Ratel Group Limited - Management's Discussion and Analysis and Interim Financial Statements

PERTH, WESTERN AUSTRALIA, Nov. 14, 2012 /CNW/ -

MANAGEMENT DISCUSSION AND ANALYSIS ("MD&A") 
PERIOD ENDED SEPTEMBER 30, 2012

(All figures are in US dollars unless otherwise indicated and the effective date of this MD&A is November 13, 2012)

Introduction

Management's discussion and analysis provides a review of the performance of Ratel Group Limited's ("Ratel Group", "Company" or "the Group") operations 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 November 13, 2012 and should be read in conjunction with the interim unaudited financial statements of the Company for the period ended 30 September 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 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 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, 2011under 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.  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 June 2012 quarter. Irrigation (production) of the ore pile with sulphuric acid solution has now commenced at the project, which is expected to continue through to at least the end of the calendar year. Oxidisation of the ore has started. 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 earlier in the year. A water borehole was drilled for the Mkushi Basic School and a hand pump was fitted to this borehole in early July 2011.

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 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. 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.  CAML Ghana and the other defendants, including Ratel Group, were subsequently successful in having those 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). Westchester is currently seeking to have the stay order set aside.  The matter is scheduled be heard on November 14, 2012 and the legal advisers of Ratel Group are confident that the order should not be set aside as the facts have not changed from when the order was granted.

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 30 September, 2012 a total of $0.824M has been drawn down on the facility.

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
	Sept 30 2012	June 30 2012	Variance
Income	-	-	-
Group net profit/(loss) from continuing operations	(784)	(1,026)	242
Exploration and drilling costs	-	62	62
Depreciation	111	7	104
Basic loss per share	(0.52)	(0.68)	0.16

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

	Three month period ended
	Sept 30 2012	June 30 2012
Reconciliation of net loss after tax to net cash flows from operations
Net profit/(loss) after related income tax	(784)	(1,026)
Adjustments for non-cash income and expense items
Depreciation	111	7
Unrealised foreign exchange gain/(loss)	8	9
Changes in Assets & Liabilities
Change in working capital	(11)	199
Net cash inflow/(outflow) from operating activities	(676)	(811)

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

	For the period ended
	Sept 30 2012	June 30 2012	Variance
Cash and cash equivalent	221	145	76
Current Assets	1,146	1,294	(148)
Property, Plant & Equipment	1,177	1,224	(47)
Total Assets	2,552	2,517	35
Total Liabilities	303	308	(5)
Shareholders' Equity	1,425	2,209	(784)

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

	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	Q2 Dec 2010
Total income	-	4	-	1	2	1	7	(1)	6	-
Net profit/(loss)	(784)	(4,847)	(1,026)	(1,049)	(1,505)	(1,267)	(4,360)	(1,638)	(2,556)	(166)
Per share (undiluted US$ cents per share)	(0.52)	(3.23)	(0.68)	(0.7)	(1.00)	(1.13)	(5.86)	(1.49)	(7.27)	(0.08)
Per share (diluted US$ cents per share)	(0.52)	(3.23)	(0.68)	(0.70)	(1.00)	(1.13)	(5.86)	(1.49)	(7.27)	(0.08)

Quarterly and Year to Date Results

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

The Company's result for the three months to September 30, 2012 was a net loss of $0.784M, as compared to a net loss of $1.026M for the previous quarter, and $1.267M for the prior year comparative period, a decrease of $0.242M or 24% from the previous quarter and $0.483M or 38% from the prior year. The decrease from the prior quarter the prior year quarter is largely attributable to the decrease in exploration and drilling expenses and administration expenditure as discussed further below. 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 $81 for the September quarter as compared to $162 for the June 2012 quarter and $1K for the September 2011 quarter. A foreign exchange loss of $14K was recorded in the September 2012 quarter, as compared to foreign exchange loss of $9K in the June 2012 quarter and a loss of $39K for the September 2011 quarter. The foreign exchange movements relate predominantly to fluctuations of the USD against the Zambian Kwacha.

