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Sierra Rutile LimitedAnnual Report 2013

Sierra Rutile Annual Report 2013

ContentsStrategic Report 1 Our Highlights for 2013 2 Our Operations 4 Chairman’s Statement 6 Chief Executive’s Statement 8 Business Review 14 Finance Review 16 Corporate Social Responsibility 18 Principal Risks

Governance 22 Directors 23 Directors’ Report 26 Corporate Governance 28 Directors’ Remuneration Report 30 Statement of Directors’ Responsibilities

Financials 31 Independent Auditor’s Report to

the Members of Sierra Rutile Limited and its Subsidiaries

32 Consolidated Income Statement 33 Consolidated Statement

of Comprehensive Income 34 Consolidated Statement

of Financial Position 35 Consolidated Statement

of Cash Flows 36 Consolidated Statement

of Changes in Equity 37 Notes to the Consolidated

Financial Statements 60 Officers and Professional Advisors

Welcome to Sierra RutileSierra Rutile produces rutile, ilmenite and zircon from the world’s largest natural rutile deposits.

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2013

Total Revenue U S$ ’ 0 0 0

1 7 9 , 0 9 4

123,369

3 6 , 8 4 9

4 3 , 9 1 4

5 4 , 9 6 2

2009

2010

2011

2012

2 0 1 3

Rutile Production M T

94 ,4 93

1 2 0 ,3 4 9

6 3,86 4

6 8,198

6 7,196

2009

2010

2011

2012

2 0 1 3

Rutile Revenue U S$ ’000

16 5 ,076

1 1 5 ,9 3 3

35 ,4 6 1

38,5 13

4 0,06 6

2009

2010

2011

2012

2 0 1 3

Capital E xpenditure U S$ m

5 7,5 00

3 7 ,4 0 0

8,700

4 ,000

15 ,300

Strategic Report G overnanc e F inanc ials

Sierra Rutile A nnual Report 2013 1

Operational H ighlights:

> 27% inc rease in rutile produc tion to 120,34 9 tonnes.

> Strong results delivered from c ompany-wide foc us on operating c ost reduc tion and improved operating efficiency as illustrated by a 23 reduction in rutile production c ash c osts1.

> C ompletion of preparation and development work in order to ex ec ute the G angama Dry M ining proj ec t at a reduc ed c apital c ost of U S$ 81 million, a dec rease of over 21% from original estimates.

> 70,000 tonnes rutile supply agreement signed with a leading pigment produc er.

> Memorandum of understanding signed with Smol Pawa Sierra Leone Ltd. to become a cornerstone purchaser for its Moyamba hydro project which will support future power c ost savings.

> A gric ulture proj ec t advanc ed to inc lude planting of over 15 0 hec tares of oil palm trees, 37 hectares of rubber trees, 3 hectares of cacao trees and 13 hectares of pineapples.

F inancial H ighlights:

> Revenue generation of U S$ 123.4 million.

> E BITDA 2 of U S$ 35 .0 million.

> Significant reduction in operating costs despite reduced impact from by-product sales:

> 23% reduc tion in rutile c ash produc tion c osts1 to S 588 tonne (2012: S 768 tonne).

> 22% reduc tion in operating c ash c osts3 to S 683 tonne (2012: S 881 tonne).

> 27% reduc tion in all-in c ash c osts4 to S 763 tonne (2012: S 1,047 tonne).

> Profit for the year of S . million, making Sierra Rutile the best performer, by margin, in its peer group5 .

> Cash and cash equivalent of S 22.6 million and total current assets of S 8 . million as at 31 December 2013.

1 Rutile cash cost of production less by-product revenue divided by tonnes of rutile produced. 2 arnings before interest, tax, depreciation and amortisation, excluding exceptional items and

non-c ash stoc k option ex pense.3 Total operating cash cost less by-product revenue divided by tonnes of rutile produced. 4 Total operating cash cost plus stay-in-business capital cost less by-product revenue divided by

tonnes of rutile produc ed.5 P eer group refers to listed titanium feedstoc k produc ers Iluka Resourc es Limited and K enmare

Resources plc and profit margin refers to profit after tax divided by revenue.

O ur H ighlights for 2013

Job: 20499_SierraRutile_AR13_FRT Proof Read by:Operator: Phil Proof: 01 Set-up: Phil Date: 22 May 2014 9:42 AM First Read/Revisions

20499_SierraRutile_AR13_FRT.indd 1 22/05/2014 15:49

Sierra Rutile A nnual Report 20132

O ur O perationsA strong and growing production base

Rutile production

+ 2 7 .0 %(120,34 tonnes)

Skilled and experienced workforce

> E x perienc ed management team

> 30 years of ex perienc e operating Sierra Rutile

> 95 % Sierra Leone nationals

> H ighly educ ated employees

> Significant recruitment from premier universities of Sierra Leone, F ourah and N j ala

Significant infrastructure in place

> M ineral Separation P lant C urrently capable of processing 165ktpa of rutile, with near-term upgrades inc reasing proc essing c apac ity to 225 ktpa

> Port capable of loading over 500,000 tonnes of produc t per year

> A modern M O power plant capable of produc ing 23M W of power ( c urrent utilisation under MW)

> Over 80km of established haulage roads

> M odern engineering and c amp fac ilities in plac e



M ambolo

Lungi P epel

M asiaka

Rotifunk

Waterloo

F reetown

Bumbuna

J agbwemaK oindu

Buedu

F alaba

G beria Timbako

K oinadugu

Daru

K enema

J oruSerabu

M atru

G bangbatok

Republic of G uinea

A tlantic O c ean

Republic of G uinea

Republic of Sierra Leone

Liberia



Republic of Guinea

Atlantic Ocean

Republic of Guinea

Republic of Sierra Leone

Liberia

Serabu

Matru

Gbangbatok

Mambolo

LungiPepel

Masiaka

Rotifunk

Waterloo

Freetown

Bumbuna

Jagbwema

Koindu

Buedu

Falaba

Gberia Timbako

Koinadugu

Daru

Kenema

Joru

J O RC C ompliant Resourc e of over 900 million tonnes with an average rutile grade of 0.94 % .

SRL E x ploration Lic enc e A reas

SRL M ineral Lease Boundary

Buc ket ladder Dredge designed to dig at a rate of 1,000 tonnes per hour.

1A – Buc ket Ladder Dredge

Wetplant to proc ess the Dredge feed into a heavy mineral c onc entrate.

2A – Wet P lant

Truc king operation to transport heavy mineral c onc entrate to the M ineral Separation P lant and finished product to the Port.

3 – Truc king

C onventional earth moving eq uipment, mines 5 00 tonnes per hour.

1B – Dry M ining

C onc entrator plant to proc ess the dry mined ore into a heavy mineral c onc entration.

2B – C onc entrator P lant

M ineral Separation P lant separates the heavy mineral c onc entrate into its c omponents – c apac ity to produc e 225 ,000 tonnes per annum.

4 – M SP

Shipping fleet comprising two push boats and 1,000 2,000 tonne barges used to transport product to deep water buoys for loading on to international vessels.

7 – Shipping

Port capable of loading over 5 00,000 tonnes of produc t per year.

6 Port

Silos and Domes capable of storing 32,000 tonnes of produc t.

5 – Storage




During 2013, Sierra Rutile saw significant produc tion growth. This growth was ac hieved through the suc c essful c ommissioning of the Lanti Dry M ining P roj ec t, along with the c ontinued production contribution from the Lanti Dredge. F or the year, rutile produc tion increased by 27 to 120,34 tonnes. I am extremely proud to say that we were able to deliver these operational results without inc urring any lost time inj uries.

O ur organisation-wide foc us on enhanc ed cost efficiency throughout 2013 also delivered strong results, reduc ing operating rutile cash production cost per tonne by 23% year over year. O perating c ost reduc tion and enhanc ed operating efficiency continue to be a key focus as we look to the future.

Although our financial performance was significantly affected by lower market pric ing, 2013 revenue of U S$ 123.4 million is enc ouraging and indic ates that our strategic approac h will positively position the C ompany as the market rec overs. M ost importantly, our ability to generate profits in a difficult market environment speaks to the strength of our assets and team.

The addition of Y ves Ilunga and Derek F olmer to the positions of C hief F inanc ial Officer and Chief Marketing Officer, respec tively, further strengthened the senior management team. M r. Ilunga has a strong record of financially enhancing mining operations and driving performanc e upgrades through the implementation of proc ess improvement. M r. F olmer has a

Last year I defined our business strategy as one of long-term value creation through low-capex growth projects and efficiency improvements. This year’s financial results confirm the legitimacy of this approach, and against the challenging backdrop of 2 0 1 3 ’ s weaker market for mineral sands, Sierra Rutile has again achieved much of which to be proud.

C hairman’s StatementM aintaining c ost disc ipline

J an CastroN on-E xecutive Chairman





In 2012, we established African Lion Agriculture (“ALA”), a wholly owned subsidiary of Sierra Rutile, to develop agric ultural opportunities within our mining c onc essions. To date, A L A has planted over 203 hec tares with a mix ture of oil palm, rubber, cocoa and pineapple trees. ALA’s objective is to plant 5, 00 additional hec tares over the nex t 3 years, with the potential to create as many as 1,600 jobs for loc al c ommunities.

F or the c oming year, we will c ontinue our focus on efficiency improvements. Additionally, we are excited by the continued production growth that will be ac hieved through our nex t world-c lass dry mining proj ec t, the G angama Dry M ining proj ec t. P reparation work has c ontinued and the project has been optimised to be delivered at a highly efficient capital cost of $ 81 million. P ending market c onditions, we are fully prepared to ex ec ute this proj ec t and have complete confidence that our team will be able to successfully deliver the proj ec t, as it did with the Lanti Dry M ining proj ec t.

In conclusion, the contribution made by our workforc e, the loc al c ommunities in whic h we operate, as well as the G overnment and people of Sierra Leone towards laying the foundations for the delivery of long-term value for all our stakeholders cannot be overestimated. We greatly apprec iate their on-going support.

J an CastroN on-E xecutive Chairman

F oundation, an independently run non-profit body that was set up to be responsible for the implementation of development programmes in the mining c ommunity. This year the foundation has funded, amongst other things, the installation of solar street lighting in two c ommunities adj ac ent to the mine site. We c ontinue to support the J ac kson and Devon A nderson Tec hnic al and V oc ational C ollege. It has, sinc e its opening in 2010, provided training for over 600 students in skills such as c ivil, elec tric al, and mec hanic al engineering. In the important area of women’s ec onomic empowerment, the eighth pillar of the G overnment of Sierra Leone’s Third G eneration P overty Reduc tion Strategy Paper (2013-2018), we have initiated a pilot Livelihood Restoration programme designed to strengthen women’s entrepreneurship and business development skills, as well as ex tending their ac c ess to mic ro-c redit through a group savings sc heme.

With regard to the preservation of the environment and the rehabilitation of disturbed land, I am pleased to report we were able to restore another 143 hectares of historic al mined out areas. We also operate an aq uac ulture programme, whic h is aimed at developing the lakes created by mining operations into significant and sustainable economic opportunities for neighbouring communities. Since 2011, we have introduced over 600,000 fish into these lakes, with over 234 ,000 tilapia and catfish being introduced in 2013 alone.

strong trac k rec ord of developing and implementing global marketing strategies and substantial experience and knowledge of key markets in N orth A meric a, E urope and A sia, partic ularly in C hina. H e will help us max imise the value of the full range of produc ts produc ed from our world-c lass assets.

Rec ognising the importanc e of our workforc e to our suc c ess, through our rec ently initiated Loc alisation P lan we are investing in c ontinuing to develop a skilled workforc e of Sierra Leonean nationals. This both fulfils our commitment to the Local C ontent P olic y and M ines and M inerals A c t 2009, and strategic ally manages the C ompany for suc c ession needs, talent management and skills shortages.

O verall, the C ompany has delivered a strong operational performanc e in 2013 and, on behalf of the oard, I would like to thank all of our employees for their efforts, determination and ac hievements throughout the year. I would also like to thank the mining c ommunities in our area of operations. Their support plays an important part in the G roup’s suc c ess and we are committed to being valued partners, responsible corporate citi ens and good neighbours in the community in which we work.

During the year we undertook a number of initiatives and partnerships aimed at improving the lives and employment opportunities of the people living in the c ommunities around our operation. In 2013, we c ontinued to support the Sierra Rutile




Lanti Dry M ining is now operating at nameplate capacity, illustrating our ability to ex ec ute and operate a development proj ec t in a timely and c ost-effec tive manner. Combined with a programme of optimisation and improvements in both mining operations and proc essing, Lanti Dry Mining has enabled us to efficiently inc rease produc tion in 2013. F ull-year 2013 rutile produc tion of 120,34 9 tonnes was a rec ord setting 27% inc rease on 2012. A 70,000 tonne rutile supply agreement with a maj or pigment produc er suc c essfully secured sales of a substantial portion of this produc tion. F ull-year 2013 ilmenite produc tion of 32,34 9 tonnes is also noteworthy, as it represents a 4 7% inc rease over 2012.

“ Despite c hallenging market c onditions in 2013, the Company has continued to illustrate its ability to generate value for shareholders through produc tion growth, c ost efficiency and strategic positioning as the market begins to strengthen. G oing forward, we will c ontinue to ex ec ute our strategy of developing low-c apex proj ec ts and achieving continuous efficiency improvements. In line with this strategy, I am pleased to report that the G angama Dry M ining proj ec t is now fully-prepared for implementation pending the right market c onditions”

C hief E x ec utive’s StatementN urturing future talent

J ohn B onoh SisayChief Executive Officer

Culture is the starting point for the long-term stability, success and strength of any organisation and Sierra Rutile’ s culture has proved to be at the core of its performance in 2 0 1 3 . This, allied with a focus on productivity, has seen the company deliver creditable results and accomplish its goals, despite the challenges imposed by a softer mineral sands market.





Thirdly, we are all very proud that in 2013 we marked a full production year with ero lost time inj uries, out of a workforc e of over 1,5 00 staff. E nsuring that our employees end eac h shift unharmed remains at the c ore of Sierra Rutile’s values. Our ability to increase production by 27 without compromising the health and safety of our workforc e is testament to the c ommitment and energy invested in this area.

A lthough still in its infanc y, A L A , our agribusiness, has made considerable progress throughout 2013. To date, it has planted over 203 hec tares with oil palm, rubber, cocoa and pineapple. ALA has the objective to plant 5, 00 additional hec tares over the nex t three years, with the potential to create a total of 1,600 jobs for people in the surrounding c ommunities.

C ritic al to our c ontinued suc c ess is the development of our people, the management of c areer paths and suc c ession planning. To this end, substantial resources have been directed this year at enhanc ing organisational performanc e through the development of our Sierra Leonean employees, with a partic ular emphasis on talent management through our rec ently implemented Loc alisation P lan. We c all this proc ess The Sierra Rutile Way; it artic ulates the attitudes, ethics, behaviours and the overall c ommitment to ex c ellenc e that we expect all our employees to embody.

Throughout 2013 we have made ex c eptional improvements in reduc ing operating c osts through an organisation-wide drive to improve produc tivity through efficiency and cost discipline. This has resulted in a 23% reduc tion in operating rutile c ash produc tion c ost per tonne, the benefits of which will become even more evident as the market strengthens.

Three other ac hievements in 2013 deserve particular mention. The first, a re-costing ex erc ise for the G angama Dry M ining feasibility study, resulted in a 21 dec rease in the c apital c ost, to U S$ 81 million. While we are confident of the merits of the G angama P roj ec t, it remains our view that c urrent market rec overy needs to be well-embedded before c onstruc tion c an c ommenc e.

The sec ond is the memorandum of understanding we entered into with Smol Pawa Sierra Leone Ltd with the objective of being a cornerstone purchaser in respect to its Moyamba hydro power proj ec t. F or Sierra Rutile, the opportunity to purchase reliable, low-cost power will significantly reduce our overall power cost and cost exposure to oil price fluctuations. P ower supplied from the hydropower fac ility will also reduc e Sierra Rutile’s operating risk by diversifying our power sourc es.

O ur foc us on operational ex c ellenc e, value optimisation and c ost disc ipline is driven by our commitment to make a real differenc e to the people of Sierra Leone. Within the c ommunities in our area of operations, this has resulted in a steady and visible improvement in social services, infrastructure and sustainability. Our local c ommunities are one of our most important stakeholders and it is c ritic al that a better Sierra Rutile results in better lives for those in these c ommunities. Their support is, and continues to be, imperative to our suc c ess and I thank them for it.

