Preliminary Results for the year ended

African Consolidated Resources plc / Ticker: AFCR / Index: AIM / Sector: Mining
29 August 2012
African Consolidated Resources plc ('ACR' or the 'Company')
Preliminary Results

ACR, the AIM listed southern African focused resource development company, is pleased to announce its unaudited preliminary results for the year ended 31 March 2012.

Financial Highlights for the year

• Loss of $4.55 m to 31 March 2012 as exploration programmes continue (2011: $3.8m) 

• $7.3m cash received through private placement of 78m shares in July 2011 (2011 - nil) 

• Cash balance of $3.03m at 31 March 2012 (2011: $4.9m) 

Events after the reporting date

• Cash balance of $0.46m at 1 August 2012 

• ACR currently in an advanced stage of raising funds through a placing of new ordinary shares where the directors are confident of achieving approximately £2 million 

• Anticipate monetization of operational headquarters in Harare to provide additional working capital 

• Further fundraising required before end of 2012 - substantial roadshow in Asia planned 

Exploration Highlights

• ACR total gold resources now stand at 37 Mt at 1.3 g/t for 1.54 Moz 

• Gadzema Gold project - milestone of 1.03 Moz @ 1.2 g/t Au JORC Resource reached from extension drilling of the Blue Rock discovery. Resource is open along strike and to depth with multi-million oz potential.  16,096m of drilling completed in the year to March 2012. 

• At Pickstone-Peerless gold project, metallurgy and plant process design is well advanced for treatment of the Peerless high-grade sulphide dump. 

• Pit modelling of the Peerless Mine oxide cap shows the project has low technical risk, simple mining and processing methods and low CAPEX to commence production (approx $US4M).  Anticipated returns of approximately $13M free  cash flow over 2 years.  Detailed feasibility study to be done in H2 2012. 

• Intention to commission a full BFS to cover surface and underground mining at Pickstone-Peerless due Q1 2013. 

• In NE Zambia, the Nkombwa Hill carbonatite has returned highly encouraging Rare Earth values from surface sampling of three target zones identified by mapping and heli-borne geophysics. Good grade indications in world terms.  A ten-hole diamond drilling programme is planned H2 2012 to test 3 target zones at depth - to be financed by joint venture partner. 

• In NW Zambia, work is underway on reconstructing a copper ore body model of the Kalengwa Mine from historical drilling and mining plans in the government archives. Early indications are that a substantial oxide and sulphide copper resource exists in the halo around the old pit, which was mined at a 3% cut-off.  Completion of the mine study and payment of vendor considerations expected H2 2012. 

For further information visit www.acrplc.com or please contact:

Executive Chairman's Report

As we all know the world economy is in the throes of some fundamental change and I should like to start my report with a review of strategy in the light of this.

ACR's strategy at the time of listing on AIM and in the years following was to accrue value on a wide spectrum of mineral properties through successful exploration.  Under that strategy, and at that time, additional funds were capable of being raised for further development and value accretion without substantial dilutive effect.  Eventually suitably prospective properties could be brought to the stage of a bankable feasibility study (BFS) and sold or joint ventured, but such advancement could often be deferred if, as has largely been the case up to now in Zimbabwe, major mine development finance was unavailable.

This strategy now has to change to take account of the new investment climate.  On the one hand very low interest yields have turned traditional investors away from exploration companies with little prospect of near term dividends and towards companies with current dividend yield.  On the other hand new-style investors have appeared - often with very substantial funds at their disposal and looking to profit from resource bargains arising from the western crisis - who although less interested in early stage exploration, are interested in large projects where economic feasibility to production, even if not already fully evaluated in detail, is recognised.

ACR's strategy has now evolved to focus on more mature projects in order to develop them rapidly to a stage where they are ready for a substantial investment by such new-style investor.  ACR's preferred route is for such investment to be on a project basis in order to avoid undue dilution.  We have already had a number of meetings with investors on this basis and intend to follow these with further meetings in Q4 2012.

ACR has achieved great success in following its original strategy of developing a broad range of projects across numerous asset classes, which can now feed into the new strategy.  There are now three potentially big and relatively mature projects - in Zimbabwe the Pickstone Peerless Gold Project ('Pickstone Peerless') and the Gadzema Gold Project ('Gadzema'), and in Zambia the Kasempa/Kalengwa Copper Project.  We believe that each of these projects are potentially world class assets.

Specifically, and as Andrew Cranswick explains in his report, we are expecting to achieve in the very short term at least a threefold increase in the JORC gold resource quantum on  Pickstone Peerless and associated upgrade of grades involving the notable conversion of the JORC category from Inferred to Indicated/Measured greater than 50%.  Additional drilling, assays, metallurgy work, plus digitisation of detailed Rio Tinto legacy data is now nearing completion and we are also in preliminary discussions to commission a full BFS on Pickstone Peerless, anticipated to be due in Q1 2013.  We believe that as a result of this work we will in a relatively short period be well placed to attract a major investor for Pickstone Peerless.

