Sunkar Resources PLC: Final Results | Company Announcements

Tuesday 30 June, 2009

Sunkar Resources PLC

Final Results

RNS Number : 7352U

Sunkar Resources PLC

30 June 2009

SUNKAR RESOURCES PLC

FINAL RESULTS FOR THE YEAR TO 31 DECEMBER 2008

Sunkar Resources plc (AIM:SKR) is pleased to announce its results for the year ended 31 December 2008.

Substantial progress during the year:

IPO successfully concluded in June 2008 raising $67 million before expenses

Mining operations underway throughout the year including Kazakh winter months. 530,000 tonnes ore mined by end of May 2009

Mobile beneficiation plant established: expected to reach full capacity by 3rd quarter 2009

Subsoil Use Contract (SSUC) successfully renegotiated in September 2008

Currently in full compliance with the Subsoil Use Contract ('SSUC')

Purchased remainder of local subsidiary holding the SSUC, Temir Service LLP and now owns 100%

Protocol of Intentions for the supply of sulphur signed with Tengizchevroil LLP

Groundwork for Bankable Feasibility Study laid, with full results expected in 2010

Beneficiated rock sent to three technical contractors for analyses and phosphoric acid pilot plant testing

$13.9 million loss before tax during the year, reflecting increased costs associated with the progress with the project as well as foreign exchange losses

Cash balance as at 31 December 2008 - $34.5 million, Cash balance as at 29 June 2009 - $26.2 million

The Company is today sending to shareholders the Annual Report and Financial Statements for the year ended 31 December 2008, together with the Notice of Annual General Meeting ('AGM') to be held at the offices of Maclay Murray & Spens LLP, 12th Floor, One London Wall, EC2Y 5AB on 23 July 2009 at 10.00am and the form of proxy for the AGM.

Copies of these documents are available free of charge from the Company's Registered Office at One London Wall, London, EC2Y 5AB for a period of at least one month, and on the Company's website at www.sunkarresources.com.

Teck Soon Kong, Chairman, commented:

'The Company has made very real progress during the year, namely - the start of mining operations, renegotiation of the Subsoil Use Contract and the establishment of the beneficiation plant during the period under review. Most importantly, the Company has fully delivered on the mining programme outlined in its IPO Admission document on time and on budget, whilst the medium term outlook for the phosphate sector remains positive.'

For further information please contact:

Sunkar Resources
Serikjan Utegen, CEO	Tel: +44 20 3178 5785
Donald Sinclair, CFO	Tel: +44 20 3178 5785

Canaccord Adams Limited
Mike Jones	Tel: +44 20 7050 6500
Bhavesh Patel

GMP Securities Europe LLP
Jeremy Wrathall	Tel: +44 20 7647 2800
James Cassley

Bankside Consultants
Simon Rothschild	Tel: +44 20 7367 8888
Louise Mason

Editors Notes

Sunkar Resources plc

Sunkar Resources plc commenced mining following its IPO in June 2008. Sunkar's wholly owned subsidiary in Kazakhstan holds the Subsoil Use Contract to the Chilisai Phosphate Rock Deposit in NW Kazakhstan. The contract area is estimated to contain 800 Mt of phosphate ore.

Sunkar's strategy is to build a world class integrated ammoniated phosphate fertiliser plant with low operating costs. Sunkar's low cost base derives from its near surface phosphate rock deposit, access to cheap sulphur from the nearby Tengiz oil field and regional long-term marginal priced gas.

The Chilisai Phosphate Rock Deposit is ideally located on a transportation hub that spans the agricultural markets from Western Europe through to China.

Sunkar Resources PLC

Chairman's Statement

Highlights

Considerable progress was made by Sunkar in 2008, most notably on 30 June 2008 the Company's shares commenced trading on AIM. The Company successfully raised a total of $67 million before expenses to progress its Chilisai phosphate fertiliser project (the 'Project'). The IPO was an important development for the Company and a clear indicator of investors' faith in the attractiveness of our asset base and Kazakhstan.

In the second half of 2008, Sunkar like almost every other AIM listed resource company has experienced significant downward pressure on its share price as a result of the global financial crisis. Many of us have seen economic recessions and stock markets which do not function, but this is like no other in recent memory. The collapse in credit is shaking the very foundation of the world financial system and the resultant financial malaise has spread into the wider economy. This should not however detract from the significant progress made by the Company, namely - the start of mining operations, renegotiation of the Subsoil Use Contract and the establishment of the beneficiation plant during the period under review. Most importantly, the Company has delivered on the programme outlined in its IPO Admission document on time and on budget, whilst the medium term outlook for the phosphates sector remains positive.

The loss before tax for the year to 31 December 2008 was $13.9 million. Major items include charges for a foreign exchange loss due to the appreciation of the dollar against sterling over the period of $6 million and accounting for options issued to directors and senior management of $2.8 million.

In November 2008, the Company purchased the remainder of Temir Service LLP and now owns 100 per cent. of the Kazakhstan registered legal entity which holds the subsoil use rights to the Chilisai sedimentary phosphate rock deposit. This should enable the Company to fully realise the potential of the deposit.

Board & Management

We consider management to be a key asset of Sunkar. We have experienced people on the ground in Kazakhstan who are well acquainted with the country. They are complemented by main board directors with decades of mining, oil & gas, manufacturing and financial experience. I was appointed the Non-executive Chairman of Sunkar shortly after the resignation of Lee Kraus on 1 May 2008. In November 2008, the addition of David Argyle, a Non-executive Director to the Board, brought invaluable in-depth knowledge of the international phosphate industry. The value of this team should not be underestimated.

Outlook

The groundwork for the Project has been firmly laid. During the period January to May 2009, some 530,000 tonnes of ore have been mined, giving the Company confidence that its target of one million tonnes in 2009 will be achieved. Prior to appointing the engineering firm to prepare the Bankable Feasibility Study, samples of beneficiated rock have been sent to three separate technical contractors for analyses and pilot plant testing to confirm the rock's ability to produce phosphoric acid of quality suitable for Di-Ammonium Phosphate (DAP) and Mono-Ammonium Phosphate (MAP) manufacture. The Bankable Feasibility Study will be well advanced by year-end and the Board expects to announce the first results of the economic model early in 2010.

The mobile beneficiation plant is expected to reach full capacity during the 3rd quarter of this year. To establish early cash flow, discussions are currently underway with a number of local companies for toll milling of the beneficiated ore in order to facilitate early sales to in-country consumers.

In conclusion, it has been a year of considerable development for the Company and stakeholders. I would like to thank my Board colleagues and senior management for their commitment and dedication to the delivery of our strategy.

Teck Soon Kong

CHAIRMAN

26 June 2009

Sunkar Resources PLC

Project Overview

The strategy of the Company and its wholly owned subsidiary Temir Service LLP's (together the 'Group') is to develop a world class integrated phosphate fertiliser production facility at the Chilisai Deposit in North Western Kazakhstan. Temir Service LLP ('Temir Service') holds a subsoil use contract to extract phosphate ore from part of the deposit (the 'Subsoil Use Contract'). The availability of low cost phosphate rock from the Chilisai field and sulphur from the North Caspian oil and gas industry is expected to make this one of the lowest cost production facilities in the world. Ammoniated phosphate fertiliser production requires access to raw materials including phosphate rock, sulphur/sulphuric acid and ammonia. To produce high quality ammoniated phosphate fertilisers the Group plans to build sulphuric acid, phosphoric acid and fertiliser manufacturing and granulation plants on the contract area in Kazakhstan.

Extensive Soviet Reserves Commission data from the 1970's estimates the Group's contract area contains 800 million tonnes of phosphate ore and work is currently being undertaken on a resource update. With an average grade of 10.7%, the contract area contains over 80 million tonnes of P2O5 (Phosphorus Pentoxide). The phosphorite (sedimentary phosphate rock) ore body averages one metre in depth and lies under only approximately 3 metres of unconsolidated overburden and therefore is easily and cheaply extracted.

	Category (millions tonnes of phosphate rock in-place)
Soviet Classification System JORC Classification	A+B Measured	C1 Indicated	C2 Inferred	Total (In-place)
Inside Contract Boundary	184	439	180	803

Source Competent Persons Report: Sunkar Resources plc Admission Document June 2008

As the phosphate bearing mineral does not occur in discrete particles, beneficiation to a grade matching most globally traded rock (above 28% P2O5) is not possible by purely mechanical means. Therefore simple crushing and screening to 17% P2O5 and subsequent sulphuric acid treatment of this concentrate is proposed. Acid treatment of phosphate rock with sulphuric acid produces phosphoric acid, required for high grade phosphate fertiliser production, and the by-product gypsum.

Sulphuric acid is produced from elemental sulphur. One of the main sources of sulphur is 'sour' natural gas which contains significant levels of hydrogen sulphides. Some North Caspian hydrocarbon reserves contain 17% hydrogen sulphide or more. With Kazakhstan now a major oil and gas producer, millions of tonnes of sulphur are produced annually. The fertiliser industry is the main consumer of sulphuric acid which is a feedstock in phosphoric acid production. With very little domestic fertiliser production the current estimates of landlocked North Caspian sulphur stockpiles is approximately eight million tonnes.

Ammonia is produced from combining nitrogen and hydrogen, and ammonia production is heavily dependent on the availability of natural gas. Central Asia and Russia have some of the largest reserves of natural gas in the world and the region already has significant installed ammonia production capacity. The Group therefore does not plan to build its own ammonia manufacturing facility.

The Project benefits from existing infrastructure and a pool of local skilled labour. Of critical importance, the contract area is crossed by a major rail line which passes right by the proposed plant site. Supplies of sulphur can be railed in from the North Caspian and finished products can be loaded and railed both east and west via an international rail network to China in the east and through southern Russia to the Black Sea and on to Europe and the Mediterranean coast. The target markets are Kazakhstan, China and Russia: three of the world's largest grain producers.

Sunkar Resources PLC

Business Review

Financials

In 2008, the Company changed its accounting reference date to 31 December (commencing from 31 December 2007) in order to coincide with that of its wholly owned operating subsidiary, Temir Service. Therefore the current reporting period is twelve months and the 31 December 2007 comparative statements are for eight months.

On 30 June 2008, the Group successfully completed a placing of 28,000,000 ordinary shares of 0.1p each at 120p per share and admission to trading on AIM raising $66.9 million before costs.

Income statement

The Group made a loss before tax of $13.9 million during the year ended 31 December 2008 compared with a loss before tax of $1.3 million during the eight months ended 31 December 2007 as follows:

	Year ended 31/12/08 $,000	8months ended 31/12/07 $,000
Other operating income	-	70
UK administrative expenses	(2,803)	(350)
Kazakh administrative expenses	(2,214)	(683)
Share-based payments	(2,831)	-
Foreign exchange losses	(6,406)	(339)
Bank interest receivable	405	1
Finance costs	(23)	-
Loss before tax	(13,872)	(1,301)

The increase in UK administrative expenses of $2,453,000 reflects the recruitment of 3 office staff, a full year's remuneration for the directors, an impairment charge of $750,000 relating to a loan receivable (see note 21) and an increase in general operating expenses following the IPO in June 2008.