I would also like to thank our employees for their dedic ated efforts and the way they have embraced The Sierra Rutile Way. Thank you also to our other key stakeholders, namely our investors, the G overnment and people of Sierra Leone, whose on-going support has positioned us well to c ontinue to realise Sierra Rutile’s full potential.

J ohn B onoh SisayChief Executive Officer




Business ReviewDriving value through an established operation

Mission, Vision and ValuesMission:We aim to deliver long-term shareholder value through the sustainable and efficient operation of Sierra Rutile’s world-class assets.

Vision:To create a national champion for Sierra Leone, recognised as a global leader in the mineral sands industry, by:

> developing the significant value contained in the Group’s mineral deposits;

> improving operational performance through the application of best practices;

> working in partnership with local communities and the Government of Sierra Leone (“GOSL”) to ensure the Group maintains and builds upon its social license to operate;

> increasing the Group’s portfolio through the addition of other minerals’ assets within Sierra Leone or other potential mineral sands operations worldwide; and

> providing Good Agricultural Practices (GAP) and a good working environment for our workers and the community in which we work.

Sierra Rutile’s mine, located in southwest Sierra Leone, is one of the largest natural rutile deposits in the world, with a JORC-compliant Mineral Resource for measured, indicated and inferred resources for the Sierra Rutile mine of over 900 million tonnes (as at 30 September 2013).

The Group is also engaged in agricultural activities through its wholly owned subsidiary ALA, with the main focus of producing oil palm, cacao, rubber and pineapples.

Group OverviewSierra Rutile is a leading mineral sands and agricultural company, operating world-class assets in Sierra Leone. The Company operates the Sierra Rutile mine, which produces rutile, a high-quality feedstock for the global titanium dioxide pigment industry, together with ilmenite ore, a lower grade titanium dioxide ore. On a selective basis, the Company also produces and sells quantities of zircon and other concentrates that contains a variety of minerals.

Job: 20499_SierraRutile_AR13_FRT Proof Read by:Operator: Phil Proof: 01 Set-up: Phil Date: 27 May 2014 2:17 PM First Read/Revisions




The c ompletion of the Lanti Dry M ining proj ec t ramp-up and a step-up in the Lanti Dredge produc tion have resulted in a significant increase in the production of heavy mineral c onc entrate from these production units. This has flowed through to the mineral separation plant, where the average daily rutile produc tion has increased substantially.

During the year, the G roup c ontinued with its resourc e ex pansion programme to ex tend the mine life of its operations. Drilling was completed across a number of areas of the deposit, inc luding tailings to identify potential ex tensions to the ex isting mineral resourc e. During the year the G roup c arried out ex ploration work on the Semabu, Jagbwema and Gbangbaia deposits. Sierra Rutile will c ontinue with the sec ond year of this phased ex ploration programme and mineral resourc e evaluation ac ross all three ex ploration lic enc e areas during 2014 .

Mining OperationsSierra Rutile MineThe Sierra Rutile mine is loc ated in the south west of Sierra Leone near the Imperri H ills, 30 km from the A tlantic Ocean, on low lying coastal plains about 135 km southeast of the c apital, F reetown. Sierra Rutile holds mining leases over a land area of 560 sq. km in which nineteen separate rutile deposits have been identified.

The mine is self-sufficient and generates its own power through its marine fuel oil (“M O”) power plant, operates its own port, maintains loc al road infrastruc ture, has its own c linic and generally provides and maintains its own infrastruc ture and anc illary servic es.

The mine currently employs a bucket ladder dredge and c onventional mineral proc essing methods to produc e rutile and an ilmenite by-product. urther by-produc ts are periodic ally produc ed, including a ircon concentrate and other mineral c onc entrates. During 2013, the G roup suc c essfully c ommissioned the new Lanti Dry M ining, whic h is c urrently operating at name plate c apac ity and produc es c onc entrate using c onventional dry earthmoving tec hniq ues. This c onc entrate is proc essed in ex isting mineral proc essing fac ilities to produc e rutile and ilmenite by-product.

Values:ealth and Safety: the health and safety

of our workforc e is paramount. O ur approach to health and safety is based on the princ iple of ac c ident avoidanc e for our employees, and we aim to implement a policy that is consistent with the best global standards.

Community: Sierra Rutile is c ommitted to being a positive force not only in the communities around the minesite but Sierra Leone as a whole. The G roup pursues a number of initiatives and partnerships, inc luding the Sierra Rutile F oundation, whic h are designed to improve the lives and opportunities of the people of Sierra Leone.

nvironment: the G roup aims to minimise the environmental impac t of its mining operations and is c ommitted to the rehabilitation of land affected by current and historic al mining ac tivity.

Operations: the G roup seeks to max imise production and operational efficiency at the Sierra Rutile mine. The ex pansion and optimisation of produc tion will allow the Group to deliver long-term profitability and c apitalise on the uniq ue potential of the Sierra Rutile resourc e.




Mineral Resources E stimateThe mining concession is one of the largest natural rutile deposits known in the world. In September 2013, the Group obtained an upgraded J O RC -c ompliant M ineral Resourc e for the Sierra Rutile mine, whic h estimated that the total measured, indic ated and inferred resourc es were over 900 million tonnes.

2 0 1 3 :Grade ( % ) Contained Tonnes ( K t)

CategoryTonnes

Millions Rutile I lmenite Z ircon Rutile I lmenite Z ircon

M easured 65. 0. 6 0.4 9 0.23 630.4 317.9 56.3Indic ated 709.9 0.93 0.38 0.09 6,567.1 2,187.0 460.1

Total 7 7 5 .8 0 .9 3 0 .3 9 0 .1 0 7 ,1 9 7 .5 2 ,5 0 4 .9 5 1 6 .4

Inferred 135 .9 0.98 0.26 0.06 1,335 .5 4 7.2 17.7

Total 9 1 1 .7 0 .9 4 0 .3 7 0 .0 9 8 ,5 3 3 .0 2 ,5 5 2 .1 5 3 4 .1

M ineral Resourc es are reported in ac c ordanc e with the J O RC C ode 2012.

2 0 1 2 :Grade ( ) Contained Tonnes ( t)

C ategoryTonnes M illions Rutile Ilmenite Z irc on Rutile Ilmenite Z irc on

M easured 4 3.3 0.82 0.4 8 0.10 35 4 .2 206.8 4 4 .1Indic ated 618.2 1.05 0.19 0.14 6,4 7.1 1,15 2.2 873.0

Total 661.5 1.04 0.21 0.14 6,851.3 1,35 9.0 917.1

Inferred 179.4 0.90 – – 1,610.0 – –

Total 84 0.9 1.01 8,461.3

M ineral Resourc es are reported in ac c ordanc e with the J O RC C ode 2004 .

Business Review c ontinued





inc luding the inc orporation of the c urrent proc essing rec overies into the plan. This optimisation resulted in a greater than 11% inc rease in the average forec ast rutile produc tion over the life of the deposit to 93,100 tonnes per annum from 83,4 00 tonnes per annum whic h was outlined in the pre-feasibility study. orecast peak production in the first year of operation is expected to be over 100,000 tonnes of rutile. It remains our view that the c urrent market recovery needs to be well-embedded before construction can commence.

Sembehun DredgeIn October 2012 the Group also announced the Sembehun Dredge Mining project, following c ompletion of a sc oping study conducted by external consultants. The Sembehun Dredge represents the next step c hange in produc tion for Sierra Rutile.

Low-Cost H ydro-Power Proj ectDuring the year, Sierra Rutile entered into a memorandum of understanding with Smol P awa Sierra Leone Ltd. ( “ Smol Pawa”) to become a cornerstone purchaser for its Moyamba hydro project.

The Moyamba hydro project is an 11 14 M W run-of-river hydroelec tric proj ec t loc ated at the Singimi F alls on the Gbangba River, within 20 km of Sierra Rutile’s ex isting operations. The proj ec t will be developed as a public-private partnership with the G overnment of Sierra Leone and will serve the c ommunities of Moyamba, jala niversity and Sierra Rutile. A feasibility study is currently being completed for the project by Smol Pawa,

Gbeni Mining methodDuring 2013, the G roup reviewed the mining method and mine plan for the Gbeni deposit and concluded that the deposit should be mined using dry mining tec hniq ues utilising the ex isting Lanti Dry Mining concentrator plant, rather than by dredge as originally envisaged.

This new mining approac h will mean that the current Lanti Dredge will not be moved to the Gbeni deposit, resulting in substantial near-term capital costs savings of U S$ 23 million. This dec ision will also significantly reduce the required ongoing maintenanc e c apital of the Lanti Dredge which is now planned to be retired early in 2019, after almost 4 0 years’ servic e. By utilising the Lanti Dry M ining c onc entrator plant for the Gbeni deposit, the change in mining method will mean that the req uirement and c ost of moving the Lanti Dry M ining c onc entrator plant to another deposit is now delayed by 10 years, to 2027.

Gangama Dry MiningIn 2013, the G roup c ompleted a value-optimisation and re-c osting ex erc ise for the Gangama Dry Mining feasibility study, which resulted in more than a 17% dec rease in the c apital c ost, to a total of U S$ 85 million from the U S$ 103 million antic ipated in the pre-feasibility study. Subsequent refinement has reduc ed this c ost further to U S$ 81 million, a 21% reduc tion from the original estimate. Of this amount, 77 is at fixed pric es. In addition to c osts, as part of the feasibility study, the mine plan for the G angama deposit was also optimised,

K ey Proj ect PipelineLanti Dredge, Floating Treatment Plant, Mineral Separation Plant and associated infrastructure In A pril 2013, a planned three-week shutdown to overhaul c ertain c ritic al c omponents of the ex isting Lanti Dredge was undertaken. In some c ases, this was the first time that a number of these components had been overhauled since the dredge was c ommissioned in 1979 and it is ex pec ted that these overhauls will ex tend the residual operating life of the dredge. This work was c ompleted on time and with no lost-time inj uries. Sinc e the shut-down, there has been a significant inc rease in the mining rate of the dredge.

These enhancements and substantial improvements in proc ess rec overies have contributed to increased production, c ulminating in rec ord annual produc tion of 120,34 9 tonnes of rutile in 2013.

Lanti Dry MiningThe heavy mineral c onc entrator for the Lanti Dry M ining proj ec t underwent its final performance testing and was c ommissioned suc c essfully in A pril 2013, having ac hieved an average feed rate of 522 tonnes per hour (“tph”) over a 168-hour period, exceeding the design specification of 500 tph. Production from this newly c ommissioned plant has also contributed to increased production, c ulminating in rec ord annual produc tion of 120,34 9 tonnes of rutile in 2013.




Business Review continued

Our investment strategy is aligned with the current global markets that have seen higher cacao bean prices. During the year, we have focused on project site selection, land preparation and initial planting exercise.

In total the Group plans to complete planting crops of approximately 4,000 hectares of oil palm, 1,500 hectares of rubber, 500 hectares of cacao and up to 100 hectares of pineapple.

Oil PalmPlanting started in the second half of the year and we managed to plant a total of 150 hectares of oil palm during 2013, with plans to plant a further 850 hectares in 2014. Pre-nursery and nursery for the 2014 planting season is already in place with planting expected in May 2014.

The production from the oil palms planted in 2013 is expected to come on-stream starting in 2017 when those palms will yield sufficient fruit to begin harvest. This will mark a significant milestone for the Group.

CacaoA total of 3 hectares of cacao trees were planted in 2013 with plans to plant a further 30 hectares in 2014. Pre-nursery and nursery for the 2014 planting season is already in place.

and financing permitting, construction is expected to be completed within 36-48 months. This will allow Sierra Rutile to purchase reliable, low-cost power that will significantly reduce cost exposure to oil price fluctuations.

Agricultural OperationsThe Group continued with its expansion strategy into agribusiness, building a future multiple revenue stream business focused primarily on oil palm, cacao, rubber and pineapple. With over 55,000 hectares of land in our mining concessions, and given the region’s ample rainfall, fertile soil, and location near the equator, there is a compelling business case for an agribusiness that also provides substantial employment opportunities for the surrounding population.

Our corporate social responsibilities will be centred around Global GAP, (Good Agricultural Practices), which are internationally recognised guidelines to help us follow worker safety procedures, along with providing an adequate working environment for our workers and the community in which we work. Some of the key benefits we have noted during the year included:

> employment opportunities for communities within the local area;

> leasing of land from the community and thereby creating revenues for the community; and

> installation of solar lights in each of the communities in which we operate.

RubberA total of 37 hectares of rubber trees were planted in 2013 with plans to plant a further 450 hectares in 2015. Pre-nursery and nursery for the 2014 planting season is already in place.

Pineapple13 hectares of land were planted with pineapple in the third quarter of 2013. Initial harvesting from these pineapples is expected in the fourth quarter of 2014, and a two year supply contract is under negotiation with a major fruit juice producer within Sierra Leone who will be able to purchase all the produce.

Job: 20499_SierraRutile_AR13_FRT Proof Read by:Operator: Phil Proof: 01 Set-up: Phil Date: 27 May 2014 2:17 PM First Read/Revisions




K ey Performance I ndicators ( “ K PI s” )

2009 2010 2011 2012 2 0 1 3

Rutile Production (MT) 63,864 68,1 8 67, 16 94 ,4 93 1 2 0 ,3 4 9Turnover ( S million) 36.85 4 3.91 5 5 .0 179.1 1 2 3 .4Current Assets ( S million) 5 8.8 5 5 .1 5 4 .2 92.2 8 9 .9G earing* 29.9% 27.4 % 1 .6 14 .8% 1 9 .9 %A ssets Turnover* * 20.9% 24 .5 % 33.5 % 72.7% 4 6 .3 %

ITDA ( S million) 9.7 (0.8) 0.1 107.8 3 5 .0et Cash Cash quivalents ( S million) 25 .9 28.4 10.7 5 .1 2 2 .6

Capital xpenditure ( S million) 8.7 4 .0 15 .3 5 7.5 3 7 .4Lost Time Inj uries 25 9 3 4 0F atalities 0 0 0 0 0

Gearing, is calculated as the ratio of debt to debt plus equity. The asset turnover ratio, which measures the efficiency of a company’s use of its assets in generating sales revenue and is calculated as the ratio of

revenue to total assets. arnings before interest, tax, depreciation and amortisation excluding exceptional items and non-cash stock option expenses.




F inanc e ReviewContinual focus on capital efficiency and cost reduction

The G roup repaid U S$ 2.9 million princ ipal on the G O SL loan in 2013. The nex t repayment of princ ipal on the loan from the G O SL of U S$ 4 .9 million is due in J une 2014 . P rior to this date only interest on the loan is payable. The final installment on the loan will be repaid in December 2016.

TurnoverRutile, ilmenite and ircon and other c onc entrates sales of U S$ 123.4 million in 2013 were 31% lower than the U S$ 179.1 million ac hieved in 2012. In 2013, the G roup sold 111,018 tonnes of rutile generating revenue of S 116 million (2012: 80,8 4 tonnes for S 165.1 million), 24,170 tonnes of ilmenite generating revenue of S 6.1 million (2012: 1 ,643 tonnes for S 6.6 million) and 3,232 tonnes of ircon and other c onc entrates generating revenue of 1.3 million (2012: 28,232 tonnes for 7.4 million). The major contribution to

the dec rease in sales in 2013 over 2012 was the significantly weaker pricing obtained with an average realised price for rutile in 2013 of S 1,044 tonne (2012:

S 2,041 tonne), partially offset by the 37% inc rease in volume of produc t sold.

B orrowingsO n 19 A ugust 2013, the G roup entered and subsequently satisfied all conditions prec edent for a one-year U S$ 20 million working capital facility (“ edbank Loan”). The edbank Loan carries an interest rate of LIBO R plus 4 % and is sec ured against assets of the Group. The edbank Loan contains certain financial covenants related to financial performance and position whic h are sensitive to key assumptions inc luding c ommodity pric e and production. Renewal of the edbank Loan requires bank approval.