Gadzema - where we have completed 16,096 metres of drilling in the year to 31 March 2012 - has we believe a world-class multi-million ounce resource potential.  It is less mature than the previously producing Pickstone, but remains a significant deposit with 8km of strike and it is our intention to upgrade its current JORC Resource to greater than 2Moz in 2013.  In our opinion it holds the possibility of a high tonnage operation capable of producing 200,000oz-300,000oz of gold per annum through the development of a large scale mine.  Due to the Zimbabwe investment climate however we have until recently been unsure as to whether it would be possible to attract the major investment that would ultimately be needed in order to create such a large scale mine.  We had therefore slowed down our drilling programme so as to prioritise expenditure on projects likely to give rise to near term cash or a near term significant transaction.  With the advent of the new-style investor however the possibility of ultimately raising the mining finance necessary has we believe changed, and in the coming months in our meetings with potential new-style investors we will be reassessing this.

In my report presented with the Company's interim results for the six period ended 30 September 2011, I alluded to the possible opportunity for short term cash generation from the brownfield Kalengwa Mine in Zambia, but that various licensing issues needed resolution.  We have been made aware that there are many irregularities accumulated from the past in the cadastre in Zambia through the grant of licences unlawfully superimposed on other licences.  In order to clear the irregularities, the new government introduced a moratorium on the issue or transfer of all licences, and this lasted for several months.  

The Kalengwa Copper-Silver Mine ('the Kalengwa Mine') and 1,085 sq km contiguous exploration ground has given an example of these issues.  The acquisition has been laborious due to the continuing occupation of the mine by a company which previously held an unlawfully acquired mining licence.  This mining licence was overturned by the Supreme Court in September 2011, the Supreme Court decision in our vendor's favour being a condition precedent of the acquisition.  The occupier of the mine is however continuing to process the rock dump left over from mining in the 1970s under a Mineral Processing Licence which was only obtained by the occupier on the basis of the existence of the overturned mining licence.  To avoid further delay through Court action we have reached near agreement with the occupier for a shared interest in the rock dump and are expecting to get physical possession on the mine shortly.  There is also an action by a previous shareholder of the vendor against the vendor who has asserted that the vendor has no right to sell, but we are confident that the previous shareholder of the vendor is not legally in a position to prevent the acquisition by ACR.  On transfer of the licence to ACR there will be approximately $1million due as a payment on account of the purchase consideration for the Kalengwa Mine and the contiguous exploration ground and for associated costs.

Meanwhile we have obtained much detailed historical information on the Kalengwa Mine and produced a block model which shows a non-JORC estimate of 170,000 tonnes of contained copper metal at an average grade of 1.5% on the pit margin.  This is in addition to the resource in the dumps.  More detailed aeromagnetic and radiometric surveys are expected to commence in September 2012.  Mineralisation along strike is open.  There is therefore potential for an upgrade of quantum and grade of the resource.  Work is underway on assessing treatment options for the dumps and the oxide material on the mine.  This will be followed by an investigation of the funding opportunities to progress this project into production in the near term.

Less mature but potentially important is our Nkombwa Hill Rare Earth Elements ('REE') project which is a highly prospective intrusive carbonatite complex in Muchinga Province, North East Zambia.  This has given another example of the Zambia cadastre problem where, as already announced, another licence has been unlawfully superimposed on our own.  Although the position has not yet been physically rectified on the cadastre we are confident that the correct position will be restored shortly.  Our confidence in this regard is supported  both by a letter from the Ministry of Mines and Natural Resources and also by a very recent published interview with the Minister of the Muchinga Province where he stated his enthusiasm for the project and confirmed that development would be undertaken by ACR.

We are very pleased that our joint venture partners at Nkombwa Hill - who are committed to spending $1.35m to achieve an Indicated JORC REE Resource in order to earn-in up to 50% of the project - are now backed by Galileo Resources plc, which has the benefit of Colin Bird's extensive experience in resource development and REE expertise.  As already reported, recent sampling has shown good prospectivity with eight samples over 10% Total Rare Earth Oxides ('TREO') and a highest assay of 23.6% TREO.  No funding will be required from the Company until after the publication of the JORC Resource.

On other projects, we have decided that the Cedric copper and Lowveld gold projects are not sufficiently prospective or large to progress further.  In Note 11 of the Finance Report there is an impairment of $787,894 most of which relates to these but also includes an early stage diamond project and an early stage copper project near Pickstone Peerless not proceeded with.  All other projects remain alive.

The business climate in Zimbabwe remains cautious, although as I have implied many of the new-style investors appear to be ready to accept political risk.  Politically, progress is being made slowly towards a new Constitution, and, according to pronouncements from both major political parties, elections are scheduled for 2013.

