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A1 Consolidated Gold Limited

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Discuss about the A1 Consolidated Gold Limited.

Answer:

Introduction

A1 Consolidated Gold Limited was set up in the year 2011. The major aim behind setting up the company was to acquire 100% ownership in the A1 gold project. The shares of the company got listed in the Australian stock exchange in the year 2012. The company has its head office in Victoria, Australia. IT is an Australian based company which is engaged in the development process of the AI gold mines in the country. The company has shown interest in mineral exploration which has been set up 120 kilometres away from north east of Melbourne, Victoria, located between Mansfield and Woods Point. The management of the company has successfully obtained licence MIN 5294 for the carrying out the gold operations in the country. The market capitalisation of the company has witnessed a sudden downfall in the past 1-2 years.

Review of Financial position of the company

The financial performance of a company is provided through the help of balance sheet. The short and long term classification of the liabilities and assets provides better understanding of the line items and helps in providing the break up for non-current and current.

The major heads of balance sheet in case of A1 Consolidated Gold Limited for the two year ended 2015 and 2014 are as follows:

Particular

2014

2015

Change

% Change

Current assets

Cash and cash equivalents

 $              232,027

 $            2,013,371

 $            1,781,344

768%

Receivables

 $                40,766

 $                131,455

 $                  90,689

222%

Inventories

 $                102,643

 $                102,643

100%

Prepaid expenses

 $                53,399

 $                164,993

 $                111,594

209%

Other current assets

 $                   1,500

 $                        920

 $                      (580)

-39%

Total current assets

 $              327,692

 $            2,413,382

 $            2,085,690

636%

Non-current assets

Gross property, plant and equipment

 $        34,270,102

 $          33,118,108

 $          (1,151,994)

-3%

Accumulated Depreciation

 $            (770,305)

 $          (2,845,199)

 $          (2,074,894)

269%

Net property, plant and equipment

 $        33,499,797

 $          30,272,909

 $          (3,226,888)

-10%

Other long-term assets

 $              123,000

 $            1,006,500

 $                883,500

718%

Total non-current assets

 $        33,622,797

 $          31,279,409

 $          (2,343,388)

-7%

Current liabilities

Accounts payable

 $                95,331

 $                596,414

 $                501,083

526%

Short-term debt

 $                41,155

 $                173,441

 $                132,286

321%

Other current liabilities

 $              545,369

 $                547,031

 $                    1,662

0%

Total current liabilities

 $              681,855

 $            1,316,886

 $                635,031


93%

Non-current liabilities

Long-term debt

 $                          -  

 $            1,561,220

 $            1,561,220

100%

Other long-term liabilities

 $                          -  

 $            1,050,554

 $            1,050,554

100%

Total non-current liabilities

 $                          -  

 $            2,611,774

 $            2,611,774

100%

Stockholders' equity

Common stock

 $        35,279,194

 $          42,606,668

 $            7,327,474

21%

Retained earnings

 $        (4,224,242)

 $       (18,296,142)

 $       (14,071,900)

333%

Accumulated other comprehensive income

 $          2,213,682

 $            5,453,605

 $            3,239,923

146%

Total Stockholders' equity

 $        33,268,634

 $          29,764,131

 $          (3,504,503)

-11%

The current assets of the company include accounts receivable, Cash and cash equivalent, inventory and prepaid expenses. Out of the total current assets, the cash and cash equivalent contributes 85% of the total current assets. There has been huge movement in the cash balance of the company in the year 2015 as compared to the last year 2014. The management of the company during the year 2015 has issued convertible notes in the market. Through this issue the company has raised $2.4 million. Further during the year, the company has issued additional shares in the market, through which they have raised additional cash of $2.5 million during the year. The company has been raising money from issue of shares from past 2 years. The accounts receivable balance of the company increased considerably in the current year. This increase is majorly driven by increase in the GST recoverable balance of the company. There was no inventory balance lying in the books in the year 2014. However, in the year 2015, the company exportation consumables lying in the books which directly increased the inventory balance of the company.

The non current asset of the company includes property plant and equipment and other long term assets. There has been no major change in the gross block of fixed assets for the company. The change which has taken place during the year is majorly account of depreciation has been charged in the books for the year 2015. The plant and machinery contributes majorly for the fixed asset portion of the company. The other long term asset of the company includes the environmental bonds. The environmental bond balance for the company during the year increased considerably by 718%.

The current liability of the company majorly includes accounts payable and short term debt. The accounts payable balance of the company increased by 526% during the year. This is majorly on account of increase in business for the company.

Review of Financial performance of the company

The profit and loss account has been used widely as a tool to test the financial performance of the company. They are been referred as income statement as well, as it provides information about the income booked in by the company. The same has been used majorly by the investors to test the profit earning potential of the company which they could in basing their decision of investing in the stocks of the company.