On 13 December 2013, the Group entered into an agreement for the provision of a U S$ 30 million senior loan fac ility (“ edbank Senior Loan”). The edbank Senior Loan has a tenor of four years from financial close, carries an interest rate of LIBO R plus 5 .25 % , and is sec ured against the assets of the G roup. U se of the

edbank Senior Loan is restricted to c apital ex pansion proj ec ts. C losing and drawdown of this edbank Senior Loan is subject to satisfaction of a limited number of outstanding c onditions c ustomary for a financing of this type. Sierra Rutile has up until the 31 December 2014 to reach financial close and a further 18 months to draw down the funds.

Cash and liquidityAs at 31 December 2013, the Group had cash on hand of S 22.6 million.

The Group also had trade receivables of S 2.5 million (2012: S 34.3 million).

A t the year end, the G roup was c arrying an inventory of 36,558 tonnes of rutile (2012: 26,807 tonnes) and 12,48 tonnes of ilmenite, which have a balance sheet value of S 30.1 million (2012: S 25.2 million). During the year the G roup invested U S$ 37.4 million in property, plant and equipment with S 11.8 million being spent on ex isting operations and

S 25.6 million on expansion projects.





Administrative and Marketing E xpensesAdministrative expenses increased by U S$ 1.1 million from U S$ 13.5 million in 2012 to S 14.6 million in 2013 principally due to addition of the agric ultural arm.

E xceptional I temsThe G roup rec orded an ex c eptional loss of

S 0.4 million (2012: gain of S 0.2 million). The 2013 amounts relate to impairment of certain feasibility study c osts.

F inance Costset finance costs increased from S 3.4

million in 2012 to U S$ 5 .1 million in 2013. The inc rease was princ ipally due to the additional interest paid on the edbank Loan and the apprec iation of the E uro against the U S Dollar and the impac t this had on the E uro-denominated loan from the GOSL, which contributed to the net foreign ex c hange loss of U S$ 1.3 million in 2013 (2012: loss of S 0.6 million).

Cost of SalesRutile c ash c ost of produc tion dec reased 23 to S 588 per tonne (2012: S 768 per tonne) as a result of increased production and the cost efficiency drive implemented in 2013.

On an absolute basis, cost of sales were higher at U S$ 93.1 million for the year from U S$ 78.3 million in 2012 due to the ramp up of operations and the greater volume of rutile sold, impacted by:

> inc reased produc tion and shipping c osts of S 60. million (2012: S 4 .6 million) required to support increased produc tion; and

> an inc rease in deprec iation c harge to S 17.6 million (2012: S 15. million)

mainly due to additional deprec iation on Dry M ining assets.

The G roup remains c ommitted to c ontrolling c osts and c ontinue to foc us on many cost efficiency programmes.




With a view to ex panding the sc ope and improving the q uality of health servic es delivery, we c ommissioned the servic es of a technical external laboratory consultant who c ompleted a c ompetenc y assessment of the Sierra Rutile Clinic’s laboratory. Subsequently, the recommendations of the assessment were implemented that inc luded the purc hase of several essential items of medic al eq uipment. The c linic is now eq uipped to handle a wider range of health tests and treatment of medic al c onditions.

CommunitySierra Rutile is committed to being a positive forc e in the c ommunities around the mine site as well as in Sierra Leone as a whole. The Group pursues a number of initiatives and partnerships, inc luding the Sierra Rutile F oundation, whic h are designed to improve the lives and employment opportunities of the people of Sierra Leone.

Training and rec ruiting the nex t generation of skilled employees is an important part of Sierra Rutile’s long-term business strategy. G rowing c ompetition for skilled labour in Sierra Leone, the ageing nature of the G roup’s workforc e and the desire to improve the lives of the loc al populac e mean it is inc reasingly important to support educ ation initiatives in the areas around the mine.

Occupational H ealthThe Sierra Rutile C linic , whic h supports all ongoing initiatives, treated approx imately 1,800 people a month in 2013, the maj ority of whom are our employees and their families. We also run additional weekly c linic s in loc al c ommunities to provide basic and emergency public healthc are.

During the year the c linic treated over 5,800 employees and members of the local c ommunities for malaria and typhoid.

Sierra Rutile c ontinued its suc c essful partnership with N G O s, the M ine Workers U nion and the N ational A IDS Sec retariat of Sierra Leone (“ AS”) to address the prevention of H IV / A IDS. In 2012, the G roup sponsored a study to assess the impac t of its H IV / A IDS programme; the study was undertaken by AS with support from the International Labour Organi ation, ILO AIDS (Geneva) and the Opec und for International Development (“O ID”). The main objective of the study was to obtain estimates of H IV prevalenc e and key behavioural indicators relating to I transmission and prevention methods. A s part of the rec ommendations of the 2012 H IV / A IDS prevalenc e study, the G roup invested additional resourc es to ex pand the sc ope of its H IV / A IDS programmes beyond the confines of its workplac e to target the c ommunity inc luding provision of voluntary H IV / A IDS testing and treatment servic es.

E nvironmental, H ealth and Safety ( “ E H S” )The Group continued to see significant safety improvements in 2013 that resulted in a Lost Time Inj ury F req uenc y Rate (“LTI R”) of ero in its Mining Operations. The addition of ALA brought new safety c hallenges to the G roup, and the G roup rec orded one fatality in its A gric ultural O perations as a result of the unc onventional use of an agroc hemic al substance. ollowing this loss, a c omprehensive audit of the A L A operations has been carried out that now gives a good insight in the key safety risks of the operations. This audit resulted in the Group employing an S officer for ALA as well as c arry out training for all c hemic al handlers and other operators.

K ey E H S Indic ators 2010 2011 2012 2 0 1 3

umber of: F atalities 0 0 0 1

Lost Time Inj uries 9 3 4 0

We remain c ommitted to c ontinually improving our performanc e in this vital area. The G roup c ompleted a comprehensive first aid training programme c overing all loc ations and shifts, conducting a formal baseline health and safety risk assessment and developing a formal system of health and safety standards, training, auditing and management accountability.

Corporate Social ResponsibilityContributing to a better Sierra Leone





In 2011, the G roup c ommissioned a third party to c onduc t a full survey of historically disturbed land. ollowing this analysis a plan was developed and is being implemented to rehabilitate all legacy disturbed areas over the next six years.

The G roup ac hieved and ex c eeded its land rehabilitation target by successfully rehabilitating a total of 142.84 ha of disturbed sand tails in its mined-out Pejebu- orth deposit comprising filling of sand tailings and borrow pits, through the planting of various types of trees. It is intended that the trees will, in due c ourse, provide the basis for local communities to develop agribusiness opportunities. The land rehabilitation project collaborates with the Sc hool of F orestry and H ortic ulture of N j ala U niversity for technical assistance, and also draws labour direc tly from loc al c ommunities to the rehabilitation sites. The Group’s land rehabilitation project not only target sustainable ecosystem restoration of mined out areas, but also provides other sustainable development opportunities for the mining communities through job c reation.

With the completion of the rehabilitation of amba elebu fish holding pond in 2013,

the G roup also suc c essfully ex c eeded its 2013 fish stocking target of over 180,000 by stocking a total of over 234,000 tilapia, cat fish and eleven different native fish species into the lakes created by historical mining ac tivity. The introduc tion of the native fish species is our strategy to promote heterogeneity to restore the aq uatic ec osystem of the mined-out lakes.

The G roup also paid a total of $ 179,000 to the A gric ultural Development F und whic h is an annual statutory contribution the G roup makes to fund agro-ec onomic development projects in all five mining c hiefdoms where the the G roup operates.

Other ongoing projects implemented by the Group during the year included:

> rehabilitating and maintaining some of the key c ommunity road networks within the mining c onc ession;

> daily provision of c lean water supply to the areas surrounding the mining c ommunities;

> construction of a 6-classroom primary sc hool in N yandehun, Imperri C hiefdom;

> rehabilitating a mosque at Matagelema, Lower Banta C hiefdom;

> c onduc ting in-servic e training for sec ondary sc hool teac hers in the mining area on core subject areas;

> c onstruc ting 4 -c ompartment ventilated improved pit latrines in 2 markets and 4 sc hools;

> constructing of borehole wells with hand pumps in several c ommunities around the mining areas; and

> c ontinuing the implementation of the dust suppression programme by road watering.

E nvironmentThe G roup aims to minimise the environmental impac t of its mining operations and is c ommitted to the rehabilitation of land affected by current and historic al mining ac tivity. The mining proc esses used at Sierra Rutile have a relatively limited impac t on the environment and no large-sc ale mining pits are c reated.

Our land rehabilitation aims to restore the agric ultural potential of the areas that were previously mined in an effort to provide long-term agribusiness opportunities for the loc al c ommunities. The various types of trees that were planted in previous years on former mine works, as part of both the Darwin Initiative and the G roup’s own proj ec ts, have all been successful, and the Group will continue to observe their growth rates to determine the best strategy going forward for land rehabilitation.

During 2013, the G roup c ontinued to support the J ac kson and Devon A nderson Tec hnic al and V oc ational C ollege. The C ollege teac hes relevant tec hnic al and engineering skills to young people in the c ommunities around the mine site. The C ollege c urrently offers diploma level c ourses in c ivil, elec tric al, mec hanic al and automobile engineering and teaching certificate level courses in business studies and information tec hnology. It is hoped that the Institute will significantly improve the long-term employment prospec ts for the people living around the Sierra Rutile mine and promote inc reased rec ruitment of loc al Sierra Leoneans and further lower its relianc e on ex patriate workers. F ifteen of the Institute’s top-performing graduates enrolled in a new traineeship programme at Sierra Rutile that provides these apprentic es with prac tic al training ex perienc e in the G roup’s workshops.

A c c ess to c lean water is one of the most important fac tors in ensuring the health and well-being of the communities around the mine site, and the G roup is rehabilitating old wells and constructing new ones in order to provide a long-term solution for loc al villagers’ water needs.

Sierra Rutile F oundationThe Group contributed S 150,000 to the Sierra Rutile oundation in 2013 (2012:

S 150,000), which was set up in 2006 to finance sustainable community development initiatives in the areas surrounding the G roup’s operations. The oundation is managed by an independent

board of trustees.

In 2013, the F oundation installed a total of twenty one solar street lights in the two c losest c ommunities within the Sierra Rutile mine site of Mogbwemo and Moriba Town.

Sierra Rutile launc hed the Livelihood Restoration P rogramme, whic h is designed to promote ec onomic empowerment in the mining area. Through the F oundation, two loc al c ommunity development servic e providers were c ommissioned to implement these proj ec ts. C O DO H SA P A , a reputable savings and micro-credit organisation, implemented a proj ec t to enhanc e women’s soc ioec onomic c apac ity through financial savings and livelihood support, while the Y oung Women’s Christian Association ( WCA) implemented another proj ec t whic h aimed to promote the soc io-ec onomic empowerment of twenty loc al c ommunity women through bread making and agricultural skills training for employability and self-reliance respec tively.




P rinc ipal RisksThe table below sets out the major strategic and operational risks whic h the G roup fac es and their potential impac t on our future performanc e, and our strategy for managing them.

Principal Risk Mitigation

E xploration and estimates of mineral reserves and resourcesM ineral ex ploration and development involves a high degree of risk. Suc c ess in ex ploiting mineral resourc es and reserves is the result of a number of factors, including the level of geographical and technical expertise, the quality of land available for exploration and other fac tors.

The economics of developing mineral properties are affected by many factors including the cost of operations, variations in grade, fluctuation in prices and fluctuation in exchange rates. ailure to meet project delivery timetables and budgets may impact potential performance, delay cash inflows and increase capital costs.

Mineral reserves and resources estimates for projects are based on the interpretation of geological data obtained from drill holes and other sampling techniques and feasibility studies which derive estimates of costs based upon anticipated tonnage and grades to be mined and proc essed. There are numerous unc ertainties inherent in estimating ore reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available. C hanges in the forec ast pric es of c ommodities, ex c hange rates, produc tion c osts or rec overy rates may c hange the ec onomic status of reserves and may, ultimately, result in the reserves being restated.

> The G roup engages independent ex ternal c onsultants to review ex ploration work and produc e resourc es and reserves estimates, supplemented by its own in-house ex perts.

Operating risksThe activities of the Group are subject to all of the ha ards and risks normally assoc iated with ex ploration, development and operation of natural resourc e proj ec ts. These risks and unc ertainties inc lude environmental ha ards, industrial accidents, labour disputes, mec hanic al failures of the dredges or other key plant or mac hinery, grade problems, and periodic interruptions due to inclement or ha ardous weather conditions and other acts of God. Should any of the risks affect the Group, it may significantly reduce production for prolonged periods and c ause the c ost of produc tion to inc rease to a point where it would no longer be economic to continue operations.

> The G roup has employed highly skilled personnel in all its business.

> C urrent proj ec ts like Lanti Dry M ining and G angama Dry Mining initiatives are set to de-risk the operations by reduc ing relianc e on a single mining unit.

I nsuranceCommon to other mining companies, Sierra Rutile is subject to risk whic h c ould result in damage to or destruc tion of mineral properties and operating assets, personal inj ury or death, environmental damage, delays in extraction and possible legal liability.

Accordingly, Sierra Rutile may suffer losses, liabilities or damages against whic h it c annot insure or against whic h it may elec t not to insure because it is too expensive relative to the perceived risk. Should such liabilities or damages arise, they could reduce or eliminate any future profitability, result in increased costs and the loss of the Group’s assets and a dec line in the value of the G roup’s sec urities.

> The Group retains insurance cover with reputable organisations on all its operations and c onstantly monitors suc h for adeq uac y taking regard of its ex pansion proj ec ts.






CompetitionThe mining industry is c ompetitive in all of its phases. The G roup fac es strong c ompetition from other mining c ompanies in c onnec tion with the ac q uisition of mineral properties, as well as for the rec ruitment and retention of qualified employees.

Larger companies, in particular, may have access to greater financial resources, operational experience and technical capabilities than the G roup whic h may give them a c ompetitive advantage.

> The G roup c onstantly reviews its human resourc es’ polic y to ensure it c an c ontinue to attrac t and retain key and ex perienc ed staff.

> The Group embarked on a localisation drive to up-skill the loc al employees.

> The G roup monitors ac hievement of targets and c ash flows to ensure sufficient funds are available to meet operational req uirements.

> The Group regularly reviews quarterly updates of global mining industry and engages independent ex ternal advisors to help with market analysis.

Volatility of mineral pricesThe future profitability of the Group will depend on the market price of rutile. Mineral prices fluctuate widely and are affected by numerous factors beyond the Group’s control, including global supply and demand, politic al and ec onomic c onditions, advanc ements in mineral processing and currency exchange fluctuations. The effect of these factors on the price of rutile cannot accurately be predicted.

> C onstant review of our produc tion and c ash c osts per tonne and ensuring our operations are low-c ost and efficient.

> C urrent proj ec ts like Lanti Dry M ining and G angama Dry M ining initiatives are likely to further reduc e produc tion c osts per tonne.

> The Group regularly reviews quarterly updates of global mining industry and engages independent ex ternal advisors to help with market analysis.

> Constantly engage with the customer base.

Political riskThe G roup’s properties are loc ated in Sierra Leone and its operations may be affected to varying degrees by political and economic instability, crime, fluctuations in currency exchange rates and inflation. Whilst there can be no certainty about the future stability of the c ountry, we note that there was a suc c essful national elec tion undertaken in ovember 2012 which was largely peaceful.

> The G roup works c losely with the G O SL and the loc al c ommunities in whic h it operates. The G roup through its E H S and government relations department maintains a transparent and regular c ommunic ation with loc al c ommunities, G O SL and all stakeholders.

Protection of assets and personnelU nless the G overnment c an provide the nec essary degree of peac e, order and security, the cost to, and the ability of, the Group to maintain effective security over its assets in Sierra Leone will be adversely affec ted. The primary foc us of the team is on loss prevention, and the appointment of the spec ialist sec urity servic e is showing a positive impac t through a reduc tion in levels of theft.

> A c tive engagement and dialogue with the G O SL and M inistry of M ines.

> In 2009 the G roup appointed a spec ialist sec urity servic e to manage the G roup’s sec urity needs. The primary foc us of the team is on loss prevention, and the appointment of the spec ialist sec urity servic e is showing a positive impac t through a reduc tion in levels of theft.

Title to propertiesThe Group is satisfied that it has taken reasonable measures to ensure that proper title to the mining leases of Sierra Rutile has been obtained and that all grants of mineral rights for the G roup’s properties have been registered in the appropriate deeds’ offices. o assurance can be given; however, that any lease, license or permit held by the Group will not be challenged or impugned in the future.