The increase in Kazakh administrative expenses of $1,531,000 reflects the increase in staff numbers and associated operating costs following the commencement of mining operations in September 2008.

The share-based payment charge reflects the expense associated with the grant of options to employees and directors on 24 June 2008 which vest in three equal tranches commencing one year after the date of Admission to the Company's shares on the AIM Market of the London Stock Exchange.

The foreign exchange loss of $6,406,000 for the year mainly arose from the translation of the IPO proceeds which were primarily held in GB pounds to US dollars.

The increase of $404,000 in bank interest receivable reflects the higher average cash balances held following receipt of the IPO proceeds.

Balance sheet

The net assets of the Group are summarised as follows:

	31/12/08 $,000	Restated* 31/12/07 $,000
Tangible fixed assets	11,383		107
Intangible fixed assets	75,341		67,406
Other fixed assets	59		2,500
Current assets	40,255		6,592
Total assets	127,038		76,605
Long term liabilities	(11,883)		(19,869)
Current liabilities	(4,284)		(5,408)
Net assets	110,871		51,328

*During the year ended 31 December 2008, management revisited the accounting treatment applied to the acquisition of Temir Service LLP in September 2006. The acquisition accounting has been revised to reflect the total purchase consideration paid, and the deferred tax liability arising on the restatement of the Subsoil Use Contract to fair value, which were not reflected in the original acquisition accounting. These fair value adjustments have then been translated at balance sheet rates. The comparatives have also been restated to reflect the reclassification of goodwill to the Subsoil Use Contract (intangible asset). As a result the balances at 31 December 2007 have been restated as follows:

	As previously stated $,000	Adjustment $,000	As restated $,000

Goodwill	30,145	(30,145)	-
Subsoil Use Contract	16,254	51,152	67,406
Deferred tax	-	(19,869)	(19,869)
Translation reserve	32	(804)	(772)
Minority interest	(1,398)	(334)	(1,732)

Net assets at 31 December 2007 increased by $1.2 million from $50.1 million to $51.3 million as a result of the foreign exchange translation differences arising from this adjustment.

Total assets increased by $50.4 million to $127.0 million. The increase is mainly due to the net proceeds received from the IPO in June 2008 of $61.3 million net of expenses less losses before tax incurred during the year of $11.0 million (excluding a share-based payment charge of $2.8 million).

Property, plant and equipment increased by $11.3 million mainly as a result of the purchase of mining equipment of $9.9 million and the building of mine support facilities of $1.5 million less depreciation.

The fair value of the Subsoil Use Contract increased by $6.3 million following the acquisition of the final 10 per cent. of Temir Service during the year. Expenditure on the Subsoil Use Contract was $1.8 million.

Net current assets increased by $34.8 million to $36.0 million during the year reflecting the higher cash balances held following the IPO.

Cash Flow

Net Cash Flows	Year ended 31/12/08 $,000	8months ended 31/12/07 $,000
Operating Activities	(13,068)	(1,898)
Investing Activities	(19,818)	(5,104)
Financing Activities	61,283	12,782
Effect of exchange rate fluctuations on cash held	41	(24)
Net Cash Increase/(Decrease)	28,438	5,756
Opening Cash	6,107	351
Closing Cash	34,545	6,107

The Group cash flows in 2008 are dominated by the IPO on the AIM market raising $61.3 million, net of costs and increasing expenditure to achieve operating capacities to meet Subsoil Use Contract commitments.

Operating cash flows include $6.4 million foreign exchange loss from Sterling cash balances held from IPO proceeds, and accounted for when the Sterling was at its strongest: $2.00. Sterling cash holdings apart from that required to run UK operations were subsequently converted to US dollar before the collapse of Sterling to below $1.80. Administrative costs, excluding foreign exchange, accounting for options and impairment of loans increased by $3.2 million to $4.3 million and included a full year of payroll costs and general growth of the Company.

The Company's investments include the acquisition of the remaining minority interests for $7.95 million ($2.95 million, 50% of the final minority acquisition was outstanding at 31 December 2008). Further investment funds have been used to drive the phosphate mine into production in a short period of time, during the second half of 2008. A support base was constructed and mining equipment purchased, with the ability to extract at least 1 million tonnes of ore. To achieve this $11.5 million was spent on the mining equipment and facilities.

Operations

The terms of the Subsoil Use Contract were successfully renegotiated with the Kazakhstan Ministry of Energy and Mineral Resources in May 2008 with a new contract signed in September 2008. The new terms mean extraction will increase to 10 million tonnes of ore in 2012 (see below).

Spending commitments were a minimum of $20 million in 2008 and cumulative $115 million by 2012. In January 2009, the Company reported to the Ministry that it had achieved the 2008 contract requirements.

Amended Subsoil Use Contract Ore Extraction Requirements
	Year
	2008	2009	2010-2011	2012-2030
Annual ore to be depleted, thousand tonnes	200	1,000	5,000	10,000

Having successfully listed on the AIM Market in the tough financial conditions of 2008, preparations for a Bankable Feasibility Study were launched and full results are expected to be completed in 2010.

As soon as the funding raised at IPO was received, the Company accelerated the implementation of its work program. Installation of the Project's base camp commenced three weeks after funds were secured and the portable housing used to accommodate shift personnel was installed and fully functional by October 2008. The facilities included all communications, water supply, sewage, and power generation facilities.

Mining commenced in August 2008 with the introduction of scrapers, which started to remove overburden. The scrapers, which had been ordered in advance of IPO, were commissioned in a very short period of time immediately after the establishment of field operations. In September 2008, ore extraction commenced using a rented surface miner (Wirtgen SM2200) - this equipment started to produce a consistent rate of extraction soon after being put into operation.

In general, the mining techniques used for the stripping of overburden and extraction of ore have been consistently in line with the Company's plans both in terms of technology and costs. This fast track introduction of a mining operation and the commitment of field personnel enabled the Company to achieve its obligations to extract 200,000 tonnes of ore by end of 2008.

Operating conditions were expected to be harsh as temperatures in the area can dip to below minus 30 degrees centigrade. This very significant achievement demonstrates that a year round mining operation is possible.

Through the process outlined above, the Company has gained invaluable experience of the conditions and tested the envisaged full scale mining technique. During December 2008, the rented surface miner, which had not been winterised, started to experience difficulties during operations, due to the low temperatures. The Company decided not to purchase its own properly winterised surface miner to preserve capital, a decision which has proven valuable. In 2009, mining has been switched to an excavator and truck system in order for this method to be tested in challenging conditions. This has proven to be very successful and cost effective given the present scale of operations.

Mobile crushers and screens for dry ore beneficiation were purchased and commissioned late in 2008. The Company intentionally purchased only one train of equipment, corresponding to half of planned capacity, in order to assess the approach to beneficiation. This plant has been consistently producing a phosphate concentrate of 17% P2O5, in line with the forecast contained in the Competent Persons Report commissioned for the IPO and confirmed through analysis in both local and international laboratories.

The operation described above is the foundation for an assessment of mining costs for the full scale project and these results will comprise a significant input for the mining section of the Bankable Feasibility Study.

Crushed concentrate is currently being stockpiled and the Company is making arrangements for milling to produce National Standard compliant phosphate flour. As soon as milling arrangements are in place the Company plans to commence sales to in-country consumers as Direct Application Rock (DAR) and expedite cash flow.

The Chilisai phosphate flour is highly reactive, which makes it effective as a fertiliser for application on acidic soils. Recently the Company has collected from the National Centre of Complex Mineral Processing of the Ministry of Industry and Trade the official confirmation of compliance to National Standards for DAR.

In parallel with the development of mining operations, the Company had made steady progress establishing the base camp. During 2008, a temporary maintenance facility became fully operational in order to allow the field crew to service equipment during the harsh winter months. At the same time, construction of the permanent maintenance facility, fuel station, and stationary communications infrastructure commenced. These facilities are currently being completed and it is expected that they will be fully functional in 3Q 2009 and able to accommodate a larger scale of operation.

One of conditions of Subsoil Use Contract was the employment of local manpower for sub-soil operations. The Company's field operation is manned entirely by local staff. The local recruitment campaign to secure suitably qualified personnel has gained momentum, facilitated by the downturn in the surrounding mining industry. The majority of the operators and service staff recruited have extensive experience with mining equipment from leading international manufacturers. Continuing training and development is a priority for management and from the early days of operation, instructors from the leading equipment suppliers have been to the field to train local field staff.

The Group is committed to ensuring a safe working environment is provided in all aspects of operations within the Group's structure. The mine safety policy and procedures are achieving excellent results in safety, with no reported incidents in 2008 and a key element of this policy is management's continuing commitment to staff training.

Environmental safety is a key principle for Temir Service's activities. Environmental monitoring is being carried out in accordance with Kazakh and international standards as recommended in a report commissioned to a local licensed contractor by Temir Service. Operations do not entail significant irreversible consequences but a policy to promptly remove and recycle any industrial or solid waste has been put in place. Temir Service purchases and uses machinery and equipment that is in full compliance with all major ecological quality standards and certified by Kazakh competent authorities.

The Group through Temir Service is also fulfilling its social responsibilities as required under the terms of the Subsoil Use Contract and financing social projects in the Aktobe region. The support has been well received in the region and support for children development institutions is one of the major priorities of Temir Service. In October 2008, following negotiations with the local education authorities, Temir Service supplied and installed playgrounds in two regional kindergartens and an orphans' home in Aktobe city. Temir Service has also funded new specially equipped ambulance cars for the central hospital of Mugalzharskiy region and financed repair works of the hospital's service equipment.

Other Developments

After gaining a waiver from the Kazakhstan Ministry of Energy and Mineral Resources in November 2008 the Company signed an agreement with Mr Nurlan Abdullayev for the purchase of the final 10 per cent of Temir Service which it did not already own for $5.9 million. As Mr Abdullayev was at the time General Director of Temir Service, the transaction was considered a related party transaction for the purposes of the AIM Rules. The directors of the Company considered, having consulted with its nominated adviser, Canaccord Adams Limited, that the terms of the transaction were fair and reasonable insofar as the Company's shareholders were concerned.

Along with progress on the ground, the Company has been laying the foundations of a Bankable Feasibility Study. The study will require the conclusion of off-take agreements, supply agreements and technical and cost data for capital and operating expenditure for the mine and chemical plant. The results of current operations will provide invaluable knowledge for mining, beneficiation and their impact on the environment.

In December 2008, Sunkar signed a protocol of intentions with Tengizchevroil LLP ('TCO') to acquire sulphur from TCO's Tengiz oil field near the North-Eastern Caspian shore. Sunkar intends to use the sulphur for the production of sulphuric acid at the plant to be installed on its Chilisai phosphate deposit. The sulphuric acid is intended to be used for the further production of phosphoric acid.

