COMMODITIES ARE THE FUTURE

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1 ANNUAL REPORT 2014

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3 ANNUAL REPORT 2014

4 COMMODITIES ARE THE FUTURE CORPORATE BODIES (AS OF 31/12/2014) EXECUTIVE BOARD SUPERVISORY BOARD DR. THOMAS GUTSCHLAG DR. TITUS GEBEL (until 31/12/2014) DR. JÖRG REICHERT (since 01/01/2015) MARTIN BILLHARDT (Chairman) PROF. DR. GREGOR BORG WOLFGANG SEYBOLD DEUTSCHE ROHSTOFF GROUP AT A GLANCE (Annual financial statements in accordance with the German Commercial Code (HGB) / Consolidated Financial Statements) IN TEUR 31 / 12 / / 12 / / 12 / 2012 Sales revenue 22, Result from ordinary activities Net profit (after minority interests) Cash and cash equivalents Shareholder s equity Equity ratio in % 46,4 29,6 77,1 Number of shares in thousands (DRAG) Market capitalisation A2

5 SHARE DETAILS (AS OF 31/12/2014) Total number of shares 5,322,147 Amount of share capital 5,322, EUR Stock exchange / trading exchange XETRA / Frankfurt, Berlin, Düsseldorf, Stuttgart ISIN / WKN DE000A0XYG76 / A0XYG7 Stock exchange segment Entry Standard, member of the Performance Index Top 30, DAX Int. Mid 100 Index and the Rhine-Neckar Index Designated Sponsor ICF Kursmakler AG SHAREHOLDER STRUCTURE Management 18.2 % BASF-VC 6.0 % Other investors 75.8 % FINANCIAL CALENDAR 2014 Financial Statement Press Conference 02/06/2015 Release 2014 Group results 02/06/2015 Annual General Meeting /07/2015 Release of 2015 Half Year Group results (Group interim financial report) by 30/09/2015 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 3

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7 CONTENTS 6 Letter to the Shareholders COMPANIES 8 Developments in the commodities market and outlook 16 Project portfolio and overview of resources 20 Oil and Gas 30 Metals 36 Investor & Public Relations ANNUAL ACCOUNTS 40 Group management report 54 Consolidated balance sheet 56 Consolidated income statement 57 Consolidated cash flow statement 58 Consolidated statement of changes in equity 60 Consolidated statement of changes in fixed assets 64 Notes to the consolidated financial statements 78 Report by the Supervisory Board 80 Audit opinion 82 Contact details, disclaimer, publisher ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 5

8 LETTER TO THE SHAREHOLDERS DEAR DEUTSCHE ROHSTOFF AG SHAREHOLDERS, DEAR SIR OR MADAM, On May 27, 2010 Deutsche Rohstoff shares were traded for the first time in the Entry Standard on the Frankfurt Stock Exchange. The closing price on that first day of trading was EUR Nearly five years later, on April 15, 2015, shares closed at EUR This amounts to an increase of 140 % over five years or 28 % per annum. A good result. Over the past five years our shares performed better than almost every other comparable index. The S&P TSX Global Mining Index (-30.2 %), the S&P Commodity DR. THOMAS GUTSCHLAG, CEO, DEUTSCHE ROHSTOFF AG Producers Oil & Gas Exploration & Production Index (+4.5 %) and even the DAX ( %) have seen a markedly lower increase or have even lost value. Individual performance is of course highly dependent on the time the shares are purchased. Investors who take a long-term view and hold our shares over a longer period will however be delighted by the positive growth. We are convinced that we are on the right path and we will continue to do so going forward. The last year brought a significant change for our company. With the sale of most of our US oil and gas assets in May and the Wolfram Camp Mine in September we have divested both of our producing projects. The sale of our US activities took place because we were able to realise a highly attractive sales price, due to very successful drill results. On the other hand, we sold Wolfram Camp because the mine did not meet our operational hurdles and sustainable improvements were not foreseeable. However, the second half of 2014 brought sharply falling commodity prices. Crude oil, a key industry commodity, practically halved its price during that period. Indus- trial metal prices also came under pressure. Tungsten APT lost over 20 % during the course of the year, tin lost 10 % and key rare earths lost between 20 % and 30 %. At the start of 2015 this trend continued, although to a lesser degree. The prices for commodity projects and the share prices of many commodity companies also came under significant pressure and most of them experienced great difficulties financing their projects. This is not a bad starting position for Deutsche Rohstoff. From the middle of the year we commenced an intensive search for potential acquisition targets. We took our time and were patient in our hunt for first class projects. At the beginning of the year we were able to announce the first successful deals initially in the USA and shortly afterwards in Australia. The time was well spent. The value of our current project portfolio is higher than ever before, and we are certain that we will be able to expand it further. Sooner or later we will reap the benefits. The sale of the Tekton project had a highly positive impact on the income statement and consolidated balance sheet. Consolidated sales increased to EUR 22.9m. Other operating income amounted to EUR 110.7m. 6

9 This figure includes EUR m from the sale of Tekton. Exchange rate movements also had a positive effect on the results: Exchange rate differences affecting net income amounting to EUR 2.44m and exchange rate differences not affecting net income amounting to EUR 10.81m were posted. The consolidated result amounted to EUR 54.0m and is therefore significantly above the forecast set out in the half-yearly financial statement. Once again the reason are favourable changes of the EUR / USD exchange rate. At year end we made several non-scheduled write-downs to honour the price decline of industrial metals. Affected were the projects of Tin International, Ceritech and Devonian Metals. The remaining balance-sheet related risks for these companies are very low. At the end of 2014, cash and cash equivalents amounting to EUR 103.5m were available to us representing 80 % of our assets. The equity ratio jumped from almost 30 % to over 46 %. We were able to reduce our current liabilities from some EUR 90m last year to EUR 67.8m. At the beginning of the year we reduced our bond debt by a further EUR 5.6m through a buyback programme. At this year s Annual Generals Meeting we will propose a dividend payment of EUR 0.50 for 2014 to our shareholders. This equates to a dividend yield of some 3.0 % and a fivefold increase in the dividend payment per share compared to In 2014 due to the lack of retained earnings shown in the separate financial statement of Deutsche Rohstoff we exercised a share buyback option totalling EUR 5m instead of paying a dividend. This means that Deutsche Rohstoff has offered its shareholders an appropriate share in the success of the company for the third consecutive year. We intend to continue this strategy in future. The company also saw a change in management at the end of 2014.Titus Gebel, co-founder and CEO of the company, stepped down for personal reasons. He has made a highly valuable contribution to the company and will continue to support us in an advisory capacity. As the new Executive Board team, we intend to continue with the established course and make the company even larger and stronger. Since the company was founded we have established ourselves on the global commodities market. Over the coming years we will further develop this position. DR. JÖRG REICHERT, CTO, DEUTSCHE ROHSTOFF AG COMMODITIES ARE THE FUTURE. COME WITH US. Glückauf! as the German miner s good luck call goes from Heidelberg, Dr. Thomas Gutschlag Dr. Jörg Reichert Chief Executive Officer, Chief Technology Officer, CEO CTO ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 7