Expenses

Expenses for the September 2012 quarter were $0.784M as compared to $1.026M for the June 2012 quarter, a decrease of $0.242M or 24% and $1.268M for the September 2011 quarter, a decrease of $0.484M or 62%. Expenditure has reduced significantly from the prior year quarter, as the company was undertaking a drilling programme during that period, which has since been finalised. The decrease from the June 2012 quarter is largely due to the year end audit fees incurred in the June 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 $0.171M during the current quarter as compared to $0.391M in the prior quarter, a decrease of $0.220M or 56% and $0.965M in the September 2011 quarter, a decrease of $0.794M or 82%. 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 decrease from the June 2012 quarter relates predominantly to the expenditure of $0.06m incurred in the prior quarter for the final demobilisation of the drill rig from Nigeria, a decrease in employee costs from $0.160M to $0.100M related to reduced staffing requirements as the Company has not committed to any further exploration campaigns, and costs of $0.062M incurred in the previous quarter associated with the bankable feasibility study at the Segilola Gold Project.

Administrative expenses
The Company incurred administrative costs of $0.426M during the September 2012 quarter, as compared with $0.627M in the prior quarter, a decrease of $0.201M or 32% and $0.250M in the September 2011 quarter, an increase of $0.176M or 70%. The decrease from the June 2012 quarter relates largely to an accrual for audit fees in the June quarter of $0.021M and $0.057M in consultants fees related to tax advice on the restructure of Segilola Gold Project in Nigeria. The variance from the September 2011 quarter largely relates to legal fees of $0.233M incurred in the September 2012 quarter compared to $0.010M in the September 2011 quarter. The legal fees are predominantly in relation to the advice on the restructure of Segilola Gold Project in Nigeria.

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 $0.125M capitalised in the September 2012 quarter as compared to $0.184M in the June 2012 quarter and $0.463M 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).

During the June 2012 quarter, $0.085M was incurred in relation to the completion of the crushing and the demobilisation of the crushing and earthmoving equipment. $0.034M was incurred in relation to the electrical reticulation along with employee and general and administrative costs of $0.087M. The June quarter capitalised costs also include an adjustment of ($0.060M) related to previously unrecognised VAT receivables which were reclassified to the VAT receivable balance.

The development was finalised during the June 2012 quarter, with irrigation of the mineralised ore pile beginning on June 27, 2012. The project has now moved into a production stage and operation costs are now being expensed. During the September 2012 quarter, expenditure of $0.163M was expensed. During the quarter $0.105M depreciation was expensed, $0.036M was incurred in relation to salaries and wages, $0.006M in relation to equipment hire and $0.005M in rent.

Liquidity and Capital Resources 

As at September 30, 2012, the Company had cash and cash equivalents of $0.221M, as compared to $0.145M at June 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 $0.824M 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. These will likely be sufficient to meet our necessary capital requirements, subject to the current forecast operating parameters being met.

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.

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 in the Balance Sheet.

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	409,563	409,563	-	-	-
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.

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 September 30, 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 $0.152M;
  
  
• 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 $0.327M; and
  
  
• Ilesha Mining B.V. for the purpose of funding the day to day operations.  The total amount loaned for the quarter was $0.026M.

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, $0.102M (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 September 30, 2012 the Company has drawn down $0.824M under the loan facility.

Outstanding Share Data

As at November 13, 2012, the Company had 150,000,000 common shares outstanding and 12,000,000 options, exercisable at C$0.25 per share.

Subsequent Events

Subsequent to 30 September 2012, the Company has drawn down a further $0.368M under the loan facility agreement with CGA.

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 September, 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 September 30, 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, in order to review options for the development of the 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 opportunities, in line with its investor and shareholder base.