A recent negative has been the 5000% increase in annual mining claim fees promulgated by the Ministry of Mines.  This has been declared ultra vires by the Parliamentary Committee on Mining and so the precise legal status of the fee increase is unclear.  The stated reason for the increase is to prevent hoarding of claims by speculators.  We believe that there are other measures that could be used to prevent this.  The fee increase, if it is maintained, will have a considerable impact on greenfield exploration as it is widely acknowledged in the mining industry that it is necessary to hold and explore a lot of ground in order to be successful in making new discoveries.  The fee increase is therefore damaging for long term development in Zimbabwe as it could freeze long term greenfield exploration and we hope the fee increase will not be adopted.

If ACR were to maintain all its claims then the additional fees payable would be substantial.  ACR has therefore divided its claims into categories.  For core assets such as Pickstone Peerless and Gadzema the increased fees are being paid whether the fee increase is held to be valid or not.  For other assets fees will be paid when there is clarity on the legal position or when there is a notice that the claim will be lost if not paid, or alternatively will not be paid if it is decided that the claim is not worth holding at the increased price.  

Laws in Zimbabwe relating to indigenisation are evolving.  As previously stated the Company is not subject to the Regulation published on 25 March 2011 concerning near term 51% indigenous ownership and which gave rise to much concern at the time it was published.  My personal opinion is that the indigenisation laws will eventually settle down to a system which will be acceptable to business and will take into account not only indigenous shareholding percentages, but other factors such as employment and benefits to communities in which projects are situated.  Taking all factors into account we are proposing to implement a modest level of indigenisation for our Zimbabwe holding company, and a somewhat greater level of indigenisation on a project by project level and which will be implemented as each project nears maturity.  In this way different local interests can be accommodated to suit the projects which are relevant to them.  Such project indigenisation would thus be one of the things to be negotiated as part of any substantial transaction on Pickstone Peerless.

An example of indigenisation at the project level is given by what has been done in relation to the Pickstone Sulphide Dump.  A tribute in respect of the dump has been given to an indigenous company within the meaning of the Zimbabwe Indigenisation and Economic Empowerment Act, the overall commercial effect of which is to give ACR consideration for the grant of the tribute of $4 million payable out of gold sales and where ACR retains a 75% beneficial interest in profits arising from the processing of the dump after payment of the $4 million.  In this case the indigenous interests include or will include consultants and employees of the Company, persons who are likely to be involved in our ongoing development at Pickstone, an employee trust and a trust for the benefit of the local community at Pickstone.  We have for some time been involved with the local community at Pickstone by the building of a new school and other assistance for the community.

I cannot complete this report without a mention of the Marange diamond issue.  The now famous Marange diamond area - which only exists on account of ACR's original discovery - has continued to attract press and broadcast publicity.  It has clearly become a major world producer of gem diamonds.  We continue to hold back on our legal case, and I continue discussions at different levels with a view to obtaining a win win resolution of outstanding issues with Government.  I continue to believe that a resolution will be beneficial for Zimbabwe's status as an investment destination, beneficial for the Zimbabwe fiscus, and therefore beneficial for the people of Zimbabwe.  It would of course also be beneficial for ACR.

As detailed below, the Group Statement of Financial Position has been prepared on a going concern basis.  As at 1 August 2012 Group cash and cash equivalents was approximately US$460,000.  The Company is currently in an advanced stage of raising funds through a placing of new ordinary shares where the directors are confident of achieving approximately £2 million and in which certain of the directors anticipate participating.  The Company is also planning to monetise its operational headquarters in Harare.  Such additional funds are expected to be sufficient to fund the Company's near term liabilities and operational development.  Nevertheless it is anticipated that further funding will be required in Q4 2012 in order for the Company to continue operating as a going concern and develop its portfolio of high impact assets.  In this connection a substantial roadshow in Asia is planned for Q4 2012.

In conclusion the Company has a spread of what we believe to be potentially world class assets with the risk spread between Zimbabwe and Zambia.  There is a good expectation of obtaining funding for those assets for their exploitation, and new senior management is being sourced to manage the further development of those assets.

My thanks go to the Board and all our staff for their hard work during the past year.

Roy Tucker
29 August 2012

Chief Executive Officer's report

I am pleased to present our financial statement herewith and for the opportunity to explain some of our recent developments and future plans.

In this year's Chairman's report and in my CEO reports of the past few years, we have referred repeatedly to the changes taking place on the world stage and what it means for our company.  These changes manifest largely in line with the nervousness that has infused Western markets and in particular how the markets view our resources sector.  Coupled with a rising tide of resource nationalism and taxation threats in resource-rich developing nations, the shifting sands make adaptation crucial, and awareness and response thereof has indeed occupied much of our time and energy.  I believe we have successfully evolved our strategy to meet these challenges and we have set some high-level milestones to achieve in the near and medium term with which we may build and create shareholder value.  Whilst the current market fear in the west may subside, the tide is still going out; it is heading east and so we must follow.