10 DEVELOPMENTS IN THE COMMODITIES MARKET THE COMMODITY MARKET IN 2014 AND OUTLOOK Since the beginning of 2014 the general weakness in commodity prices has continued. The only exception to this, in terms of the commodities relevant to Deutsche Rohstoff, was zinc. Following a rally at the beginning of the year, zinc almost completely lost its gains in the second half of 2014 (see graph below). The gold price remained relatively stable, trading 4 % lower than at the start of Crude oil experienced the biggest drop, temporarily losing over 50 % of its value, followed by tin (-28 %) and copper (-17 %). The drop in commodity prices from mid-2014 can mainly be attributed to the strength of the US Dollar. Consequently, not only the Euro (-21 %) but also the currencies of the classic mining countries Australia (-12 %) and Canada (-10 %) significantly lost value against the Greenback. In view of the strong economic data from the USA many analysts are forecasting a rise in the US base interest rate in the USD PRICE INDEX FOR SELECTED COMMODITIES (JAN 2014 = 100 %) 120% Oil Gold Copper Tin Zinc Lead 100% 80% 60% 40% Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 Source: 8

11 second half of the year, which is likely to further boost the value of the Dollar. This prospect once again makes both, Canada and Australia an attractive proposition for Deutsche Rohstoff, because most of the costs of mining extraction are paid in the local currency, which means that lower commodity prices can be partly compensated. COMMODITY PRICES AS OF APRIL 15, 2015 Oil WTI $57.07 / Barrel Gold $1, / Ounce Copper $6, / t Tin $15, / t Zinc $2, / t Lead $1, / t EXCHANGE RATES AS OF APRIL 15, US-Dollar Euro Canadian Dollar Australian Dollar RELATIVE PERFORMANCE OF KEY CURRENCIES COMPARED TO THE US DOLLAR (JAN 2014 = 100 %) 120% Euro Australian Dollar Canadian Dollar 100% 80% 60% 40% Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 Source: / forex-trading-tools / forex-history / index.html ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 9

12 DEVELOPMENTS IN THE COMMODITIES MARKET CRUDE OIL WTI ( Western Texas Intermediate ) crude oil reached its highest price of USD per barrel during the reporting period on June 20, It ended the year with a loss of 50 % at its lowest level of USD per barrel. The reasons for this are primarily supply side related: OPEC production is significantly higher than demand, with Saudi Arabia and Iraq reaching record levels. US crude oil reserves remain at consistently high levels. The USA continues to record increasing production rates as a result of the shale oil boom during the last year. The impact that unconventional production has on the oil market is evidenced by the fact that global oil production has increased on average by 1.15m barrels per day since Over the same period, daily US production has increased by 0.93m barrels on average. This means that over 80 % of the increased is attributable to shale oil extraction in the USA (figures from the U.S. Department of Energy). On the demand side the International Energy Agency is forecasting an annual increase in demand of 1.3 % until Towards the end of the decade demand is expected to exceed 100m barrels per day. This means that over the mid to long term the growing demand will balance out the current oversupply situation and will therefore lead to prices above today s levels. US DRILLING ACTIVITIES AND OIL PRODUCTION US oil production in 1,000 barrel per day Amount of active rigs in the USA 10,000 4-weekly average US oil production Baker Hughes U.S. Oil Rig Count 2,000 8,000 1,500 6,000 1,000 4, , Source: IEA and Baker Hughes 10

13 Over the short term a significant price increase can only be achieved by reducing supply. In terms of US oil production Deutsche Rohstoff is forecasting a production decline during the second half of the year which should bolster the oil price. The reason for this is the drop in number of active drill rigs from 1,609 to 760 since September 2014 (figures supplied by Baker Hughes). With the currently limited drilling activities, the US oil industry will not be in a position to replace the decline in production from the existing wells with production from new wells. Due to the rather moderate price expectations in the short term, it should be assumed that the market restructuring process which is already underway will continue. By focussing on areas with high production rates and low extraction costs, Deutsche Rohstoff considers itself to be excellently positioned to generate attractive returns, even at current prices. Because the US oil industry reacts very rapidly to the oil price (see graph below) we leverage the current situation to acquire oilfields at favourable prices. US DRILLING ACTIVITIES IN CORRELATION WITH THE OIL PRICE WTI oil price in $ per barrel Amount of active rigs in the USA 150 WTI Spot Price Baker Hughes U.S. Oil Rig Count 2, , , Source: indexmundi.com, monthly average prices ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 11

14 DEVELOPMENTS IN THE COMMODITIES MARKET COPPER Copper, together with iron and aluminium, is one of the most important metal commodities to our modern society. This metal can be used in an exceptionally wide range of applications and there is virtually no substitute for it. The main customers are electrical engineering, mechanical engineering, transportation and the construction. According to the International Copper Study Group (ICSG) 22.4m tonnes of the red metal were used in With a share of about 45 %, China is by far the largest consumer and thus one of the greatest factors influencing the copper market. Since achieving the peak of almost USD 10,000 per tonne in 2011, this commodity has lost about 40 % of its value. This is noteworthy because, according to the ISCG, a slight deficit in the supply of copper has existed since 2010 and a supply-side surplus of 390,000 t is only to be expected again in Exaggerated market speculation during 2011 could be the reason for this. In comparison to January 2005, the copper price is still trading at a 87 % premium. The forecasts issued by the banks and the research institutes relating to the future price trend for copper are highly disparate. On the one hand the Commerzbank is forecasting a price increase for the red metal COPPER PRICE SINCE 2000 Price US $ per tonne 10,000 8,000 6,000 4,000 2,000 0 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Source: indexmundi.com, monthly average prices 12