 Interim Financial Statements
For the three months ended
30 September 2012

RATEL GROUP LIMITED
Level 5, The BGC Centre, 28 The Esplanade, Perth WA 6000
Phone: [phone] Fax: [phone].
Website: www.ratelgroup.com

NOTICE OF NO AUDITOR REVIEW OF
INTERIM FINANCIAL STATEMENTS

The accompanying interim consolidated financial statements for Ratel Group Limited ("Ratel Group" or the "Company") have been prepared by management in accordance with the International Accounting Standards, which include International Financial Reporting Standards ("IFRS"). These financial statements are the responsibility of management and have not been reviewed by the auditors.  The most significant accounting principles have been set out in the audited financial statements and Annual Information Form dated 28 September 2012 for the period ended 30 June 2012 and the related notes thereto. These financial statements have been prepared on a historical cost basis of accounting.  A precise determination of many assets and liabilities is dependent on future events.  Therefore, estimates and approximations have been made using careful judgment. Recognizing that the Company is responsible for both the integrity and objectivity of the financial statements, management is satisfied that these financial statements have been fairly presented.

CORPORATE DIRECTORY

RATEL GROUP LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited - Prepared By Management
For the three months ended 30 September
		Consolidated Three months ended Sept 30,	Consolidated Three months ended Sept 30,
	Note	2012	2011
		US$	US$
Continuing Operations
Revenue	3	81	1,001
Exploration and evaluation expenditure	4	(171,371)	(965,376)
Heap Leach operating expenditure	5	(162,835)	-
Business development		(15)	(13,157)
Foreign exchange gains/(losses)		(13,944)	(39,321)
Administrative expenses	6	(425,578)	(250,296)
Borrowing costs		(10,820)	-
Loss from continuing operations		(784,481)	(1,267,149)
Income tax benefit		-	-
Loss for the period		(784,481)	(1,267,149)
Other comprehensive income for the period		-	-
Total comprehensive income/(loss) for the period		(781,481)	(1,267,149)
Earnings per share for loss attributable to the ordinary equity holders of the company
Basic loss per share (cents)		(0.52)	(1.13)
Diluted loss per share (cents)		(0.52)	(1.13)

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

RATEL GROUP LIMITED INTERIM CONSOLIDATED BALANCE SHEET Unaudited - Prepared By Management
			Consolidated	Consolidated
		Note	30 Sept 2012	30 June 2012
			US$	US$
ASSETS
Current Assets
Cash and cash equivalents		8	221,327	144,984
Trade and other receivables		9	1,146,316	1,130,522
Prepayments			7,506	18,036
Total Current Assets			1,375,149	1,293,542
Non-Current Assets
Property, plant and equipment		10	1,177,192	1,224,049
Total Non-Current Assets			1,177,192	1,224,049
TOTAL ASSETS			2,552,341	2,517,591
LIABILITIES
Current Liabilities
Trade and other payables		11	302,788	308,441
Total Current Liabilities			302,788	308,441
Non Current-Liabilities
Interest bearing loans			824,883	-
Total Current Liabilities			824,883	-
TOTAL LIABILITIES			1,127,670	308,441
NET ASSETS			1,424,670	2,209,150
SHAREHOLDER'S DEFICIT
Issued capital		7	14,493,355	14,493,355
Reserves		12	(3,076,157)	(3,076,157)
Accumulated losses			(9,992,527)	(9,208,048)
TOTAL SHAREHOLDER'S EQUITY			1,424,670	2,209,150

The above consolidated statement of financial position should be read in conjunction with the accompanying notes

RATEL GROUP LIMITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited - Prepared By Management
For the three months ended 30 September 2012
			Consolidated Three months ended Sept 30,	Consolidated Three months ended Sept 30,
		Note	2012	2011
			US$	US$
Cash flows from operating activities
Payments to suppliers and employees			(394,988)	(316,429)
Exploration costs			(281,370)	(1,213,800)
Interest received			66	1,001
Net cash outflow from operating activities			(676,308)	(1,529,228)
Cash flows from investing activities
Payments for property, plant & equipment			(63,881)	(464,408)
Net cash inflow/(outflow) from investing activities			(63,881)	(464,408)
Cash flows from financing activities
Loan funds received			824,883	-
Net cash inflow from financing activities			824,883	-
Net increase / (decrease) in cash and cash equivalents			84,694	(1,993,636)
Effects of exchange rate fluctuations on the balances of cash held in foreign currencies			144,984	6,627,831
Cash and cash equivalents at beginning of the period			(8,352)	(39,321)
Cash and cash equivalents at end of the financial period		8	221,326	4,594,874

The above consolidated statement of cash flow should be read in conjunction with the accompanying notes.