The dichotomy between east and west in terms of their apparent risk appetite becomes ever more pronounced as one hemisphere grows its wealth and voracity while the latter frets and shrinks.  This trend was predicted and anticipated but the pace of acceleration in that trend has taken the world by surprise.  We have analysed how we might mould that reality from crisis into opportunity.  We have grown in our understanding of how to meet the expectations of cash-rich, resource-hungry nations and their investment entities.  These expectations vary as widely as the geography from whence they come but the most consistent element of demand is for mineral and mining assets at or very near production stage, and only for projects of some scale.   Another observation of mine is the apparent lack of understanding of the mineral exploration model, historically so well proven on the ASX, TSX and LSE.  With the West obsessed by risk avoidance and the East focussed solely on production, exploration and resource development is being starved of funding worldwide - the future consequences are obvious.  Two conclusions arise in respect of ACR policy:  

1. In order to attract near-term production finance and to add shareholder value we have acted to advance our most mature projects to feasibility.  The investment now sought must produce metal to achieve cash-flow, self-sufficiency and value extraction, and wherever possible the resulting dilution should be confined to project-level.  We hope to report further progress through the rest of this year; 

2. In the longer term, the inevitable ramification of under-funding exploration is the continued neglect of reserve replacement.  When coinciding with ever-growing consumption (read reserve-depletion) the inescapable prediction is a state of critical resource project shortages within the next 5-10 years.  A profound competitive advantage for ACR can thus be achieved through reinvestment of future cash profits into exploration. 

We have been following this adapted path for some time and are now ready to act decisively on the all-important investment / finance leg.   I discuss more detail below on our execution and the specific project targets.  To achieve these ambitions, and to do so on a far larger scale than our market capital valuation might suggest possible, we still require the working capital and funding for tenure-maintenance / acquisition  -  in essence to keep the ACR project incubator in operation.  In this regard, the Company is currently in an advanced stage of raising additional equity of which the directors are confident of achieving approximately £2million before expenses.  This will come with a commitment from the Board to pare unnecessary overheads and reduce wherever possible our cash burn-rate - a rationalisation that matches our focus on fewer, more prioritised projects.  In this respect, the Board will be reviewing remuneration in the near-term

Bearing in mind that the declared ACR value-delivery timetable was aimed to be in the 5 to 10 year post-IPO window, we remain on course, albeit with an improvised road-map.   I thank our shareholders for the continued patience and faith they have displayed in our capacity to deliver.

CEO tax / bankruptcy status
As has previously been announced, I personally have been embroiled in a lengthy, difficult and complex dispute with the Australian Tax Office who had achieved a court order to declare me bankrupt on grounds of leaving Australia to defeat my creditors.  This was in turn contested by my lawyers.  After lengthy action and negotiation on an out-of-court settlement, we have agreed terms of a deed of composition which will annul any bankruptcy status.  This is due to be concluded in the next fortnight and thus bring the chapter to a welcome close.

Zimbabwe
Our view of Zimbabwe has always been that the land is one of immense opportunity beset by the dual malaise of perceived sovereign risk and political inertia, stifling much-needed investment.  The hope we have for the imminent improvement of the investment climate is apparently shared by many more investors than before as the swelling numbers of business travellers arriving at Harare airport attest.  At this point in time, a perfectly safe investment paradise Zimbabwe certainly is not, but small improvements in fundamental principles and practices of governance offer potential for enormous positive impacts on investment.  

When we review the good progress of dollarization and gold sales / mining de-regulation there is a demonstrated desire for encouraging growth - an intent which needs to be recognised and applauded.    Yet it is not quite enough to conquer the coefficient of static friction which keeps the economy in the starting-gate, champing for release.  More than one of our shareholders has expressed exasperation at the ever-increasing mining tenure fees, taxes and royalties that without warning can alter mine economics, conspiring against long-term development and investment.  While Zimbabwe is by no means unique in this failing, if we, as a nation, truly desire job-growth and wealth creation, we need to listen to investors and compete favourably with our peers and neighbours.  Furthermore, attraction of this investment, whether from the east or the west, requires certainty and transparency in the detail and the administration of indigenisation.  There seems to be a growing appreciation of this in Harare, and I hope Government policies more actively reflect these needs soon.

Indigenisation of ACR operations has been designed and re-designed and several templates have been studied, with the intention of full compliance to the law.  ACR has previously stated that indigenisation does not affect an exploration company until retained production profits at a project level have accumulated sufficiently to repay the investment debt.  But in view of our rapid advance to large-scale funding and production we have now to finalise a universally acceptable structure for compliance and this is a near-term goal with regards to which we hope to announce progress soon.  Please see the Chairman's report for more on this matter.

