RTG RTG Mining Inc

PERTH, Western Australia, Sept. 28, 2012 /CNW/ -

MANAGEMENT DISCUSSION AND ANALYSIS ("MD&A") 

PERIOD ENDED JUNE 30, 2012

(All figures are in US dollars unless otherwise indicated and the effective date of this MD&A is September 28, 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. Ratel Group was incorporated on October 18, 2010, and formed a consolidated group on December 17, 2010, hence the prior year comparatives show the results for the period from incorporation.  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 September 28, 2012 and should be read in conjunction with the interim unaudited financial statements of the Company for the period ended 31 March 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.

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 key personnel; and the ability to access capital markets.

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

Background and Review of Operations

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

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

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.

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 the June 2011 quarter, SML commenced the construction of a Heap Leach mining development at the Mkushi Copper Project with $0.411M capitalised in the 2011 year. During the June 2012 quarter the planned Heap Leach development was finalised and irrigation commenced, which is expected to continue through to at least the end of the calendar year. During the June 2012 quarter 17,595 tonnes of ore was crushed and loaded onto the pad for leaching.  Bacteria were introduced into the heap at differing stages during loading of the ore. Production and irrigation of the ore pile with sulphuric acid solution commenced in late June. Growth of bacteria on the mine site continues and is monitored continually. Furthermore, during the quarter two ground water monitoring boreholes (environmental purposes) were 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 periodically and analysed accordingly. All analyses are being carried out by the University of Zambia.

During the quarter construction of a portion of the mines work buildings commenced. A water borehole was drilled for the Mkushi Basic School and a hand pump was fitted to this borehole in early July.

On March 21, 2012 a generic default notice was issued by the recently elected Government. This was received via the local Zambian newspapers.  The 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. Written submissions concerning the default notice have been made to the MOM together with various joint meetings with the Association of Zambian Mineral Exploration Companies ("AZMEC") and with the MOM having taken place from March to present. These meetings are ongoing.  Ratel Group and its joint venture partners believe the basis for the default is incorrect and are in discussions with the Zambian Government with regards to the Mining Licence ("ML"), related matters and the current development schedule and production activity. On 28 August 2012 the Director of Mines advised that a presentation was required to MOM.

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 will be heard on October 17, 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.

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 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"). A maiden resource was announced by CGA during the December 2009 quarter comprising an indicated resource of 3,658,000 tonnes at a grade of 4.4g/t for 520,000 ounces of gold and an inferred resource of 790,200 tonnes at a grade of 3.8g/t for 97,600 ounces of gold.

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 drilling campaign at the Segilola Gold Project was carried out from July to December 2011 where an additional 36 holes 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 400m from the open southern end of the previous drilling programme. The results were positive and indicate that the resource continues along strike to the south and is open ended at depth. 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 presence of villages.  Professional survey consultants 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 disputes 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 and 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.  The matter has been adjourned to October 4, 2012 to hear arguments on the point of costs. 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.

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.

Consolidated Results

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

Profit and Loss

Consolidated Cash Flows from Operating Activities

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

Consolidated Balance Sheet

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

Selected Annual Data

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

*Ratel Group was incorporated on October 18, 2010 hence the 2011 figures represent the results for the period from incorporation to 30 June 2011.

Fluctuations in the annual financial position over the period from incorporation to June 2012 are predominantly due to the following factors:

• the listing of the Company on the TSX and the initial public offering raising C$12M (gross).
  
  
  
  
• A notional share option expense of $1.224M recorded in the 2011 year.
  
  
  
  
• A drilling programme at the Segilola Gold Project which commenced in the June 2011 quarter and was finalised in the December 2011 quarter.
  
  
  
  
• The commencement of a Heap Leach Development at the Mkushi Copper Project in the June 2011 quarter which has continued throughout the 2011-12 year. These costs have been capitalised to the balance sheet.
  