> Monitor licences issued by the GOSL to ensure there are no conflict of interest issues over the Group’s licensed tenure.




P rinc ipal Risks c ontinued


F inancing risksPart of the Group’s working capital and project requirements has been financed by loans. The Group’s ability to meet its debt service obligations including key covenants depends on cash flow generated from operations, which in turn depends on the Group’s ability to meet its produc tion, produc t pric ing and c ost targets. F ailure to meet these targets c ould result in the G roup’s failure to generate enough funds to meet sc heduled interest and princ ipal repayments whic h would result in an event of default.

> The G roup monitors ac hievement of targets and c ash flows to ensure sufficient funds are available to meet sc heduled payments.

> The Group has a robust compliance department which assesses c omplianc e req uirements with providers of funding.

I nterest rate riskInterest on the Group’s loans is both fixed and variable. The variable rates are based on Libor plus fixed percentages. The GOSL loan is on a fixed rate. The Group is exposed to movements in interest rates which affect the amount of interest on borrowings. As at 31 December 2013, 60 ( S 30 million) was on fixed interest rates and 40 ( S 20 million) was on variable interest rates. Any increase in the LI OR would increase finance costs and therefore have a negative impact on the Group’s profitability.

> The G roup monitors the movement in the LIBO R rates.

Government regulationThe G roup’s mining operations are loc ated in Sierra Leone and are subject to its laws and regulations governing expropriation of property, health and worker safety, employment standards, waste disposal, protec tion of the environment, mine development, land and water use, prospec ting, mineral produc tion, ex ports, tax es, the protec tion of endangered and protec ted spec ies and other matters.

While the Group believes that it is in compliance with all material laws and regulations c urrently affec ting its ac tivities, future c hanges in applicable laws, regulations, agreements or changes in their enforc ement or regulatory interpretation c ould result in c hanges in legal req uirements or in the terms of ex isting permits and agreements applicable to the Group or its properties, which could have a material adverse impac t on the G roup’s c urrent operations or future development projects. Where required, obtaining necessary permits and licences can be a complex, time-consuming process and the Group cannot assure whether any necessary permits will be obtainable on acceptable terms, in a timely manner or at all.

> A c tive engagement and dialogue with the G O SL and M inistry of M ines. The G roup ac tively engages regulators and keeps a sound c omplianc e register for all maj or regulatory announc ements and proposed legislation.

> Initiatives to uplift loc al c ommunities in whic h the G roup operates as reflected in the Corporate Social Responsibility statement.

> The Group has a robust compliance department which assesses c omplianc e req uirements and ensures adherenc e and plan for any c hanges to regulations.

E nvironmental regulationE nvironmental and safety legislation ( e.g. in relation to rec lamation, disposal of waste produc ts, protec tion of wildlife and otherwise relating to environmental protection) may change in a manner that may require stric ter or additional standards than those now in effec t, a heightened degree of responsibility for companies and their directors and employees and more stringent enforc ement of ex isting laws and regulations. There may also be unforeseen environmental liabilities resulting from mining activities, which may be costly to remedy. If the Group is unable to fully remedy an environmental problem, it may be req uired to stop or suspend operations or enter into interim c omplianc e measures pending c ompletion of the req uired remedy. The potential exposure may be significant and could have a material adverse effect on the G roup.

> A c tive engagement and dialogue with the G O SL and M inistry of M ines. The G roup ac tively engages regulators and keeps a sound c omplianc e register for all maj or regulatory announc ements and proposed legislation. Initiatives to uplift local communities as reflected in the Corporate Social Responsibility statement.

> Task undertaken to rehabilitate all legacy areas disturbed with the c onsultations of G O SL.

> The G roup, through its E nvironmental, H ealth, Safety & Sustainability (“ S S”) oard Committee continuously reviews and implements sound environmental health and safety polic ies.






RehabilitationCosts associated with rehabilitating land disturbed during the mining proc ess and addressing environmental, health and c ommunity issues are estimated and provided for based on the most current information available. stimates may, however, be insufficient and or further issues may be identified.

> The G roup, through its E H S& S Board C ommittee c ontinuously reviews and implements sound environmental, health and safety polic ies.

> Annual review of rehabilitation cost estimates are conducted and taken into account during the business planning proc ess.

E nergy cost and supplyThe G roup’s operations are energy intensive and, as a result, the Group’s costs and earnings could be adversely affected by rising energy costs or by supply disruptions.

> Power consumption is tracked on a monthly basis. C ontinuous investment in the newly upgraded powerhouse plant, and use of c heaper M F O fuel to power our generators.

> E mergenc y generator c apac ity is in plac e.

> A one month reserve of M F O is kept.

> The signing of memorandum of understanding with Smol P awa, as a future alternative energy sourc e to reduc e relianc e on M F O .

Currency riskWhile the G roup’s revenue and ex penditures are princ ipally in U S dollars, a significant portion of the Group’s expenses incurred in c onnec tion with the proj ec ts are in Sierra Leone’s loc al c urrenc y, the Leone. In addition, the G O SL loan fac ility is in E uros. A s a result, fluctuations in currency exchange rates could have a material adverse effect on the financial condition, results of operation or cash flow of the G roup. The G roup has not entered into any hedging arrangements with respec t to foreign c urrenc ies.

> Daily monitoring of ex c hange rates are c onduc ted.

> The Group maintains a low level of debt to capital ratio (currently 13 ) see note 26.

Dependence on key personnel, contractors, experts and other advisorsThe success of the operations of the Group is dependent to a significant extent on the efforts and abilities of its management, outside c ontrac tors, ex perts and other advisors. The G roup has a small management team and the loss of a key individual c ould affec t the Group’s business. While the Group has entered into service agreements with c ertain of its key ex ec utives, the retention of their servic es c annot be guaranteed. Accordingly, the loss of any key executive or manager of the G roup may have an adverse effec t on the future of the G roup’s business.

> Sierra Rutile maintains foc us on talent management, c areer development and performanc e management as integral parts of its human-resourc e-development. The G roup’s polic y is to pay a c ompetitive salary that attrac ts and retains personnel of the highest q uality having regard to their ex perienc e, nature, c omplex ity and loc ation of their work.

> The G roup c ontinues to c reate a management pipeline in all areas of the business.

Agricultural riskAs with any agricultural operation, there are risks that crops may be affected by pests, diseases and weather conditions. Agricultural best practice, if achieved, can to some extent mitigate the risk of outbreaks of pests and diseases but such risks cannot be entirely removed. The only significant disease in West Africa for oil palms is fusarium wilt. U nusually high levels of rainfall for the relevant plantation area c an disrupt estate operations and ac c ess to the estates. There is the possibility of adverse climatic conditions including lightning strikes, lack of rainfall, excessive rainfall and insufficient sunshine.

> All seeds sourced by the Group have resistance to fusarium wilt.

> The G roup has installed irrigation on its plantations and will be able to use the readily available water from the mined-out lakes as sourc e of water for irrigation.




Direc tors

Alex B . K amaraNon-Executive DirectorMr. amara has considerable experience in the mining industry and in mec hanic al and elec tric al engineering. H e was H ead of E ngineering at Sierra Rutile from 1982 to 1995 , and head of the management team at the Sierra Leone N ational P ower A uthority from 2000 to 2002. M r. K amara is a Sierra Leonean national and has been awarded the Order of Commander of the Rokel by the G overnment of Sierra Leone, a high c ivilian award in rec ognition of his contribution to engineering in Sierra Leone.

H e is c urrently a direc tor of C emmats G roup, a Sierra Leonean c ompany whic h has a number of contracts with Sierra Rutile.

Richard ListerNon-Executive DirectorM r. Lister has over 4 0 years of ex perienc e in the industrial minerals and mining sec tors. C urrently ac ting as a c onsultant to various mining c ompanies, M r. Lister was previously P resident and C E O , as well as V ic e-C hairman, of Z emex C orporation, a significant orth American industrial minerals c ompany. H e also served as V ic e-C hairman of Dundee Banc orp, a maj or C anadian wealth management c ompany, and C hairman, P resident and C O of Campbell Resources, a Canadian resource company with base metal, industrial mineral, c oal, and oil and gas assets in C anada, the U .S. and M ex ic o.

Martyn B uttenshawNon-Executive DirectorM r. Buttenshaw is a senior manager at P ala Investments, a substantial shareholder and an investment c ompany dedic ated to investing in, and c reating value ac ross, the mining sec tor. O ver the last three years, he has been working closely with the management of Sierra Rutile on its growth proj ec ts, marketing strategy and strategic plans. P rior to j oining P ala, M r. Buttenshaw was a business development manager with A nglo A meric an in its ferrous metals business unit, and a senior mining engineer at Rio Tinto in its tec hnic al servic es and industrial minerals group. H e holds an M BA from London Business School and an M ng ( irst Class) in Mining E ngineering from the Royal Sc hool of M ines, Imperial C ollege London.

Michael B rownNon-Executive DirectorM r. Brown is c urrently a Senior V ic e P resident of P ala Investments, a substantial shareholder and an investment c ompany dedic ated to investing in, and c reating value ac ross, the mining sec tor. H e formerly served as the C hief O perating Officer of De eers Consolidated Mines Ltd (“D CM”), and Director of De eers Group Servic es and De Beers M arine Limited. M r. Brown worked at De Beers from 1990, holding a number of senior positions, inc luding H ead of Strategic Business Development at DBC M , G eneral M anager of the F insc h M ine and M ine M anager at N A M DE B. H e is a registered P rofessional ngineer (Pr. ng) with the South African

C ounc il of P rofessional E ngineers and a member of the South African Institute of M ining and M etallurgy.

M r. Brown c urrently serves as a direc tor of Asian Mineral Resources (TS - : AS ) and

evada Copper (TS : C ).

Charles E ntrekinNon-Executive DirectorM r. E ntrekin has over 35 years of ex perienc e in the mining and metals sector, acting both as an executive officer and as a c onsultant. H e is c urrently C hairman of M elior Resourc es, Inc ., and ac ts as an international c onsultant for numerous metal producers and financial houses. P revious ex ec utive positions inc lude P resident and C hief O perating Officer of Titanium Metals Corporation, a N Y SE listed produc er of primary titanium and its alloys, as well as P resident and Chief xecutive Officer of Timminco Ltd., a TSX -listed magnesium, silic on and aluminum c ompany.

Through his c areer M r. E ntrekin has led and implemented many suc c essful restruc turings and turnarounds of mining and metals c ompanies internationally.

J an CastroN on-E xecutive ChairmanM r. C astro is the founder and C hief xecutive Officer of Pala Investments, a

substantial shareholder and an investment c ompany dedic ated to investing in, and c reating value ac ross, the mining sec tor. Prior to founding Pala in July 2006, Mr. C astro was Senior V ic e P resident of Investments and C orporate A ffairs for M ec hel O A O , a N Y SE -listed c ompany, where his primary responsibilities covered mergers and ac q uisitions, non-c ore asset disposals, and investor and public relations. Before j oining M ec hel, M r. C astro worked at Latham Watkins LLP, where he speciali ed in sec urities and M & A transac tions.

M r. C astro c urrently serves a direc tor of Alacer Gold (TS : ASR, AS : A G), and is C hairman of the Boards of N evada C opper (TS : C ) and Asian Mineral Resources (TS - : AS ).

J ohn B onoh SisayChief E xecutiveMr. Sisay has accumulated considerable ex perienc e within the A fric an mining sec tor having worked in over ten A fric an c ountries. M r. Sisay started his c areer as a graduate trainee at the C entral Selling Organi ation (CSO) of De eers C onsolidated M ines, Ltd. A fter working at De Beers, M r. Sisay j oined A meric a Minerals ields, now part of irst uantum, working on new ac q uisitions for the c ompany, partic ularly in the Democ ratic Republic of Congo.

A dditionally, he has served as P resident of the Sierra Leone Chamber of Mines and as a N on-E x ec utive Direc tor for Diamond F ields International and V imetc o S.L. M r. Sisay j oined Sierra Rutile in 2001.

H e periodic ally serves as an advisor to the G overnment of Sierra Leone on mining-related issues.





Direc tors’ Report

The Directors submit their report and the audited financial statements of the Group for the year ended 31 December 2013.

Results and dividendThe results of the Group are shown on page 32. The Directors have not declared a dividend during the year (2012: nil).

Principal activities The G roup’s princ ipal ac tivity is ex ploring for, produc ing and marketing industrial minerals, primarily rutile, in Sierra Leone. The G roup owns the Sierra Rutile mine in Sierra Leone. The Group is also engaged in agricultural activities through its wholly owned subsidiary, with main focus of producing oil palm, cacao, rubber and pineapple.

B usiness reviewA detailed business review can be found on pages 8 to 13.

Post-balance sheet eventsThese are disc losed in N ote 28.

Charitable contributionsDuring the year the Group made charitable donations of 150,000 (2012: S 150,000), principally to local communities in which the G roup operates.

H ealth, Safety, E nvironment and CommunitiesThe Group has agreed to take on the same performance obligations as members of the International Council on Mining Metals and seeks continual improvement in non-financial performance so as to enhance shareholder value.

E mployee Policies and I nvolvementOur operations aim to record ero accidents causing harm to any individual through the following standards:

> we provide adeq uate c ontrol of health and safety risks and regular monitoring to assess the appropriateness of these risks over time; > we provide appropriate training, eq uipment and maintenanc e to prevent ac c idents; > we c onsult with employees at all levels to ensure that their instruc tion, supervision and levels of c ompetenc y are appropriate to their position;

> we review and report on health and safety at our operations as part of internal management prac tic e and ex ternal c ommunic ations; and > the Sierra Rutile mine site has a fully staffed and equipped clinic which is funded by the Group and provides free healthcare for employees, their dependants and the loc al population.

Directors and their interestsThe names of the Directors who held office during the year and after the year end are listed below.

Mr. Jan Castro (appointed 30 September 2010 and became on- xecutive Chairman 21 ebruary 2011)Mr. John onoh Sisay (appointed 10 March 2008 and became C O on 3 ebruary 200 )Mr. Alex amara (appointed 10 March 2008)Mr. Michael arton (resigned 0 July 2013)Mr. Michael rown (appointed 14 October 2010)Mr. Charles ntrekin (appointed 10 December 2010)Mr. Richard Lister (appointed 20 March 2012)Mr. Martyn uttenshaw (appointed 0 July 2013)

The Directors who held shares as at 31 December 2013 and 31 December 2012 are:

Number of Shares H eld

31 December 2 0 1 3

Percentage H olding

31 December 2 0 1 3

umber of Shares H eld

31 December 2012

P erc entage H olding

31 December 2012

M r. J an C astro 2 ,3 1 2 ,2 5 0 0 .4 4 9 % 891,000 0.174 %M r. C harles E ntrekin 5 8 ,8 4 1 0 .0 1 1 % 5 8,84 1 0.011%M r. M ic hael Brown 2 8 5 ,0 0 0 0 .0 5 5 % 14 5 ,000 0.028%M r. Ric hard Lister 3 1 0 ,0 0 0 0 .0 6 0 % 100,000 0.020%M r. Buttenshaw 7 8 ,0 6 7 0 .0 1 5 % – –Former DirectorM r. M ic hael Barton – – 5 2,000 0.010%




Directors’ liability insurance and indemnityThe Group maintains liability insurance for the benefit of its Directors and officers which were made during the year and remain in forc e at the date of this report.

Supplier payment policyThe G roup’s polic y is to settle the terms of payment with suppliers when agreeing the terms of eac h transac tion, and to ensure that suppliers are made aware of the terms of payment and to abide by the terms of payment.

Capital StructureDetails of the issued share c apital, together with details of the movements in the G roup’s issued share c apital during the year are shown in note 22. The Group has one class of ordinary share which carry no right to fixed income. ach share carries the right to one vote at general meetings of the Group. There are no specific restrictions on the si e of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Group’s shares that may result in restrictions on the transfer of securities or on voting rights.

Details of employee share sc hemes are set out in note 22. N o person has any spec ial rights of c ontrol over the G roup’s share c apital and all issued shares are fully paid. With regard to the appointment and replacement of Directors, the Group is governed by its Articles of Association, and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the Main oard Terms of Reference, copies of which are available on request and the Corporate Governance Statement on page 26.