The major heads of profit and loss account of A1 Consolidated Gold Limited with numbers for year 2014 and 2015 are provided as below:

Particular

2014

2015

Change

% Change

Revenue

 $              78,721

 $                24,658

 $              (54,063)

-69%

Cost of revenue

 $                       -  

 $                          -  

 $                          -  

0

Costs and expenses

Accounting and taxation services

 $              56,150

 $                80,340

 $                24,190

43%

Auditors remuneration

 $              35,850

 $                42,500

 $                   6,650

19%

Company secretarial fees

 $              78,407

 $              141,578

 $                63,171

81%

Consultancy fees

 $              34,672

 $                          -  

 $              (34,672)

-100%

Depreciation Expenses

 $              17,526

 $                12,908

 $                (4,618)

-26%

Directors fees

 $              59,450

 $                37,857

 $              (21,593)

-36%

Employee benefit expenses

 $           132,023

 $              100,460

 $              (31,563)

-24%

Finance Cost

 $              70,107

 $                18,523

 $              (51,584)

-74%

Impairment cost

 $        12,842,007

 $        12,842,007

100%

Insurance

 $           121,899

 $              114,455

 $                (7,444)

-6%

Loss from Disposal of assets

 $                5,126

 $                80,414

 $                75,288

1469%

Maldon operating expenses

 $              451,361

 $              451,361

100%

Other operating expenses

 $           171,414

 $              133,192

 $              (38,222)

-22%

Shares based payments

 $           222,876

 $                   4,664

 $            (218,212)

-98%

Shares registry fees

 $              70,712

 $                36,299

 $              (34,413)

-49%

Earnings per share

Basic

 $                      (0.1)

 $                         (0.5)

 $                         (0.4)

400%

Diluted

 $                      (0.1)

 $                         (0.5)

 $                         (0.4)

400%

The operations of the company has not started in full fledge by the year 2015. As result there has been sale of just $24K during the year ended 2015. The income that has been earned by the company is majorly for the bank interest, tax credit that has been received by the company during the year. During the last year, the company has earned profit on sale of asset amounting to 20K.

Being there is no sale made by the company during the current as well in the last year, there has been no cost of sale incurred for the company.

Further from the perspective of expenses for the company, there has been around 1210% increase in the expenses for the company during the year. This increase is majorly driven by additional impairment of development cost incurred during the year amounting to $12 million. This impairment has been done for the additional exploration and development cost that the management of the company has incurred in the last years. During the current year, the company has incurred losses on account of disposal of assets. In the last year, the company gained on sale of assets which has been converted into losses in the current year. The company during the year has made considerable expenses on legal and consultancy of the company in the form of auditor’s fees, accounting and taxation services, Consultancy fees, Company secretarial fees etc. On the other hand, the employee benefit expense of the company has increased by 24% in the current year as compared to the last year. Presently looking at the current position of the company, the company is making considerable expenditure on the development work and thus based on the same, this expenditure has been capitalised. Thus, only limited expense are been charged off in the profit and loss account. The share based payments expense of the company has reduced considerably. Based on the non market vesting conditions, the share based payments in the last year were significantly on a higher side as compared to the current year.

The earnings per share of the company being dependent on the profit of the company during the period is also get impacted by the above increase in expenses. The basic and diluted earnings per share of the company have decreased by 400% during the year. This decrease is majorly on account of high impairment cost booked during the year amounting to $12 million.

Cash Flow Analysis of the company

The cash flow of the company provides breakup of the cash generated in the company from different sources. The sources of cash generated in the company are bifurcated majorly into three main line items which include:

  • Cash flow generated from operating activities
  • Cash flow generated from investment activities
  • Cash flow generated from financing activities

The cash flow movement of A1 Consolidated Gold Limited for the year 2015 and 2014 are as follows:

Particular

2014

2015

Change

% Change

Cash Flows From Operating Activities

Payment made to suppliers

 $           (704,673)

 $           (954,554)

 $           (249,881)

35%

Interest received

 $                33,578

 $                11,145

 $             (22,433)

-67%

Finance Cost

 $                (4,731)

 $                (4,925)

 $                   (194)

4%

Net cash provided by operating activities

 $           (675,826)

 $           (948,334)

 $           (272,508)

40%

Cash Flows From Investing Activities

Investments in property, plant, and equipment

 $       (3,840,848)

 $       (1,297,550)

 $          2,543,298

-66%

Acquisitions, net

Purchases of investments

 $           (225,233)

 $           (225,233)

100%

Sales/Maturities of investments

 $             109,000

 $           (519,724)

 $           (628,724)

-577%

Purchases of intangibles

 $             (41,567)

 $             (11,717)

 $                29,850

-72%

Sales of intangibles

 $                45,963

 $             (45,963)

-100%

Other investing activities

 $                41,567

 $                11,797

 $             (29,770)

-72%

Net cash used for investing activities

 $       (3,685,885)

 $       (2,042,427)

 $          1,643,458

-45%

Cash Flows From Financing Activities

Debt issued

 $                54,933

 $             494,464

 $             439,531

800%

Debt repayment

 $             (54,352)