15 of up to USD 6,800 per tonne in the second quarter of The reason cited for this is the reduction of investments made by the mining companies in recent months. On the other hand the Bank of Montreal (BMO) does not expect the copper price to increase substantially because it foresees neither a notable reduction in supply nor any major changes in demand. Deutsche Rohstoff is anticipating that the reduction of investments cited by the Commerzbank will only become apparent towards the end of the decade in the form of a structural supply deficit. Currently, there are very limited exploration activities for new deposits, which could replace diminishing reserves of the existing mines in several years time. A significant price increase is then likely to occur. Over the short to medium term Deutsche Rohstoff only expects a price under the following scenarios: An artificial reduction in supply by limiting production volumes: This measure does not appear very likely at present. It is more likely that the major producers will respond to declining pricese by increasing their output through short-term measures (e.g. by temporarily mining above average resource grades). A similar situation is currently occurring in the iron ore sector. An increase in demand: As China consumes almost half of global copper production the country plays a key role. Since 1995 the Asian country has recorded an average annual increase in copper consumption of 5 %. Over the past years this increase was significantly driven by state-controlled infrastructure projects which, according to the Chinese National Development and Reform Commission (NDRC), have frequently been developed beyond the scope of demand. The commission estimates the value of such ineffective investments at USD 6.8 trillions since Going forward it is very likely that the Chinese government will shift its focus away from infrastructure projects, which will curb the growth rate in copper demand. According to information from BMO copper demand would have to grow 10 % per annum in order to create a supply deficit in the market by This appears improbable. India is frequently seen as the next China, which could trigger a new commodity boom. In view of the country s huge population this does seem likely. However, political and social barriers suggest that the course of development will take longer than in China. In summary it can be said that Deutsche Rohstoff is currently not expecting copper prices to immediately enter into a new bull market. It is more likely that the price will continue to move sideways over the coming years. From the company s perspective it therefore makes sense to utilise this time to acquire attractive projects at low cost. Deposits with a high volume potential are the main focus. They are particularly attractive to large mining companies as takeover targets. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 13

16 DEVELOPMENTS IN THE COMMODITIES MARKET GOLD Since the sale of the Georgetown Goldmine in 2012 Deutsche Rohstoff has no longer been an active gold producer. However, the company still values this commodity as an attractive target for future investments. Considering historic gold prices (see graph below), the company s exit from gold production occurred at a very advantageous time, when the troy ounce was trading at USD 1,600. Since September 2012 the gold price has experienced a continuous downward trend one that has however significantly slowed during the reporting period. Since that time, the gold price has hovered around the USD 1,200 per ounce level with comparatively little volatility. The relative weakness of the Australian and Canadian Dollar compared to the US Dollar before and after the last boom in commodity prices is remarkable. The gold price in AUD has recovered by 8.7 % since January 2014 (compared to -5.3 % in USD) and, at AUD 1,530 per ounce, is just 20 % below its all-time high from September GOLD PRICE SINCE 2000 Pice per ounce American Dollar Australian Dollar Canadian Dollar Mar 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Source: indexmundi.com, monthly average prices 14

17 MELTING PREPARATIONS FOR RHINE GOLD The majority of market observers believe that both the Australian and Canadian central banks are likely to cut their rates over the coming months, a move that would place additional pressure on the national currencies. This makes (gold) projects increasingly attractive in both of these countries. In view of the low interest rate policies of the key global central banks, the generally high levels of debt of western countries and the continuously growing demand for gold from Asian countries, the environment for gold investments remains favourable in the opinion of the Commerzbank. The bank expects the gold price to reach USD 1,250 by the end of the year. Deutsche Rohstoff intends to explore further possibilities in the gold sector and to re-enter this market again once it has identified favourable opportunities. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 15

18 PROJECT PORTFOLIO AND OVERVIEW OF RESOURCES PROJECT PORTFOLIO During 2014 several changes took place in the Deutsche Rohstoff portfolio mix which had an effect on the company s resource base. With the sale of Tekton Energy (72.15 % DRAG share) to Extraction Oil & Gas the associated reserves and resources were taken out of Deutsche Rohstoff s resource base. For 2015 it is intended to produce a new resource estimate for the remaining Magpie areas which now belong to Elster Oil & Gas (93.04 % DRAG share). Cub Creek Energy (74.00 % DRAG share) also intends to establish a resource estimate for its land package. As of April 15, 2015 the company already has acquired several promising tenements of a size similar to the former Tekton Energy acreage. These leases are located solely within the Wattenberg Field in Colorado, USA, which is very well known to us. Our share in Ceritech (formerly SES AG) increased to % on 31 / 12 / For economic reasons the Storkwitz license was surrendered and the company s focus was shifted completely towards the reprocessing technology of rare earths containing industrial waste. As a result of this the Storkwitz resource was written off. Deutsche Rohstoff s presence in the tin sector remains constant with a % holding in Tin International. During the reporting period an inferred resource of 15,000 t of tin could been confirmed for the Sadisdorf license area. The resource estimate was carried out by the highly reputated Geology and Engineering firm CSA Global. With the sale of the Wolfram Camp Mine to Almonty Industries, Deutsche Rohstoff has acquired a % share in the company which is listed on the Toronto Stock Exchange. As a result of this deal Deutsche Rohstoff now indirectly owns a % stake in the Los Santos Mine (Spain), the Wolfram Camp Mine (Australia) and the Valtreixal Project (Spain). There were no changes relating to the Wrigley Project of Devonian Metals (47.00 % DRAG), for which Deutsche Rohstoff is searching a buyer together with Glencore International. Rhein Petroleum, in which the company maintains a % share, remains Deutsche Rohstoff s smallest interest in percentage terms. 16