There are also a number of other agreements that take effect, alter or terminate upon a change of control of the Group such as commercial contracts, bank loan agreements, property lease arrangements and employees’ share plans. one of these are considered to be significant in terms of their likely impact on the business of the Group as a whole. urthermore, the Directors are not aware of any agreements between the Group and its Directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid.

Substantial ShareholdersSo far as the Direc tors are aware, the following shareholders had an interest in 3% or more of the voting c apital of the G roup as at 31 December 2013:

H older umber of

c ommon shares P erc entage

H olding

P ala M inerals Limited 280,086,131 5 4 .4 0%M & G Investment M anagement Limited 100,732,791 1 .56J P M organ A sset M anagement Limited 45,505,876 8.84 %

eon Liberty Capital Management LLC 33,073,000 6.42Investec A sset M anagement 26,130,000 5 .07%

Going ConcernThe financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out in the inance Review on page 14. At 31 December 2013, the Group had cash and cash equivalents of 22.6 million (excluding overdrafts) and total borrowings of 4 .1 million. Details on the Group’s borrowings are set out in ote 1 to the financial statements.

The oard has considered the Group’s cash flow forecasts for the period to the end of March 2015. The oard is satisfied that the Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate with the level of its current facilities for the foreseeable future. In the event of certain adverse pricing scenarios, management has within its c ontrol the option of deferring unc ommitted c apital ex penditure to maintain the G roup’s funding position.

Accordingly, the oard continues to adopt the going concern basis in preparing the financial statements.

Direc tors’ Report c ontinued





Annual General MeetingThe date and location for the AGM of the Group will be announced shortly but it is expected to be held before the end of July 2014.

Proxy VotingProxy cards will be distributed to shareholders with the otice of the AGM.

Auditorach of the persons who is a Director at the date of the approval of this Annual Report confirms that: > so far as the Direc tor is aware, there is no relevant audit information of whic h the G roup’s auditor is unaware; and > the Direc tor has taken all the steps that he/ she ought to have taken as a Direc tor in order to make himself/ herself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information.

Deloitte has expressed their willingness to continue in office as auditor and a resolution for the appointment of the auditor of the Group is to be proposed at the forthcoming AGM.

ApprovalThis report was approved by the oard of Directors of the Group and signed on its behalf by:

J ohn B onoh SisayChief Executive Officer27 M arc h 2014




Corporate Governance

Sierra Rutile shares are listed on “AIM” (the Alternative Investment Market of the London Stock Exchange) and the Group is subject to and takes all appropriate steps to comply with the AIM Rules. The Board recognises the importance and value for the Group and its shareholders of good corporate governance. In this regard, the Directors intend, where practicable for a Group of Sierra Rutile’s size and nature, to comply with the UK Corporate Governance Code.

The Group has departed from certain aspects of the guidelines set out in the UK Corporate Governance Code and the Corporate Governance Guidelines for AIM companies published by the QCA including that the Non-Executive Directors have been granted options, and the options are not subject to performance criteria. In the opinion of the Directors, these options are not considered to be material enough to either the Group or each Non-Executive Director concerned to impair the independence of the Group’s Non-Executive Directors.

Board overviewThe Board is responsible for establishing the Group’s strategy and has ultimate responsibility for the management, direction and performance of the Group and its businesses. Authority for the execution of the approved strategies and objectives, and daily running of the business, is delegated to the Executive Directors and Senior Management of the Group. The Board regularly monitors financial and operational progress and risks of the Group.

Board compositionAt the date of this report, the Group had seven directors, comprising one Executive Director and six Non-Executive Directors of which three are considered independent.

Board Member Role

Mr. Jan Castro ChairmanMr. John Sisay Chief Executive OfficerMr. Alex Kamara Independent Non-ExecutiveMr. Charles Entrekin Independent Non-ExecutiveMr. Richard Lister Independent Non-ExecutiveMr. Martyn Buttenshaw Non-ExecutiveMr. Michael Brown Non-Executive

Re-election of DirectorsDirectors offer themselves up for re-election annually.

Relations with ShareholdersThis annual report contains information about the activities of the Group. The Group communicates with shareholders and other interested parties through its website, direct information distributed to shareholders, and releases to the AIM.

At the AGM, shareholders elect the Directors and have the opportunity to express their views, ask questions about Group business and vote on items of business for resolution by shareholders.

Board balanceThe Board membership provides a balance of industry and financial expertise which is well suited for the Group. The Non-Executive Directors are drawn from diverse backgrounds and bring a wide range of experience to the Board to ensure effective leadership of Sierra Rutile.

Directors RemunerationDetails of directors’ remuneration are set out in the remuneration report starting on page 28.

Strategic Report Governance Financials

Sierra Rutile Annual Report 2013 27

Committees of the BoardThe Board has established a number of standing committees, which are ultimately accountable to it. These committees assist the Board by focusing on specialist areas. The Board committees meet independently and provide feedback to the main Board through their chairmen. The roles and representation of these subcommittees are listed in the Board subcommittees table below.

Committee Role Members

Remuneration Committee The remuneration committee determines the terms and conditions of service, including the remuneration and grant of options to Directors (both Executive and Non-Executive) and others under the Share Option Scheme and any other future share option schemes and arrangements adopted by the Group. The remuneration committee meets at least once a year.

Chaired by Mr. Buttenshaw, and includes Mr. Kamara and Mr. Lister (all Non-Executive Directors).

Audit Committee The audit committee has primary responsibility for monitoring the quality of internal controls, for ensuring that the financial performance of the Group is properly measured and reported on and for reviewing reports from the Group’s auditor relating to the Group’s accounting and internal controls. The audit committee meets at least three times a year. The Group has adopted a code for Directors’ dealings appropriate for a Group with shares admitted to trading on AIM and will take all reasonable steps to ensure compliance by the Directors and any relevant employees.

Chaired by Mr. Entrekin, and includes Mr. Buttenshaw and Mr. Lister (all Non-Executive Directors).

Strategic Review Committee The strategic review committee has primary responsibility in overseeing the assessment and implantation of the findings of the Strategic Review.

Chaired by Mr. Brown, and includes Mr. Kamara and Mr. Entrekin.

Environmental, Health, Safety & Sustainability Committee

The Environmental, Health, Safety & Sustainability committee has primary responsibility in overseeing the development and implementation of policies and procedures to ensure the health and safety of the Group’s workforce and those that come into contact with the mine.

Chaired by Mr. Brown, and includes Mr. Sisay, Mr. Kamara and Mr. Entrekin.

By order of the Board

John NagulendranCompany Secretary27 March 2014


Directors’ Remuneration Report

IntroductionThis report has been approved by the Board.

Role of the remuneration committeeThe remuneration committee determines the terms and conditions of service, including the remuneration and grant of options to Directors (both Executive and Non-Executive) and others under the Share Option Scheme and any other future share option schemes and arrangements adopted by the Group. The remuneration committee meets at least once a year.

Components of remunerationThere are three main elements of the remuneration package of the Executive Director and senior management.

> Basic salary; > Performance-related bonuses; and > Share-based awards

Directors’ contractsThe Executive Director has an indefinite term contract. It is the Group’s policy that the period of notice required for Executive Directors does not exceed 12 months.

Non-Executive Directors’ feesThe fees for Non-Executive Directors are designed to ensure that the Group attracts and retains high calibre individuals. They are reviewed on an annual basis and account is taken of the level of fees paid by other companies of a similar size and complexity. Non-Executive Directors do not participate in any annual bonus plan or pension arrangements. The Group repays reasonable expenses that Non-Executive Directors incur in carrying out their duties as Directors.

Directors’ RemunerationDirectors’ remuneration for the years ended 31 December 2013 and 31 December 2012 is as follows:

Directors

31 December 2013Total Remuneration –

Cash and Non cash (US$)1

31 December 2012Total Remuneration –

Cash and Non cash (US$)1

Executive Director John Bonoh Sisay 658,870 542,160

Non-Executive DirectorsAlex Kamara 34,000 33,250Jan Castro 50,000 53,750Martyn Buttenshaw 15,675 –Michael Brown 35,000 34,500Charles Entrekin 36,000 41,000Richard Lister 31,000 23,250

Former DirectorsMichael Barton2 17,325 33,000François Colette3 – 15,500

877,870 776,410

1 No pension contributions have been made in the year.2 Michael Barton resigned on 9 July 2013.3 François Colette resigned on 26 June 2012.



Share OptionsDirectors and those who have served as directors during the year, hold the following options to subscribe for common shares as at 31 December 2013:

31 December2012 Granted Exercised Lapsed

31 December 2013 Exercise Price Expiry Date2

Executive Director John Bonoh Sisay 100,000 – – 100,000 – 75.50p 13.02.2013

4,630,000 – – – 4,630,000 20.00p 31.07.20142,400,000 – – – 2,400,000 30.90p 12.12.2014

– 500,000 – – 500,000 69.50p 31.10.2017

Non-Executive DirectorsAlex Kamara 750,000 – – – 750,000 20.00p 31.07.2014

1,000,000 – – – 1,000,000 30.90p 12.12.2014– 200,000 – – 200,000 69.50p 31.10.2017

Jan Castro 375,000 – – – 375,000 20.00p 31.07.20141,500,000 – – – 1,500,000 30.90p 12.12.2014

– 300,000 – – 300,000 69.50p 31.10.2017

Martyn Buttenshaw1 125,000 – – – 125,000 12.50p 01.06.2014375,000 – – – 375,000 30.90p 12.12.2014

– 100,000 – – 100,000 54.98p 17.06.2018

Michael Brown 250,000 – – – 250,000 20.00p 31.07.20141,000,000 – – – 1,000,000 30.90p 12.12.2014

– 200,000 – – 200,000 69.50p 31.10.2017

Charles Entrekin 1,000,000 – – – 1,000,000 20.00p 31.07.20141,000,000 – – – 1,000,000 30.90p 12.12.2014

– 200,000 – – 200,000 69.50p 31.10.2017

Richard Lister 750,000 – – – 750,000 61.25p 10.05.2015– 200,000 – – 200,000 69.50p 31.10.2017

Former DirectorMichael Barton 250,000

1,000,000––

––

––

250,0001,000,000

20.00p30.90p

31.07.201412.12.2014

1 Mr Buttenshaw was granted 500,000 of the share options before he became a director.2 The Board approved an amendment of the terms of the share options to extend the expiry date of 7,493,750 share options granted to senior

management and Directors that were due to expire on 3 March 2014. These options will now expire on 31 July 2014, to allow Option Holders the opportunity to exercise their share options in accordance with the intent of the Remuneration Committee when the options were originally granted on 3 March 2011.

Directors’ Share Ownership PolicyThe average share price for the year ended was 59.50 p (2012: 64.59 p).

In April 2013, the Board adopted a share ownership policy for Directors, whereby Non-Executive Directors are expected to build up and hold at least two million shares in the Group (four million for the Chief Executive Officer and Chairman). Directors are expected to retain shares acquired pursuant to share incentive awards, but may sell sufficient shares as necessary to pay the exercise price, taxation and out of pocket expenses associated with the exercise of share incentive awards. There is no target date to achieve the share ownership and such number of shares.

On behalf of the Board

Martyn ButtenshawChairman of Remuneration Committee27 March 2014


Statement of Directors’ Responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU).

In preparing these financial statements, International Accounting Standard 1 requires that directors: > properly select and apply accounting policies; > present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

> provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and

> make an assessment of the Group’s ability to continue as a going concern.

The directors are responsible for: > keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group;

> safeguarding the assets of the Group; > such internal control as they determine necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error; and

> taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statementWe confirm that to the best of our knowledge:

> the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Group; and

> the management report, which is incorporated into the Directors’ Report, includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces.

By order of the Board

John Bonoh Sisay Martyn Buttenshaw27 March 2014 27 March 2014



Independent Auditor’s Report to the Members of Sierra Rutile Limited and its Subsidiaries

We have audited the financial statements of Sierra Rutile Limited and its subsidiaries for the year ended 31 December 2013 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity and the related notes 1 to 28. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Group’s members, as a body, in accordance with AIM Rule 19. Our audit work has been undertaken so that we might state to the Group’s members those matters we are required to state to them in an independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the Group’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statementsIn our opinion the Group financial statements:

> give a true and fair view of the state of the Group’s affairs as at 31 December 2013 and of its profit for the year then ended; and > have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

Deloitte LLPChartered AccountantsLondon, United Kingdom27 March 2014


Consolidated Income StatementYear ended 31 December 2013

Notes

Year ended31 December

2013US$’000


2012US$’000

Revenue 4 123,369 179,094Cost of sales 5 (93,087) (78,274)

Gross profit 30,282 100,820Administrative and marketing expenses 5 (14,645) (13,525)Exceptional items 7 (396) 248Other income 355 261

15,596 87,804Net finance costs 8 (5,079) (3,407)

Profit before taxation 10,517 84,397Income tax expense 9 (618) (895)

Profit for the year 9,899 83,502

Total profit attributable to:Owners of the parent 9,899 83,502

9,899 83,502

Earnings per share (US$)–basic 10 0.019 0.164–diluted 10 0.019 0.159



Consolidated Statement of Comprehensive IncomeYear ended 31 December 2013

Note


2013US$’000


2012US$’000

Profit for the year 9,899 83,502Actuarial loss on retirement benefit scheme 20 (138) (543)

Total comprehensive income for the year 9,761 82,959

Total comprehensive income attributable to:Owners of the parent 9,761 82,959

9,761 82,959


Consolidated Statement of Financial Position31 December 2013

Notes

31 December2013

US$’000

31 December2012

US$’000

ASSETSNon-current assetsIntangible assets 11 11,641 11,827Property, plant and equipment 12 162,734 142,212Biological assets 14 2,123 –

176,498 154,039

Current assetsBiological assets 14 77 –Inventories 16 61,149 42,921Trade and other receivables 17 5,853 43,508Current tax assets 9 241 –Cash and cash equivalents 23 22,628 5,783

89,948 92,212

Total assets 266,446 246,251

LIABILITIESCurrent liabilitiesTrade and other payables 18 (15,086) (24,664)Current tax liabilities 9 – (191)Short-term borrowings 19 (31,262) (5,911)Provisions for liabilities and charges 21 (295) (380)

(46,643) (31,146)

Non-current liabilitiesMedium and long-term borrowings 19 (17,842) (26,300)Retirement benefit obligations 20 (2,612) (1,678)Provisions for liabilities and charges 21 (2,137) (2,063)

(22,591) (30,041)

Total liabilities (69,234) (61,187)

Net assets 197,212 185,064

EQUITY AND LIABILITIESCapital and reservesShare capital 22 275,102 274,013Share option reserve 6,439 5,661Retained loss (84,329) (94,610)

Attributable to owners of the parent 197,212 185,064

Total equity 197,212 185,064

The financial statements of Sierra Rutile Limited and its subsidiaries were approved by the Board of Directors on 27 March 2014.

Signed on behalf of the Board of Directors

John Bonoh Sisay Martyn Buttenshaw27 March 2014 27 March 2014



Consolidated Statement of Cash FlowsYear ended 31 December 2013

Notes


2013US$’000


2012US$’000

Operating activitiesCash inflow from operations 23 44,514 68,812Interest received – 2Interest paid (2,722) (2,452)Income taxes paid 9 (1,050) (816)

Net cash inflow from operating activities 40,742 65,546

Investing activitiesPurchase of property, plant and equipment (37,367) (57,510)Purchase of biological assets (2,200) –Purchase of intangible assets (333) (2,812)

Net cash used in investing activities (39,900) (60,322)

Financing activitiesNet proceeds from borrowings 19 18,463 –Repayment of borrowings 19 (2,920) –Net proceeds from the exercise of share options 22 1,089 1,404Acquisition of non-controlling interests – (12,396)

Net cash from/(used in) financing activities 16,632 (10,992)

Net increase/(decrease) in cash and cash equivalents 17,474 (5,768)

Cash and cash equivalents at beginning of the year 5,091 10,658Net increase/(decrease) in cash and cash equivalents 17,474 (5,768)Effect of foreign exchange rate change 63 201

Cash and cash equivalents at end of the year 23 22,628 5,091


Consolidated Statement of Changes in EquityYear ended 31 December 2013

NotesShare capital

US$’000

Share optionreserve

US$’000Retained loss

US$’000Total

US$’000

Non-controlling

interestsUS$’000

Totalequity

US$’000

Balance at 1 January 2012 272,609 1,984 (148,822) 125,771 (19,063) 106,708Total comprehensive income for the year – – 82,959 82,959 – 82,959Acquisition of non-controlling interests – – (29,408) (29,408) 19,063 (10,345)Exercise of share options 22 1,404 (661) 661 1,404 – 1,404Recognition of share-based payments – 4,338 – 4,338 – 4,338

Balance at 31 December 2012 274,013 5,661 (94,610) 185,064 – 185,064

Balance at 1 January 2013 274,013 5,661 (94,610) 185,064 – 185,064Total comprehensive income for the year – – 9,761 9,761 – 9,761Exercise of share options 22 1,089 (520) 520 1,089 – 1,089Recognition of share-based payments – 1,298 – 1,298 – 1,298

Balance at 31 December 2013 275,102 6,439 (84,329) 197,212 – 197,212



1. General informationSierra Rutile Limited (“Sierra Rutile”) is a public limited liability company incorporated and domiciled in the British Virgin Islands. The address of its registered office is at P.O. Box 4301, Trinity Chambers, Road Town, Tortola, British Virgin Islands.