 $           (124,678)

 $             (70,326)

129%

Common stock issued

 $          3,744,897

 $          2,498,025

 $       (1,246,872)

-33%

Other financing activities

 $             (71,992)

 $          1,904,294

 $          1,976,286

-2745%

Net cash provided by (used for) financing activities

 $          3,673,486

 $          4,772,105

 $          1,098,619

30%

The cash flow from operating activities is negative. The movement is majorly contributed by payment made to the supplier. The cash outflow in this case has increased considerably by 40% in the current year as compared to the last year.  From the perspective of cash flow from investment activities, the same has turned negative as well. This movement is majorly driven by investment in fixed assets majorly property, plant and equipment by the company in the current year. The acquisition made by the company in the current year has decreased by 66%. The company further during the year made certain investment worth %744 K. As result of these operations, the cash flow from investment activities has turned negative and the cash outflow in the current year has decreased by 45% due to reduction in the purchase of fixed assets.

The overall cash requirement of the company is meet out by the cash generated from financing activity of the company. The company during the year has issued additional shares for $2.5 million to meet out the day to day cash requirements of the company. Further the company took additional debt from the market with some repayment in the year. This debt so raised will be backed by additional interest cost for the company. The company on the other hand has issued convertible notes in the market and acquired cash worth $2.4 million. As result of all these acts, the cash flow from financing activities of the company turned positive and increased by 30% during the current year.

Review of shareholders equity of the company

This section is being used by the management to provide information about the shareholders wealth which has been contributed by shares issued by the company, retained earnings and other reserves that has been kept in by the company to keep a hold on the unforeseen conditions.

The movement of shareholders equity section in the last two years are as follows:

Particular  (Amount in thousands)

Contributed equity

Retained earnings

Payment reserves

Option premium on convertibles notes

Total equity

Balance as on 1st July 2013

        30,928,204

       (3,226,751)

              1,990,806

      29,692,259

Profit and (loss) during the period ended 30th June 2014

          (997,491)

         (997,491)

Contribution to equity

          4,350,990

        4,350,990

Share based payments

                 222,876

           222,876

                     -  

Balance as on 30th June 2014

        35,279,194

       (4,224,242)

              2,213,682

      33,268,634

Profit and (loss) during the period ended 30th June 2015

     (14,071,900)

    (14,071,900)

Contribution to equity

          2,458,852

        2,458,852

Issue of ordinary shares

                     -  

Share based payments

         (1,239,596)

              1,239,596

                     -  

Issue of convertible shares

          66,853

             66,853

Share based expenses

                     4,664

               4,664

Share based payments issued on Maldon acquisition

          6,108,218

              1,357,382

        7,465,600

Share based payments - convertible notes

                 571,428

           571,428

Balance as on 30th June 2015

        42,606,668

     (18,296,142)

              5,386,752

          66,853

      29,764,131

The company from the last two years has been incurring huge loses. The percentage of losses earned in the current year has crossed 1200% which is relatively on a higher side. But being the company is in its initial stages where they are planning to sustain in the market, they are making considerable expenses on the development cost. As result during the year the company has moved $12 million as impairment expenses in the books which has increased its accumulated losses in multiple folds. The company in both the years has issues shares to the public, in order to meet out the day to day cash flow requirement of the company. The shares based payments of the company have increased during the year. This is majorly on account of issue of convertible notes and Maldon acquisition.

As result of the increase in share capital of the company, there has been considerable increase in the shares of the company. The movement of the numbers of shares within the company has been reflected in the below table.

Particular  (in thousands)

Number of shares

Shares held by the company at the period ended 30th June 2013

$138,208,921

Shares issued by the company during the year

$38,474,601

Shares held by the company at the period ended 30th June 2014

$176,683,522

Shares issued by the company during the year

$269,672,743

Shares held by the company at the period ended 30th June 2015

$446,356,265

Conclusion

A1 Consolidated Gold Limited has been set up with the major aim of acquiring 100% ownership in the A1 gold project. The shares of the company got listed in the Australian stock exchange in the year 2012.  It has been less than 4 years for the company to come up in production, it has currently focused on the development work which will provide benefit to the company in long run. The company does not have any income from its operational activities. Presently they are incurring expenses which have been marked as losses in the books. During the year the company has moved $12 million as impairment expenses in the books which has increased its accumulated losses in multiple folds. The company in both the years has issues shares to the public, in order to meet out the day to day cash flow requirement of the company. Considering the business nature of the company, it is evident that the company have a prosperous future awaited and they are expected to grow in long run.

References

A1 Consolidated Gold Limited, 2015, Annual report of the company, Viewed on 25th May 2016, https://a1consolidated.com.au/images/uploads/Annual_Report_30_June_2015.pdf

A1 Consolidated Gold Limited, Basic background of the company, Viewed on 25th May 2016, https://a1consolidated.com.au/

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