19 OVERVIEW OF RESOURCES AS OF APRIL 15, 2015 PROJECT SHARE COMPANY COMMODITY UNIT RESOURCE CLASSIFICATION OIL AND GAS Rhine Trench and Bavaria Greater Wattenberg Project Northern Wattenberg Project % Rhein Petroleum Oil and Gas expected % Cub Creek Energy Oil and Gas expected % Cub Creek Energy Oil and Gas expected 2015 Magpie % Elster Oil & Gas Oil and Gas expected 2015 METALS Gottesberg % Tin International Tin Copper Geyer % Tin International Tin Copper t t t t Indicated Inferred Resources, JORC 3 Inferred Resources, JORC 3 Indicated Resources, JORC 3 Indicated Resources, JORC 3 Sadisdorf % Tin International Tin t Inferred Resources, JORC 3 Wolfram Camp % Almonty Industries Tungsten Molybdenum 445 t WO t WO t WO 3 89 t MoS t MoS t MoS 2 Proven Probable Reserves, NI , 5 Indicated Resources, NI , 5 Inferred Resources, NI , 5 Proven Probable Reserves, NI , 5 Indicated Resources, NI , 5 Inferred Resources, NI , 5 Los Santos % Almonty Industries Tungsten t WO t WO t WO 3 Proven Probable Reserves, NI , 6 Measured Indicated Resources, NI , 6 Inferred Resources, NI , 6 Valtreixal % Almonty Industries Tungsten Tin Wrigley % Devonian Metals Tin / Lead Zinc / Lead t WO t t t Inferred Resources, NI , 7 Inferred Resources, NI , 7 Indicated Resources, NI Inferred Resources, NI Kalman % Hammer Metals Copper t Inferred Resources, JORC 3 Overlander % Hammer Metals Copper t Indicated Inferred Resources, JORC 3 1 Reserves are shown in barrel oil equivalent, gas (cubic feet) is converted to barrel oil equivalent according to industrial standards with a factor of 5, SPE-PRMS: Petroleum Resource Management System of the Society of Petroleum Engineers. 3 Australian Standard for the classification of Resources Joint Ore Reserves Committee (JORC) 4 Canadian Standard for the classification of Resources National Instrument As of June 30, 2013, measured Indicated Resources include Reserves 6 As of March 31, 2014, measured Indicated Resources include Reserves 7 As of August 31, 2014 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 17

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22 OIL AND GAS CUB CREEK ENERGY % DRAG SHARE (AS OF 31/12/2014) In June 2014, Deutsche Rohstoff co-founded another oil and gas company, Cub Creek Energy LLC (CCE), headquartered in Denver. Tekton s former Vice President of Engineering, Robert Gardner, and Vice President for Land & Business Development, Scott Bailey, are co-founders of Cub Creek Energy. Together with Dan Berberick, a highly experienced oil geologist in the target areas, they form the company s management team. Robert Gardner has assumed the role of President & CEO. Titus Gebel, Thomas Gutschlag and former President & CEO of Tekton Energy, Jerry Sommer, hold the remaining seats on the board for Deutsche Rohstoff AG. Earl Norris is available to Cub Creek in an advisory capacity with his wide-ranging experience as an oil geologist. With %, Deutsche Rohstoff AG holds the majority of the shares. The management team has acquired the remaining shares and will also have a primary involvement in the financing of the company. Business focus will be the US States Colorado (in particular the Wattenberg Field), Utah and North Dakota, since the management team has extensive operational experience in that region. During the second half of the reporting period the company evaluated a range of projects and reviewed several purchasing options for areas within the Wattenberg Field. As a result of the sharp decline in oil prices from USD 106 in June 2014 to less than USD 50 per barrel WTI in January 2015 the management is pursuing a strategy of only acquiring acreage that ensures good returns even at current oil price levels, and simultaneously requires no or very little financial obligations. This allows Cub Creek to retain the flexibility to react to future oil price fluctuations with low financial risk. During mid-january 2015, CCE was able to secure areas in the core segment of the Wattenberg Field, the so-called Northern Wattenberg Project, on which currently twelve horizontal wells are planned. The purchase price amounted to some USD 700,000. Because Cub Creek Energy is de- DRILL RODS FOR OIL AND GAS DEVELOPMENT 20

23 DRILL RIG IN THE WATTENBERG FIELD veloping these areas independently (as the operator) the development of the field is taking place exclusively in accordance with the plans of the management. The date on which drilling will commence is flexible and will be selected to correspond with the oil price trend. Current profitability analyses indicate that the acquired areas are attractive at a WTI price above USD 40 per barrel. The approval process for the twelve horizontal wells has already been initiated. In March 2015 Cub Creek concluded a joint development agreement with a private oil and gas producer for a further area in the core segment of the Wattenberg Field, the so-called Greater Wattenberg Project, which is located directly alongside the areas acquired in January. The leases cover an area of approx. 2,000 acres (8.1km 2 ) and are therefore of a similar extent to the core acreage of the successfully divested Tekton Energy. Cub Creek Energy did not need to make any advance payments for the agreement and the company will also develop these areas as an independent operator. The management plans to dirll up to 50 horizontal wells over the next three years. An application will shortly be made to obtain the required approvals. Similar to the acreage acquired in January Cub Creek expects economic viability of the Greater Wattenberg Project if the oil price remains above USD 40 per barrel WTI. In terms of drilling costs, CCE expects them to be significantly below the assumptions that were used in the profitability analyses. This is because of substantially reduced drilling activities in the USA due to a declining oil price leading to greater competition amongst the drilling companies. According to oilfield services company Baker Hughes, the number of active oil drilling rigs in the USA has more than halved dropping from its highest level of 1,609 in October 2014 to 760 in April ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 21

24 OIL AND GAS ELSTER OIL & GAS (FORMERLY TEKTON ENERGY) % DRAG SHARE The major assets of Tekton Energy, including all of the producing wells and wells already drilled, together with the majority of the areas in the Wattenberg oil field were sold to the former cooperation partner, Extraction Oil & Gas, in May The sale was backdated to January 1, 2014 at a price of USD 200m. The existing Deutsche Rohstoff loan, amounting to USD 39m including interest, was repaid and the remaining funds distributed to the shareholders. Deutsche Rohstoff USA which, as a 100 % subsidiary of Deutsche Rohstoff, had invested USD 30m of equity capital in Tekton, received a dividend payout of some USD 129m in addition to repayment of the loan. This means that it has been possible to more than quadruple the initial investment capital in less than four years, representing the most successful investment made by Deutsche Rohstoff to-date. Upon completion of the sale Tekton Energy was renamed Elster Oil & Gas (EOG) and Deutsche Rohstoff s share in the company increased to %. EOG has several smaller landholdings that are earmarked for oil production infrastructure and a 50 % share in an area of 1,120 acres (4.6 km 2 ) in the so-called Magpie area south of Windsor. In September, EOG was able to report the sale of a land package that was not connected with the Magpie areas and which was originally earmarked for a central oil collection point close to the city of Windsor, Colorado. The sales price was USD 2.8m, which amounted to USD 300,000 more than the purchase price paid in spring The deal included the sale of the water rights, whereas EOG retained the so-called mineral rights. These rights grant the owner a share of the turnover generated by any oil and / or gas produced from these areas, but without the owner having to contribute 22