These financial statements will be submitted for consideration and approval at the forthcoming AGM of shareholders of the Company.

2. Significant accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparationThe financial statements of Sierra Rutile have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below.

(b) Going concernThe Board has considered the Group’s cash flow forecasts for the period to the end of March 2015. The Board is satisfied that the Group’s forecasts and projections, taking account of reasonably possible changes in trading performance show that the Group will be able to operate with the level of its current facilities for the foreseeable future. In the event of certain adverse pricing scenarios, management has within its control the option of deferring uncommitted capital expenditure to maintain the Group’s funding position.

Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements (see page 24 of the Directors’ Report).

(c) New and revised International Financial Reporting StandardsStandards affecting the financial statementsIn the current year, the following new and revised Standards and Interpretations have been adopted and have affected the amounts reported in these financial statements.

The Group has applied for the first time, IAS 41 ‘Agriculture’ which sets out the accounting for agricultural activity, through the transformation of biological assets into agricultural produce. The standard generally requires biological assets to be measured at fair value less costs to sell. The impact of this adoption has been the recognition of biological assets in the statement of financial position. Other than the above mentioned changes, the application of the standard did not result in any impact on profit or loss, comprehensive income and total comprehensive income.

Standards not affecting the reported results or the financial positionA number of amendments to accounting standards and new interpretations issued by the International Accounting Standards Board (IASB), were applicable from 1 January 2013. They have not had a material impact on the accounting policies, methods of computation or presentation by the Group.

New IFRS accounting standards and interpretations not yet adoptedAt the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not been adopted by the European Union):IFRS 7 (amended) ‘Financial Instruments: Disclosures’ -Transfers of Financial Assets (effective 1 January 2015).IFRS 9 ‘Financial Instruments-Classification and Measurement’ (effective for periods beginning on or after 1 January 2015).IFRS 10 ‘Consolidated Financial Statements’ (effective for periods beginning on or after 1 January 2014).IFRS 11 ‘Joint Arrangements’ (effective for periods beginning on or after 1 January 2014).IFRS 12 ‘Disclosure of Interest in Other Entities’ (effective for periods beginning on or after 1 January 2014).IFRS 13 (amended) ‘Fair Value Measurement’ (effective for periods beginning on or after 1 July 2014).IAS 27 ‘Separate Financial Statements’ (effective for periods beginning on or after 1 January 2014).IAS 28 ‘Investments in Associates and Joint Ventures ‘ (effective for periods beginning on or after 1 January 2014).IAS 36, ‘Impairment of Assets’,-Recoverable Amount Disclosures for Non-Financial Assets (effective for periods beginning on or after 1 January 2014).

The Directors anticipate that the adoption of these standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

(d) Basis of consolidationSubsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Notes to the Consolidated Financial StatementsYear ended 31 December 2013


2. Significant accounting policies continued(e) Business combinations and goodwill arising thereonThe acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interests in the acquiree either at fair value or at the non-controlling interests’ proportionate share of the acquiree’s net assets. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

The excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income.

Inter-Group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Transactions with non-controlling interestsThe Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(f) Property, plant and equipmentProperty, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads and costs directly attributable to bringing the assets to a working condition for its intended use. Cost also includes the cost of restoring the site on which the assets are located. These costs are recognised as a liability.

Depreciation is provided on a straight-line basis over the estimated useful lives of the assets.

Where an item of property, plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of property, plant and equipment.

Subsequent expenditure relating to an item of property, plant or equipment is capitalised when it is probable that the future economic benefits from the use of the asset will increase by more than the expenditure incurred. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.

Deposit and dam development, exploration, evaluation, mine development expenditure and deferred project expenditureIn respect of deposit and dam development, minerals, exploration, evaluation and deferred project, expenditure is charged to the statement of comprehensive income as incurred except where:

> it is expected that the expenditure will be recouped by future exploitation or sale; or > substantial exploration and evaluation activities have identified a mineral resource but these activities have not reached a stage which permits a reasonable assessment of the existence of commercially recoverable reserves in which case the expenditure is capitalised.

Expenditure relating to both deposit and dam development and mine development are accumulated separately for each identifiable area of interest. Such expenditure comprises related direct costs and an appropriate portion of related overhead expenditure.

Expenditure is carried forward when incurred in areas where economic mineralisation is indicated, but activities have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves, and active and significant operations in relation to the area are continuing. Each such project is regularly reviewed. If the project is abandoned or it is considered unlikely that the project will proceed to development, accumulated costs to that point are written off immediately.

Each area of interest is limited to a size related to a known or probable mineral resource capable of supporting a mining operation. Projects are advanced to development status when it is expected that accumulated and future expenditure can be recouped through project development or sale.

Notes to the Consolidated Financial Statements continued

Year ended 31 December 2013



2. Significant accounting policies continuedAmortisation and depreciationAmortisation of deferred project expenditure is based on the estimated useful life of the asset to which the expenditure relates. Depreciation is provided on a straight-line basis at rates calculated to write off the cost of fixed assets to their residual value over their estimated useful lives as follows:

Infrastructure – twenty to forty yearsPlant, machinery and equipment – three to twenty yearsMineral rights – based on the estimated life of reservesMineral sand prospect and mine development – based on the estimated life on proven and probable reserves

Changes in estimates are accounted for over the estimated remaining economic life of the remaining commercial reserves of each project as applicable.

(g) Biological AssetsBiological assets comprise oil palm, rubber, pineapple and cacao trees from initial preparation of land and planting of seedlings through to maturity and the entire productive life of the trees.

All costs comprising mainly land clearing, land terracing and drainage, planting, weeding and fertilising involved during the immature period until the trees are ready for commercial harvesting at approximately 0-3 years for oil palm, cacao and pineapple and 0-7 years for rubber, are capitalised. Plantation development costs comprise all rehabilitated plantation development costs such as direct materials, labour and an appropriate proportion of fixed overheads.

Oil palm, rubber, pineapple and cacao trees are measured at fair value with any change in fair value recognised in the income statement. Biological assets which are planted closer to year-end and that are not yet mature at the accounting date, are valued at fair value which approximates cost as there is little or no biological transformation at the accounting date.

Capitalised development costs will be subject to accelerated depreciation if the existing planted area has been earmarked for replanting with a different crop, after writing down the carrying amount to its recoverable amount.

Replanting expenses are charged to profit or loss in the year in which they are incurred.

Where an indication of impairment exists, the carrying amount of the biological asset is assessed and written down immediately to its recoverable amount.

(h) Mining development costMine development cost includes costs relating to the acquisition and development of mineral properties and are capitalised until such time as commercial levels of production are reached or the mineral properties are abandoned. Mine development costs are depreciated from the time that Sierra Rutile enters commercial production. Proceeds received from the sale of rutile and ilmenite sand prior to the commercial production date is offset against the capitalised mine development costs.

Commercial production is defined as the stage at which the mine assets are available for use. This entails that the Group maintains a consistent level of production from the mining operations. This is determined by reference to various factors including forecast production levels and the generation of positive cash flows on a monthly and reasonably sustainable basis.

(i) Intangible assetsAcquired computer software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software and are amortised over their estimated useful lives of five years.

(j) Impairment of tangible and intangible assetsAt the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately in the consolidated statement of comprehensive income.


2. Significant accounting policies continuedWhere an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the consolidated statement of comprehensive income.

Goodwill arising on business combinations is allocated to the Group of cash generating units (“CGUs”) that are expected to benefit from the synergies of the combination and represents the lowest level at which goodwill is monitored by the Group’s Board of Directors for internal management purposes. The recoverable amount of the CGUs or group of CGUs to which goodwill has been allocated is tested for impairment annually on a consistent date during each financial year, or when events or changes in circumstances indicate that it may be impaired. Any impairment is recognised immediately in the statement of comprehensive income. Impairments of goodwill are not subsequently reversed.

(k) Foreign currencies(i) Functional and presentation currencyItems included in the financial statements of each of the Group’s entities are measured using United States Dollars, the currency of the primary economic environment in which the entities operates (“functional currency”). The consolidated financial statements are presented in United States Dollars, which is the Group’s presentational currency. All financial information presented in United States Dollars has been rounded up to the nearest thousand.

(ii) Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

At the balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date the fair value was determined.

(l) Financial instruments(i) Trade receivablesTrade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of provision is recognised in the statement of comprehensive income.

(ii) Trade payablesTrade payables are stated at fair value and subsequently measured at amortised cost using the effective interest method.

(iii) BorrowingsBorrowings are recognised initially at fair value being their issue proceeds net of transaction costs incurred.

Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

(iv) Cash and cash equivalentsCash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.

(v) Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as deduction, net of tax, from proceeds.





2. Significant accounting policies continued(m) InventoriesInventories comprise stock piles of rutile, ilmenite, zircon and other concentrates and consumables including fertilisers and pesticides. Rutile and consumables are measured at the lower of cost and net realisable value. In line with IAS 2 ‘Inventories’ ilmenite and zircon and other concentrate by-products are measured at net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses. The cost of consumable inventories is based on the weighted average method and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. The cost of rutile is measured as all production costs and other attributable production overheads adjusted for the by-product sales of ilmenite and zircon and other concentrates based on normal operating capacity and other costs incurred in bringing the inventories to their present location and condition. Obsolete, redundant and slow moving consumable stocks are identified on a regular basis and are written down to their estimated net realisable values.

Inventories are stated at the lower of cost or net realisable value except for ilmenite and zircon and other concentrates which are stated at net realisable value, where cost is defined as follows:

Rutile – Production cost and attributable overheadsConcentrates – Production costStockpiles – Production costMaterials and fuel – Weighted average costSundry expenses – Purchase costGoods-in-transit – Invoice cost excluding freight

(n) TaxationThe tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of any deferred tax asset is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on tax laws and rates that have been enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

(o) Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised until such time as the assets are substantially ready for their intended use or sale. Other borrowing costs are expensed in profit or loss in the period in which they are incurred.


2. Significant accounting policies continued(p) Retirement benefit obligationsShort-term employee benefitsThe cost of all short-term employee benefits is recognised in the statement of comprehensive income during the period in which the employees render the related service.

Long-term employee benefitsThe Group does not operate any retirement benefit plan for its employees. For employees of the Sierra Leone based subsidiary, the Group makes a contribution of 10% of the employees’ basic salary to the National Social Security and Insurance Trust for payment of pension to staff on retirement. These employees also contribute 5% of their basic salary to the Trust.

The Sierra Leone based subsidiary also provides for end-of-term benefits based on the provisions contained in the Collective Bargaining Agreements; these benefits are paid to employees falling under this category when they leave the Group. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation in relation to this agreement.

(q) Share options schemeThe Group issues equity-settled share-based payments to certain employees and Directors. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. The fair value is determined at grant date by use of a Black Scholes model and taking account of market based vesting conditions.

(r) ProvisionsProvisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources, that can be reliably estimated, will be required to settle the obligation.

Provisions for restructuring costs are recognised when the Group has a detailed formal plan for restructuring which has been notified to affected parties and comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Provision for restoration and rehabilitationIn accordance with the Group’s environmental policy and applicable legal requirements, a provision for site restoration and rehabilitation in respect of disturbed and contaminated land, and the related expense, is recognised when the land is contaminated or disturbed. Changes in estimates of the site restoration and rehabilitation provision are recognised as an expense in the consolidated income statement.

Costs of reclamation and rehabilitation are assessed on a regular basis and estimated costs are provided over the life of the mine. The expenditure and provisions include costs of labour, materials, and equipment required to rehabilitate disturbed areas, cost of reclamation, plant and infrastructure closure and subsequent environmental monitoring. The estimates are discounted and are based on current costs, legislature and community requirements and technology. Expenditure relating to ongoing rehabilitation and restoration programmes is charged against the provisions made.

(s) Revenue recognitionRevenue from the sale of rutile, zircon and other concentrates and ilmenite is measured at the fair value of the consideration received or receivable, which is usually the invoice value of rutile, zircon and other concentrates and ilmenite and excludes sales and value added taxes.

A sale is recognised when the significant risks and rewards of ownership have passed, and when revenue can be measured reliably. This is generally when title and any insurance risk have passed to the customer, and the goods have been delivered to a contractually agreed location.

(t) Exceptional itemsExceptional items are events or transactions which, by virtue of their size or nature, have been disclosed in order to improve a reader’s understanding of the financial statements.

(u) Nursery costsNursery costs comprise costs of oil palm, cacao and rubber seedlings and the associated development costs incurred (for example fertilising and weeding) in preparing the nursery. Nursery costs relating to new planting are transferred to oil palm, cacao and rubber plantations upon reaching a certain level of maturity, which is between 10 to 12 months for oil palm and 5 to 6 months for rubber and cacao, while other types are charged to profit or loss.

(v) Presentation currencyThe financial statements are presented in thousands of United States Dollars (“US$”).





3. Critical Accounting estimates and judgementsEstimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Estimated impairment of goodwillThe Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2. These calculations require the use of estimates (note 11).

Directors necessarily apply their judgement in estimating the probability, timing and value of underlying cash flows and in selecting appropriate discount rates and useful economic lives to be applied within the valuation calculation. Such estimates and forecasts include commodity prices, foreign exchange rates, capital expenditure, future commissioning dates, production targets, operating costs and timelines of the granting of licences and permits.

(b) Asset lives and residual valuesPlant and equipment are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. Consideration is also given to the extent of current profits and losses on the disposal of similar assets.

(c) Valuation of share-based paymentsIn order to value options granted, the Group has made judgements as to the volatility of its ordinary shares, the probable life of the options granted and the time to exercise of those options. During the year-ended 31 December 2013, the Group has used the Black-Scholes methodology for valuing share-based payments.

(d) Restoration, rehabilitation and environmental costsCosts for restoration of site damage, rehabilitation and environmental costs are estimated using the work of external consultants or internal experts. Management uses its judgement and experience to provide for these estimated costs over the life of the mine.

(e) Contingent liabilitiesOn an ongoing basis the Group is party to various legal disputes, the outcomes of which cannot be assessed with a high degree of certainty. A liability is recognised where, based on the Group’s legal views and advice, it is considered probable that an outflow of resources will be required to settle a present obligation that can be measured reliably.

(f) Biological assetsImmature plantation and other biological assets which are planted closer to year-end and that are not yet mature at the accounting date, have been valued at fair value which approximates cost as there is little or no biological transformation at the accounting date.


4. Segment informationIFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker of the Group to allocate resources to the segments to assess their performance.

The strategy of the Group is to produce, refine and sell rutile. Information reported to the Board is on an integrated basis, which is how decisions over resource allocation are made. The Group itself has only one mining product being rutile, with ilmenite, zircon and other concentrates and other revenue streams being considered by-products of the integrated rutile production process.

As such, the Group considers there to be one segment being the production, refining and sale of rutile. Since the beginning of 2013, the Group has begun to grow certain agricultural products (see note 14), but at 31 December 2013 this is not considered a separate reportable segment.