RATEL GROUP LIMITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Unaudited - Prepared By Management
For the three months ended 30 September 2012
		Issued capital US$	Acquisition reserve US$	Share based payment reserve US$	Accumulated losses US$	Total US$
At 1 July 2012		14,493,355	(4,300,157)	1,224,000	(9,208,048)	2,209,150
Loss for the period		-	-	-
Total comprehensive income /(loss) for the period		-	-	-	(784,481)	(784,481)
At 30 September 2012		14,493,355	(4,300,157)	1,224,000	(9,992,527)	1,424,670
For the three months ended 30 September 2011
		Issued capital US$	Acquisition reserve US$	Share based payment reserve US$	Accumulated losses US$	Total US$
At 1 July 2011		14,493,355	(4,300,157)	1,224,000	(4,360,740)	7,056,456
Loss for the period		-	-	-	(1,267,149)	(1,267,149)
Total comprehensive income /(loss) for the period		-	-	-	(1,267,149)	(1,267,149)
At 30 September 2011		14,493,355	(4,300,157)	1,224,000	(5,627,890)	(5,789,308)

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the period ended 30 September 2012
Unaudited - Prepared By Management

1. CORPORATE INFORMATION

The financial report of Ratel Group Limited ("the Company", "Ratel", "the Group" or "the Entity") as at 30 September 2012 and for the periods 1 July 2012 to 30 September 2012 and 1 July 2011 to 30 September 2012.

The Company was incorporated on 18 October 2010 in the British Virgin Islands. Its registered address is Jayla Place, Wickhams Cay I, Road Town, Tortola, VG1110 British Virgin Islands.  The Entity's ultimate parent company is Ratel Group Limited.

The principal activity of the Group during the period consisted of mineral exploration and development.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Accounting

The interim financial report is a general purpose condensed financial report which has been prepared in accordance with the requirements of the International Financial Reporting Standards ('IFRS") as issued by the International Accounting Standards Board.

The consolidated financial statements have also been prepared on a historical cost basis and are presented in United States Dollars (US$).

For the purposes of preparing the interim financial report, the interim period has been treated as a discrete reporting period.

(b) Significant accounting policies

The interim consolidated financial statements have been prepared using the same accounting policies as used in the financial statements for the period ended 30 June 2012 contained in the audited financial statements for Ratel Group Limited dated 28 September 2012.