25 to the investment or costs of operation. The neighbouring licensee is currently considering drilling horizontal wells adjacent to EOG mineral rights tenement which would trigger payments to EOG. At an oil price of USD 50 per barrel, the management estimates the net present value of the share receivable by EOG to be at least USD 2.5m just for the high-yielding Codell horizontal. Extraction Oil & Gas had a pre-emption right until March 2015 for the 50 % share held by EOG in the Magpie areas. This was however, not exercised. The areas will now likely be developed jointly with Extraction Oil & Gas. At the end of March 2015 work started for five horizontal wells in this area. However, EOG is not the operator of these wells and only has a working interest of just under 50 %. The capital expenditure incurred by EOG is estimated at USD 2m to USD 4m, depending upon the length of the horizontal wells. According to current plans these wells will commence production in September Overall, more than 50 wells have been earmarked for the Magpie area. Due to the high productivity of the oil-bearing strata in this area, wells are still economically attractive even at the current oil price levels. WATER RESERVOIR FOR A DRILLING CAMPAIGN ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 23

26 OIL AND GAS SUCCESS STORY TEKTON ENERGY MARKET ENTRY IN 2011 In 2011 Deutsche Rohstoff AG, together with Americans Jerry Sommer and Earl Norris, established Tekton Energy LLC with the aim to participate in the positive development of the US oil and gas market. FOCUS The company s initial focus was the development of onshore areas in the USA by drilling vertical wells. At the end of 2011, following comprehensive research and evaluation, it was possible to acquire the Windsor Project, which was located on the edge of the then well-known Wattenberg oilfield in Colorado. VERTICAL WELLS By the end of May 2012 nine successful vertical wells were drilled, which achieved full production by the end of August. Production from vertical wells was the predominant method of oil extraction in the Wattenberg field until then. 24

27 HORIZONTAL WELLS At the same time, larger companies such as Anadarko Petroleum and Noble Energy successfully introduced the horizontal well technology in the Wattenberg field. An average horizontal well returned reserves amounting to approx. 350,000 barrels oil equivalent at a cost of approx. USD 4.0m. On the basis of these encouraging results, Tekton Energy also commenced planning of horizontal wells. The two initial wells, Rancho Water Valley commenced production in May 2013 and delivered outstanding results. COMPREHENSIVE PROGRAMME The results prompted Tekton Energy to initiate a comprehensive drill programme totalling 80 wells. To finance this work programme a corporate bond valued at EUR 62.5m was issued by Deutsche Rohstoff AG in June Between September 2013 and early 2014 almost 20 further wells could be successfully brought into production. At this time Deutsche Rohstoff held a 74 % stake in Tekton Energy with the remaining shares being held by the management. SALE IN 2014 In spring 2014 Deutsche Rohstoff received a purchase offer for Tekton Energy which amounted to USD 200m. Following a comprehensive review of this offer the decision was made to sell. At the time of sale Deutsche Rohstoff had invested USD 29m of equity capital and USD 39m of borrowed capital in Tekton Energy. The 74 % share in the sales price therefore generated a significant profit. This was Deutsche Rohstoff s greatest success to-date. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 25

28 OIL AND GAS RHEIN PETROLEUM 10,00 % DRAG SHARE Rhein Petroleum continued its exploration work during the reporting period. In August and September the exploration wells Lauben 7 and Bedernau 2, located in the Bavarian part of the Allgäu region, were drilled by the consortium partner Wintershall, which holds a 50 % stake in the project. Both of these wells are located in past-producing old fields which are assumed to still contain significant oil reserves. Initial tests carried out in January 2015 delivered encouraging results. Wintershall intends to make the final production decision by the middle of the year. In the license area close to the town of Riedstadt-Goddelau, which is 100 % owned by Rhein Petroleum, the test well Schwarzbach 1 was drilled during March Several cubic meter oil could be extracted from the oil-bearing Pechelbronn Formation at a depth of some 1,700m. In the neighbouring town of Stockstadt more than eight million barrels of oil had been extracted from this sandstone formation by Rhein Petroleum considers this success as a confirmation of its geological model. In July 2015 the production test phase is expected to commence which will take several months to complete. The decision on whether to commence commercial production will be taken thereafter. The productivity tests for the two neighbouring wells Stockstadt 2001 and Allmend 1 close to Riedstadt-Crumstadt, returned less positive results. It was not possible to confirm the expected volumes of oil for these wells and they were therefore sealed with a so-called packer. This procedure ensures continued access to the wells and allows production to be recommenced at a later stage. Deutsche Rohstoff, which co-founded Rhein Petroleum at the end of 2007 with the objective of reactivating old oil fields in southern Germany, still holds a 10 % stake in the company. The remaining shares were gradually sold to Tulip Oil in The Hague, Netherlands, during 2011 and Pursuant to an agreement concluded in September 2012 between Tulip Oil and Deutsche Rohstoff, 7.5 percent points of Deutsche Rohstoff s share are free carried. SCHWARZBACH 1 WELL 26

29 MONITORING OF SEISMIC EXPLORATION WORK JUTLAND PETROLEUM 50,00 % DRAG SHARE Jutland Petroleum was established by Deutsche Rohstoff and Herzford International in In the meantime Deutsche Rohstoff has acquired all of the company s shares. Jutland Petroleum focuses on conventional oil and gas exploration in an area that straddles the German-Danish border. The company succeeded in obtaining a licence for the Danish areas in May Jutland Petroleum holds 80 % of the shares while the Danish Nordseefonden holds 20 %. Jutland s intention is to test a new geological theory for the license area. Todate there are no productive wells on the Danish side of the mainland, although the presence of hydrocarbons has been proven in a series of wells drilled since the 1950s. Extensive seismic data for the area has been reinterpreted and three promising drilling targets have been identified. Deutsche Rohstoff is currently searching for a partner to help finance and undertake further exploratory activities. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 27

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31 METALS

32 METALS ALMONTY INDUSTRIES 24,92 % DRAG SHARE Deutsche Rohstoff withdrew from active tungsten mining on September 23, 2014 with the sale of 100 % of its shares in Wolfram Camp Mining Pty Ltd and Tropical Metals Pty Ltd. The purchaser is Almonty Industries, a company listed on the Canadian TSX stock exchange. The purchase price amounted to CAD 16.5m which comprises two different components: 12.2m Almonty shares valued at CAD 10.5m. This equates to 24.9 % of Almonty s share capital. A convertible bond worth CAD 6.0m with a term of 2.5 years and an interest rate of 4 % p.a. Deutsche Rohstoff can convert this bond into Almonty shares once the share price reaches CAD The convertible bond worth CAD 7.5m that was originally written into the purchase contract of June 2014 was reduced in value by CAD 1.5m by mutual agreement. This reduction in favour of Almonty was necessary because changes in the Wolfram Camp balance sheet had occurred at the time the contract finally came into effect on September 22, For this case the purchase contract included a provision for adjusting the purchase price. Despite withdrawing as an active operator Deutsche Rohstoff is still present in the tungsten market through its shareholding in Almonty. Deutsche Rohstoff s opinion that the tungsten price will experience a positive long term trend remains unchanged. From a fundamental perspective we should expect to see an increasing tightening of supply, while demand continues to increase. The drop in the price of tungsten from USD 377 per mtu ( metric tonne unit ) in January 2014 to USD 305 PROCESSING PLANT AT WOLFRAM CAMP MINE, AUSTRALIA 30