Zambia
Licence problems have affected almost all mining investors in Zambia and the 1-year old Government has made concerted efforts to rectify past wrongs.  While we have been frustrated by the time taken, all interactions I have participated in have shown consistent recognition of what needs to be done and some progress has been made.  Technical progress has been hampered by licence-related tenure issues and I am aware that this problem is widespread and recognised by the authorities.  We are working with all possible Government departments to assist in improving the situation and are hopeful that specific news on progress will be announced soon.  After surmounting several technical and bureaucratic obstacles, our geophysics survey has now been belatedly commissioned and approved for flying in the north-west of Zambia where we have brownfield and greenfield tenure.  We expect to release the result of this survey to the market in Q4 2012 and expect to have defined a number of drill-targets from these results.  More on this target below.

Less-mature Projects
As I have previously described, ACR's evolved focus is on funding and creating value from our mature projects.  This does not mean we have abandoned all long-term exploration projects - on the contrary we have done very specific relatively low-cost work on proving economics and metallurgy as steps to create the confidence to budget and progress expensive drilling campaigns for Resource Definition and thereafter advancing to feasibility.   As described on our policy above, the intention is to fund the more expensive resourced development stages of these exploration projects from production cash flow of the mature assets.  The science we apply continues to yield results on recovery rates of phosphate concentrates from our Chishanya Phosphate project in Zimbabwe.  Once the final report is fully evaluated, we will be defining a budget for the full resource definition and scoping study for this high-grade carbonatite.

Meanwhile at the Snakes Head PGM project, repeated delays in a comprehensive environmental approval have now been overcome and, subject to additional finance, we expect to drill what is anticipated as the higher-grade Main Sulphide Zone ('MSZ') of the great Dyke which hosts all the economic PGM reserves in Zimbabwe.  Subject to successful results we will be developing discussions with PGM-specialist partners.

In Zambia, our high-grade Rare-Earth prospect at Nkombwa Hills in the new province of Muchinga has progressed with high-grade showings in trenching which has assisted in the definition of comprehensive drill plans.  Subject to the final regularisation of the licences as indicated by the Ministry of Mines, Galileo Resources PLC are committed to finance exploration expenditure as part of their project earn-in.  In addition and subject to budget accommodation, the intention is to commence metallurgy tests for phosphate extraction along similar lines to our successes described at Chishanya.

Near Value, Mature Projects
As defined in our strategy, it is towards the projects that can most soon yield financial results that we are committed for the bulk of our efforts in the coming twelve months.  In order of importance and maturity, these are the Pickstone & Peerless Gold project in Zimbabwe, the Kalengwa Copper/Silver project in Zambia and the Gadzema Gold project in Zimbabwe (with Nkombwa receiving an honourable mention).  We are mindful of the need for realisation of value both from production profits and from market recognition of asset value reflected in share prices.  Raising capital at project level is currently the target in order to minimise dilution at the corporate level but success therein should also be rewarded in the corporate share price.

To best achieve project finance, share value recognition and management and indigenisation goals, it is very possible that we will undertake corporate restructuring in respect of these lead projects.

Pickstone and Peerless Gold Project
A review of history is in order.  This Rio Tinto mine was closed unexpectedly during an active phase of mine development, mostly for political reasons, in the early 1970s.  It consists of two parallel ore bodies 300 metres apart, comprising the banded-iron hosted Pickstone trend (mined under Concession Hill) and the schist-hosted Peerless trend.  While the Pickstone was partially mined down to 700 metres producing nearly 500,000 troy ounces of gold ('troz') at an average of around 6g/t Au, mostly in the ten years prior to closure, it still has large known ore resources within that depth and is open further at depth - probably much deeper with grades apparently increasing with depth.  The slightly lower grade Peerless trend is essentially virgin and although developed down to No.3 level only trial-stoping was conducted in the year of closure.  

When ACR acquired the Pickstone / Peerless project, the price of gold was less than $400 per troy ounce and the conventional wisdom of the time dictated that the only likely economic mining would be at surface from tailings and open-cast mining.  Accordingly ACR drilled and defined the two ore-bodies down to an average 110 meters, declaring a JORC-compliant Resource of some 500,000+ troz.  More recently, when discussing joint venture and finance opportunities with third parties, a decision was made that in the context of a far more robust gold price, the underground held much potential and we began a process of quantification thereof using data from the drilling of deeper holes and most importantly the digitisation of exhaustive underground sampling and drill-core assays logged on mine plans from the close-of-mine era. The indications from this work, which is now nearing completion, is that we will be in a position to declare a well-defined, high-confidence (we expect mostly JORC Indicated category resource) gold Resource on the project in the coming weeks.  Subject to these results we are reasonably confident that the data will justify the immediate commissioning of a Bankable Feasibility Study ('BFS') which should be concluded in Q1, 2013.