In December 2008, Sunkar appointed Wardell Armstrong International to conduct a JORC (Joint Ore Reserves Commission) compliant resources estimate. The extensive Soviet database is being digitised and will provide much of the data required. This data will be supplemented with confirmation trenching to be carried out in 2009.

In pursuit of the technical feasibility for the chemical processing plant, the Company has contracted three phosphoric acid plant engineers to run pilot plant tests of phosphoric acid production from 17% P2O5 Chilisai run of mine beneficiated rock. The contractors are Prayon Technologies SA, Belgium, Jacobs Engineering, Florida, USA, and KEMWORKS, Florida, USA. The test results are anticipated in 3Q 2009. The test results are expected to include the quality of phosphoric acid, its ability to be concentrated to 40-44% P2O5 (for DAP/MAP production), its ability to be concentrated to 54% P2O5 or 'merchant grade acid' and its ability to be neutralised by ammonia to meet DAP and MAP specifications.

On completion of these tests, a product list will be produced and the Company will commence product off-take negotiations with prospective buyers.

Following the phosphoric acid pilot plant tests being conducted in 2009, the Company will appoint an engineering contractor to conduct the Bankable Feasibility Study from a short list of leading international engineering companies. The short list will comprise associates of the process engineers mentioned above, who have proven track records for completing bankable feasibility studies.

Sunkar Resources PLC

Report of the Directors for the Year Ended 31 December 2008

The directors present their report with the audited financial statements for the year ended 31 December 2008.

Principal Activity and review of business development

The principal activity of the Group for the period under review was the preparation for and commencement of the Group's Chilisai phosphate fertiliser project in Kazakhstan. Funding to commence the Project was secured and operations hit 2008 targets.

Further information on the development of the Project has been included in the Chairman's statement and Business Review sections of this report.

Dividends

The directors are unable to recommend the payment of a dividend (2007: $nil).

Directors

The directors during the year under review were:

T S Kong Non-executive Chairman

C de Chezelles Non-executive

D A Sinclair Chief Financial Officer

S Utegen Chief Executive Officer

N Damitov Director, Corporate Affairs (appointed 9 May 2008)

N R Clarke Non-executive (appointed 30 June 2008)

L Kraus Non-executive Chairman (resigned 1 May 2008)

D A Argyle Non-executive (appointed 18 November 2008)

Interests of Directors

The interests of the directors in the issued share capital of the Company are as follows:

Name	Number of shares held 31 December 2008	Number of shares held 31 December 2007 (or on appointment if later)	Number of options held 31 December 2008
T S Kong1	811,750	811,750	1,700,000
S Utegen2	20,000,000	20,000,000	2,000,000
D A Sinclair	-	-	1,200,000
N Damitov3	20,000,000	20,000,000	1,200,000
C de Chezelles4	-	-	1,500,000
D A Argyle	-	-	-
N R Clarke	-	-	500,000

Further details in respect of share options are disclosed in note 30 to the accounts. There were no options in issue at 31 December 2007.

1 811,750 shares are registered in the name of Bonus Evermore Limited, a Company wholly owned by Kongs Everlasting Settlement, a family trust of which Mr Kong is a beneficiary.

2 16,000,000 shares are registered in the name of Novita Advisors Corporation of which Mr Utegen is the beneficial owner.

3 These shares are registered in the name of Upminster Advisors Corp and Entente Corporate Advisors Limited, both of which Mr Damitov is the beneficial owner.

4 In the Admission Document published by the Company on 24 June 2008, 968,545 shares registered in the name of Spread Trustee Company Limited and Napier Holding Services Limited were shown as shares in which Mr de Chezelles had an interest on the basis of shareholding in those entities. In fact it was his adult children who were interested in the 968,545 shares and under section 252 of the Companies Act 2006, his adult children were deemed connected persons and in the Admission Document included those shares in accordance with this definition.

Substantial Share Interests

The Company has been notified or is aware of the following significant holdings of voting rights in its shares as at 2 June 2009:

Shareholder (* Director)	Number of Ordinary Shares	% of Share Capital
S Utegen*	20,063,500	12.55
N Damitov*	20,063,500	12.55
Hanover Nominees Ltd	9,651,334	6.04
Teratorn International Ltd	9,650,000	6.04
Sun Avenue Partners Corp	8,750,000	5.47
Righ Capital Ltd	7,500,000	4.69
Lawrence Asset Management Inc.	7,314,000	4.58

Directors' indemnity insurance

Directors' and Officers' liability insurance was maintained for directors and other Officers of the Group from 23 June 2008 and for the remainder of the year ending 31 December 2008 as permitted by the Companies Act 2006.

Financial Risk Management

Details regarding the risks associated with the Group's use of financial instruments are discussed in note 28 to the financial statements.

Risks, Uncertainties and Performance Indicators

The key risks the Group faces at this stage of its development are set out below. Risk assessment and evaluation is an essential part of the Group's planning and an important part of the Group's internal control procedures.

General and economic risks

Continued financial and economic uncertainty in the world's major economies and a protracted period of recovery.

Currency exchange fluctuations, particularly, in respect of the relative prices of the US Dollar, Kazakh Tenge and GB Pound.

Continued weakness in the global equity and share markets, particularly in the United Kingdom, and any adverse sentiment toward the mineral resource industry.

Development and mining risk

The risk of not being able to comply with the terms of the Subsoil Use Contract

The risk of not being able to produce phosphoric acid of marketable quality

The risk of recoverable mineral varying significantly from that predicted

The risk of estimated capital and operating costs to vary significantly from those predicted

Market risk

The risk of fertiliser prices varying significantly from those predicted

Funding risk

The risk that the Group may not be able to raise, either by debt or further equity, sufficient funds to enable completion of its planned fertiliser manufacturing project

The Group is at an early stage of its production process having mined 200,000 tonnes of ore by 31 December 2008 and has yet to receive any revenue from ore sales. The Group has regular discussions with the Kazakh authorities regarding the terms of the Subsoil Use Contract and is confident that the target to mine 1,000,000 tonnes of ore in 2009, in accordance with the terms of the Subsoil Use Contract, will be achieved. The Group aims to complete a Bankable Feasibility Study by mid 2010 which will address the last three development and mining risks.

The key performance indicators which will be monitored include:

Tonnes of ore mined and beneficiated
Grade of rock produced from beneficiation
Cost per unit of production

The Company commenced mining operations in the second half of 2008 and results of early mining and beneficiation were in line with expectations.

Internal Controls

The Board is responsible for establishing and maintaining Group policy and systems of internal control. The effectiveness of procedures adopted for financial, operational and compliance matters are reviewed on an ongoing basis. The internal controls can only provide reasonable and not absolute assurance against material misstatement or loss.

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review on pages 6 to 11. The financial position of the Group, its cash flows and liquidity position are described in the Business Review on pages 6 to 11. In addition, note 28 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives; details of its financial instruments and its exposure to credit risk and liquidity risk.

The current economic conditions create uncertainty- the challenge for the Group is to simultaneously progress its proposed fertiliser manufacturing project while maintaining commitments under the Subsoil Use Contract, noted in the Business Review above.

Expansion of mining operations from 1,000,000 tonnes in 2009 to 5,000,000 tonnes in 2010 would require a significant investment and as a result should sales contracts not be achieved in the near future, the Group intends renegotiating the development timeline of the mine by the end of 2009. The Company has previous successful experience of renegotiating the Subsoil Use Contract commitments. Cash resources on hand will then be managed in order to continue with the Bankable Feasibility Study. If the Company cannot successfully renegotiate the Subsoil Use Contract it will have sufficient resources on hand to pursue other opportunities.

Based on the above, the current stage and status of various discussions, negotiations and enquiries the directors have formed a judgment at the time of approving the financial statements that there is a reasonable expectation that the Company has or will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Policy on Payment of Creditors

It is the Group's policy to settle all amounts due to creditors in accordance with agreed terms of supply and market practice in the relevant country.

The Group's average creditor payment period at 31 December 2008 was 27 days (31 December 2007: 54 days). The Company's average creditor payment period was 17 days (31 December 2007: 54 days).

Political and Charitable Donations

No political contributions or donations for political purposes or charitable donations were made during the year.

Statement as to Disclosure of Information to Auditors

So far as each director is aware, there is no relevant audit information (as defined by Section 234ZA of the Companies Act 1985) of which the Company's auditors are unaware, and they have taken all the steps that they ought to have taken as directors in order to make them aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Auditors

In March 2009, the Company auditors were changed when Deloitte LLP were appointed as auditors of the Company by the directors in place of PKF (UK) LLP. Deloitte LLP have expressed their willingness to continue in office and a resolution will be proposed at the Annual General Meeting for re-appointment in accordance with Section 489 of the Companies Act 2006.

Annual General Meeting

The Notice convening the Company's Annual General Meeting, to be held on 23 July 2009, is included with this report. Full details of the resolutions proposed at that meeting may be found in the Explanatory Notes at the end of the Notice. The directors of the Company consider that all the proposals to be considered at the Annual General Meeting are in the best interests of the Company and its members as a whole and are most likely to promote the success of the Company for the benefit of its members as a whole. The directors unanimously recommend shareholders to vote in favour of the resolutions proposed.

Approved by the Board of directors and signed on behalf of the Board on 26 June 2009.

Donald Sinclair

Director

Sunkar Resources PLC

Directors

Teck Soon Kong, Non-executive Chairman

Teck Soon was appointed as a non-executive director of the company on 23 October 2006 and is a chemical engineer with more than 43 years of experience in the international oil & gas industry, mainly in various senior roles with Shell across the globe. He is currently Executive Chairman of Noble Denton Group, an independent director of Sterling Resources Limited, which is listed on the Toronto Stock Exchange, an independent director of Petrokamchatka Resources Limited and a Trustee of Harapan, a UK registered charity.

Serikjan Utegen, Chief Executive Officer

Serik was appointed as Chief Executive Officer of the Company on 23 October 2006. He has previously held the positions of Director of Operations and then President for KKM Holdings JSC developing three oil fields in Western Kazakhstan and has experience in the management of exploration, financing and corporate development. He has worked for a range of Kazakhstan oil companies, including the position of Head of the Transportation Department of KazTransOil National Oil Pipeline Utility of Kazakhstan.

Donald Sinclair, Chief Financial Officer

Donald is a Chartered Management Accountant and was appointed as Chief Financial Officer of the Company on 22 January 2007. Prior to joining the company he was Finance Manager with Grampian Country Food Group and previously spent four years with Syngenta, a leading agrochemical manufacturer becoming Business Controller for Syngenta's $2 billion herbicides global product line.

Nurdin Damitov, Executive Director, Corporate Affairs

Nurdin was appointed a director on 9 May 2008. He has been involved in various oil, gas and mineral consulting activities and IPOs. He is currently General Director of Temir Service and has experience of banking and finance from his time as a Director of PriceWaterhouseCoopers (Kazakhstan), as a board member of Halyk Bank Kazakhstan and through his work as a Director of State Investment Committee of the Republic of Kazakhstan and Assistant Chairman of the National Securities Commission of the Republic of Kazakhstan.