33 WOLFRAMITE MINERALIZATION, WOLFRAM CAMP MINE, AUSTRALIA per mtu in December 2014 is primarily attributable to the generally weak commodity prices and the relative strength of the USD. The tungsten price in Australian Dollars dropped by just 12 % during the reporting period (from AUD 424 to AUD 373 per mtu). The sale of Wolfram Camp and the associated acquisition of shares in Almonty Industries offer Deutsche Rohstoff a range of additional benefits: As a result of the purchase of Wolfram Camp, Almonty doubles its annual production capacity and is able to realise better terms with its concentrate customers. Almonty has one of the world s most experienced teams in the development of wolframite and scheelite deposits. With the successful restructuring and sale of the Portuguese Panasqueira Mine the team had already demonstrated its technical, geological and commercial expertise in the past expertise that is very useful for the further development of the Wolfram Camp Mine. Almonty operates the profitable Los Santos Mine in Spain, which made a significant contribution to achieving a net profit of CAD 10.4m during the 2014 financial year. With consolidated sales of CAD 29.6m this equates to a profit of CAD 0.24 per share. Almonty is furthermore developing the Valtreixal tungsten / tin project in northwest Spain which adds another promising project to the company s portfolio. Almonty is profiting from the strong USD because all of its production sites being located outside the US Dollar zone. Almonty is pursuing the strategy of concentrating tungsten production outside China, a move that allows the company to achieve higher prices. Over the medium term Almonty could also become a valuable takeover target if it is successful in implementing this strategy. With the sale of WCM and the acquisition of its % stake in Almonty, Deutsche Rohstoff has positioned itself more broadly in the tungsten market, reduced operational risks and retained the opportunity to benefit from increasing tungsten prices in the future. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 31

34 METALS CERITECH (FORMERLY SELTENERDEN STORKWITZ) 61,43 % DRAG SHARE As a result of the market environment and promising developments in the gypsum processing projects, the Executive Board of Ceritech made several adjustments that were necessary to set the company on a course of positive business growth. The renaming of Seltenerden Storkwitz AG into Ceritech AG emphasizes the shift in the company s focus towards international projects. The relocation of the company s headquarters from Chemnitz to Leipzig due to better transport connections can be seen in the same context. In the Rare Earths business segment the downward price trend for REE mixed oxides continued during the reporting period. Due to this negative trend, the comparatively low concentration of recoverable raw material and the forecasted high processing costs, the Executive Board, with the agreement of the Supervisory Board, decided to terminate the Storkwitz project and surrender the exploration license. Previous endeavours to sell the project had not been successful. Ceritech s activities during the reporting period focused on the development of its gypsum processing projects. Over past years several rare earths containing gypsum dump sites were identified around the globe. In comparison with classic mining projects these offer the advantage of significantly lower extraction costs, because no mining activity has to take place. At the beginning of 2014 Ceritech succeeded in concluding a contract with Lithuanian company Lifosa which grants exclusive access to Lifosa s gypsum dump. A drilling pro- RARE EARTHS IN MINERAL DUMPS 32

35 gramme with the objective of determining the distribution and concentration of the recoverable raw material more precisely and obtaining sample materials for processing tests commenced in February. At the end of August the planning phase for a pilot plant to produce a gypsum pre-concentrate was successfully concluded. This milestone is of great significance to Ceritech as it places the company in a position that will allow it to construct an operational pilot plant within just a few months independent of its operational site. Despite this highly positive development, Ceritech will initially pursue this project at reduced speed for two reasons: Firstly, the rare earths are only present in relatively low concentrations, and these are furthermore covered by other gypsum layers that do not contain any rare earths. Secondly, Ceritech has been successful in attracting interest of two of the world s largest mining companies, with gypsum production sites in South America. The gypsum volumes of these sites exceed those of the Lithuanian partner several-fold. Site visits with management in South America of both companies were successful. By the end of September Ceritech aims to have processed industrial-sized samples from Brazil amounting to several tonnes in Germany and to have confirmed the commercial parameters of the project. If the expectations are met, Ceritech could become a major low-cost producer in just a few years with a resource base allowing several decades of production. By the end of the year it is intended to sign long-term cooperation agreements with these South American companies. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 33

36 METALS TIN INTERNATIONAL 60,33 % DRAG SHARE Tin International holds the three exploration licenses for the Gottesberg, Geyer and Sadisdorf areas in the Erzgebirge ( ore mountains ) region of Saxony via its 100 % subsidiary, Sachsenzinn GmbH. During the reporting period the primary focus for the Sadisdorf license area was on evaluating historic data and re-analyse historic core and rock samples from the era prior to Furthermore, so-called channel samples were taken from two sinkholes which confirmed the extension of the known underground tin mineralization to the surface. In September 2014 the renowned consulting company CSA Global carried out a resource estimate in accordance with JORC standards (JORC = Joint Ore Reserves Committee). According to this, the Sadisdorf project contains an inferred resource of 3.36m tonnes of ore at an average tin grade of 0.44 %, equating to approx. 15,000 tonnes of tin. At the beginning of 2015 historic mine workings wer re-opened in order to prepare them for a future underground exploration programme. The objective of this program is to both expand the resources and to upgrade existing resources into a higher category. Apart from metallurgical tests on existing sample material it is also intended to carry out a project study which will evaluate various mining scenarios and the economic viability of the project. Due to its close surface proximity the Sadisdorf orebody is highly amenable to open pit mining methods. This should lead to some significant cost advantages compared to deeper mining operations. For the Geyer license area ore processing technologies were further examined. This took place in cooperation with well reputated scientific research institutes. Furthermore, the Mining Authorities approved the application for a license extension for the Geyer project until December 31, This now also includes the hightech metal indium. In the Gottesberg license area underground mapping was carried out at the Tannenberg mine, 2km south west of Gottesberg. This resulted in new findings relating to the ore-controlling strata over the whole extent of the deposit and indicates that the reserves might extend further to the east than previously assumed. A work plan is currently in preparation for the next exploration steps. Following the sideway movement of the tin price in the range of USD 23,000 per tonne since the beginning of 2012, tin came under increasing pressure from mid-2014 onwards and dropped below the USD 16,000 per tonne mark in April Apart from the strong US Dollar, the International Tin Research Institute (ITRI) cites an unexpectedly strong supply-side growth in Myanmar as the reason for this development. The tin production of this small Asian country grew from literally zero to 21,000 tonnes annually within just a few years. Despite this temporary supply surplus, BNP Paribas is still expecting a price increase in the second half of 2015 and forecasts a tin price of USD 23,350 for the first quarter of