In the process of our studies, the acquisition of the site, our drilling campaign and plant erection at Pickstone Peerless we have invested some $10 million dollars to date.  Without this first-class foundation, the development now planned could not have happened.

With a higher grade, larger, better defined Resource imminent plus the impending commencement of a BFS, we are promoting this world-class project to a specific class of investor.  Indeed we are already in exploratory discussions with several of the same.  The nature of the ore body and its varying components with varying levels of CAPEX and associated development levels, allows us to simultaneously pitch the opportunity at a variety of appetites.  Preference will be given to a large-scale investment which aims at an 80,000 - 100,000 troz per annum production to be achieved within two years; a target which the Company believes the ore body can sustain and which would draw from both surface and underground exploitation.

That is the target we are explaining to the prospective contributors of larger scale investment whom we are in discussions with.  One of the main criteria from large-scale investors is obviously scale and investments below a certain threshold automatically exclude such players.  Nevertheless, as mentioned above, there is a multi-tier facet to this versatile project allowing several levels to pitch at.  We have thoroughly researched and defined the smaller, still very profitable sub-sets at Pickstone Peerless which can be tackled with far lower CAPEX levels.  That implies we are not limited to large-scale investors if the terms prove unattractive, even though it is sometimes true that raising $100 million is easier than raising $10m.  So, as per our earlier strategy iterations, we are concurrently engaged with this second tier approach to project-level partnership catering for more modest pockets.  If implemented it would facilitate an earlier but steadier, more gradual growth to larger scale production.  With careful planning we believe the two approaches can coexist and both succeed.  Our recent specific feasibility studies that fit this parallel model include the now well understood pittable Peerless oxide ore and the high-grade Pickstone sulphide dump (up to 4.4g/t Au).  Based on current costings, the Peerless oxide ore pit - where we are currently working on a detailed internal feasibility study - would require approximately $4m (combined CAPEX and working capital) with production over two years providing approximately $13m free cash for project after royalties and CAPEX recovery).   The high grade sulphide dump would need approximately $7.5m funding with production over two years providing approximately$13m free cash after royalties and CAPEX recovery.   Note that these profits would be at a project level and not all would flow back to ACR as dividends considering re-investment in mining and considering our indigenous and investment partners.

Exciting times are ahead with much work to do.

Kasempa & Kalengwa Copper / Silver
We have announced a lot of detail on this project and indeed our recent work confirms that this is a project with excellent potential for ore body discovery from greenfield areas, coupled with a proven asset to generate near-term cash-flow in the brownfield Kalengwa site.  While this project too has partially fallen victim to the Zambian licencing confusion, the intricacies of past ownerships and dispute on classification of dumps versus minerals versus stock-piles has occupied legal minds and delayed the clear un-contested declaration of full tenure.  I am pleased to report that we have made some breakthroughs in negotiating agreements.  We have markedly progressed the arbitration between historical protagonists in this regard.  Verbal commitment on settlement terms has been made and I am hopeful of signing the written form thereof in the coming weeks.  This will entail, inter alia, a commitment by ACR to construct a copper oxide processing plant which will treat the oxide rock dump ore, but which will be suitable too for the continued exploitation of the oxide ore in the main ore body.  This oxide zone stretches from surface to a depth of between 30 and 40 metres.  The ore is open along strike to the north-east and south-west of the old mine pit.  Head-feed from both ore sources will be targeted at between 1.2% and 1.7% Cu.  This has proven to be amenable to gravity concentration up to a contained value of 23-28% Cu.  The need for further flotation concentration is still being evaluated but early test-work indicates that the ultimate metal extraction from the high-carbonate oxide appears to be most efficiently served by Ammonium leach and electro-winning.  The fact that the ore may carry significant silver credits necessitates further metallurgical work to test the economics of extraction of that credit.

Our detailed work on archived drill-core, drill logs, mine pit plans and sections has achieved reliable cross-sectional modelling of the known ore-body and we are pleased to report that, subject to confirmation drill-holes to be conducted post-occupation, we anticipate the fairly prompt declaration of a JORC-compliant copper Resource exceeding 170,000 metric tonnes of contained Cu metal at an average grade of 1.5% - mostly in the sulphide zone.  Considering that this mostly excludes the untested, over-lying oxide zone, is estimated within confines of a depth of some 200 metres, and that the deposit is open along strike and at depth, this declaration bodes well for further Resource announcements.

In fact, while the Kalengwa brownfield site promises early success in Resource declarations and also offers near-term profitable cash flow, the real upside of potential is in the surrounding ground which ACR has variously partnered, acquired or contracted to explore.  Measuring approximately 1299 square kms in extent, the area has the promise of yielding discoveries of both Kalengwa-style deposits as well as the nearby Lumwana-style (African Barrick) and/or Kalumbila-style (First Quantum) deposits.  The above-mentioned geophysical survey which is expected to commence in September 2012 is expected to provide the first stepping stones in this direction.