		Consolidated		Consolidated
		3 months ended Sept 30, 2012		3 months ended Sept 30, 2011
3. REVENUES		US$		US$
Interest income		81		1,001
		81		1,001
4. EXPLORATION AND EVALUATION EXPENSES
		Consolidated		Consolidated
		3 months ended Sept 30, 2012		3 months ended Sept 30 2011
		US$		US$
Employee benefits		99,963		243,469
Consultants fees		109		20,162
Motor vehicle expenses		17,963		10,669
Travel expenses		31,666		101,950
Exploration and drilling costs		(8,177)		440,425
Depreciation expense		5,603		8,407
Rental expense		-		12,594
Other		24,244		127,700
		171,371		965,376
5. HEAP LEACH OPERATING EXPENSES
Consultants fees		4,070		-
Depreciation		105,147
Equipment hire		5,968		-
Employee benefits		36,173		-
Rent		4,584		-
Other		6,893		-
		162,835		-
6. ADMINISTRATIVE EXPENSES
Audit & accounting fees		20,696		9,145
Business development		-		-
Legal fees		232,524		78,113
Management fees		-		99,634
Share registry costs		2,709		8,034
Other		169,647		55,368
		425,576		250,296
7. CONTRIBUTED EQUITY
		Consolidated Sept 30,                      2012 Number		Consolidated June 30, 2012 Number
(a)  Issued and paid up capital:
Issued and fully paid shares		150,000,000		150,000,000
Movements in contributed equity during the past three months were as follows:
Ordinary Shares		Number		US$
Opening balance at 1 July 2012		150,000,000		14,493,353
Total shares on issue at 30 September 2012		150,000,000		14,493,353
8. CASH AND CASH EQUIVALENTS
		Consolidated		Consolidated
		Sept 30,		June 30,
		2012		2012
		US$		US$
Cash at bank and on hand		221,327		144,984
		221,327		144,984
9. TRADE & OTHER RECEIVABLES
VAT and GST		21,025		65,929
Other		-		55,816
Joint venture partner receivable		1,125,291		1,008,777
		1,146,316		1,130,522
Receivables are non-interest bearing and are generally on 30-90 day terms. There are no VAT and GST or Other receivables past due or impaired and it is expected that these receivables will be received when due. The Company, in agreement with its joint venture partners, commenced the development of a heap leach mining operation at the Mkushi Copper Project.  The joint venture partners agreed to enter into the development, to be funded by each joint venture partner in proportion to their interests, being 51% by Seringa Mining Limited, a wholly owned subsidiary of the Company, and 49% by Katanga Resources Limited (a wholly owned subsidiary of African Eagle Resources Plc ("AFE")). The joint venture partner receivable represents 49% of the development costs funded by the Company, which are due and payable by AFE under the joint venture agreement. The receivable has been outstanding greater than 90 days
10. PROPERTY, PLANT & EQUIPMENT
Office equipment
Opening balance		174,123		199,798
Additions		111		4,715
Disposals		-		-
Depreciation expense		(5,603)		(30,450)
Foreign exchange differences		12		60
At 30 June, net of accumulated depreciation		168,642		174,123
		Consolidated		Consolidated
		Sept 30,		June 30,
		2012		2012
		US$		US$
Processing plant and equipment under construction
Opening balance		1,049,926		411,405
Additions		63,771		638,521
Disposals		-		-
Depreciation expense		105,147		-
At 30 June, net of accumulated depreciation		1,008,550		1,049,926
Opening balance		1,224,049		611,203
Additions		63,882		643,235
Disposals		-		-
Depreciation expense		(110,750)		(30,450)
Foreign exchange differences		12		60
At 30 June, net of accumulated depreciation		1,177,192		1,224,049
11. TRADE AND OTHER PAYABLES
Trade creditors		198,287		111,666
Accrued expenses		104,501		196,775
		302,788		308,441
12. RESERVES
Acquisition reserve		(4,300,157)		(4,300,157)
Share based payment reserve		1,224,000		1,224,000
		(3,076,157)		(3,076,157)

13. SEGMENT INFORMATION
The following table presents the revenue and result information regarding operating segments for the period ended September 30, 2012.
	Nigeria	Zambia	Eliminations/ Unallocated	Consolidated
	Sept 30, 2012	Sept 30, 2012	Sept 30, 2012	Sept 30, 2012
	US$	US$	US$	US$
Other income	15	-	66	81
Segment profit/(loss)	(197,613)	(250,686)	(336,182)	(784,481)
	Nigeria	Zambia	Eliminations/ Unallocated	Consolidated
	Sept 30, 2011	Sept 30, 2011	Sept 30, 2011	Sept 30, 2011
	US$	US$	US$	US$
Other income	52	-	949	1,001
Segment profit/(loss)	(860,416)	(165,341)	(241,392)	(1,267,149)
14. EVENTS AFTER BALANCE SHEET DATE
Subsequent to 30 September 2012, the Company has drawn down a further $0.368M under the loan facility agreement with CGA.

 

 

SOURCE: Ratel Group Limited

Hannah Hudson
Chief Financial Officer and Company Secretary

Telephone: [phone]
Fax: [phone]