37 CHIP SAMPLES FROM EXPLORATION DRILLING AT HAMMER METALS, AUSTRALIA HAMMER METALS 17,34 % DRAG SHARE Deutsche Rohstoff intends to use the current weak market environment to build strategic shareholdings in undervalued companies which are developing projects with above average probability of success. During January 2015 Deutsche Rohstoff acquired a % stake in the exploration company Hammer Metals through a capital raise amounting to AUD 1.25m and an additional over the counter purchase of shares amounting to AUD 0.20m. Hammer Metals is involved in the exploration of copper, molybdenum and gold deposits and has acquired a significant land package in the Mount Isa region of Queensland, Australia. It is located directly next to the world class deposits of Mount Isa, Ernest Henry and Cannington, which are operated by the major mining companies Glencore and BHP Billiton. Mount Isa is one of the world s most significant polymetal districts. 30 % of global lead and zinc reserves are found in this region, together with significant copper and silver resources. Despite nearly 100 years of mining activity, the area between the town of Mount Isa and Cloncurry is still regarded as highly prospective. Of particular importance are so called Iron- Oxide-Copper-Gold (IOCG) deposits. These are large-volume rock formations that can contain significant amounts of copper-gold mineralisation. This type of deposits can be mined with very cost-efficient open cast or underground extraction methods and do often have mine lifes of several decades. Examples include the world class deposits of Olympic Dam and Ernest Henry in Australia and at La Candelaria in Chile. Through historic drill core data, as well as results from geophysical exploration campaigns carried out in 2014, Hammer Metals has been able to identify a range of promising targets within the license area, which show characteristics of IOCG deposits. A drilling programme commenced in March 2015 in the identified areas. The objective is to validate the geophysical models and to further refine them. On the basis of the achieved results it will be possible to develop a comprehensive follow-up exploration programme. At the end of March our Geology team was able to get an impression of the on-going work during a site visit and to examine the initial encouraging drill results. Deutsche Rohstoff considers Hammer Metals to be an exploration company with first class assets that has the potential to host a world class deposit. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 35

38 INVESTOR & PUBLIC RELATIONS INVESTOR & PUBLIC RELATIONS ANALYST COVERAGE Analyst reports are important tools which allow investors and media representatives to obtain independent information about the business performance of a listed company. In 2013 First Berlin, a company that is not tied to any particular bank and which is headquartered in Berlin, and the Hamburg-based private bank, M.M. Warburg, analysed our shares. The latest publications issued by both of these companies can be found at / investorrelations /. SHARE TRADING Since our IPO on May 27, 2010, DRAG shares have been included in the Entry Standard segment of the Frankfurt Stock Exchange under the German securities identification number (WKN): A0XYG7 AND ISIN: DE000A0XYG76; the stock exchange code is DR0. Since the beginning of 2011, DRAG shares have been included in the Entry Standard Performance-Index Top 30 and are now also included in the DAX International Mid 100 and the local Rhein-Neckar-Index. SHARE PERFORMANCE AND TURNOVER The Deutsche Rohstoff share price was unable to overcome the generally negative stock market trend in commodity stocks and lost 30.2 % in value to EUR An increase in the share price during mid-april 2015 recovered some of the losses. The average trading volume for 2014 was 11,514 unit shares per day. The market capitalisation of the company fell to some EUR 89.8m at year end. In line with a share buyback programme Deutsche Rohstoff bought back a total of 259,075 of the company s shares between July and December BOND PERFORMANCE Over the course of 2014 the bond price fluctuated within a relatively narrow range between 106 % and 110 % apart from few temporary exceptions. In September 2014 bonds were bought back from institutional investors at a nominal value of EUR 5.1m. During January and February 2015 Deutsche Rohstoff bought back bonds of which the nominal value amounted to EUR 5.6m in line with a public buyback offer. The outstanding bond volume at the end of February 2015 amounts to some EUR 51m. ANNUAL GENERAL MEETING 2014 AT THE BEST WESTERN PLUS PALATIN KONGRESSHOTEL, WIESLOCH 36

39 DEUTSCHE ROHSTOFF SHARE PRICE Share price in Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 ANNUAL GENERAL MEETING AND ANALYST CONFERENCES Our fourth Annual General Meeting as a public company took place at the Palatin Kongresshotel in Wiesloch close to Heidelberg on July 22, It was attended by approximately 260 shareholders. All the management proposals were approved by a large majority. In addition, Deutsche Rohstoff once again participated in various capital market conferences. This year s Annual General Meeting will be held on July 21, 2015, again at the Palatin Best Western Plus Kongresshotel in Wiesloch. SHAREHOLDER STRUCTURE The share capital which currently amounts to EUR 5,322,147 is divided into the same number of registered shares. At the end of December 2014, the Board held 18.2 % of the total number of shares, BASF VC held 6.0 % and other institutional and private investors held 75.8 %. The total number of shareholders was approximately 4,350. The shares that were bought back in 2014 are not included in these figures. The company therefore uses the previous figure for shares in all publications. At an average number of 5,322,147 shares in 2014, the profit per share, based on the net consolidated profit, amounts to EUR (previous year: EUR -1.44). CREDITORS At the end of 2014 it was possible to restructure the bank loan that was granted by a European commercial bank in February The loan amounts to EUR 6.4m and is due at the end of The interest rate is variable and was just 0.57 % p.a. in the first quarter of The loan can be repaid at any time. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 37