Gadzema Gold
Unlike the high-grade, largely underground Resource that characterises the Pickstone Peerless Project 18 miles to the south, Gadzema offers the prospect of a bulk tonnage, low-grade, open-pit mine.  With a defined Resource of 1.03m troz at an average 1.2g/t Au to a depth of 110m, it is not an exaggeration to state that we have barely scratched the surface.  ACR has to-date Resource-drilled some 2.6kms of the composite 8kms strike (800m in the old Giant mine zone and 1800m in the Blue Rock / Orchard zone), and exploratory drilled some 5kms showing at least that extent to be mineralised.  In the southern Blue-Rock zones, the width of the ore body consistently exceeds 300 metre width and indications are that this width should be consistent over several kilometres.   In summary, this deposit is open along strike, open at width in many parts and open at depth.  Assuming no unforeseen geological anomalies, this body has the potential for multiples of the current resource.

To the untrained eye, the low average tenor needs contextual analysis.  Firstly, in ore bodies such as these which have parallel high-grade zones, we have the luxury of choosing cut-off and therefore average grade.  A simple sliding scale allows us to lift grade while lowering tonnes (and ounces).  However, we have chosen to set an average grade at 1.2g/t Au for very good reasons.  In this regard it is useful to compare similar successful deposits worldwide. There are at least 91 gold mines currently in operation containing more than 1 million ounces of gold at less than 1.2g/t average grade (source: www.intierra.com).  These are commonly intrusive-style stockwork systems hosted by felsic porphyrys or intermediate volcanics, analogous to ACR's Blue Rock ore.  They include 11 giant deposits (>15Moz), such as Grasberg, Cadia, Boddington and Sukari, which total 294 million ounces of gold at an average of 0.51 g/t. In the 2-10 million ounce range are 53 deposits containing over 240 million ounces averaging 0.7 g/t.  Notable producers are Sabodala, Siguiri, Cowal, Masbate and Round Mountain.  Due to excellent strip ratios and high tonnage production, these deposits generally produce 100,000 to over 500,000 oz per year at very competitive cash costs.  Does Gadzema host a resource capable of sustaining a 10 year mining life at such production levels?  I believe it does and using cash costs from Pickstone production we would intend to advance the Resource development to prove this scale.

Can we attract finance to Zimbabwe for the associated CAPEX demanded by an operation of that size?  Perhaps not yet but I hope that soon we will flesh that out with the strategic investors we are in discussions with and so progress this project.  Gadzema is proof of concept and proof of our founding statement that Zimbabwe is "Elephant Country" when it comes to prospectivity for large scale gold deposits.  We asserted that all it required was modern exploration and these deposits would be discovered.  We applied the science and essentially, in the first place we looked, we found what we came for.  It speaks volumes for the prospectivity and reinforces my view that Zimbabwe may, someday soon, return to the top ten gold-producing nations of the world.

In the case of Gadzema's Giant Mine zone where a brownfield mine has allowed us to define an open pit of ~374,000 troz at 2.2 g /t Au it is possible that we could use the organic-growth approach from a small operation reinvesting profits.   However, our preference will be to use Pickstone cash flow to invest in closer drill-patterns at this sub-site to increase certainty followed by a proper BFS and attract larger scale investment to maximise economies of scale.  Any open-pit operation at Giant Mine will likely incorporate a fully quantified tailings dump resource.

Since our last reports, additional in-fill drilling and assays have firmed up the Gadzema Resource with a good conversion rate of Inferred to Indicated ounces.

Nkombwa REEs - Zambia

Although I have already dealt with Nkombwa above, I include it in the more mature project section as it is now on a fast-track to development and may yield value sooner than might be expected.  Within the coming year (subject to the promised resolution of the aforementioned licence issue) Galileo Resources PLC has committed to an already well-defined drilling programme commencing with a ten hole diamond drilling orientation programme in order to earn-in up to 50% of the project.  The mineralogy includes REEs with a robust demand profile and thereby a resilience against the often-predicted price softness that threatens to inflict REE miners. We hope that these results will be consistent with findings to date and the project is hoped to rapidly gather pace from there.  I believe that we have a strong relationship with the new provincial administration in Muchinga and are excited by the prospect of bringing them development, employment, participation and success.  Particularly in this regard it is valuable to note that Nkombwa also houses a significant Phosphate resource which I believe could prove a very useful economic credit as well as providing a strategically vital uplift to Muchinga and Zambia's agriculture.  Historically believed to be of low Phosphate tenor (sub 5%), recent rock chip sampling is defining zones averaging approximately 8% P2O5 over consistent widths and as a by-product of REE mining. Although early stage, I consider the potential fertiliser production very promising.  We are committed to a community-participation in this aspect and intend to commence metallurgical test-work in the coming months.