  
  
  
• The payment of a $400,000 signature bonus to TML in March 2011.
  
  
  
  
• Legal costs for the ongoing disputes related to the termination of the CAML Ghana acquisition and dispute with the joint venture partners at the Segilola Gold Project.

Selected Quarterly Data

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

Ratel Group was incorporated on October 18, 2010. On December 17, 2010, Ratel Group acquired 100% of CGX and Zambian Mining, and thereby acquired their interests in the Segilola Gold Project and Mkushi Copper Project, respectively hence there are no comparatives prior to the December 2010 quarter.

Quarterly and Year to Date Results

Three Months Ended June 30, 2012 as Compared to the Three Months Ended March 31, 2012 and the Three Months Ended June 30, 2011

The Company's result for the three months to June 30, 2012 was a net loss of $1.026M, as compared to a net loss of $1.049M for the previous quarter, and $1.638M for the prior year comparative period, a decrease of $0.023M or 2% from the previous quarter and $0.612M or 37% from the prior year. The decrease from the prior quarter is largely attributable to the decrease in exploration and drilling expenses, as discussed further below. The decrease from the prior year quarter relates to a decrease in exploration and evaluation expenditure and a decrease in administration expenditure. The Company's activities for the quarter have been focussed on the development of the Heap Leachat the Mkushi Copper Project in Zambia, which was completed in June 2012 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

As discussed above, the Company does not have any producing assets hence earns only minimal interest income on its cash balances.  The Company earned interest income of $162 for the June quarter as compared to $1k for the March 2012 quarter and $1k for the June 2011 quarter. A foreign exchange loss of $9k was recorded in the June 2012 quarter, as compared to foreign exchange loss of $7k in the March 2012 quarter and a loss of $12k for the June 2011 quarter. The foreign exchange movements relate predominantly to fluctuations of the USD against the Zambian Kwacha.

Expenses

Expenses for the June 2012 quarter were $1.026M as compared to $1.051M for the March 2012 quarter, a decrease of $0.025M or 2% and $1.639M for the June 2011 quarter, a decrease of $0.613M or 37%. The expenditure between the June and March quarters has remained relatively steady as there has been no significant drilling or further exploration programmes undertaken during the two periods. The decrease from the prior year quarter relates predominantly to a decrease in exploration and evaluation expenditure from $0.837M in the June 2011 quarter to $0.391M in the June 2012 quarter, a decrease of $0.446M or 47% and a decrease in administration expense from $0.713M in the June 2011 quarter to $0.627M in the June 2012 quarter, as discussed further below.

Specific items discussed below:

Exploration and evaluation costs written off

The Company incurred exploration and evaluation costs of $0.391M during the current quarter as compared to $0.623M in the prior quarter, a decrease of $0.232M or 38% and $0.837M in the June 2011 quarter, a decrease of $0.446M or 47%. The decrease from the March quarter is largely due to minimal drilling activities being undertaken in the current quarter. A drilling programme at the Segilola Gold Project was finalised in December 2011, with final reporting and assay expenditure being incurred in the March 2012 quarter. The main areas of variance between the June and March quarters were a decrease in travel expenditure of $0.086M to $0.036M. In the June 2011 quarter, a drilling programme was underway at the Segilola Gold Project. This programme was finalised in December 2011 hence there was minimal expenditure in the current quarter. The expenditure in prior year quarter relates predominantly to $0.289M of mobilisation, customs duties and drilling costs. In addition other costs of $0.213M were incurred in the prior year quarter, of which $0.112M related to the write off of unrecoverable Zambian VAT.  Employee costs have reduced between the periods with $0.160M being incurred in the current quarter as compared to $0.239M in the prior year quarter.

Administrative expenses

The Company incurred administrative costs of $0.627M during the June 2012 quarter, as compared with $0.550M in the prior quarter, an increase of $0.077M or 14% and $0.713M in the June 2011 quarter, a decrease of $0.86M or 14%. The increase from the March 2012 quarter relates largely to an accrual for audit fees in the current 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 June 2011 quarter largely relates to a notional non-cash employee share option expense of $0.276M in the June 2011.