Charles de Chezelles, Non-executive Director

Charles was appointed as a non-executive director of the Company on 23 October 2006 and has spent most of his career in the financial industry in the US and Europe as well as the natural resources sector. He is currently Managing Director of Omega Trust Company Limited (London) and Damerin Limited (London) and sits on the board of several public companies in the natural resources field.

Nick Clarke, Non-executive Director

Nick was appointed a non-executive director on 30 June 2008. He is a Chartered Engineer with 35 years mining experience since qualifying from Camborne School of Mines. He is currently CEO of Central Asia Metals Limited and is also a Non-executive Director of Caledon Resources plc and Obtala Resources plc. Most recently he was the Managing Director of Oriel Resources plc until its purchase by OAO Mechel in mid 2008 for the sum of $1.5 billion. Prior to this he spent 12 years in mineral resource consultancy as MD of the internationally renowned Wardell Armstrong International and 16 years in production management in the mining industries of South Africa, Ghana, and Saudi Arabia.

David Argyle, Non-executive Director

David was appointed a non-executive director on 18 November 2008. He is CEO of Amazon Potash Corporation and has more than 16 years experience in the fertiliser and chemical industries. He has held senior management positions on projects in China, South East Asia, Central Asia, South America & Australia and holds a degree in Commerce from the University of Western Australia and an MBA from the University of Michigan. He holds a number of public company directorships on the TSX-V and AIM exchanges.

Sunkar Resources PLC

Statement of Directors' Responsibilities

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable laws and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have, as required by the AIM Rules of the London Stock Exchange, prepared the group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and have also elected to prepare the company financial statements in accordance with those standards. The financial statements are required to give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements the directors are required to:

select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Group and hence for 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 Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.

Sunkar Resources PLC

Corporate Governance Report for the Year ended 31 December 2008

In formulating the Group's corporate governance procedures the Board of Directors takes due regard of the principles of good governance set out in the Revised Combined Code issued by the Financial Reporting Council in June 2006 (as appended to the Listing Rules of the Financial Services Authority) as varied by the recommendations on corporate governance of the Quoted Companies Alliance (QCA) for companies with shares traded on the AIM Market of the London Stock Exchange and the size and development of the Group.

The Board of the Company is made up of the Chairman (who is an independent non-executive director), three executive directors and three independent non-executive directors. It is the Board's policy to maintain independence by having at least two independent non-executive directors.

The directors have formed, and have adopted terms of reference for, an audit committee, a remuneration committee, a nomination committee and an investor relations / public relations committee. The Combined Code requires that all the members of the audit committee and remuneration committee and a majority of the members of the nomination committee should be independent non-executive directors.

Committees of the Directors

Audit committee

The audit committee is chaired by Charles de Chezelles and its other members are Nicholas Clarke and David Argyle. It will normally meet not less than four times a year. This committee will be comprised exclusively of non-executive directors. The audit committee has responsibility for, amongst other things, the planning and review of the Group's annual report and accounts and half-yearly reports and the involvement of the Group's auditors in that process. The committee focuses in particular on compliance with legal requirements, accounting standards and the AIM Rules and on ensuring that an effective system of internal financial control is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board. The terms of reference of the audit committee cover such issues as membership and the frequency of meetings, as mentioned above, together with the role of the secretary and the requirements of notice of and quorum for and the right to attend meetings. The duties of the audit committee covered in the terms of reference are: financial reporting, internal controls and risk management systems, whistle blowing, internal audit, external audit, and reporting responsibilities. The terms of reference also set out the authority of the committee to exercise its duties.

Remuneration committee

The remuneration committee is chaired by Nicholas Clarke and its other members are Charles de Chezelles and Teck Soon Kong. It will normally meet not less than twice a year. This committee will be staffed exclusively by non-executive directors. The remuneration committee has responsibility for making recommendations to the Board in respect of the Group's policy on the remuneration of certain senior executives (including senior management), the implementation and operation of share incentive schemes and for the determination, within agreed terms of reference, of specific remuneration packages for each of the executive directors, including pension rights and any compensation payments.

The terms of reference of the remuneration committee cover such issues as membership and frequency of meetings, as mentioned above, together with the role of secretary and the requirements of notice of and quorum for and the right to attend meetings. The duties of the remuneration committee covered in the terms of reference relate to the following: determining and monitoring policy on remuneration, early termination, performance related pay, pension arrangements, authorising claims for expenses from the chief executive and chairman, reporting and disclosure, and remuneration consultants. The terms of reference also set out the reporting responsibilities and the authority of the committee to exercise its duties.

Nomination Committee

The nomination committee is chaired by Teck Soon Kong and its other members are Charles de Chezelles and Serikjan Utegen. It will normally meet twice a year. This committee will always have a majority of independent non-executive directors. The nomination committee has responsibility for regularly reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board and making recommendations to the Board with regard to any changes. Its duties include: giving full consideration to succession planning for directors and other senior executives in the course of its work, taking into account the challenges and opportunities facing the Company, and the skills and expertise needed on the Board in the future and reporting to the Board regularly; identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise, save that appointments as Chairman or Chief Executive should be matters for the whole Board; and, before any appointment is made by the Board, evaluating the balance of skills, knowledge and experience on the Board, and, in the light of this evaluation preparing a description of the role and capabilities required for a particular appointment. The nomination committee will also make recommendations to the Board as to the composition of the audit and remuneration committees.

The terms of reference for the nomination committee also cover such issues as the role of the secretary, notice of and quorum for and the right to attend meetings, as well as the reporting responsibilities of the committee and the authority of the committee to exercise its duties.

Investor Relations / Public Relations ('IR/PR') Committee

The IR/PR committee is chaired by Nurdin Damitov and its other members are Charles de Chezelles, Donald Sinclair and David Argyle. It will normally meet not less than two times per year. The IR/PR committee has responsibility for reviewing the investor relations and public relations aspects of the Company including, reviewing and releasing certain press announcements, reviewing the performance of IR/PR advisors, developing an IR/PR budget and making recommendations to the Board with regards to the appointment of IR/PR advisers (including brokers).

The terms of reference for the IR/PR committee also cover such issues as the role of the secretary, notice and quorum for and the right to attend meetings, as well as the reporting responsibilities of the committee and the authority of the committee to exercise its duties.

Guidelines for dealing with Major Shareholders

Corporate governance guidelines have been put in place with certain major shareholders, including directors Serik Utegen and Nurdin Damitov, in order to ensure that:

1. the Board can operate in a manner independent of those major shareholders and therefore in the interest of shareholders as a whole; and

2. any dealings with major shareholders are on an arm's length basis and on normal commercial terms.

Report of the Independent Auditors to the members of

Sunkar Resources PLC

We have audited the Group and Parent Company financial statements ('the financial statements') of Sunkar Resources PLC for the year ended 31 December 2008 which comprise the Group income statement, the Group and Company statements of recognised income and expense, the Group and Company balance sheets, the Group and Company cash flow statements and the related notes 1 to 32. These financial statements have been prepared under the accounting policies set out therein.

This report is made solely to the Company's members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' 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 company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the European Union are set out in the Statement of Directors' Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Report of the Directors is consistent with the financial statements. The information given in the Report of the Directors includes that specific information presented in the Chairman's Statement and Business Review that is cross referenced from the Report of the Directors.

In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.

We read the other information contained in the Annual Report as described in the contents section and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any further information outside the Annual Report.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's and Company's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In our opinion:

the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group's affairs as at 31 December 2008 and of its loss for the year then ended;

the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 31 December 2007;

the financial statements have been properly prepared in accordance with the Companies Act 1985; and

the information given in the Report of the Directors is consistent with the financial statements.

Emphasis of Matter - Intangible Assets

In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosures in note 16 to the financial statements concerning the impairment of intangible assets. Under the terms of the Subsoil Use Contract, the Group must meet minimum criteria for the volume of ore to be extracted from the contract area. At present the Group does not have the capacity to meet the volume commitments for 2010, and intends to renegotiate the Subsoil Use Contract in 2009. The likelihood of successfully renegotiating the contract cannot presently be determined. The carrying value of the intangible assets relating to the Subsoil Use Contract of $75.3 million is dependent on continued access to the contract area.

Deloitte LLP

Registered Auditors

LONDON

26 June 2009

Sunkar Resources PLC

Consolidated income statement

For the year ended 31 December 2008

	Note	Year ended 31/12/08	8 months ended 31/12/07
		$'000	$'000
Continuing operations
Revenue		-	-
Cost of sales		-	-
Gross profit		-	-

Other operating income		-	70
Administrative expenses		(7,849)	(1,033)
Foreign exchange losses		(6,406)	(339)
Operating loss before financing costs	8	(14,255)	(1,302)

Finance income	11	405	1
Finance costs	12	(22)	-

Loss before tax		(13,872)	(1,301)

Income tax credit	13	10,858	1

Loss for the year/period		(3,014)	(1,300)

Attributable to:
Equity holders of the parent	(2,753)	(1,157)
Minority interest	(261)	(143)
	(3,014)	(1,300)

		31/12/08	31/12/07

Basic and diluted earnings per share (cents)	14	(2.15c)	(1.31c)

Sunkar Resources PLC

Consolidated statement of recognised income and expense

For the year ended 31 December 2008

Company statement of recognised income and expense

For the year ended 31 December 2008

	Year ended 31/12/08 $'000	8 months ended 31/12/07 $'000

Foreign exchange translation differences	-	-

Net expenditure charged directly against equity	-	-

Result for the year/period	(11,403)	(560)

Total recognised income and expense for year/period	(11,403)	(560)

Sunkar Resources PLC

balance sheets

As at 31 December 2008

	Note	Group	Company	Restated* Group	Company
		31/12/08	31/12/08	31/12/07	31/12/07
		$'000	$'000	$'000	$'000
Assets
Property, plant and equipment	15	11,383	25	107	-
Intangible assets	16	75,341	1,182	67,406	806
Investments	17	-	50,579	-	43,692
Loans and finance lease receivables	18	-	17,848	-	1,306
Other receivables	19	59	-	2,500	2,500
Total non-current assets		86,783	69,634	70,013	48,304

Inventories	20	2,111	-	-	-
Trade and other receivables	21	3,599	2,141	485	474
Cash and cash equivalents	22	34,545	34,032	6,107	5,994
Total current assets		40,255	36,173	6,592	6,468
Total assets		127,038	105,807	76,605	54,772

Equity
Issued capital	23	298	298	217	217
Share premium	23	110,366	110,366	24,970	24,970
Share warrant reserve	23	561	561	-	-
Shares not issued reserve	23	-	-	24,756	24,756
Translation reserve	23	687	-	772	-
Accumulated losses	23	(1,041)	(8,903)	(1,119)	(331)
Total equity attributable to equity holders of the parent		110,871	102,322	49,596	49,612

Minority interest	23	-	-	1,732	-

Total equity		110,871	102,322	51,328	49,612

Liabilities
Other payables	24	694	-	-	-
Deferred tax liabilities	25	10,859	-	19,869	-
Provisions	26	330	-	-	-
Total long term liabilities		11,883	-	19,869	-
Trade and other payables	27	4,284	3,485	5,408	5,160
Total current liabilities		4,284	3,485	5,408	5,160
Total liabilities		16,167	3,485	25,277	5,160
Total equity and liabilities		127,038	105,807	76,605	54,772

* see note 16

ON BEHALF OF THE BOARD:

Donald Sinclair

Director

Approved and authorised for issue by the Board on 26 June 2009

Sunkar Resources PLC

statements of cash flows

For the year ended 31 December 2008

	Note	Group	Company	Group	Company
		31/12/08 $'000	31/12/08 $'000	31/12/07 $'000	31/12/07 $'000
Cash flows from operating activities
Operating loss		(14,255)	(12,135)	(1,302)	(486)
Depreciation		385	1	10	-
Share-based payments		2,831	2,831	-	-
Increase in inventories		(2,111)	-	-	-
(Increase)/decrease in receivables		(673)	833	(396)	(384)
(Decrease)/increase in payables		777	227	(210)	(240)
Cash utilised in operations		(13,046)	(8,243)	(1,898)	(1,110)
Interest paid		(22)	-	-	-
Net cash utilised in operating activities		(13,068)	(8,243)	(1,898)	(1,110)

Cash flows from investing activities
Acquisition of minority interest	7	(7,950)	(7,950)	(5,000)	(5,122)
Loans to subsidiary		-	(17,055)	-	(906)
Acquisition of intangible fixed assets		(750)	(376)	(98)	-
Acquisition of property, plant and equipment		(11,523)	(26)	(7)	-
Interest received		405	405	1
Net cash utilised in investing activities		(19,818)	(25,002)	(5,104)	(6,028)

Cash flows from financing activities
Repayment of loan		-		(5,708)	(5,708)
Proceeds from the issue of share capital		66,986	66,986	20,353	20,353
Payment of transaction costs		(5,703)	(5,703)	(1,863)	(1,863)
Net cash from financing activities		61,283	61,283	12,782	12,782

Net increase in cash and cash equivalents		28,397	28,038	5,780	5,644
Cash and cash equivalents at beginning of year/period		6,107	5,994	351	350
Effect of exchange rate fluctuations on cash held		41	-	(24)	-
Cash and cash equivalents at end of year/period	22	34,545	34,032	6,107	5,994

Sunkar Resources PLC

Notes to the consolidated financial statements

1. General information

Sunkar Resources PLC (the 'Company') is a Company registered in England and Wales. The consolidated financial statements of the Company for the year ended 31 December 2008 comprise the Company and its subsidiary (together referred to as the 'Group').

These financial statements are presented in US Dollars because that is the currency of the primary economic environment in which the group operates. Foreign operations are included in accordance with the policies set out in note 3. At 31 December 2008 the closing rate of exchange of US dollars to 1 GB pound was 1.45 (31 December 2007: 2.00) and the average rate of exchange of US dollars to 1 GB pound for the year was 1.86 (8 months ended 31 December 2007: 2.02).

2. Accounting standards applied

At 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:

IFRS 1 (amended) / IAS 27 (amended) Cost of an investment in a Subsidiary, Jointly Controlled Entity or Associate

IFRS 2 (amended) Share-based Payment - Vesting Conditions and Cancellations

IFRS 3 (revised 2008) Business Combinations

IFRS 8 Operating Segments

IAS 1 (revised 2007) Presentation of Financial Statements

IAS 23 (revised 2007) Borrowing costs

IAS 27 (revised 2008) Consolidated and Separate Financial Statements

IAS 32 (amended) IAS 1 (amended) Puttable Financial Instruments and Obligations Arising on Liquidation

IFRIC 13 Customer Loyalty Programmes

IFRIC 15 Agreements for the Construction of Real Estate

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

IFRIC 17 Distributions of Non-cash Assets to Owners

IFRIC 18 Transfers of Assets from Customers

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.

3. Significant accounting policies

(a) Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and their interpretations adopted by the International Accounting Standards Board ('IASB'), as adopted by the European Union. They have also been prepared with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared for the year ended 31 December 2008. The comparative amounts are for the eight months to 31 December 2007 and as such are not directly comparable. The comparative amounts have been restated in respect of a correction of the fair value of the Subsoil Use Contract, goodwill and the associated deferred tax consequences as described in note 16.

The current economic conditions create uncertainty - the challenge for the Group is to simultaneously progress its proposed fertiliser manufacturing project while maintaining commitments under the Subsoil Use Contract, noted in the Business Review above.

The financial statements have been prepared on the historical cost basis. The accounting policies set out below have been applied consistently by Group entities to the period presented in these consolidated financial statements.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Minority interests consist of the amount of those interests at the date of the original business combination (see below) and the minority's share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

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

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

(d) Purchase of a minority interest in a controlled entity

The cost of the purchase of the minority interest is measured at the aggregate of the fair value of assets given at the date of exchange, liabilities incurred or assumed and the fair value of equity instruments issued by the Group in exchange for the interest purchased in a controlled entity.

Where there is a difference between the increase in the Group's share of the carrying value of the acquiree's identifiable assets, liabilities and contingent liabilities and the cost of the minority interest purchased, any excess cost is recognised immediately in the balance sheet as an intangible asset relating to the Subsoil Use Contract.

(e) Foreign currency

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in US Dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and recognised in the group's foreign currency translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(f) Intangible assets

Mining licenses in the exploration and evaluation phases arising from a business combination are recognised as an intangible asset and initially measured at estimated fair value, generally based on the excess of the cost of the business combination over the Group's interest in the net fair value of the other identifiable assets, liabilities and contingent liabilities recognised, unless a more reliable indicator of fair value is available.

Expenditure on the acquisition of the license and subsequent exploration and evaluation expenditure are carried as intangible assets until such a time as it is determined that there are commercially exploitable reserves, at which time such costs are transferred to mineral interests to be amortised over the expected productive life of the asset.

Mineral properties relate to those properties where commercial extraction is demonstrable. Mineral properties acquired in a business combination are recognised as an intangible asset, being the excess of the present value of the economic reserves over the allocated amount of related property, plant and equipment and exploration and evaluation costs.

Exploration and evaluation assets are carried forward during the exploration and evaluation stage and are assessed for impairment in accordance with the indicators of impairment as set out in IFRS 6 'Exploration for and Evaluation of Mineral Resources'. In circumstances where a property is abandoned, the cumulative capitalised costs relating to the property are written off in the period. No amortisation is charged prior to the commencement of production.

(g) Property, plant and equipment

On initial recognition, land, property, plant and equipment are valued at cost, being the purchase price and the directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary for the asset to be capable of operating in the manner intended by the Group.

Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

motor vehicles 4 years
fixtures and fittings 4 years
plant and equipment based on hours of operation
land and buildings 10 years

The residual value, if not insignificant, is reassessed annually.

(h) Impairment of tangible assets

At each balance sheet date, the Group reviews the carrying amounts of its tangible 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 (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (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 (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

(i) Investments

Investments are stated at cost less any provision for permanent diminution in value. Investments include amounts receivable under finance lease arrangements and long-term receivables.

(j) Inventories

Phosphorite ore is valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs of selling the final product.

Cost is determined by the weighted average method and comprises direct purchase costs and an appropriate portion of fixed and variable overhead costs, including depreciation and amortisation, incurred in converting materials into finished product.

Materials and supplies are valued at the lower of cost and net realisable value. Cost is determined by the FIFO method. Any provision for obsolescence is determined by reference to specific items of stock. A regular review is undertaken to determine the extent of any provision for obsolescence.

(k) Financial instruments

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

(l) Trade and other receivables

Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

(n) Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation and, if the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

(o) Trade and other payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

(p) Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

(q) Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(r) Equity settled share based payments

Equity-settled share-based payments are measured at fair value at the date of the grant and expensed on a straightߛline basis over the vesting period, based on an estimate of shares that will eventually vest. Fair values are determined through use of a Black-Scholes based model.

4. Critical accounting judgements and key sources of estimation uncertainty

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, which are described in note 3, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).

Impairment of intangible assets

The assessment of intangible assets for any indications of impairment involves judgement. If an indication of impairment, as defined in IFRS 6, Exploration for and Evaluation of Mineral Resources, exists a formal estimate of recoverable amount is performed and an impairment loss recognised to the extent that carrying amount exceeds recoverable amount. Recoverable amount is determined as the higher of fair value less costs to sell and value in use. The calculation of recoverable amount requires an estimation of the value in use of the cash-generating units to which the intangible assets are allocated. 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.

Key sources of estimation uncertainty

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Share-based payments

The estimation of share-based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Group has made estimates as to the volatility of its own shares, the probable life of options granted and the time of exercise of those options. The model used by the Group is the Black-Scholes model.

Fair values recognised in business combinations

The estimation of fair values of intangible mineral rights and mineral assets and any associated property, plant and equipment acquired in business combinations involves estimates over the quantities of minerals that may be recovered and the technical and commercial feasibility of extraction, which may be highly uncertain. Generally, fair values assigned to exploration and evaluation assets are limited so as not to generate negative goodwill where there is significant uncertainty over the estimates of fair value.

5. Segment reporting

A segment is a component of the Group distinguishable by economic activity (business segment) or by its geographical location (geographical segment) which is subject to risks and returns that are different from those of other segments. The Group's only business segment, which is its primary reporting format is the evaluation and development of the Chilisai phosphorite deposits. All the Group's activities are related to the evaluation and development of phosphorite in Kazakhstan with support provided from the UK. In presenting information on the basis of geographical segments, segment assets and the cost of acquiring them are based on the geographical location of the assets. Segment capital expenditure is the total cost incurred during the period to acquire segment assets and where the assets are located. There was no Group turnover during the period. The Company only operated in the UK in support of operations in Kazakhstan and all activities are in respect of mining operations.

	31/12/08	Restated 31/12/07
	$'000	$'000
Total assets
Kazakhstan	90,839	63,592
UK	36,199	6,421
Total	127,038	70,013

Capital expenditure on deferred exploration and evaluation costs
Kazakhstan	1,773	40,133
UK	-	-
Total	1,773	40,133

Capital expenditure on property, plant and equipment
Kazakhstan	11,645	7
UK	26	-
Total	11,671	7

Depreciation
Kazakhstan	384	10
UK	1	-
Total	385	10

Liabilities
Kazakhstan	12,682	20,117
UK	3,485	5,160
Total	16,167	25,277

Loss for the period before tax
Kazakhstan	(2,469)	(740)
UK	(11,403)	(560)
Total	(13,872)	(1,300)

6. Result of the parent Company

As permitted by Section 230 of the Companies Act 1985, the income statement of the parent Company has not been presented as part of these financial statements. The parent Company made a loss of $11,403,000 (period ended 31 December 2007: loss $560,000) during the year.

