitors the placement of cash balances on an ongoing basis.

The Group invests its cash and cash equivalents with Royal Bank of Canada (Channel Islands) Limited, Barclays Private Clients International Limited and Lloyds TSB Offshore Limited.

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

15        FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(b)       Credit Risk (continued)

The investments of the Group are held in custody by Anson Custody Limited or Royal Bank of Canada (Channel Islands) Limited ("RBCCI").  Bankruptcy or insolvency of the Custodians may cause the Group's rights with respect to investments held by the Custodian to be delayed.  Investments held with Anson Custody Limited are held in a Crest account maintained by Anson Registrars Limited in a sub-account designated exclusively for the Group.  This ensures that the investments are ring fenced and will be protected should Anson Custody Limited become bankrupt or insolvent.

RBCCI mitigate risk by using a subcustodian network comprising top-rated and well respected counterparties.  The custodian network is monitored on an ongoing basis to ensure that each one continues to meet RBCCI's stringent criteria.

(c)        Liquidity Risk

Liquidity risk is the risk that the Group will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments.  The Group's main financial commitment is its ongoing operating expenses.

The Investment Manager ensures that the Group has sufficient liquid resources available to fulfil its operational plans and to meet its financial obligations as they fall due.

The table below details the residual contractual maturities of financial liabilities:

Altus Resource Capital Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

for the period from 1 July 2011 to 31 December 2011

15        FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES       (continued)

(d)       Interest Rate Risk

The Group holds cash in several bank accounts, the return on which is subject to fluctuations in market interest rates.

Other than cash and cash equivalents, none of the assets or liabilities of the Group, attract or incur interest.

The following table details the Group's exposure to interest rate risks: