Ratel Group Limited - Management Discussion and Analysis ("MD&A") Period Ended December 31, 2012

PERTH, Western Australia, Feb. 14, 2013 /CNW/ -

MANAGEMENT DISCUSSION AND ANALYSIS ("MD&A") 
PERIOD ENDED DECEMBER 31, 2012

(All figures are in US dollars unless otherwise indicated and the effective date of this MD&A is February 14, 2013)

Introduction

Management's discussion and analysis provides a review of the performance of the operations of Ratel Group Limited ("Ratel Group", "Company" or "the Group") and compares its performance with those of the preceding year and quarters. This discussion also provides an indication of future developments along with issues and risks that can be expected to impact future operations.  This report has been prepared on the basis of available information up to February 14, 2013 and should be read in conjunction with the interim unaudited financial statements of the Company for the period ended 31 December 2012 and the audited financial statements of the Company for the year ended 30 June 2012 and the related notes thereto, which have been prepared in accordance with International Financial Reporting Standards and the Company's Annual Information Form dated 28 September 2012 for June 2012.

Additional information relating to the Company, including the Company's Financial Statements and Annual Information Form ("AIF") can be found on SEDAR at www.sedar.com under the Company's profile.

Cautionary Note Regarding Forward Looking Statements

Certain statements contained in this MD&A constitute forward looking statements within the meaning of applicable securities laws including, among others, statements made or implied relating to the Company's objectives, strategies to achieve those objectives, the Company's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.  Forward looking statements generally can be identified by words such as "objective", "may", "will", "expect", "likely", "intend", "estimate", "anticipate", "believe", "should", "plans" or similar expressions suggesting future outcomes or events.  Such forward looking statements are not guarantees of future performance and reflect the Company's current beliefs based on information currently available to management.  Such statements involve estimates and assumptions that are subject to a number of known and unknown risks, uncertainties and other factors inherent in the business of the Company and the risk factors discussed in the Company's Annual Information Form and other materials filed with the securities regulatory authorities from time to time which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements.  Those risks and uncertainties include, but are not limited to: the mining industry (including operational risks; risks in exploration, and development; the uncertainties involved in the discovery and delineation of mineral deposits, resources or reserves; and the uncertainty of mineral resource and mineral reserve estimates); the risk of gold, copper and other commodity price and foreign exchange rate fluctuations; the ability of the Company to fund the capital and operating expenses necessary to achieve the business objectives of the Company; the uncertainty associated with commercial negotiations and negotiating with foreign governments; the risks associated with international business activities; risks related to operating in Zambia and Nigeria; environmental risk; the dependence on the Company's key personnel; and the ability of the Company to access capital markets.

Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date the statements were made and readers are advised to consider such forward looking statements in light of the risks set forth above.  Except as required by applicable securities laws, the Company assumes no obligation to update or revise any forward looking statements to reflect new information or the occurrence of future events or circumstances.

Background and Review of Operations

Ratel Group was incorporated on October 18, 2010 and is domiciled in the British Virgin Islands. Both CGX Limited ("CGX") and Zambian Mining Limited ("Zambian Mining") were incorporated on August 22, 2006 and are also domiciled in the British Virgin Islands. On June 1, 2010, Ratel Gold Limited ("Ratel Gold") (now St Augustine Gold & Copper Limited, "SAU") agreed to acquire a 100% interest in Zambian Mining and CGX from CGA Mining Limited ("CGA").  Ratel Group, CGX and Zambian Mining were wholly owned subsidiaries of Ratel Gold (now SAU), a company incorporated and domiciled in the British Virgin Islands. On December 17, 2010, the shares held by Ratel Gold (now SAU) were transferred to Ratel Group who acquired a 100% interest in Zambian Mining and CGX.

Ratel Gold (now SAU) has been listed on the Toronto Stock Exchange ("TSX") since August 6, 2010, and Ratel Group was listed on the TSX on January 4, 2011 under the symbol "RTG".

Ratel Gold (now SAU) had agreed to provide funding as required to enable Ratel Group and its controlled entities to operate and meet their respective obligations until the date of Ratel Group successfully completing its capital raising of C$10M (gross), and listing on the TSX.  Ratel Group successfully completed its listing on January 4, 2011 and completed the capital raising on January 7, 2011. Concurrently with the closing of the acquisition, as more particularly described in the Management Information Circular of Ratel Gold dated November 10, 2010 (the "Circular"), Ratel Gold (now SAU) also completed the Spin-out Reorganisation (as defined in the Circular) of its African property interests into Ratel Group.  Pursuant to the terms of the Spin-out Reorganization, each shareholder of Ratel Gold (now SAU) was issued five common shares in the capital of Ratel Group for every nine common shares of Ratel Gold (now SAU) held on the share distribution record date of January 6, 2011.  CGA, through a wholly owned subsidiary, held 17.5M shares in Ratel Gold (now SAU).  It then acquired 9.7M shares in Ratel Group pursuant to the Spin-out Reorganisation, and acquired a further 19M shares pursuant to the conversion of subscription receipts, taking CGA's beneficial holding in Ratel Group to 28.7M shares, which represents 19.1% of the issued and outstanding share capital.

As part of the Spin-out Reorganization, Ratel Group also undertook a capital raising (the "Spin-out Financing") by way of subscription receipts to fund its future activities and to satisfy TSX original listing requirements. The subscription receipts issued in connection with the Spin-out Financing automatically converted to common shares of Ratel Group as part of the Spin-out Reorganization, and 100M common shares of Ratel Group have been issued in connection therewith at a price of C$0.10 per common share, for aggregate gross proceeds of C$10M.

CGX and Zambian Mining were incorporated to act as holding companies respectively for the interests in the Segilola Gold Project in Nigeria and the Mkushi Copper Project in Zambia.

Mkushi Copper Project

A joint venture was entered into with African Eagle Resources ("AFE") for the Mkushi Copper Project in Zambia whereby Seringa Mining Limited ("SML") acquired a 51% interest in the project through its 51% shareholding in Mkushi Copper Joint Venture Limited ("MCJVL") who holds the mine tenements, with AFE retaining a 49% interest. On 3 December 2012,  AFE announced it had sold its interest to Elephant Copper Ltd. SML was responsible for funding a bankable feasibility study, while AFE manages exploration initiatives outside the initial development zones, with funding proportional to the percentage interest held by each party in the project.  The joint venture agreement was finalised and executed on May 30, 2007. SML has prepared a detailed feasibility study.

In 2011, SML commenced the construction and development of a Heap Leach mining operation at the Mkushi Copper Project, which was finalised in the 2012 financial year. Irrigation (production) of the ore pile with sulphuric acid solution has now commenced at the project and is continuing.  An estimated 53 tonnes of sulphuric acid has been introduced into the heap leach operation.  It is expected that the two pregnant solution (cementation) tanks will be used shortly in order to precipitate the copper. Iron shavings have been added to these tanks. Once copper values of 1-2 g/l are achieved and the solution pH draining off the ore pile is 1.5 the pregnant trenches will be opened. The heap leach operation has caused oxidisation of the ore on the pad and is most noticeable around the lower edges of the pad area. Currently the heap leach operation is being hampered by heavy rains which have caused some superficial damage to the pad.  In the month of February 2013 the acid pond liner was damaged resulting in a weak acid solution leakage into the environment.  Because of the heavy rains the acid solution was highly diluted.  Once the leakage problem was identified the acid solution was transferred from the damaged pond 1 into pond 2.  The damaged liner has been repaired and the acid solution transferred back into pond 1.  Regular and systematic sampling of the water monitoring boreholes and rivers has been taking place daily on site with samples analysed at the University in Lusaka. All results have been recorded and plotted. Results confirm that there is no contamination to the environment. Whilst the issue has been rectified, daily sampling of the environment will continue to take place for the next month and thereafter will proceed to the regular sampling routines; weekly for water monitoring boreholes and monthly for the rivers. Furthermore, acid pond levels will continue to be monitored closely and acid liners at the leach operation checked continuously. Growth of bacteria on the mine site for future use continues and progress is monitored continually. Two ground water monitoring boreholes (environmental purposes) have been drilled in order to detect any potential acid leakage from the heap leach operation into the groundwater system. Sampling of these water holes commenced prior to acid introduction and irrigation and will continue periodically. In addition, periodic water sampling of the Lunsemfwa river (at strategic localities) and of the main pit water are taken regularly and analysed accordingly. All analyses are being carried out by the University of Zambia. Construction of a portion of the mines work buildings commenced and was completed in the 2012 year, a water borehole was drilled for the Mkushi Basic School and a hand pump was fitted to this borehole.

On March 21, 2012 a generic default notice was issued by the recently elected Zambian Government, received via the local Zambian newspapers.  The Zambian Government served numerous default notices on various exploration and mining companies throughout Zambia. The Ministry of Mines ("MOM") has since issued additional, formal and specific default notices to all affected mining and exploration companies. Ratel Group and its joint venture partners believed the basis for the default on the Mining Licence was incorrect. At the request of the MOM, Ratel Group made a formal presentation on October 2, 2012, outlining further the additional anticipated development of the Mkushi copper deposit.  At a further meeting on October 4, 2012 the MOM advised that the default notice had been cancelled subject to certain conditions.

In accordance with MOM approval, Mkushi Copper Joint Venture Limited has developed stage one of a two stage approach in the development of a mine. Stage one of the development involves a heap leach operation to exploit the low grade portion of the ore body and potentially increase the LOM by exploiting fully the low grade portion of the deposit and thereby maximising the full potential of the deposit. Stage two involves a further pre-production stage with the aim of exploiting the high grade copper ore by means of conventional mining, leading to the mining plant implementation, contingent on the success of stage one.

Under the Zambian Mines and Minerals Development Act 2008 a land owner is entitled to compensation where any of its surface rights are disturbed.  Mkushi Holdings Limited ("Mkushi Holdings") the landowner where the Mkushi Copper Project is situated has sought compensation of US$3.1 million from MCJVL, the holder of the Mkushi Copper tenements.  MCJVL has rejected Mkushi Holdings' claim as it has not disturbed any rights of Mkushi Holdings.  Mkushi Holdings advised MCJVL on May 17, 2012 that it has elected to pursue arbitral proceedings in light of the failure of negotiations between the parties. In August 2012 MCJVL wrote to Mkushi Holdings requesting it to explain how it arrived at the amount of compensation  claimed, pointing out again that none of its rights had been disturbed.  As at the date of this MD&A, no response has been received from Mkushi Holdings and an arbitrator is yet to be appointed.

Segilola Gold Project

Segilola Gold Limited ("SGL"), a wholly owned subsidiary of Ratel Group, entered into a joint venture with Tropical Mines Limited ("TML"), a private company based in Nigeria, to earn a 51% interest in the Segilola Gold Project in Nigeria, considered to be the most advanced and prospective gold exploration project in the country.  TML is a Nigerian company owned in joint venture by local investors and the Nigerian Government.  A joint venture agreement was signed in May 2007 ("the JV Agreement"). An initial maiden indicated resource estimate was declared for the Segilola Gold Project comprising 3,620,386 tonnes at a grade of 4.50g/t for 521,814 ounces of gold plus an inferred resource of 747,590 tonnes at a grade of 4.00g/t for 96,445 ounces of gold.  This maiden resource has been generated from a drilling campaign of 12,166 metres in 119 holes ranging in depth from 40 metres to 220 metres. The deposit lends itself to initial exploitation by open pit mining methods. The metallurgical characteristics of the ore are amenable to conventional CIL processing techniques.

Under the terms of the JV Agreement, SGL was required to pay TML a signature bonus of US$650,000. US$250,000 of this bonus was due upon TML obtaining the necessary approvals to the farm in of SGL to the joint venture, and was paid to TML in August 2007. The balance of the signature bonus was due prior to the exercise by SGL of the third option, whereby it would acquire the final 13% interest to give SGL a 51% interest in the Segilola Gold Project. The balance of the signature bonus of US$400,000 was prepaid to TML on March 16, 2011 and in return TML agreed to extend the third option exercise deadline to March 30, 2012 in order to enable SGL to complete further drilling at the project. The most recent drilling campaign at the Segilola Gold Project was carried out from July to December 2011, where an additional 36 diamond boreholes totalling 3,704 metres were drilled. The rationale for this phase of drilling was to test the southern extension of gold mineralisation, for a further 400 metres from the open southern end of the previous drilling programme, and test both the strike and depth continuities including the interpreted plunge of the ore zone in the southern section of the project locality. The results were positive and indicate that the resource continues along strike to the south, is open ended at depth and that the ore body does plunge in the southern section. The latest drilling exercise further confirmed a total strike length of the ore zone of just over 2,000 metres. Drilling in the southern portion was discontinued due to the (current) presence of villages.  Professional survey consultants from Ghana were contracted to survey all of the drill boreholes, including old workings and some of the streams within the project area.

A notice was submitted by SGL to TML on March 30, 2012 advising that SGL intended to acquire their final additional 13% interest in the Segilola Gold Project. On April 30, 2012 TML advised SGL that they were disputing SGL's notice on the grounds that they required a Production Sharing Contract to be executed prior to the exercise of the third option by SGL.  SGL disputed the position adopted by TML and on May 18, 2012 SGL served on TML a notice of dispute pursuant to the Joint Venture Agreement seeking a declaration that SGL is the holder of a 51% beneficial interest in the mine tenements.  On June 1, 2012 TML wrote to SGL denying that SGL holds a 51% beneficial interest in the tenements pointing to irregularities in the notice of arbitration.  On June 18, 2012 TML applied for and was granted interim orders in the Federal High Court of Nigeria restraining SGL from proceeding with the arbitration or commencing a new arbitration until the hearing and determination of TML's motion.  On June 27, 2012 SGL consented to orders that SGL not proceed with the arbitration commenced on May 18, 2012 however SGL has disputed orders sought that SGL is required to pay TML's legal fees to defend its interest in response to the purported notice of arbitration. A hearing was due to be held on October 4, 2012 to hear arguments on the point of costs but has been adjourned to November 14, 2012.  The matter has been further adjourned awaiting the appointment of a new judge, as the judge who was to hear the proceedings was elevated to the Court of Appeals.  SGL anticipates that subsequent to determination by the court on the matter of TML's legal costs, it will be able to proceed to issue a new notice of arbitration.

A Zambian drilling company, GeoHydro Consulting Services Limited ("GeoHydro"), undertook the recently concluded diamond drilling campaign.  Demobilisation of the drilling equipment out of Nigeria was undertaken in May 2012 and the drill rig was damaged in transit.  By way of a Notice of Dispute dated September 10, 2012 GeoHydro is claiming that TML and SGL are responsible for the damage to the drill rig which GeoHydro has estimated at US$79,000.  TML and SGL have rejected responsibility for the damage as the drill rig was handed over in good order to the carrier responsible for transporting the drill rig back to Zambia.  TML and SGL have the export release note from the Nigerian Export authority which notes the release of the drill machine and associated equipment.

In addition, GeoHydro are claiming damages for breach of contract by TML and SGL for allegedly terminating the drilling contract prematurely.  Again, TML and SGL reject these claims and a written response dated October 9, 2012 to the Notice of Dispute has been forwarded to GeoHydro and its lawyers.

The Company has not committed to any further exploration activities at the Segilola Gold Project whilst the Joint Venture partners negotiate to resolve the dispute between the parties. SGL as the operator continues to ensure that the tenements are maintained in good standing by ensuring all relevant annual licence fees are paid in a timely manner.

On November 3, 2011, Ratel Group announced that the share sale agreement to acquire CAML Ghana Limited ("CAML Ghana") (the holder of the interest in the Obuasi Prospecting Farmin and Joint Venture Agreement in Ghana) had been terminated.  Westchester Resources Limited ("Westchester") (a party to the Obuasi Joint Venture) issued proceedings in Ghana against a number of parties, including Ratel Group in February 2012, which are considered both unsubstantiated and without foundation (the "Proceedings").  CAML Ghana was subsequently successful in having the Proceedings stayed following an order from the London Court of Arbitration on April 3, 2012 in the context of arbitration proceedings launched against Westchester by CAML Ghana (an unrelated entity to Ratel Group). On its application, Ratel Group has been joined as a party to the arbitration. On November 27, 2012, on the application of Westchester, the High Court of Ghana (the "Court") set aside that stay order. CAML Ghana has appealed that decision. On 12 February 2013, on the application of CAML Ghana, the Proceedings were stayed pending the outcome of its appeal. A date for the hearing of CAML Ghana's appeal has not yet been set. In December 2012 Westchester filed an amended statement of claim in the Proceedings which particularised its claims against the defendants, including Ratel Group.

During September 2012 the Company entered a Loan Facility Agreement with CGA Mining Limited for the sum of $2.5M.  The facility is for a term of 24 months and the drawn portion of the facility incurs interest at a rate 9% p.a. As at 31 December, 2012 a total of $1.904M has been drawn down on the facility. Subsequent to year end the balance of the loan was drawn down.

On January 28, 2013 the Company announced plans to seek, at a special shareholders meeting (the "Meeting"), shareholder approval of a proposed restructuring transaction involving the merger (the "Merger") of the Company with a wholly-owned subsidiary of RTG Mining Inc. ("RTG"). Additional information regarding these transactions will be described in detail in a Management Information Circular to be issued to shareholders of Ratel Group (a copy of which will be available on the Company's profile on SEDAR). The Merger and related transactions are subject to shareholder approval and regulatory approval, including approval of the Toronto Stock Exchange. The Board of Directors of the Company will be reconstituted at the effective time of the Merger, with a focus on identifying new development or operating gold opportunities.

Ratel Group plans to merge with Ratel Merger Ltd ("MergCo"), a wholly-owned subsidiary of RTG Mining Inc. ("RTG") ("the Merger"), which was recently incorporated in the BVI. As a result of the proposed Merger, shareholders of the Company (the "Shareholders") will exchange their current ordinary shares in the Company (the "Ratel Shares") for new ordinary shares of RTG (the "RTG Shares").

On the effective date of the Merger:
			(i)	the Company and MergCo will merge to form one corporate entity with the surviving corporation being the Company; and
			(ii)	each issued and outstanding Ratel Share will be transferred to RTG in exchange for one RTG Share.

Shareholders will exchange their current Ratel Shares for RTG Shares and will thereby become shareholders of RTG and will cease to be a holder of Ratel Shares. The RTG Shares will be identical in every respect to the Ratel Shares. The 1:1 exchange ratio to be applied was determined so as to ensure that, immediately after the effective date of the Merger, Ratel Group shareholders will have the same proportionate interests in RTG as they presently have in the Company, except as may be altered by the Private Placement (as described in more detail below).

It is expected that an aggregate of 164 million Ratel Shares will be exchanged for RTG Shares upon the approval and implementation of the Merger. Upon completion of the Merger, New Ratel will, on a consolidated basis, continue to hold the African exploration assets, being the Company's interests in the Segilola Gold Project and the Mkushi Copper Project (together, the "African Assets"), plus approximately $19.5 million in cash (assuming the release from escrow of the net proceeds of the Private Placement (as described below) upon satisfaction of the Escrow Release Conditions (as defined below)). The Board of Directors believe the Merger will enhance the ability of the New Ratel group (which includes the Company) to pursue new growth.

On January 28 2013, the Company announced private placement to issue up to 164 million RTG Shares upon exercise of subscription receipts of RTG (the "Subscription Receipts") at C$0.13 per share (the "Private Placement"). Each Subscription Receipt will be automatically exercisable and entitles the holder to receive, without payment of additional consideration, one RTG Share upon the satisfaction of certain escrow release conditions that include, among other things, shareholder approval of the Merger and of the Private Placement. Insiders of the Company have generally participated in the Private Placement in line with their pro rata ownership, the particulars of which are set out in the Management Information Circular.

The gross proceeds of the Private Placement will be held in escrow pending satisfaction of the escrow release conditions, among other things, being:

			(i)	the completion of the Merger, and
			(ii)	Shareholder approval of the Private Placement.

Upon completion of the Merger and satisfaction of the escrow conditions, RTG intends to use the net proceeds of the Private Placement to pursue new growth opportunities, mainly through acquisitions, to fund further exploration of the African Assets, debt repayment and for general working capital purposes.

The placement is being undertaken in conjunction with Haywood Securities Inc., on terms typical for a private placement of this nature, including customary due diligence and market outs.

Upon implementation of the Merger, the RTG Shares will be listed on TSX (in substitution for the Ratel Shares). RTG Shares issued upon exercise of the Subscription Receipts pursuant to the Private Placement will also be listed on TSX. It is anticipated that RTG will retain the trading symbol "RTG" for the New Ratel Shares.

Following shareholder approval of the new Employee Loan Funded Share Plan at the recent Annual General Meeting, Ratel Group has resolved to issue 14 million new shares at an issue price of C$0.165 per share.  All existing employee options issued under the previous plan have been cancelled.

The business of Ratel Group should be considered speculative given the volatility in world stock markets (particularly with respect to mining and exploration companies) and the uncertain nature of mining and exploration activities generally.  Amongst other things, some of the key risk factors faced by CGX, Zambian Mining and Ratel Group include:

• foreign exchange movements;
• movements in commodity prices (in particular the gold and copper price and costs of production);
• access to new capital (both debt and equity) and meeting liquidity requirements;
• the uncertain nature of exploration and development activities;
• increases in capital expenditures necessary to advance the Company's projects;
• the ability to profitably exploit new development projects;
• political, security and sovereign risks of Zambia and Nigeria;
• joint venture partner relationships and disputes;
• permitting and local government and community support; and
• environmental obligations.

For further information on these and other risks inherent in the Company's business, we direct readers to the Annual Information Form for the 2012 financial year lodged on SEDAR at www.sedar.com under the Company's profile.

Mr Mark Turner, BE Min (Hons), M.Aus.I.M.M. CP Man, is acting as the Qualified Person in compliance with NI 43-101 with respect to this announcement. He has prepared and or supervised the preparation of the scientific or technical information in this announcement and confirms compliance with NI43-101.

Mr. Alfred John Gillman of Odessa Resources Pty Ltd, an independent qualified person experienced in the style of mineralisation at the Segilola Gold Project, has completed the resource statement for the Segilola Project as referred to in this announcement, including verification of the sampling, analytical and test data underlying the estimate. Verification also included a site visit, database validation of historical drill results and a review of sampling and assaying protocols.  The qualified person was satisfied with all of the protocols used during the drilling, sampling and in the Segilola resource estimate compilation and computation.

With regard to the Mkushi Copper Project, Matthew Nimmo of Snowdens is the qualified person and has verified the resource statement as disclosed in this announcement, including sampling, analytical and test data underlying the estimate. Verification of the data included numerous site visits, database validation of historical drill results and review of sampling and assaying protocols.  The qualified person was satisfied with the verification process.

Consolidated Results
(US$000's, except per share information)

Profit and Loss

	Three month period ended			Year to Date
	Dec 31 2012	Sept 30 2012	Variance	Dec 31 2012
Income	-	-	-	-
Group net profit/(loss) from continuing operations	(1,031)	(784)	(247)	(1,815)
Exploration and drilling costs	-	-	-	-
Depreciation	108	111	(3)	219
Basic loss per share	(0.69)	(0.52)	(0.17)	(1.21)

 

Consolidated Cash Flows from Operating Activities
(US$000's, except per share information)

	Three month period ended		Year to Date
	Dec 31 2012	Sept 30 2012	Dec 31 2012
Reconciliation of net loss after tax to net cash flows from operations
Net profit/(loss) after related income tax	(1,031)	(784)	(1,815)
Adjustments for non-cash income and expense items
Depreciation	108	111	219
Unrealised foreign exchange gain/(loss)	2	8	10
Changes in Assets & Liabilities
Change in working capital	(203)	(11)	(214)
Net cash inflow/(outflow) from operating activities	(1,124)	(676)	(1,800)

 

Consolidated Balance Sheet
(US$000's, except per share information)

	For the period ended
	Dec 31 2012	Sept 30 2012	Variance
Cash and cash equivalent	175	221	(46)
Current Assets	1,397	1,146	251
Property, Plant & Equipment	1,069	1,177	(108)
Total Assets	2,466	2,552	(86)
Total Liabilities	2,072	1,128	944
Shareholders' Equity	394	1,425	(1,031)

 

Selected Quarterly Data
(US$000's, except per share information)

	Q2 Dec 2012	Q1 Sept 2012	2012 Annual Total	Q4 Jun 2012	Q3 Mar 2012	Q2 Dec 2011	Q1 Sep 2011	2011 Annual Total	Q4 Jun 2011	Q3 Mar 2011
Total income	-	-	4	-	1	2	1	7	(1)	6
Net profit/(loss)	(1,031)	(784)	(4,847)	(1,026)	(1,049)	(1,505)	(1,267)	(4,360)	(1,638)	(2,556)
Per share (undiluted US$ cents per share)	(0.69)	(0.52)	(3.23)	(0.68)	(0.7)	(1.00)	(1.13)	(5.86)	(1.49)	(7.27)
Per share (diluted US$ cents per share)	(0.69)	(0.52)	(3.23)	(0.68)	(0.70)	(1.00)	(1.13)	(5.86)	(1.49)	(7.27)

 

Quarterly Results

Three Months Ended December 31, 2012 as Compared to the Three Months Ended September 30, 2012 and the Three Months Ended December 31, 2011

The Company's result for the three months to December 31, 2012 was a net loss of $1.031M, as compared to a net loss of $0.784M for the previous quarter, and $1.505M for the prior year comparative period, an increase of $0.247M or 31% from the previous quarter and a decrease of $0.474M or 31% from the prior year. The significant decrease from the prior year is largely due to the scale back of activities at the Company's Segilola and Mkushi projects. The Company's activities for the quarter have been focussed on the Heap Leach at the Mkushi Copper Project in Zambia, which moved into the production phase during the September 2012 quarter and the restructuring the Segilola Gold Project in Nigeria, in preparation for development of the asset following the resolution of the current dispute with the joint venture partner.

Revenues and Foreign Exchange Gains/Losses

The Company currently earns only minimal interest income on its cash balances.  The Company earned interest income of $143 for the December quarter as compared to $81 for the September 2012 quarter and $1K for the December 2011 quarter. A foreign exchange loss of $6K was recorded in the December 2012 quarter, as compared to foreign exchange loss of $14K in the September 2012 quarter and a loss of $19K for the December 2011 quarter. The foreign exchange movements relate predominantly to fluctuations of the USD against the Zambian Kwacha.

Expenses

Expenses for the December 2012 quarter were $1.031M as compared to $0.784M for the September 2012 quarter, an increase of $0.247M or 21% and $1.506M for the December 2011 quarter, a decrease of $0.475M or 32%. Expenditure has decreased from the prior year quarter, as the Company was undertaking a drilling programme during that period, which has since been finalised. The increase from the September 2012 quarter is largely due to $0.094M in business development costs related to the internal restructuring to set up an appropriate financing structure for any future development of the Segilola Gold Project and an increase of $0.021M in borrowing costs in the December 2012 quarter from the September 2012 quarter. Significant items are discussed further below.

Specific items discussed below:

Exploration and evaluation costs written off
The Company incurred exploration and evaluation costs of $0.241M during the current quarter as compared to $0.171M in the prior quarter, an increase of $0.070M or 41% and $1.004M in the December 2011 quarter, a decrease of $0.763M or 76%. The expenditure in the prior year quarter related predominantly to the drilling programme being carried out at the Segilola Gold Project which was finalised in December 2011. The increase from the September 2012 quarter relates predominantly to Geohydro costs of $0.039M paid in the December 2012 quarter (September 2012: nil), and payment of office & compound rent of $0.037M (September 2012: nil).

Administrative expenses
The Company incurred administrative costs of $0.498M during the December 2012 quarter, as compared with $0.426M in the prior quarter, an increase of $0.072M or 17% and $0.447M in the December 2011 quarter, an increase of $0.051M or 11%. The increase from the September 2012 quarter relates largely to an increase in accounting & audit fees of $0.058M incurred in the December 2012 quarter, which was incurred primarily in relation to the establishment of a new entity in the group. The variance from the December 2011 quarter largely relates to accounting & audit fees of $0.079M incurred in the December 2012 quarter compared to $0.025M in the December 2011 quarter. The accounting & audit fees incurred in the December 2012 quarter are predominantly in relation to the advice on the establishment of a new entity in the Ratel group.

Capitalised development expenditure
Development of the Heap Leach at the Mkushi Copper Project commenced in the June 2011 quarter and has been capitalised to the balance sheet, in accordance with the Company's accounting policies, with $nil capitalised in the December 2012 quarter as compared to $0.125M in the September 2012 quarter and $0.528M in the prior year quarter.

The development was finalised during the June 2012 quarter, with irrigation of the mineralised ore pile beginning on June 27, 2012.  During the September 2012 quarter, capitalized expenditure was largely related to final payments for purchase of the HDPE pipes and liners ($0.062M) and demobilisation of the crushing and earthmoving equipment ($0.063M). The project has now moved into a production stage and operation costs are now being expensed. During the December 2012 quarter, expenditure of $0.161M was expensed,($0.163M: September 2012). During the quarter $0.103M depreciation was expensed, ($0.105M: September 2012), $0.035M was incurred in relation to salaries and wages ($0.036M: September 2012), $0.006M in relation to equipment hire ($0.006M: September 2012) and $0.003M in rent ($0.005M: September 2012).

Business Development
During the December 2012 quarter, business development costs of $0.094M was incurred, predominantly legal fees of $0.080M in relation to the internal restructuring to set up an appropriate fianacing structure for any future development of the Segilola Gold Project.

Borrowing Costs
The Company incurred borrowing costs of $0.032M during the December 2012 quarter, as compared to $0.011M in the September 2012 quarter (December 2011: nil).  The Company commenced draw downs of the Loan Facility Agreement with CGA Mining Limited during the September 2012 quarter, and  continued to draw down funds in the December 2012 quarter.  Interest is charged on the drawdowns at 9% per annum on a monthly basis.

Year to Date Results

Six Months Ended December 31, 2012 as Compared to the Six Months Ended December 31, 2011

The Company's result for the six months to December 31, 2012 was a net loss of $1.815M, as compared to a net loss of $2.772M for the prior year comparative period, a decrease of $0.957M or 34% from  the prior year period. The decrease from the prior year is largely attributable to the decrease in exploration and drilling expenses and administration expenditure as discussed further below. The Company's activities for the year to date have been focussed on the Heap Leach at the Mkushi Copper Project in Zambia, which moved into the production phase during the current period, and the restructuring the Segilola Gold Project in Nigeria, in preparation for any development of the asset following the resolution of the current dispute with the joint venture partner.

Revenues and Foreign Exchange Gains/Losses

The Company currently earns only minimal interest income on its cash balances.  The Company earned interest income of nil for current year to date as compared to $0.003M for the prior year comparative period. A foreign exchange loss of $0.002M was recorded in the 6 months to December 2012, as compared to foreign exchange loss of $0.058M for the 6 months to December 2011. The foreign exchange movements relate predominantly to fluctuations of the USD against the Zambian Kwacha.

Expenses

Expenses for the 6 months to December 2012 were $1.815M as compared to $2.775M for the 6 months to December 2011, a decrease of $0.96M or 35%. Expenditure has reduced significantly from the prior year comparative period, as the Company was undertaking a drilling programme during that period, which has since been finalised. Significant items are discussed further below.

Specific items discussed below:

Exploration and evaluation costs written off
The Company incurred exploration and evaluation costs of $0.412M during the current period as compared to $1.969M in the December 2011 period, a decrease of $1.557M or 79%. The expenditure in the prior year related predominantly to the drilling programme being carried out at the Segilola Gold Project which was finalised in December 2011.

Administrative expenses
The Company incurred administrative costs of $0.923M during the 6 months to December 2012, as compared with $0.697M in the December 2011 period, an increase of $0.226M or 32%. The increase from the December 2011 relates largely to an increase in legal fees of $0.163M, due predominantly to the ongoing CAML Ghana arbitration process, an increase of $0.066M in accounting & audit fees, due predominantly to the review of the September 2012 accounts for the group, as part of the group restructuring process.

Capitalised development expenditure
Development of the Heap Leach at the Mkushi Copper Project commenced in the June 2011 quarter and has been capitalised to the balance sheet, in accordance with the Company's accounting policies, with $0.064M capitalised in the 6 months to December 2012 as compared to $1.402M in the prior year comparative period.  The variance from the prior year period is due to the completion of the development in June 2012 and subsequent moving into the production phase on June 27, 2012, with operational costs now being expensed.

During the 6 months to December 2012, expenditure of $0.324M was expensed. During the period $0.103M depreciation was expensed, $0.072M was incurred in relation to salaries and wages, $0.011M in relation to equipment hire and $0.008M in rent.

Borrowing Costs
The Company incurred borrowing costs of $0.043M during the 6 months to December 2012 (December 2011: nil).  The Company commenced draw downs of the Loan Facility Agreement with CGA Mining Limited in July 2012, and  continued to draw down funds on a monthly basis.  Interest is charged on the drawdowns at 9% per annum on a monthly basis.

Liquidity and Capital Resources 

As at December 31, 2012, the Company had cash and cash equivalents of $0.175M, as compared to $0.221M at September 30, 2012. On December 17, 2010, the Company issued 49,999,998 shares at an issue price of C$0.10 per share to acquire the interest in the African assets held by Ratel Gold (now SAU).

The Company successfully closed its initial public offering on January 7, 2011, issuing 100M common shares at a price of C$0.10 per common share, receiving proceeds of $9.5 million net of the 5% brokers' fees, not including other raising costs.  The funds provided Ratel Group and its subsidiaries with sufficient cash to meet their then current planned activities and working capital requirements.  Ratel Gold (now SAU) distributed its total holding of 50 million shares in Ratel Group to its shareholders, pursuant to the terms of the Spin-out Reorganization.  Each shareholder of Ratel Gold (now SAU) was issued five common shares in the capital of Ratel Group for every nine common shares of Ratel Gold (now SAU) held on the share distribution record date of January 6, 2011.  Accordingly, Ratel Group is no longer controlled by Ratel Gold (now SAU) as of January 7, 2011.

On September 4, 2012 the Company entered into a US$2.5M Loan Facility Agreement with CGA. The facility is for a term of 24 months and the drawn portion of the facility incurs interest at a rate 9% p.a. The company has drawn down $1.079M under the facility during the quarter.

The Company manages liquidity risk through maintaining sufficient cash, loan facilities or credit terms with its suppliers to meet the operating requirements of the business and investing excess funds in highly liquid short term cash deposits.  The Company's liquidity needs can likely be met through existing cash on hand and the Loan Facility Agreement with CGA. As discussed in the review of operations, subject to the Merger, RTG intends to issue, on a private placement basis, up to 164M million RTG Shares upon exercise of subscription receipts of RTG at C$0.13 per share, raising approximately $19.5 million in cash, after related costs.

The gross proceeds of the Private Placement will be held in escrow pending satisfaction of the escrow release conditions, among other things, being:

			(i)				the completion of the Merger, and
			(ii)				Shareholder approval of the Private Placement.

Upon completion of the Merger and satisfaction of the escrow conditions, RTG intends to use the net proceeds of the Private Placement to pursue new growth opportunities, mainly through acquisitions, to fund further exploration of the African Assets, debt repayment and for general working capital purposes.

The Company currently has in place an active program of financial forecasting and budgeting both at a corporate and project level to manage both the application of funds and planning for future financial needs to ensure that any shortfall in revenue funds is adequately covered by cash reserves or planned new sources being either debt or equity based on the then most cost effective weighted average cost of capital. Expenditure to date for the Company has been largely in line with the overall initial budget forecasts, save for any costs related to dispute.

Risks Associated with Financial Instruments

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The Group's maximum exposures to credit risk at the reporting date in relation to each class of financial asset is the carrying amounts of those assets as indicated on the balance sheet.

Currency risk is the risk that the fair value or future cash flows of a financial instruments will fluctuate because of changes in foreign exchange rates. The Company's registered office is in the British Virgin Islands, its corporate office is located in Western Australia, and the Company has regional offices in Nigeria and Zambia. The fluctuation of currency across jurisdictions will consequently have an impact upon the financial results of the Company. The risk is considered minimal at this time.

Contractual obligations

	Payments due by period
Contractual obligations	Total	Less than 1 year	1-3 years	4-5 years	More than 5 years
Licence obligations^1	12,794	12,423	371
Management services contract^2	-	-	-	-	-
Total contractual obligations	12,794	12,423	371	-	-

¹ Annual Licence Fee for the Segilola Gold Project and Mkushi Copper Project.

² The management services contractual obligation is for the provision of, serviced office, company secretarial, administrative, accounting and management services by CGA that came into effect on the Company listing on the TSX, which was January 4, 2011.  Post completion of the merger between CGA and B2Gold Inc. this management contract has been terminated.

The Company expects to meet its contractual obligations through existing cash on hand. The Company has not committed to any further exploration activities at the Segilola Gold Project whilst the Joint Venture partners negotiate to resolve the dispute between the parties. SGL as the operator continues to ensure that the tenements are maintained in good standing by ensuring all relevant annual licence fees are paid in a timely manner.

In accordance with MOM approval, Mkushi Copper Joint Venture Limited has developed stage one of a two stage approach in the development of a mine. Stage one of the development involves a heap leach operation to exploit the low grade portion of the ore body and potentially increase the LOM by exploiting fully the low grade portion of the deposit and thereby maximising the full potential of the deposit. Stage two involves a further pre-production stage with the aim of exploiting the high grade copper ore by means of conventional mining, leading to the mining plant implementation, contingent on the success of stage one.

There are no off balance sheet arrangements that have, or are reasonably likely to have a current or future effect on RTG's financial performance.

Transactions between the group and its related entities

During the quarter ended December 31, 2012, the Company entered into transactions with related parties in the wholly-owned group:

Loans were advanced on short term inter-company accounts between;

• CGX and its wholly owned subsidiary SGL for the purpose of funding feasibility study on the Segilola Gold Project and the funding of the day to day operating costs of SGL. The total amount loaned for the quarter was $0.310M;
  
  
• between Zambian Mining and its wholly owned subsidiary SML for the purpose of funding the day to day operating costs of SML. The total amount loaned for the quarter was $0.162M; and
  
  
• Ilesha Mining B.V. for the purpose of funding the day to day operations.  The total amount loaned for the quarter was $nil.

These transactions were undertaken on commercial terms and conditions except that:

• loans are repayable at call; and
  
  
• no interest is payable on the loans at present.

Transactions between the group and other related parties

During the financial year, the Company entered into the following transactions with a related party:

• Office accommodation and administrative support were provided to the consolidated entity at commercial rates from CGA, who is holder of 19.1% of the outstanding share capital of the Company.  In relation to the provision of these services, $nil (excluding GST) was charged in the current quarter.
  
  
• On September 4, 2012 the Company entered a Loan Facility Agreement with CGA Mining Limited for the sum of $2.5M.  The facility is for a term of 24 months and the drawn portion of the facility incurs interest at a rate 9% p.a. As at December 31, 2012 the Company has drawn down $1.904M under the loan facility.

Outstanding Share Data

As at February 14, 2013, the Company had 164,000,000 common shares outstanding. During January 2013, the Company cancelled its outstanding 12,000,000 options, exercisable at C$0.25 per share and resolved to issue 14,000,000 loan funded shares, issued at C$0.165 per share.

Subsequent Events

Subsequent to 31 December 2012, the Company has drawn down a further $0.639M under the loan facility agreement with CGA and resolved to issue 14,000,000 loan funded shares, issued at C$0.165 per share.

Fourth Quarter

For an analysis of fourth quarter events, please refer to the Company's MD&A for the period ended June 30,2012, found on sedar at www.sedar.com under the Company's profile.

Critical Accounting Estimates

The significant accounting policies used by Ratel Group are disclosed in Note 2 to the annual financial statements for the year ended June 30, 2012. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  Management reviews its estimates on a regular basis. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

Accounting Policies

The Group's current financial report complies with International Financial Reporting Standards ("IFRS"). The accounting policies of the Group are set out in Note 2 to the June 30, 2012 Annual Financial Statements, available on www.sedar.com.

Income Taxes 

The determination of income and other tax liabilities requires interpretation of complex laws and regulations.  All tax filings are subject to audit and potential reassessment after the lapse of considerable time.  Accordingly, the actual income tax liability may differ from that estimated and recorded by management.

Internal Controls and Disclosure Controls

The Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") are responsible for the design and effectiveness of internal controls over financial reporting (as such term is defined in National Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings ("NI 52-109")), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with International Financial Reporting Standards. The Company maintains an effective control environment and has used the Internal Control -- Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission to design the Company's internal controls over financial reporting. The Company's CEO and CFO believe that the Company's internal controls and procedures are effective in providing reasonable assurance that financial information is recorded, processed, summarized and reported in a timely manner.

During the quarter ended December 31, 2012, there have been no changes in the Company's policies and procedures and other processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

The Company's CEO and CFO are also responsible for the design and effectiveness of disclosure controls and procedures (as such term is defined in NI 52-109) to provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, is made known to the Company's certifying officers. The Company's CEO and CFO believe that the Company's disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed under applicable securities legislation is recorded, processed, summarized and reported in a timely manner.

The Company's CEO and CFO have each evaluated the effectiveness of the Company's internal controls over financial reporting and disclosure controls and procedures as of December 31, 2012 and have concluded that these controls and procedures are effective in reasonably assuring the reliability of financial reporting and that material information relating to the Company is made known to them by others within the Company and that such controls and procedures have no material weaknesses and no limits on the scope of their design.

Future Outlook

During the next quarter, the Company's activities will primarily focus on:

• Resolution of the dispute with the joint venture partners at the Segilola Gold Project; and
• Continuing irrigation and production at the heap leach operation at the Mkushi Copper Project; and
• Reviewing restructuring options to position the Company to capitalise on new gold development  and resource opportunities.

 

SOURCE: Ratel Group Limited

Ratel Group Limited
Level 5, BGC Centre
28 The Esplanade
Perth Western Australia 6000

Tel:  [phone]
Fax: [phone]
Email: [email protected]
www.ratelgroup.com