7. Acquisitions of minority interests

On 26 November 2008, the Group acquired the remaining 10% interest in Temir-Service LLP for cash consideration of $5,900,000.

The fair value of assets and liabilities acquired was as follows:

				Year ended 31/12/08
				$,000

Intangible asset - Subsoil Use Contract				6,308
Deferred tax liability				(1,892)
Net assets acquired				4,416
Acquisition of minority interest				1,484
Cash consideration				5,900

Of the total cash consideration of $5,900,000 an amount of $2,950,000 remained outstanding at 31 December 2008. This amount has been settled prior to the finalisation of these accounts.

8. Operating loss

The operating loss is stated after charging:

	Year ended 31/12/08 $,000	8 months ended 31/12/07 $,000

Depreciation of property plant and equipment	385	10
Directors' emoluments (see note 10)	932	13
Foreign exchange losses	6,406	339
Operating lease rentals	401	61

9. Auditor's remuneration

The analysis of auditors' remuneration is as follows:

	Year ended 31/12/08 $,000	8 months ended 31/12/07 $,000
Fees payable to the company's auditors for the audit of the company's annual accounts	50	167
Fees payable to the company's auditor and their associates for other services to the Group:
The audit of the company's subsidiary pursuant to legislation	50	30
Total audit fees	100	197

Corporate finance services	-	119

The amounts included for the period ended 31 December 2007 were paid to the former auditors PKF (UK) LLP and their associates.

10. Staff costs

	Year ended 31/12/08 $,000	8 months ended 31/12/07 $,000

Wages and salaries	1,820	614
Share-based payments	1,464	-
Compulsory social security contributions	196	41
	3,480	655

The average number of employees (including executive directors) during the year/period was as follows:

	Year ended 31/12/08	8 months ended 31/12/07

Directors	3	3
Administration	20	10
Production	31	-
	54	13

Directors' remuneration

	Fees $,000	Salary $,000	Year ended 31/12/08 $,000	8 months ended 31/12/07 $,000

T S Kong	55	-	55	-
S Utegen	-	285	285
D A Sinclair	-	313*	313	13
N Damitov	-	206	206	-
C de Chezelles	33	-	33	-
N Clarke	33	-	33	-
D Argyle	7	-	7	-
L Kraus	-	-	-	-
	128	804	932	13

Prior to 2008 the directors generally elected to receive no remuneration whilst the Company was in an early stage of development in order to preserve limited working capital

* includes $145,000 in respect of services as a director in 2007.

Details of share options issued to directors during the year are included in note 30.

11. Finance income

Year

ended 31/12/08

$,000

8 months ended 31/12/07

$,000

Bank interest receivable

405

12. Financing costs

Year

ended 31/12/08

$,000

8 months ended 31/12/07

$,000

Unwinding of discount on historic cost liability payable under SUC (see note 24)

13. Income tax

Recognised in the income statement

	Year ended 31/12/08 $,000	8 months ended 31/12/07 $,000

Current tax	-	(1)
Deferred tax	(10,858)	-
Total income tax expense in income statement	(10,858)	(1)

UK Corporation tax is calculated at 28.5% (2007: 30%) of the estimated taxable profit for the year. Taxation of other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The charge for the year/period can be reconciled to the loss per the income statement as follows:

	Year ended 31/12/08 $,000	8 months ended 31/12/07 $,000

Loss before tax	(13,872)	(1,301)
Income tax using the UK domestic corporation tax rate of 28.5% (2007:30%)	(3,954)	(390)
Items permanently disallowed for tax purposes	807	-
Accelerated capital allowances	(7)
Effect of tax losses not recognised	3,154	389
Effect of change in Kazakhstan tax rates on deferred tax liability (see note 25)	(10,858)	-
	(10,858)	(1)

Deferred tax assets have not been recognised in respect of the following items:

	Year ended 31/12/08 $,000	8 months ended 31/12/07 $,000

UK tax losses	9,156	560
Overseas tax losses	3,586	741
	12,742	1,301

UK tax losses may be carried forward indefinitely and set off against future taxable profits. The overseas tax losses are available to be carried forward for 10 years. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom.

14. Earnings per share

Basic earnings per share

The share options and warrants issued in June 2008 (2007: nil) are not considered dilutive since the Group made a loss.

The calculation of basic earnings per share is based on the following data:

Loss attributable to ordinary shareholders

	Year ended 31/12/08 $,000	8 months ended 31/12/07 $,000

Loss for the year/period	(3,014)	(1,300)
Loss attributable to ordinary shareholders	(3,014)	(1,300)

Weighted average number of ordinary shares				Shares '000
Issued ordinary shares at 1 May 2007				94,600
Effect of shares issued during period				4,568
Weighted average number of ordinary shares at 31 December 2007				99,168

Issued ordinary shares at 1 January 2008				119,638
Effect of shares during year				20,669
Weighted average number of ordinary shares at 31 December 2008				140,307

15. Property, plant and equipment - group

	Plant and equipment	Land and buildings	Motor vehicles	Fixtures and fittings	Total
	$,000	$,000	$,000	$,000	$,000
Cost
Balance at 1 May 2007	-	-	85	30	115
Acquisitions	-	-	-	7	7
Balance at 31 December 2007	-	-	85	37	122

Balance at 1 January 2008	-	-	85	37	122
Acquisitions	9,871	1,496	262	42	11,671
Exchange differences	(9)	(1)	-	-	(10)
Balance at 31 December 2008	9,862	1,495	347	79	11,783

Depreciation and impairment losses

Balance at 1 April 2007	-	-	3	2	5
Depreciation charge for the period	-	-	6	4	10
Balance at 31 December 2007	-	-	9	6	15

Balance at 1 January 2008	-	-	9	6	15
Depreciation charge for the year	329	7	30	19	385
Balance at 31 December 2008	329	7	39	25	400

Carrying amounts
At 31 December 2007	-	-	76	31	107

At 31 December 2008	9,533	1,488	308	54	11,383

15. Property, plant and equipment - company

	Fixtures and fittings	Total
Cost	$,000	$,000
Balance at 1 May 2007 and 31 December 2007	-	-

Balance at 1 January 2008	-	-
Acquisitions	26	26
Balance at 31 December 2008	26	26
Depreciation and impairment losses
Balance at 1 April 2007 and 31 December 2007	-	-

Balance at 1 January 2008	-	-
Depreciation charge for the year	1	1
Balance at 31 December 2008	1	1

Carrying amounts
At 31 December 2007	-	-

At 31 December 2008	25	25

16. Intangible assets - group

Cost	Subsoil Use Contract $,000	Total $,000

Balance at 1 May 2007 as restated (see below)	27,319	27,319
Acquisitions	116	116
Acquisition of 10% Minority Interest on 13 December 2007	40,017	40,017
Exchange differences	(46)	(46)
Restated balance at 31 December 2007	67,406	67,406

Restated balance at 1 January 2008	67,406	67,406
Acquisitions	1,773	1,773
Acquisition of 10% Minority Interest on 26 November 2008	6,308	6,308
Exchange differences	(146)	(146)
Balance at 31 December 2008	75,341	75,341

Carrying amounts
At 31 December 2007	67,406	67,406

At 31 December 2008	75,341	75,341

Impairment tests for intangible assets

The directors have considered whether there is an indication of impairment of the Subsoil Use Contract intangible asset at the balance sheet date, in accordance with IFRS 6: Exploration for and Evaluation of Mineral Resources. The directors have concluded that as they continue to evaluate the proposed phosphate fertiliser project and retain access to the Chilisai Deposit in accordance with the terms of the Subsoil Use Contract that there are no indications of impairment. Once evaluation of the Project is completed with the Bankable Feasibility Study expected to be completed in 2010, development of the Project will be dependent on continued compliance with the Subsoil Use Contract and the ability to obtain financing.

As set out in the Business Review on pages 6 - 11, the Subsoil Use Contract contains minimum ore extraction volume commitments. The Group has met these obligations in 2008 and are confident based on results year to date that the 2009 commitments will be met. The Group does not currently have the capacity to meet the increased commitment of 5 million tonnes of ore to be extracted in 2010 and intend to renegotiate the Subsoil Use Contract to enable resources to be used to continue with the Bankable Feasibility Study instead of the acquisition of capital equipment in order to increase mining volumes. The directors are confident that they can successfully renegotiate the Subsoil Use Contract should it be necessary to do so. If the Subsoil Use Contract cannot be renegotiated the directors can either invest in capital equipment and/or outsource mining to meet the commitments, or continue with current mining activities but risk contract termination.

Prior period adjustment

During the year ended 31 December 2008 management revisited the accounting treatment applied to the acquisition of Temir Service LLP in September 2006. The acquisition accounting has been revised to reflect the total purchase consideration paid and the deferred tax liability arising on the restatement of the Subsoil Use Contract to fair value which were not reflected in the original acquisition accounting. These fair value adjustments have then been translated at balance sheet rates. The comparatives have also been restated to reflect the reclassification of goodwill to the Subsoil Use Contract. As a result the balances at 31 December 2007 have been restated as follows:

	As previously stated $,000	Prior period adjustment $,000	As restated $,000
Goodwill	30,145	(30,145)	-
Subsoil Use Contract	16,254	51,152	67,406
Deferred tax	-	(19,869)	(19,869)
Translation reserve	32	(804)	(772)
Minority interest	(1,398)	(334)	(1,732)

Net assets have increased by $1.2 million from $50.1 million to $51.3 million as a result of the translation of the fair value adjustments at the balance sheet foreign exchange rates.

There has been no effect on reported losses as a result of the prior period adjustment.

16. Intangible assets - Company

	Subsoil Use Contract $,000	Total $,000
Cost
Balance at 1 May 2007 and 31 December 2007	806	806

Balance at 1 January 2008	806	806
Acquisitions	376	376
Balance at 31 December 2008	1,182	1,182

Carrying amounts
At 31 December 2007	806	806

At 31 December 2008	1,182	1,182

17. Investments - Company

	Investment in subsidiary $,000
Cost
Balance at 1 May 2007	13,795
Acquisitions	29,897

Balance at 31 December 2007	43,692

Balance at 1 January 2008	43,692
Acquisition of 10% Minority Interest	5,900
Further investment in subsidiary (see note 18)	987

Balance at 31 December 2008	50,579

During the year the company acquired the remaining 10% interest in the capital of Temir Service LLP, a limited liability partnership registered in the Republic of Kazakhstan. An additional loan facility of up to $20 million was agreed between Sunkar Resources plc and Temir Service LLP in December 2008.

At 31 December 2008, Temir Service LLP had net liabilities of $3,900,000 and made a loss before taxation of $2,845,000 for the year to 31 December 2008 (period ended 31 December 2007: $742,000).