Business development expenditure

Nil business development expenditure was incurred in the June 2012 quarter as compared to $0.028M in the prior quarter and $0.018M in the June 2011 quarter. Expenditure in the March 2012 quarter relates predominantly to travel costs for attendance at a mining conference.

Capitalised development expenditure

The Heap Leach development 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 $0.191M capitalised in the June 2012 quarter as compared to $0.465M in the March 2012 quarter and $0.411M 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 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.

During the March 2012 quarter, expenditure was related largely to earthworks activities including stock piling and loading of the ore on to the heap leach pad ($0.233M), construction on the heap leach pad, ponds, cementation tanks and bacterial generation facility, purchase of the HDPE liners ($0.093M) and $0.019M in relation to the purchase of leach materials. The heap leach development began in the June 2011 quarter. The key expenditure items in the prior year were $0.080M incurred to purchase electricity transformers, $0.130M incurred in relation to the commencement of earthmoving and $0.040M on the HDPE liners.

Year to Date Results

Year to date from 1 July 2011 to 30 June 2012

The Company was incorporated on 18 October 2010, hence the prior year comparatives do not reflect an equal twelve month period of activities.

The Company's result for the year ended June 30, 2012 was a net loss of $4.847M as compared to a net loss of $4.361M in the prior year, an increased loss of $0.486M or 11%. The increased loss in the current year period relates largely to exploration expenditure on the drilling campaign at the Segilola Gold Project, which commenced in the June 2011 quarter and was finalised in December 2011, with a survey of the drill boreholes together with a revised mining optimisation model completed in March 2012. In the prior year, exploration expenditure related largely to the Obuasi project held by CAML Ghana. The contract to acquire CAML Ghana was terminated in November 2011 due to Ghanaian Ministerial Approval not being obtained. In addition, a notional, non-cash share option expense of $1.224M was recorded in the 2011 financial year. The Company expenses all of its exploration costs to the profit and loss.

Revenues and Foreign Exchange Gains/Losses

As discussed above, the Company does not have any producing assets hence earns only minimal interest revenue.  The Company earned interest revenue of $4k for the current year as compared to $7k in the prior year. A foreign exchange loss of $0.073M was recorded in the 12 months to 30 June 2012, related largely to the weakening of the US dollar during the period and the impact on expenses recorded in local currencies Australian Dollar, Zambian Kwacha and Nigerian Naira. A foreign exchange gain of $0.025M was recorded from the date of incorporation of 18 October 2010 to 30 June 2011. The 2011 gain relates mainly to foreign exchange gain on the funds from the C$10M capital raising in January 2011, which were converted to USD in February 2011.

Expenses

Expenses for the current year ended 30 June 2012 amounted to $4.851M as compared to $4.392M in the prior year, an increase of $0.459M or 10%. The increase largely relates to exploration and evaluation expenditure of $2.755M incurred in the June 2012 compared to $2.332M in the June 2011 period, an increase of $0.423M or 18%.  Exploration costs written off are further discussed below. The Company expenses all of it exploration costs to the profit and loss. Expenditure on the heap leach development at the Mkushi Copper Project has been capitalised to the balance sheet, in accordance with the Company's accounting policies. Heap Leach expenditure capitalised for the year to date was $1.648M as compared to $0.411M for the prior year. The Heap Leach development began construction in the June 2011 quarter with the major works being undertaken in the 2012 year. The Company was incorporated on 18 October 2010, hence the prior year comparatives do not reflect an equal twelve month period of activities.