Segment revenueRevenue represents the invoiced amount in respect of sales of rutile, ilmenite and zircon and other concentrates extracted during the period excluding sales discount and consists of the following:


2013 US$’000

Year ended 31 December

2012 US$’000

Rutile 115,933 165,076Ilmenite 6,096 6,649Zircon and other concentrates 1,340 7,369

123,369 179,094

Geographical informationSegment revenue is derived from sales to external customers domiciled in various geographical regions. Details of segment revenue by location of customers are as follows:


2013 US$’000


2012 US$’000

Asia 32,262 118,282Europe 40,130 37,291North America 26,809 22,491South America 3,278 897MENA (Middle East and North Africa) 20,890 133

123,369 179,094

No customers are currently located in Sierra Leone.

For the year ended December 2013 revenues of US$31,295,000, US$ 27,375,000, US$19,739,000, and US$13,775,000 were generated from four customers (2012: Revenues of US$65,209,000, US$30,863,000, and US$23,144,000 were derived from three customers) all of whom accounted for more than 10% of the Group’s total annual sales.

Seasonality information Whilst certain of the activities at the Group’s operations are subject to the effects of seasonality, the effect on the results of the Group are minimal.

Segment assetsAll of the Group’s assets are in Sierra Leone except certain inventory balances held in a warehouse in Europe.





5. Expenses by natureYear ended

31 December2013

US$’000


2012 US$’000

Amortisation (note 11) 123 48Depreciation on property, plant and equipment (note 12) 17,609 15,873Changes in inventories of finished goods and work in progress (5,320) (18,601)Production and shipping costs 60,880 49,584Operating overheads 18,641 23,508Royalties, mining leases and rent 1,037 815Value of inventory impaired (note 16) – 712Value of inventory provisions 118 3,764Other administration and marketing expenses 7,257 5,958Directors’ fees and remuneration 878 776Insurance cost 2,858 2,702Share option expense 1,298 4,338Auditor's remuneration-audit fee 279 204Auditor's remuneration-other services 114 135Meeting, travel and other expenses 1,960 1,983

Total cost of sales and administrative and marketing expenses (excluding exceptional items – see note 7) 107,732 91,799

6. Employee benefit expenseYear ended

31 December2013

US$’000


2012 US$’000

Wages and salaries 22,326 17,376Share option expense 1,298 4,338Other costs including social security 1,783 1,475

25,407 23,189

The average number of employees was: 1,517 1,518

In accordance with IAS 24 ‘Related Party Disclosures (Amended)’, the compensation for key management is disclosed within note 25.

7. Exceptional itemsYear ended

31 December2013

US$’000


2012 US$’000

Impairment of property, plant and equipment (396) (250)Tax claim liability reversal – 498

(396) 248

The Group recorded an exceptional loss of US$0.4 million (2012: gain of US$0.2 million). The 2013 amounts are in relation to certain feasibility studies that were written off as the Board had decided that they would no longer be used.

The 2012 amounts relate to a release of a US$0.5 million tax provision provided for in the prior year offset by a US$0.3 million loss related to a barge damaged during the year.


8. Net finance costsYear ended

31 December2013

US$’000


2012 US$’000

Interest expense:– Government of Sierra Leone loan (2,565) (2,619)– Nedbank loan (962) –– Unwinding of discount on provision (note 21) (44) (53)– Interest expense on retirement benefits (note 20) (236) (102)

Total borrowing costs (3,807) (2,774)Interest income – 2Net foreign exchange transaction losses (1,272) (635)

(5,079) (3,407)

9. Income taxes(a) Income tax expense


2013 US$’000


2012 US$’000

Current tax – –Deferred tax (note 15) – –Minimum turnover tax 618 895

Income tax expense 618 895

Under the provisions of an agreement reached with GOSL in June 2003, the Group’s operations in Sierra Leone are not subject to standard Sierra Leone corporate income tax until 1 January 2015. Instead, up to that time, the operations are subject to a minimum tax charged at 0.5% of the turnover of the business.

From 1 January 2015, the taxation of the Group’s operations in Sierra Leone will revert to the provisions of the Sierra Rutile Agreement (Ratification) Act 2002, under which tax will be charged at an amount not less than 3.5% of turnover and not more than the standard Sierra Leone corporate income tax rate (up to a maximum rate of 37.5%) on taxable profits. The standard corporate income tax rate in Sierra Leone enacted at the balance sheet date was 30%.

Based on the above, the income tax expense can be reconciled to the Group’s profit before tax as follows:


2013 US$’000


2012 US$’000

Profit before tax 10,517 84,397

Tax at Sierra Leone corporate income tax rate applicable to the Group – 0% – –Minimum turnover tax 618 895

Income tax expense 618 895

(b) Current tax (assets)/liabilitiesYear ended

31 December2013

US$’000


2012 US$’000

At 1 January 191 112Charged to the income statement (see note 9(a) above) 618 895Paid during the year (1,050) (816)

At 31 December (241) 191





10. Basic and diluted earnings per share(a) Basic earnings per share


2013


2012

Profit attributable to owners of the parent (US$’000) 9,899 83,502

Weighted average number of ordinary shares in issue 512,860,235 509,974,315

Basic earnings per share (US$) 0.019 0.164

(b) Diluted earnings per shareYear ended 31

December2013


2012

Profit attributable to owners of the parent (US$’000) 9,899 83,502

Weighted average number of ordinary shares in issue 512,860,235 509,974,315Effect of dilutive ordinary shares – share options 12,800,692 15,458,737

Weighted average number of ordinary shares for diluted earnings per share 525,660,927 525,433,052

Diluted earnings per share (US$) 0.019 0.159

11. Intangible assets

Goodwill1 US$’000

Feasibilitystudy costs2

US$’000

Computer software costs

US$’000Total

US$’000

(a) CostAt 1 January 2013 9,021 2,729 653 12,403Additions during the year – – 333 333Impairment charge3 – (396) – (396)

At 31 December 2013 9,021 2,333 986 12,340

AmortisationAt 1 January 2013 – – (576) (576)Charge for the year – – (123) (123)

At 31 December 2013 – – (699) (699)

Net book valueAt 31 December 2013 9,021 2,333 287 11,641

(b) CostAt 1 January 2012 9,021 – 570 9,591Additions during the year – 2,729 83 2,812

At 31 December 2012 9,021 2,729 653 12,403

AmortisationAt 1 January 2012 – – (528) (528)Charge for the year – – (48) (48)

At 31 December 2012 – – (576) (576)

Net book valueAt 31 December 2012 9,021 2,729 77 11,827

1 All goodwill is attributable to the rutile segment. For the purposes of goodwill impairment testing, the recoverable amount of the Group is determined based on a fair value less costs to sell basis. Expected cash flows are inherently uncertain and are determined on the basis of the latest commodity price, growth forecasts and exchange rates consistent with external sources of information, the latest mine plan, using the Group’s most recent production and unit cost assumptions and an asset life of 20 years. The cash flows are then discounted at the Group’s weighted average cost of capital of 11% on a post-tax real basis.

2 In 2012, the Group commissioned and incurred costs on a feasibility study into the Gangama and Sembehun mining options. All the costs incurred related to the technical feasibility of mining rutile via dredging or dry mining, and these have been capitalised as an intangible asset in line with IFRS 6, ‘Exploration for and Evaluation of Mineral Resources’.

3 Capitalised costs of $0.4 million in relation to certain feasibility studies were written off as the Board had decided that they would no longer be used.


12. Property, plant and equipment

Infrastructure US$’000

Plant, machinery

and equipment

US$’000

Mineral sand prospect and mine

development US$’000

Construction work in

progress1 US$’000

Exploration US$’000

Total US$’000

(a) CostAt 1 January 2013 29,467 162,942 75,798 36,204 2,420 306,831Additions 258 10,355 1,207 25,630 1,841 39,291Transfers2 8,392 27,077 – (36,629) – (1,160)Disposals – (233) – – – (233)

At 31 December 2013 38,117 200,141 77,005 25,205 4,261 344,729

DepreciationAt 1 January 2013 (14,979) (102,957) (46,683) – – (164,619)Charge for the year (980) (11,904) (4,725) – – (17,609)Disposals – 233 – – – 233

At 31 December 2013 (15,959) (114,628) (51,408) – – (181,995)

Net book valueAt 31 December 2013 22,158 85,513 25,597 25,205 4,261 162,734

Infrastructure US$’000

Plant, machinery

andequipment

US$’000

Mineral sand prospect and mine

development US$’000

Construction work in

progress US$’000

Exploration US$’000

Total US$’000

(b) CostAt 1 January 2012 29,745 160,862 69,319 16,120 6,384 282,430Additions 835 21,799 1,171 32,731 1,827 58,363Transfers – 13,130 5,308 (12,647) (5,791) –Impairment charge3 – (250) – – – (250)Disposals (1,113) (32,599) – – – (33,712)

At 31 December 2012 29,467 162,942 75,798 36,204 2,420 306,831

DepreciationAt 1 January 2012 (15,540) (125,233) (41,475) – (210) (182,458)Charge for the year (552) (10,113) (5,208) – – (15,873)Transfers – (210) – – 210 –Disposals 1,113 32,599 – – – 33,712

At 31 December 2012 (14,979) (102,957) (46,683) – – (164,619)

Net book valueAt 31 December 2012 14,488 59,985 29,115 36,204 2,420 142,212

1 Expenditure capitalised in the year in respect of the construction in progress amounted to US$25,630,000 (2012: US$32,731,000). Depreciation has not been charged where the assets are presently not in the condition necessary to operate in the manner intended by management.

2 The net transfer of $1,160,000 relates to dry mining ore which was held under capital work in progress in the prior year as the dry mining plant had not reached commercial production. Subsequent to this being reached in April 2013, this amount was transferred to inventory. See note 16.

3 AAs at 31 December 2012, an impairment provision of US$250,000 was made against a damaged barge.

The above assets are pledged as security against the Nedbank Loan and the Nedbank Senior Loan (see note 19).





13. SubsidiariesThe Group’s significant subsidiaries are as follows:

Name Holding Type

% ownership and voting

rights31.12.2013

% ownership and voting

rights31.12.2012

Country of incorporation(a) Main Business

SRL Acquisition No. 3 Limited (b) Direct 100% 100% British Virgin

Islands

Intermediate holding company

Sierra Rutile (UK) Limited (c) Indirect 100% – United Kingdom


Sierra Rutile Holdings Limited Indirect 100% 100% British Virgin

Islands

Immediate holding company

Sierra Rutile Limited Indirect 100% 100% Sierra Leone

Extraction, concentration,

separation and sale of Rutile, Ilmenite

and Zircon and other concentrates sands

Sierra Rutile Marketing Limited (c) Direct 100% – United Kingdom

Marketing of Rutile

Agricultural Resources Group Limited Direct 100% 100% British Virgin

Islands


African Lion Agriculture (UK) Limited (c) Indirect 100% – United Kingdom

Immediate holding company

African Lion Agriculture Limited (c) Indirect 100% – Sierra Leone

Agriculture project

Titanium Fields Resources Ltd (b) Direct – 100% British Virgin

Islands


SRL Acquisition No. 1 Limited (b) Indirect – 100% British Virgin

Islands


The Natural Rutile Company Limited (b) Indirect – 100% British Virgin

Islands


Biofuel Resources Group Ltd (b) Direct – 100% British Virgin

Islands


(a) There is no legal requirement for preparation and filing of audited accounts for all subsidiaries incorporated in the British Virgin Islands (BVI). Sierra Rutile Limited, the parent company, is quoted on the AIM market of the London Stock Exchange which requires the publication of annual audited financial statements prepared in compliance with IFRS.

(b) On 7 October 2013, Sierra Rutile Limited, the parent company, reorganised its group structure and merged the following subsidiaries Titanium Fields Resources Ltd, SRL Acquisition No.1 Ltd, The Natural Rutile Company Ltd and Biofuel Resources Group Ltd into SRL Acquisition No. 3 Limited with the latter becoming the surviving entity.

(c) Incorporated in 2013.


14. Biological assetsPineapple US$’000

Rubber US$’000

Oil Palm US$’000

Cacao US$’000

Total US$’000

At 1 January 2013 – – – – –Additions 77 399 1,698 26 2,200

At 31 December 2013 77 399 1,698 26 2,200

2013 US$’000

2012 US$’000

Current 77 –Non-current 2,123 –

2,200 –

Biological assets comprise oil palm, rubber, pineapple and cacao trees which are not yet mature, and hence are not producing fresh fruit bunches (“FFB”). These are valued at cost as an approximation of fair value due to the fact that they were planted immediately before year end and therefore virtually no biological transformation has taken place.

Pineapple has been classified as a current asset as they are expected to be ready for harvesting in October 2014. Oil palm, cacao and rubber are expected to mature over a period more than one year and have been classified as non-current assets.

15. Deferred income taxDeferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on tax rates that have been enacted or substantively enacted by the balance sheet date. For deferred tax assets and liabilities relating to the Group’s operations in Sierra Leone that are expected to be realised or settled after 31 December 2014, the standard Sierra Leone corporate income tax rate of 30%, as enacted at 31 December 2013, has therefore been used.

The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting period.

Accelerated tax depreciation

US$’000Tax losses

US$’000Total

US$’000

At 1 January 2012 (4,251) 4,251 –(Charged)/credited to the income statement (3,901) 3,901 –

At 1 January 2013 (8,152) 8,152 –(Charged)/credited to the income statement (5,869) 5,869 –

At 31 December 2013 (14,021) 14,021 –

On the basis that there is a legally enforceable right in Sierra Leone to offset an entity’s current tax assets and liabilities and that the deferred tax assets and liabilities relate to income taxes levied by the same tax authority on the same entity, the deferred tax assets and liabilities are offset as follows.

2013 US$’000

2012 US$’000

Deferred tax assets 14,021 8,152Deferred tax liabilities (14,021) (8,152)

– –

At the end of the reporting period, the Group had unused tax losses of US$447,740,000 (2012: US$446,780,000) available for offset against future profits, of which US$46,735,000 (2012: US$27,173,000) were recognised as a deferred tax asset. No deferred tax asset has been recognised in respect of the remaining available losses of US$401,005,000 (2012: US$419,607,000) due to the unpredictability of future profit streams. These losses have no expiry date. In addition the Group has other deductible temporary differences of $1,931,000 for which no deferred tax asset has been recognised.

Due to the Group’s retained loss position, there are no temporary differences associated with investments in the Group’s subsidiaries.





16. Inventories(a)

2013 US$’000

2012 US$’000

Rutile 27,806 24,102Ilmenite 2,248 1,120Zircon and other concentrates 49 81Dry mining ore1 1,738 –Consumables 29,308 17,618

61,149 42,921

1 Dry mining ore inventory of $1,160,000 was transferred to inventory from property, plant and equipment in April 2013. See note 12.

(b) The cost of inventories recognised as an expense and included in cost of sales amounted to US$87,833,000 (2012: US$66,356,000).

(c) The value of consumables inventory impaired at 31 December 2013 was US$1,438,000 (2012: US$1,438,000).

(d) As ilmenite and zircon and other concentrates are considered by-products in accordance with IAS 2 ‘Inventories’, they are valued at their net realisable value.

17. Trade and other receivables2013

US$’0002012

US$’000

Trade receivables 2,483 34,285Advances and prepayments 3,370 9,223

5,853 43,508

The carrying amount of trade and other receivables approximates to their fair value.

As of 31 December 2013, trade receivables of US$ 19,750 (2012: US$351,000) have been fully provided for.

As of 31 December 2013, no trade receivables were past due but not impaired (2012: US$nil).

The carrying amount of the Group’s trade and other receivables are denominated in the following currency:

2013 US$’000

2012 US$’000

US Dollar 4,510 39,985South African Rand 615 1,073Other 728 2,450

5,853 43,508

The maximum exposure to credit risk at the end of the reporting period is the fair value of each class of receivable mentioned above.

18. Trade and other payables2013

US$’0002012

US$’000

Trade payables 4,669 15,853Other payables and accrued expenses 10,417 8,811

15,086 24,664

The carrying amounts of trade and other payables approximate their fair value.


19. Borrowings2013

US$’0002012

US$’000

Unsecured borrowings:Government of Sierra Leone loan (a) 29,971 31,519Bank overdrafts (note 23(b)) – 692

29,971 32,211

Secured borrowings:Nedbank loan (b) 19,133 –

19,133 –

Total borrowings:Current 31,262 5,911Non-current 17,842 26,300

49,104 32,211

The group has two principal bank loans:

(a) GOSL Loan – unsecuredThe GOSL borrowing is subject to interest of 8% per annum and is repayable semi-annually commencing in June 2013. There are no covenants attached to the loan and the Group does not have any undertaking, nor is it contractually bound to create, any lien on or with respect to any of its rights or revenues. In 2013, a principal amount of $2,920,000 was repaid in respect of this loan.