18. Loans and finance lease receivables - Company

	Loans $,000	Finance Leases $,000	Total $,000

Balance at 1 May 2007	400	-	400
Advances	906	-	906

Balance at 31 December 2007	1,306	-	1,306

Balance at 1 January 2008	1,306	-	1,306
Advances	8,270	-	8,270
New finance leases	-	8,962	8,962
Interest	168	129	297
Interest free period recognised as additional investment in subsidiary (note 17)	(517)	(470)	(987)

Balance at 31 December 2008	9,227	8,621	17,848

The company has provided a loan facility to Temir Service LLP of up to $12 million. The loan is interest free for the first 12 months and then subject to interest at LIBOR plus 2%. The loan is effectively repayable within five years from the date of the agreement.

The company entered into various finance lease agreements for plant and equipment with Temir Service LLP during the year. The finance leases are interest free for the first 12 months. The payment schedules for lease repayments are to be agreed between the Company and Temir Service LLP not later than 30 days after the subsoil use operations become profitable for Temir Service LLP, and are accordingly considered to fall due between one and five years. At 31 December 2008, the total future payments receivable are $10,145,000 and unearned interest income is $1,184,000. Residual values in the leases are considered to be $nil and no write-downs had been made at 31 December 2008.

19. Other receivables - long-term

	Group	Company	Group	Company
	31/12/08 $,000	31/12/08 $,000	31/12/07 $,000	31/12/07 $,000

Deposits	59	-	2,500	2,500
	59	-	2,500	2,500

20. Inventories

	Group	Company	Group	Company
	31/12/08 $,000	31/12/08 $,000	31/12/07 $,000	31/12/07 $,000

Raw materials	1,115	-	-	-
Stockpiled ore	838	-	-	-
Phosphate concentrate	158	-	-	-
	2,111	-	-	-

At 31 December 2008 all inventory is recognised at cost.

21. Trade and other receivables

	Group	Company	Group	Company
	31/12/08 $,000	31/12/08 $,000	31/12/07 $,000	31/12/07 $,000

Other receivables and prepayments	1,849	392	485	474
Loan receivable	1,750	1,750	-	-
	3,599	2,142	485	474

In June 2007, the Group agreed to loan Herbicides LLP $2.5 million. The loan had a term of eight months from the date of payment. At the time Sunkar was completing due diligence with a view to acquiring a 50% interest in Herbicides LLP, which owns a chemical plant in Kazakhstan. The loan amount was 50% of the proposed consideration, and it was intended that it would then be forgiven and form part of the consideration payable. The loan is currently unsecured.

The parties agreed to extend the term of the loan on three occasions as the Company had not completed its due diligence of Herbicides LLP. The decision not to proceed was taken in March 2009 and at that time the Company had made no demands for the loan or interest to be paid. The loan and the interest thereon (at a rate of Libor plus 2%) is currently due on 1 August 2009. Management have resolved to agree a repayment schedule as soon as possible and secure the loan against the assets of Herbicides LLP.

The directors have assessed the recoverability of the loan receivable on the basis of the detailed due diligence carried out on Herbicides LLP in 2008. Based on this assessment the directors believe it is prudent at this stage to record an impairment provision of $750,000 against this loan. At 31 December 2007 the $2.5million was recorded as a deposit (see note 19).

22. Cash and cash equivalents

	Group	Company	Group	Company
	31/12/08 $,000	31/12/08 $,000	31/12/07 $,000	31/12/07 $,000

Cash and cash equivalents	34,545	34,032	6,107	5,994

Included in cash and cash equivalents were 1 month fixed term deposits of $5,000,000 maturing on 23 January 2009 and £2,300,000 ($3,330,170) maturing on 13 January 2009.

23. Capital and reserves

Reconciliation of movement in capital and reserves Group	Share capital $,000	Share premium $,000	Share warrant reserve $,000	Shares not issued $,000	Translation reserve $,000	Retained Losses $,000	Total $,000	Minority interest $,000	Total equity $,000

Restated balance at 1 May 2007 (see note 16)	166	6,531	-	-	823	38	7,558	3,626	11,184
Changes in equity
Foreign exchange translation differences	-	-	-	-	(51)	-	(51)	(7)	(58)
Net income and expense recognised directly in equity	-	-	-	-	(51)	-	(51)	(7)	(58)
Loss for the period	-	-	-	-	-	(1,157)	(1,157)	(143)	(1,300)
Total recognised income and expense in the year	-	-	-	-	(51)	(1,157)	(1,208)	(150)	(1,358)
Acquisition of Minority Interest	-	-	-	24,756	-	-	24,756	(1,744)	23,012
Shares issued	51	20,302	-	-	-	-	20,353	-	20,353
Cost of share issues	-	(1,863)	-	-	-	-	(1,863)	-	(1,863)
Balance at 31 December 2007	217	24,970	-	24,756	772	(1,119)	49,596	1,732	51,328

Balance at 1 January 2008	217	24,970	-	24,756	772	(1,119)	49,596	1,732	51,328
Changes in equity
Foreign exchange translation differences	-	-	-	-	(85)	-	(85)	13	(72)
Net income and expense recognised directly in equity	-	-	-	-	(85)	-	(85)	13	(72)
Loss for the year	-	-	-	-	-	(2,753)	(2,753)	(261)	(3,014)
Total recognised income and expenses in the year					(85)	(2,753)	(2,838)	(248)	(3,086)
Acquisition of Minority Interest	-	-	-	-	-	-	-	(1,484)	(1,484)
Shares and warrants issued	81	91,567	94	(24,756)	-	-	66,986	-	66,986
Cost of share issues	-	(6,171)	467	-	-	-	(5,704)	-	(5,704)
Share-based payments	-	-	-	-	-	2,831	2,831	-	2,831
Balance at 31 December 2008	298	110,366	561	-	687	(1,041)	110,871	-	110,871

Company

	Share capital $,000	Share premium $,000	Share warrant reserve $,000	Shares not issued $,000	Retained losses $,000	Total $,000

Balance at 1 May 2007	166	6,531	-	-	229	6,926
Loss for the period	-	-	-	-	(560)	(560)
Total recognised income and expense	-	-	-	-	(560)	(560)
Acquisition of minority interest	-	-	-	24,756	-	24,756
Shares issued	51	20,302	-	-	-	20,353
Cost of share issues	-	(1,863)	-	-	-	(1,863)
Balance at 31 December 2007	217	24,970	-	24,756	(331)	49,612

Balance at 1 January 2008	217	24,970	-	24,756	(331)	49,612
Loss for the year	-	-	-	-	(11,403)	(11,403)
Total recognised income and expense	-	-	-	-	(11,403)	(11,403)
Shares issued	81	91,567	94	(24,756)	-	66,986
Cost of share issues		(6,171)	467			(5,704)
Share-based payments	-	-	-	-	2,831	2,831
Balance at 31 December 2008	298	110,366	561	-	(8,903)	102,322

Share-based payments

During the year the Company granted share options to key personnel to purchase shares in the entity.

The number and weighted average exercise prices of share options are as follows:

	Weighted average exercise price	Number of options	Weighted average exercise price	Number of options
	31.12.08	31.12.08	31.12.07	31.12.07

Outstanding at the beginning of the year/period	-	-	-	-
Granted during the period	GBP1.10	8,135,000	-	-
Outstanding and exercisable at the end of the year/period	GBP1.10	8,135,000	-	-

The options outstanding at 31 December 2008 have an exercise price in the range of GBP0.80 to GBP1.20 and a weighted average remaining contractual life of 9.5 years. The options vest in three annual tranches commencing one year after the date of grant subject to the grantee's continued service. At 31 December 2008, none of the options had vested.

The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes model. The contractual life of the option (10 years) is used as an input into this model. Expectations of early exercise are incorporated into the Black-Scholes model.

Fair value of share options and assumptions	Year to 31.12.08 $,000	01.05.07 to 31.12.07 $,000

Total expense recognised as employee costs	2,831	-

Weighted average share price	GBP1.20	-
Weighted average exercise price	GBP1.10	-
Expected volatility (expressed as weighted average volatility used
in the modelling under Black-Scholes model)	70%	-
Expected option life	3	-
Expected dividends	-	-
Risk-free interest rate (based on national government bonds)	4.00%	-
Weighted average fair value per option granted	US$1.14	-

The aggregate fair value of the share options issued during the year is $9,266,000.

The expected volatility is based on the historic volatility of the share price (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. There are no market conditions associated with the share option grants.

Share capital and share premium - Group and Company

Details of the ordinary shares in issue at the commencement of the year, ordinary shares issued during the year and ordinary shares in issue at the end of the year are as follows:

Date		Price pence	31/12/08 Shares '000

1 January 2008	Issued at beginning of year		119,638
9 May 2008	Issued for cash at par	0.1	1,819
18 June 2008	Issued for cash at par	0.1	392
24 June 2008	Issued as part consideration for acquisition of minority	120	10,000
30 June 2008	Issued in respect of Initial Public Offering	120	28,000
	Issued at end of year		159,849

At 31 December 2008 the authorised share capital comprised 500,000,000 ordinary shares of 0.1p each (31 December 2007: 500,000,000 ordinary shares of 0.1p each).

Share warrant reserve - Group and Company

	31/12/08	31/12/08	31/12/07	31/12/07
	No.000	$000	No. 000	$000
Balance at beginning of year/period	-	-	-	-
Share-based payment	533	467	-	-
Issued for cash	12,550	94	-	-
Balance at end of year/period	13,083	561	-	-

On 24 June 2008 the Company issued 12,550,006 warrants to investors who had subscribed for ordinary shares at 35p each. The proceeds received were apportioned between the shares and warrants based on a fair value for the shares of 34.6p and a fair value of the warrants of 0.4p each. The fair value of the warrants is measured using the Black-Scholes model assuming an expected volatility of 70%, a risk-free interest rate of 4% and a contractual life of the option of 1 year. Each warrant carries the right to subscribe for one ordinary share of 0.1p each at a price of 115% of the placing price of shares at IPO (equating to 138p per ordinary share), expiring on 30 June 2009.

On 30 June 2008 the Company issued 532,737 broker warrants to Canaccord Adams Limited and GMP Securities Europe LLP pursuant to Broker Warrant Agreements at a fair value of $0.88 each. The fair value of services received in return for the broker warrants issued is measured by reference to the fair value of the compensation options granted. This measure is used in the absence of information on the fair value of the services provided. The fair value of the warrants is measured using the Black-Scholes model assuming an expected volatility of 70%, a risk-free interest rate of 4% and a contractual life of the option of 2 years. Each warrant carries the right to subscribe for one ordinary share of 0.1p each at a price of 120p per ordinary share, expiring on 30 June 2010. The total fair value of $467,000 was recognised in share premium.

Translation reserve - Group

The translation reserve is used to record exchange differences arising from the translation of the financial statements of the foreign subsidiary.

Shares not issued reserve - Group and company

The shares not issued reserve was used to record the value of 10,000,000 ordinary shares to be issued in connection with the acquisition of a 10% interest in the subsidiary in December 2007. These ordinary shares were issued on 24 June 2008 and the balance on the reserve transferred to share capital and share premium.