Within Galileo we are fortunate to have two key characters:  Colin Bird (CEO) has extensive experience within Zambia having piloted the substantial Kiwarra Resources discovery at Kalumbila (now in the First Quantum fold) to Resource stage.  The project leader is Dr Jock Harmer, a world-recognised REE specialist geologist, crucially with an extensive working knowledge of the marketing and metallurgy of the REE field.  I expect to bring continued news-flow to the market on this project in the near term and have a possibility of value extraction through possible corporate activity centred on this site.

Conclusion
We committed a year ago to tighten our focus and this we have done.  The proof and success of our work is now being realised and released to the public.  And so we move on to the concerted financing effort against the backdrop of a world crisis.  Yet the signs I am reading - indicative of the global shift of power - lead me to a great sense of optimism.

We at ACR have had to adapt and we understand exactly how we have to adapt further.    And so we will act and so we will be judged by our results.  I thank all stake-holders who have contributed in these in interesting times.

Andrew N Cranswick
29 August 2012

This report and that of the Executive Chairman has been reviewed by Mike Kellow BSc, a member of the Australian Institute of Geologists and Technical Director of ACR. Mr Kellow meets the definition of a "qualified person" as defined in the AIM Note for Mining, Oil and Gas Companies.

Unaudited consolidated statement of comprehensive income
for the year ended 31 March 2012

Unaudited consolidated statement of financial position
As at 31 March 2012

Unaudited consolidated statement of cash flow
for the year ended 31 March 2012

Unaudited consolidated statement of changes in equity
for the year ended 31 March 2012  

Preliminary report notes for the year ended 31 March 2012

1. Preliminary Report 

The information relates to the year ended 31 March 2012.
The preliminary report was approved by the Directors on 29 August 2012
The preliminary report is unaudited.

2.   Basis of preparation

a)   This report has been prepared using the same accounting policies as stated in the 31 March 2011 Annual Report. The financial information set out above does not constitute the company's statutory accounts for 2011 or 2012. Statutory accounts for the year 31 March 2011 have been reported on by the Independent Auditors.  The Independent Auditors' Report on the Annual Report and Financial Statements for 2011 was unqualified but drew attention to uncertainties regarding the company's ability to continue as a going concern and indigenisation by way of emphasis.  The Auditors' Report did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The results for 2012 are unaudited. Statutory accounts for the year ended 31 March 2012 will be finalised based on the information presented in this announcement.  The independent Auditors' Report will be based on those statutory accounts once they are complete.

The independent auditors have indicated that the audit report for the statutory financial statements for the year ended 31 March 2012 is likely to draw attention, without qualification, to the material uncertainties about going concern , as described by the directors in b) below, and indigenisation, as described by the directors in section 3 of this report. There can be no certainty that the independent auditors will be in a position to issue an unmodified audit opinion.

Statutory accounts for the year ended 31 March 2011 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 March 2012 will be delivered to the Registrar in due course.

b)        The Group currently does not have sufficient funds to finance its planned work programmes, corporate overhead and working capital needs for the next twelve months. At the date of publication of this Preliminary Report the Company is in an advanced state of concluding an equity placing to meet part of this funding requirement and are also in negotiations with prospective purchasers to realize the monetization of its Harare office building. In addition to this, further fundraising will be required by the end of 2012 and it is the opinion of the Directors that sufficient funds will be forthcoming.

On this basis the Directors are confident of being able to raise the required funds at a price acceptable to existing shareholders.

There can however be no certainty that these transactions will complete and there therefore exists a material uncertainty regarding the Group's ability to continue as a going concern. These financial statements do not include the adjustments that would be required if the Group could not continue as a going concern. These would principally be impairing the carrying values of the mining projects to value in a distressed sale.

3.   Contingent Liabilities and Capital Commitments

Zimbabwe Indigenisation

On 25 March 2011 the Government of Zimbabwe issued regulations relating to the Mining Sector pursuant to the Indigenisation and Empowerment Act 2007. These regulations require of all Zimbabwean registered mining companies, having a net asset value of $1 or more on 25 March 2011, to transfer not less than 51% of their issued shares to designated entities by September 2011.  These regulations are relevant to Canape Investments (Private) Limited and its subsidiaries which are Group companies registered and operating in Zimbabwe. However, as these subsidiaries were and are all still in exploration phase financed by loans from the holding or other group companies, neither Canape Investments (Private) Limited nor its subsidiaries had or has a net asset value of or above one United States  dollar. As such the Directors believe that there is currently no compulsion to effect any transfer of shareholding in the Zimbabwean subsidiaries to any third party. Counsel's opinion supports this view.

In a response to the Zimbabwean Ministry of Youth Development, Indigenisation and Empowerment, the company has stated this fact and added that it will take such steps as it can to comply with any indigenisation law in force from time to time. Responses received from the authorities would indicate that this position has been accepted.

The full effect that this legislation might have on the operations of the Group is yet to be quantified and is subject to considerable uncertainty.