(b) $50 million Nedbank Facility – securedThe facility comprises two facilities:

(i) $20 million Nedbank Working Capital Facility – securedThe revolving facility has a tenor of one year from 19 August 2013, carries an interest rate of LIBOR plus 4%, and is secured against the assets of the Group, see note 12. This facility is currently drawn down by $20,000,000 which after facility costs incurred of $1,537,000 generated net proceeds of $18,463,000.

(ii) $30 million Nedbank Senior Loan Facility – securedThe facility has a tenor of four years from financial close, carries an interest rate of LIBOR plus 5.25%, and is secured against the assets of Sierra Rutile, see note 12. This facility is restricted for use on capital expansion projects and is currently undrawn at 31 December 2013.

Closing and drawdown of this facility is subject to satisfaction of a limited number of outstanding conditions customary for a financing of this type. Sierra Rutile has up until the 31 December 2014 to reach financial close and a further 18 months to draw down the funds.

The carrying amount of the borrowings approximates their fair value. Details regarding interest rate, foreign exchange and liquidity are disclosed in note 26. During the current and prior years there were no defaults or breaches on any of the loans.

20. Retirement benefit obligationsSierra Rutile has two post service benefit plans in place for staff who work for Sierra Rutile Limited (the subsidiary incorporated in Sierra Leone). Both plans are unfunded and under both plans a lump sum amount falls due to employees on cessation of service which is dependent on final salary and length of service.

(a) Change in liability

2013 US$’000

2012 US$’000

Balance at 1 January 1,678 996Current service costs 879 173Interest expense 236 102End of service payments (319) (136)Actuarial loss on retirement benefit scheme 138 543

Balance at 31 December 2,612 1,678





(b) Actuarial assumptionsThe principal actuarial assumptions at the reporting dates were:

2013 2012

Discount rate at the year-end 12% 15%Future salary increases 12% 15%General inflation rate 9% 12%

The Directors consider that no further disclosure is required given the limited significance of these post service benefit plans to the overall performance and financial position of the Group.

21. Provision for liabilities and charges2013

US$’0002012

US$’000

At 1 January 2,443 2,478Amounts utilised in year (178) (122)Unwinding of discount 44 53Unused amounts reversed to the income statement (202) (253)Charged to the income statement 325 287

At 31 December 2,432 2,443

Analysed as follows: Current 295 380Non-current 2,137 2,063

Total 2,432 2,443

Costs of reclamation and rehabilitation are assessed on a regular basis and estimated costs are provided over the life of the mine. The expenditure and provisions include costs of labour, materials and equipment required to rehabilitate disturbed areas, the cost of reclamation, plant and infrastructure closure and subsequent environmental monitoring. Expenditure relating to ongoing rehabilitation and restoration programmes is charged against the provisions made. No provision is made for the dismantling and decommissioning of the Group’s plant and equipment, as management believes that it has neither a legal nor constructive obligation to undertake this work.

22. Share Capital(a) Issued shares and options

Number of shares

Share capitalUS$’000

At 1 January 2012 509,255,000 272,609Employee share option scheme:– Options exercised (see note (b) below) 3,130,000 1,404

At 31 December 2012 512,385,000 274,013Employee share option scheme:– Options exercised (see note (b) below) 2,515,417 1,089

At 31 December 2013 514,900,417 275,102

The total authorised number of ordinary shares is unlimited with no par value. All issued shares are fully paid and are admitted on the Alternative Investment Market (“AIM”) of the London Stock Exchange.


(b) Share optionsShare options are granted to Directors and to selected employees. The exercise price of the granted option is determined by the Board before such grant. According to section 2.3 of the ’Rules of SRX Unapproved Share Option Scheme’’, the price should not be less than the highest of the:

> nominal value of the shares which is US$ nil; > average of the middle market quotations of the shares as derived from the Official list for the 30 dealing days immediately preceding the Grant date; and

> middle market quotation of the shares as derived from the Official List on the Grant date.

Exercise of the option is not subject to performance-related conditions but is conditional to the continued employment of option holders with Sierra Rutile.

(i) Fair value of share options granted in the yearThe following share options were granted in the year:

Option series Number Grant date Expiry dateExercise

price-pence

Fair value at date of

grant-pence

(i) Granted on 09.01.2013 800,000 09.01.2013 29.09.2017 61.00 25.20(ii) Granted on 04.02.2013 3,800,000 04.02.2013 30.10.2017 69.50 28.50(iii) Granted on 21.05.2013 500,000 21.05.2013 13.02.2018 56.40 20.90(iv) Granted on 18.09.2013 100,000 18.09.2013 16.06.2018 54.98 20.80

All options will vest in four equal instalments over 21 months on the 12th, 15th, 18th and 21st month of the date of grant subject to continued employment with Sierra Rutile. The proportion of the options that vest on each vesting date shall lapse, to the extent not exercised, on the third anniversary of such vesting date.

The fair value of options granted during the year determined using the Black-Scholes valuation model ranges between 20.80p and 28.50p. The significant inputs into the model were:

Option series

09.01.2013 04.02.2013 21.05.2013 18.09.2013

Grant date share price 61.00 69.50 54.00 54.00Exercise price 61.00 69.50 56.40 54.98Expected volatility 76% 75% 73% 71%Option life 2 years 2 years 2 years 2 yearsRisk-free interest rate 1% 1% 1% 1%

(ii) Movements in share options during the yearThe following table reconciles the share options outstanding at the beginning and end of the year.

2013 2012

Number of options

Weighted average exercise

price-penceNumber of

options

Weighted average exercise

price-pence

Balance at beginning of the year 24,410,000 29.3 26,890,000 26.8Granted during the year 5,200,000 67.69 1,150,000 62.3Exercised during the year (2,515,417) 26.3 (3,130,000) 28.0Lapsed during the year (700,000) 71.0 (500,000) 30.9

Balance at end of the year 26,394,583 40.7 24,410,000 29.3

The share options outstanding at the end of the year had exercise prices ranging from 12.5p to 69.5p (2012: 12.5p to 75.5p) and a weighted average remaining contractual life of 309 days (2012: 587 days).





22. Share Capital continued(iii) Share options exercised during the yearThe following share options were exercised during the year and were satisfied through the issuance of new shares (see above):

Number exercised

Exercised date

Exercise price-pence

(i) Granted on 03.03.2011 303,750 23.05.2013 20.00(ii) Granted on 03.03.2011 38,750 23.01.2013 20.00(iii) Granted on 02.06.2011 193,750 23.05.2013 12.50(iv) Granted on 12.12.2011 175,000 23.01.2013 30.90(v) Granted on 12.12.2011 541,667 23.05.2013 30.90(vi) Granted on 12.12.2011 600,000 01.01.2013 30.90(vii)Granted on 12.12.2011 662,500 21.09.2013 30.90

2,515,417

23. Cash flows from operating activities(a) Cash inflow from operations

2013 US$’000

2012 US$’000

Profit before taxation 10,517 84,397Adjustments for:Depreciation on property, plant and equipment 17,609 15,873Amortisation of intangible assets 123 48Interest income – (2)Interest expense 3,807 2,774Share option expense 1,298 4,338Foreign exchange 1,272 439Impairment of property, plant and equipment 396 250Tax claim liability – (498)

35,022 107,619Changes in working capital– Increase in inventories (17,068) (22,428)– Increase/(decrease) in trade and other receivables 35,732 (21,270)– Movement in provisions 505 (51)– (Decrease)/increase in trade and other payables (9,677) 4,942

Cash inflow from operations 44,514 68,812

(b) Cash and cash equivalents

2013 US$’000

2012 US$’000

Cash in hand and at bank 22,539 5,005Short-term bank deposits 89 86

Cash and cash equivalents 22,628 5,091

Cash and cash equivalents and bank overdraft include the following for the purpose of the statement of cash flows:

2013 US$’000

2012 US$’000

Cash and cash equivalents (excluding bank overdrafts) 22,628 5,783Bank overdrafts (included within unsecured borrowings) (note 19) – (692)

22,628 5,091


24. Capital commitments2013

US$’0002012

US$’000

Property, plant and equipment acquisition contracted for at the end of the reporting period but not yet incurred: 1,210 2,291

25. Related party transactions(a) Transactions and balances

Amount payable US$’000

Purchases/project fees

US$’000

(i) 2013 Director: Enterprise in which Mr. Alex Kamara is also a director – Cemmats Group* (7) (657)

(ii) 2012 Director: Enterprise in which Mr. Alex Kamara is also a director – Cemmats Group* – (325)

* Mr. Alex B. Kamara is a Director of the Group. Mr. Kamara is also a non-executive director of Cemmats Group, a Sierra Leonean company which has a number of contracts with Sierra Rutile to supply mining services and equipment.

(b) Key management personnel compensationThe remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24, ‘Related Party Disclosures’. Further information about the remuneration of individual Directors is provided in the Directors’ Remuneration Report on pages 28 to 29.

In accordance with IAS 24, ‘Related Party Disclosures’, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. Key management comprises the Board and senior management. In 2013, ten (2012: nine) were considered key management personnel of the Group.

2013 US$’000

2012 US$’000

Directors’ fees 217 234Salaries and short-term employee benefits 2,215 1,627Share option expense 934 3,377

3,366 5,238

The Group also granted share options of 5,200,000 shares (2012: 1,150,000) to Directors, Senior Officers and advisors of the Group with exercise prices varying between 54.98p and 69.50p (2012: 60.60p to 65.00p).





26 Financial risk management26.1 Financial risk factorsThe Group’s activities expose it to a variety of financial risks:(a) market risk (including currency risk, fair value interest risk and fuel price risk);(b) credit risk;(c) liquidity risk;(d) cash flow interest rate risk; and(e) country risk.

The Group’s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

A description of the significant financial risk factors is given below together with the risk management policies applicable.

(a) Market riskCurrency riskThe Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to Leone (SLL), Euro and GBP. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group places any excess of liquidity in stable currencies to reduce its exposure to foreign currency risks.

At 31 December 2013, if the US$ had weakened/strengthened by 5% against the Euro, GBP, AUD, CAD and Leone, with all other variables held constant, the impact on the non-US$ denominated financial assets and liabilities would have been as follows:

2013Value

US$’000

Impact on profit/assets/

liabilities US$’000

Receivables 1,343 67Cash and cash equivalents 1,146 57Borrowings 29,971 1,499Payables 379 19

32,839 1,642

2012Value

US$’000

Impact on profit/assets/

liabilities US$’000

Receivables 3,523 176Cash and cash equivalents 170 8Borrowings 31,519 1,576Payables 3,434 172

38,646 1,932

Fuel price riskThe Group’s operations are energy intensive and, as a result, the Group’s costs and earnings could be adversely affected by rising energy costs. Whilst the Group never has entered into fuel price derivatives to hedge the future fuel price, its policy allows it to, from time to time to enter into these derivatives but only to the extent that the Group has fixed sales.

During 2013, the Group purchased US$11.9 million of marine fuel oil (“MFO”) (2012: US$11.1 million) and US$8.5 million of diesel (2012: US$10.9 million). The average price of MFO was $0.83 per litre and the average price of diesel was $1.26 per litre. Overall fuel costs remained flat at US$22.0 million (2012: US$22.0 million).

The Group estimates that all other factors being equal in 2013 a 35 % increase/decrease in MFO price would have created a 3.9% increase/decrease in operating cash expense and a 55% increase/decrease in diesel price would have created a 4.4% increase/decrease in operating cash expense.


(b) Credit riskThe Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the statement of financial position are net of allowances for doubtful receivables (where required), estimated by the Group’s management based on prior experience and the current economic environment.

The Group has no significant credit risk for the time being, as sales are based on off-take agreements with corporate customers. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history.

(c) Liquidity riskPrudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group aims at maintaining flexibility in funding by keeping committed credit lines available.

The table below analyses the Group’s non-derivative financial liabilities with agreed repayments periods. The tables below have been drawn up based on the undiscounted cash flows of the financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

At 31 December 2013

Less than one year

US$’000

Between two and five years

US$’000

More than five years

US$’000Total

US$’000

Government of Sierra Leone loan 12,129 17,842 – 29,971Nedbank loan 19,133 – – 19,133Trade and other payables 15,086 – – 15,086

46,348 17,842 – 64,190

At 31 December 2012

Less than one year

US$’000

Between two and five years

US$’000

More than five years

US$’000Total

US$’000

Government of Sierra Leone loan 5,219 26,300 – 31,519Trade and other payables 24,664 – – 24,664

29,883 26,300 – 56,183

(d) Cash flow and fair value interest rate riskThe Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings.

The Group’s exposures to interest rates on financial assets and financial liabilities are as follows:

2013 US$’000

2012 US$’000

Financial liabilities at fixed rate 29,971 31,519Financial liabilities at variable rate 19,133 –

49,104 31,519

The Group’s sensitivity to interest rates is mainly related to the Nedbank loan. If interest rates had been 1 per cent higher/lower and all other variables were held constant, the Group’s profit for the year ended 31 December 2013 would decrease/increase by US$46,000. This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.

(e) Country riskThe Group has an operating subsidiary, namely Sierra Rutile Limited, based in Sierra Leone. The Group does take insurance to cover country risks as and when required for specific reasons.





26 Financial risk management continued26.2 Fair value estimationThe nominal value less estimated credit adjustments of trade receivables and payables is assumed to approximate to their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

26.3 Capital risk managementThe Group’s objectives when managing capital are:

> to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

> to provide an adequate return to shareholders by pricing products commensurately with the level of risk.

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt to adjusted capital. Net debt is calculated as total debt (as shown in the statement of financial position) less cash and cash equivalents. Adjusted capital comprises all components of equity (i.e. share capital, share premium, non-controlling interests, retained earnings and revaluation surplus) other than amounts recognised in equity relating to cash flow hedges, and includes some forms of subordinated debt.

During 2013, the Group’s strategy, which was unchanged from 2012, was to maintain the debt-to-capital ratio at the lower end of the range 5% to 25%, in order to secure access to finance at a reasonable cost. The debt-to-capital ratios at 31 December 2013 and at 31 December 2012 were as follows:

2013 US$’000

2012 US$’000

Total debt (note 19) 49,104 32,211Less: cash in hand and bank balance (note 23 (b)) (22,628) (5,783)

Net debt 26,476 26,428

Total equity 197,212 185,064

Debt-to-capital ratio 13% 14%

27. Ultimate controlling partyAs at 31 December 2013, the Group’s immediate parent was Pala Minerals Limited a company incorporated in the British Virgin Islands, a subsidiary of Pala Investments Limited (formerly known as Pala Investment Holdings Limited). The ultimate controlling party of the Group is VFI Holdings AG, which is controlled by Mr Vladimir Iorich. VFI Holdings AG is incorporated is Switzerland, and does not produce Group accounts.

28. Events after the reporting periodEvents after the reporting period are disclosed only to the extent that they relate directly to the set of financial statements and are material in effect. As at the date of issuing this set of financial statements, there were no material events after the reporting period to disclose.


Company SecretaryJohn [email protected]

Business Address and Principal Place of BusinessSierra Rutile Limited2nd Floor, Access Bank Building30 Siaka Stevens StreetFreetownSierra Leone

Registered Agents and OfficeSHRM Trustees (BVI) LimitedTrinity ChambersP.O. Box 4301Road TownTortolaBritish Virgin Islands

Nominated Adviser & Joint Corporate BrokerRBC Capital Markets Thames CourtOne QueenhitheLondon EC4V 3DQ

Joint Corporate BrokerMirabaud Securities33 Grosvenor PlaceLondon SW1X 7HY

SolicitorsOlswang Solicitors 90 High HolbornLondon WC1V 6XX

AuditorDeloitte LLP2 New Street SquareLondon EC4A 3BZ

RegistrarsComputershare Investor Services (Channel Islands) LimitedP.O. Box 83Ordnance House31 Pier RoadSt HelierJersey JE4 8PWChannel Islands

Officers and Professional Advisors


www.sierra-rutile.com

Sierra Rutile Limited30 Siaka Stevens Street2nd FloorAccess Bank BuildingFreetownSierra Leone

Date post:	31-Dec-2016
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