24. Other long term payables

	Group	Company	Group	Company
	31/12/08	31/12/08	31/12/07	31/12/07
	$'000	$'000	$'000	$'000

Historic cost liability payable under the Subsoil Use Contract	694	-	-	-

Under the terms of the Subsoil Use Contract an amount of $1.8 million remains payable at 31 December 2008 in relation to access to historic geological exploration data. This is payable over the life of the contract and its carrying amount has been calculated on the basis of equal quarterly instalments over this period using a 9% discount factor.

25. Deferred tax

	Deferred tax $,000

Balance at 1 May 2007 as restated	7,878
Acquisition of minority interest on 13 December 2007	12,004
Exchange differences	(13)
Balance at 31 December 2007 as restated	19,869

Balance at 1 January 2008 as restated	19,869
Acquisition of minority interest on 26 November 2008	1,892
Deferred tax credited to income statement	(10,858)
Exchange differences	(44)

Balance at 31 December 2008	10,859

The deferred tax balance reflects the temporary timing difference on the fair value adjustment to the Subsoil Use Contract made on the acquisition of the subsidiary. The deferred tax credit arising in the year ended 31 December 2008 is due to a decrease in the Kazakh corporate tax rate from 30% to 15% by 2011. As described in note 13, deferred tax assets have not been recognised in respect of UK or overseas tax losses because of the uncertainty of whether future taxable profits will be available against which the Group can utilise the benefits therefrom.

At 31 December 2008 the subsidiary had accumulated losses of $3,900,000. No deferred tax asset has been recognised on this temporary timing difference, arising on the Company's investment in the subsidiary, as it is not considered likely that reversal of the difference will occur in the future.

26. Provisions

		Restoration provision
		$,000
Group

At 1 January 2008		-
Provision during the year		330
At 31 December 2008		330

The restoration provision has been made in respect of costs of land restoration and rehabilitation expected to be incurred at the end of the Subsoil Use Contract. The provision has been calculated based on the present value of the expected future cash flows associated with restoration and rehabilitation activities as required by the Kazakh authorities. The provision relates to replacement of the overburden and the demolition of site buildings.

27. Trade and other payables

	Group	Company	Group	Company
	31/12/08	31/12/08	31/12/07	31/12/07
	$'000	$'000	$'000	$'000
Trade payables	693	150	20	20
Non trade payables	254	-	2,600	2,500
Amounts payable to related parties (note 30)	2,950	2,950	2,500	2,500
Accrued expenses	387	385	288	140
	4,284	3,485	5,408	5,160

28. Financial instruments

The Board determines, as required, the degree to which it is appropriate to use financial instruments and hedging techniques to mitigate risks. The main risks for which such instruments may be appropriate are foreign exchange risk, interest rate risk and liquidity risk each of which is discussed below. There were no derivative instruments outstanding at 31 December 2008.

Liquidity risk and Capital Management

The Group's objectives when managing capital are to safeguard the entity's ability to continue as a going concern so that it can continue to increase the value of the entity for the benefit of shareholders.

To date the Group has relied on shareholder funding and founder loans to finance its operations. Given the nature of the group's current activities the entity will remain dependent on equity funding in the short to medium term until such time as the Group becomes self-financing from the commercial production of mineral resources. Management monitor forecasts of the Group's liquidity by projecting rolling eighteen month cash flows. The Group does not currently have the capacity to meet the increased ore extraction commitments of 5 million tonnes of ore to be extracted in 2010 and intends to renegotiate the Subsoil Use Contract to enable resources to be used to continue with the Bankable Feasibility Study instead of the acquisition of capital equipment in order to increase volumes. Otherwise success with sales negotiations will determine major capital spending ahead of completion future fundraising.

The Group cash position at 31 December 2008 was $34.5 million. Cash is held on short term deposits not exceeding three months and are deposited with a number of different financial institutions.

Interest rate risk

The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's cash holdings. The Group's policy is to manage its interest income using a mix of short term deposits of between one week and three months with a number of banks.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group's profit before tax through the impact on short term deposits on period end cash and cash equivalents.

Effect on profit before tax for the period ended:

31 Dec 2008

Increase/

(Decrease)

$,000

31 Dec 2007

Increase/

(Decrease)

$,000

+1.0%

345

-0.5%

(173)

(31)

Credit risk

The credit risk to which the Group is exposed relates to the recoverability of the unprovided amount of the loan of $1,750,000 referred to in note 21. While Herbicides LLP has agreed to grant the Company security over its assets the security currently is not in place and the loan is due for repayment in August 2009. The directors do not expect repayment by this time and are discussing repayment terms.

The parties previously agreed to extend the term of the loan on two occasions as the Company had not completed its due diligence of Herbicides LLP. The decision not to proceed was taken in March 2009 and at that time the Company had made no demands for the loan or interest to be paid. Management have resolved to agree a repayment schedule as soon as possible.

The directors have assessed the recoverability of the loan receivable on the basis of the detailed due diligence carried out on Herbicides LLP in 2008. On this assessment the directors believe it is prudent at this stage to make an impairment provision of $750,000 made against this loan.

The Board considers that there is minimal credit risk in respect of other receivables. The Board reviews the credit ratings of the financial institutions used for holding cash balances in order to minimise the credit risk. The maximum credit risk to which the Group was exposed at 31 December 2008 was $38,203,000 (2007: $9,092,000).

Foreign currency risk

The presentational currency of the Group is US Dollars. The functional currency of the parent company is US Dollars and the functional currency of the subsidiary is Kazakh Tenge. The Group is exposed to foreign currency risk due to movements in the Kazakh Tenge against the US Dollar exchange rate in relation to Kazakh Tenge denominated transactions and balances of the subsidiary and movements in GB Pounds and Euros against the Dollar Exchange rate in respect of transactions and balance of the parent company.

The Group has a general policy of not hedging against foreign currency risks.

The primary currency of international fertiliser trading is US dollar.

The Group had the following financial instruments in currencies other than its functional currency. The amounts are stated in US dollar equivalents.

	31/12/08	31/12/07
	$,000	$,000
Cash and cash equivalents	4,092	5,981
Trade and other receivables	1,878	157
Trade and other payables	(1,249)	(355)
	4,721	5,783

Exchange rate fluctuations may adversely affect the Group's financial position and results. The following table details the Group's sensitivity to a 10% strengthening and weakening in the US Dollar against the relevant foreign currencies of GB Pound and Kazakh Tenge. 10% represents management's assessment of the reasonable possible exposure.

	Profit or loss sensitivity		Equity sensitivity
	10% strengthening	10% weakening		10% strengthening	10% weakening
	$'000	$'000		$'000	$'000

GB Pounds	(352)	392		(352)	392
Kazakh Tenge	(851)	1,057		(5,272)	6,443
	(1,203)	1,449		(5,624)	6,835

The above risk exposures are also considered to apply to the Company in relation to the movement of the US Dollar exchange rate against GB Pounds.

Fair values

In the directors' opinion there is no material difference between the book value and fair value of any of the group's financial instruments.

The classes of financial instruments are the same as the line items included on the face of the balance and have been analysed in more detail in the notes to the accounts. All the Group's financial assets are categorised as loans and receivables and recognised at amortised cost using the effective interest rate method and all financial liabilities are measured at amortised cost.

29. Capital commitments

Under the Subsoil Use Contract the Group has obligations to invest $115 million cumulatively by the end of 2012 and has invested $20 million cumulatively at 31 December 2008.

30. Related parties

Identity of related parties

The Group has a related party relationship with its subsidiary (see note 17 and 18), its directors and executive officers and the directors of its subsidiary. During the year the Group had a related party relationship with certain shareholders exerting significant influence over the financial and operating policies of the Group (see Other related party transactions, below). At 31 December 2008 the Board considers that these shareholders no longer exert such influence.

The Group has no ultimate controlling party.

Transactions with key management personnel

The key management personnel compensations are as follows:

Key management personnel

		31/12/08			31/12/07
	Directors $'000	Other $'000	Total $'000	Directors $,000	Other $,000	Total $'000

Salaries	932	309	1,241	13	212	225
Compulsory social security contributions	89	19	108	2	1	3
Pension contributions	-	19	19	-	-	-
Share-based payments	2,820	7	2,827	-	-	-
	3,841	354	4,195	15	213	228

Share options were granted to directors and key management at exercise prices of GBP0.80 and GBP1.20 and an expiry date of 30 June 2018.

	At 1.01.08	Granted	Granted	At 31.12.08	At 31.12.07
		@ GBP1.20	@ GBP0.80
T S Kong	-	700,000	1,000,000	1,700,000	-
S Utegen	-	2,000,000	-	2,000,000	-
D A Sinclair	-	1,200,000	-	1,200,000	-
N Damitov	-	1,200,000	-	1,200,000	-
C de Chezelles	-	500,000	1,000,000	1,500,000	-
N R Clarke	-	500,000	-	500,000	-
D A Argyle	-	-	-	-	-
Total	-	6,100,000	2,000,000	8,100,000	-

The options vest in three annual tranches commencing on 30 June 2009 save for 35,000 options granted to key management which vest in full on the 30 June 2009.

Transactions with subsidiary undertakings

Details of loans advanced to the subsidiary undertaking are included in note 18.

Other related party transactions

On 26 November 2008, the Group acquired the remaining 10% interest in Temir Service LLP for cash consideration $5,900,000 from N Abdullayev, the former General Director of Temir Service LLP. At 31 December 2008 an amount of $2,950,000 remained outstanding.

The Company in the prior period exercised an option to purchase the initial 80% interest in Temir Service LLP for $10.5m from Cowaramup Investments Limited, a company controlled by a shareholder of this company. The Company paid an amount of $2.5 million during the year to clear the outstanding balance at 31 December 2007.

During the year the Company agreed to set off an amount of $121,099 owed by Sokol Holdings Inc, a company controlled by shareholders of this company against further project related costs not previously charged. In the period ended 31 December 2007 the Company repaid Sokol Holdings Inc an interest free loan of $3,772,771, $1,103,237 for direct project costs and $752,219 for expenses and other project related items.

31. Group entities

Significant subsidiaries

	Country of incorporation	Ownership interest


Temir-Service LLP	Kazakhstan	100%

32. Notes to the statements of cash flows

Material non-cash transactions

The company issued 532,737 broker warrants to Canaccord Adams Limited and GMP Securities Europe LLP for non-cash consideration during the year.

During the eight months ended 31 December 2007 the company issued 10,000,000 ordinary shares of 0.1p each in settlement of part consideration in the acquisition of 10% of Temir Service LLP.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SEWESUSUSEEM

Investegate takes no responsibility for the accuracy of the information within the site.

The announcements are supplied by the denoted source. Queries about the content of an announcement should be directed to the source. Investegate reserves the right to publish a filtered set of announcements. NAV, EMM/EPT, Rule 8 and FRN Variable Rate Fix announcements are filitered from this site.