Specific items discussed below:

Exploration costs written off

The Company incurred exploration and evaluation costs of $2.755M during the current year as compared to $2.332M in the prior year, an increase of $0.423M or 18%. The current year expenditure relates predominantly to the drilling campaign undertaken at the Segilola Gold Project, which was completed in December 2011 and comprised of 36 holes totaling 3,704m. A survey of the drill boreholes, together with a revised mining optimisation model was completed in the March 2012 quarter. Employee costs for the current year were $0.762M as compared to $0.542M in the prior year, an increase of $0.220M or 41%. The increase is due to the prior year comparatives not being a full twelve months. Travel expenses of $0.345M were incurred in the current year period as compared to $0.134M in the prior year period, an increase of $0.211M or 288%, with the increase being largely related to the prior year comparative reflecting only a partial year.. Expenditure in the prior year period also included a $0.400M signature bonus paid in relation to the Segilola Gold Project in return for an extension of time to exercise the third option under the joint venture agreement as well as $0.259M of exploration expenditure incurred in relation to the Obuasi project held by CAML Ghana. The contract to acquire CAML Ghana was terminated in November 2011 due to Ghanaian Ministerial Approval not being obtained.

Administrative expenses

The Company incurred administrative costs of $1.946M during the current year and are comparable to $2.060M of costs incurred in the prior year. In the 2011 year a notional share option expense of $1.224M recorded (2012: nil) along with expenses of $0.155M incurred in relation to the public listing of the Company in January 2011. Legal expenses of $0.765M were incurred in the current year, largely related to the restructure of the Segilola Gold Project and the termination of the CAML Ghana acquisition agreement as compared to $0.096M in the prior year. The current year's expense also includes three quarterly payments of the Company's serviced office and management fees totalling $0.307M in the current year as compared to one quarter's payment totalling $0.096M in the prior year comparative period. In addition, a fulltime CEO was appointed in November 2011 to replace the previous part-time CEO.

Capitalised Development expenditure

Heap Leach expenditure capitalised for the year was $1.647M as compared to $0.411M for the prior year. The Heap Leach development began construction in the June 2011 quarter with the major works being undertaken in the 2012 year. The planned development was finalised in the June 2012 quarter, with irrigation of the mineralised ore beginning in June 2012, which is expected to continue until at least the end of the calendar year. The key items of expenditure during the year were$0.473M in relation to earthmoving which includes the hire of earthmoving equipment and electricity transformers to power the crusher. The earthmoving equipment was utilized to construct the crusher, prepare the ponds and pads, load material on to the crusher and load the crushed material onto the heap pad. $0.300M was spent in relation to the importation of the HDPE liners and pipework for irrigation and aeration of the liner, $0.263M spent in relation to hire of the crushing equipment and processing of the ore and $0.174M spent in relation to salary and wages. $0.106M of fuel costs were incurred in relation to the earthmoving and dewatering, and $0.076M in relation to the dewatering pumps.

Liquidity and Capital Resources 

As at June 30 2012, the Company had cash and cash equivalents of $0.145M. Ratel Group was incorporated on October 18 2010, and formed a consolidated group with Zambian Mining and CGX on December 17, 2010, therefore there is no available comparative information prior to the December 2010 quarter. 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, post January 7, 2011 Ratel Group is no longer controlled by Ratel Gold (now SAU).

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 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 Mining Limited. 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

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 Ministerial 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.

Transactions between the group and its related entities

During the quarter ended June 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 $0.391M; and
  
  
  
  
• 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 $0.244M;

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 and $0.410M (excluding GST) in the 2012 financial year.

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.

Outstanding Share Data

As at September 26, 2012, the Company had 150,000,000 common shares outstanding and 12,000,000 options, exercisable at C$0.25 per share.

Subsequent Events

There have been no significant events subsequent to balance date.

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 June, 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 June 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;
• Continuing irrigation and production at the heap leach operation at the Mkushi Copper Project;
• Resolution of the default notice issued on the Mkushi Mining Licence; and
• Implementation of a further pre-production stage in order to further exploit the Mkushi Copper Project.

SOURCE Ratel Group Limited