40 38

41 ANNUAL ACCOUNTS ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 39

42 GROUP MANAGEMENT REPORT I. BACKGROUND OF THE GROUP 1. BUSINESS MODEL The Deutsche Rohstoff Group is involved in the extraction and exploration of oil and gas, and the extraction and exploration of base and critical metals. It confines its activities to countries with a stable political and legal system. All activities are currently located in the USA, Australia, Germany and Canada. Deutsche Rohstoff is represented by subsidiaries or equity investments in these countries. As the parent company, it manages the Group, initiates new projects, founds subsidiaries, finances activities or finds financing partners, takes decisions on new investments and divestitures, and handles public relations work. The local operating business is the responsibility of experienced managers, mainly specialized engineers and geologists with extensive industry experience. In recent years, Deutsche Rohstoff has tightened the focus of its activities. In the initial years of its existence, the Company developed a very broad and diversified portfolio. As of 31 December 2014, the Deutsche Rohstoff Group comprised the following group companies: In comparison to the prior year, there were significant changes in the basis of consolidation. The share in Tekton Energy was increased from % to %. As part of restructuring of the basis of consolidation, Deutsche Rohstoff acquired the shares of co-founders Jerry Sommer and Earl Norris. The Company was renamed Elster Oil & Gas at the same time. Deutsche Rohstoff also founded a new oil and gas business in the US named Cub Creek Energy in the reporting period. As with Tekton Energy, the business model is focused on the acquisition and development of lucrative acreage in the USA. The company is initially focusing on the states Colorado and Utah, as the management team has already operated there and has extensive experience. With 74 %, Deutsche Rohstoff holds the majority of shares. Management assumed the remaining shares. These shares will primarily be used to finance the company. Together, the management team has many decades of experience in the oil and gas industry in the USA and has made a major contribution to the success of Tekton Energy. Cub Creek Energy reviewed various acquisition offers until the end of However, on account of the declining price of oil, no contracts were concluded until the first quarter of 2015 when prices stabilized. Heidelberg Germany Australia USA Canada CERITECH AG (formely Seltenerden Storkwitz AG) % Leipzig STRATEGIC RESOURCES DEVELOPMENT PTY LTD % Taringa DEUTSCHE ROHSTOFF USA INC % Wilmington DEVONIAN METALS INC % New Westminster RHEIN PETROLEUM GMBH % Heidelberg TIN INTERNATIONAL PTY LTD % Sydney ELSTER OIL & GAS LLC (formely Tekton Energy LLC) % Denver ALMONTY INDUSTRIES INC % Toronto JUTLAND PETROLEUM GMBH TEKTON WINDSOR LLC % Heidelberg % Denver SACHSENZINN GMBH % Chemnitz DIAMOND VALLEY ENERGY PARK LLC % Denver CUB CREEK ENERGY LLC STRUCTURE UNDER CORPORATE LAW % Denver 40

43 The two Australian companies Wolfram Camp Mining and Tropical Metals are no longer a part of the basis of consolidation, as they were sold in full to Almonty Industries in return for equity and debt instruments of Almonty Industries Inc, Toronto, Canada. The share in the previous Seltenerden Storkwitz was increased to just over %. In the long term, management sees great opportunities to significantly increase the value of the shares in Ceritech s gypsum project. Seltenerden Storkwitz AG was renamed Ceritech AG in the fiscal year and the registered office was relocated to Leipzig. It became necessary to adjust the name on account of the considerably more international alignment of the company due to the gypsum project. As a location, Leipzig offers significant advantages in terms of public transport connections with Chemnitz and as a result, the decision was taken with the office partners Deutsche Rohstoff and Sachsenzinn to relocate the registered offices. The move took place in September The sole purpose of Tin International, the majority of which is owned by Deutsche Rohstoff, is the financing of the activities of Sachsenzinn, Chemnitz. Sachsenzinn has three exploration licenses in Saxony with a focus on tin metals. In the reporting period, activities were focused on the Sadisdorf licensed site. Strategic Resources Development (70 %), Taringa, Australia, acquired three licenses in the state of Queensland in the reporting period. These relate to Open Ground licenses, i.e., licenses that are available for a several thousand Australian dollars. To some extent, comprehensive exploration work has been performed on all three licensed sites in the past. Strategic Resources Development s management plans to resell these licenses once raw materials prices return to growth. Diamond Valley Energy Park (100 %, indirectly held via Elster Oil & Gas, USA), Denver, Colorado, USA, owned property near the city of Windsor until September The former Tekton Energy had planned to build temporary storage for crude oil on this property. This ceased to be of relevance following the sale of the significant assets of Tekton Energy in May As a result, the company sold the property in September 2014, but retained the right to extract minerals, i.e., the right to receive a share of revenue should oil be extracted on the property. Rhein Petroleum and the Canadian companies Almonty Industries and Devonian Metals, which are shown in the diagram, were carried as equity investments at the end of Rhein Petroleum is involved in petroleum exploration and extraction in southern Germany. Almonty Industries operates two tungsten mines, one in Spain and Wolfram Camp Mine in Australia, which belonged to the Deutsche Rohstoff Group until September Devonian Metals carries out exploration at a zinc / lead / silver deposit in Wrigley, Canada. This group also includes the company Jutland Petroleum (50 %), Heidelberg, of which Deutsche Rohstoff holds 50 % of shares. Due to immateriality, the company is carried as an equity investment. In the fiscal year 2014, the Group generated revenue from the production of oil and gas in the USA and from the production of tungsten and molybdenum concentrates in Australia. In addition to the income from the production of resources, the business model also includes acquiring favorable resources projects, as well as developing and selling such projects. Following the sale of the significant assets of Tekton Energy and the sale of Wolfram Camp Mining, the Group did not have any production activities at the end of Customers for the resources produced include refineries for the oil, and gas supply companies that operate pipeline grids for the gas. In the case of tungsten, concentrates were delivered to Global Tungsten and Powders (GTP), one of the largest processors of tungsten outside China. Following the sale of the two companies Wolfram Camp Mining and Tropical Metals, the purchase agreement with GTP was transferred to Almonty Industries. The Deutsche Rohstoff Group is no longer directly involved in the sale of tungsten concentrates. For all resources traded on the stock exchange (gold, silver, oil, tin, copper, etc.), pricing is straightforward, as the buyer pays the current market price if the product supplied fulfills the pre-agreed specifications. In these cases, the competitive position also plays a subordinate role, as customers will generally purchase almost any amount. The situation is somewhat different for resources that are not traded on the stock exchange, for example tungsten. In this regard, Wolfram Camp Mining and Deutsche Rohstoff AG concluded a purchase agreement with GTP for a term of five years. Pricing for the respective tungsten deliveries was based on current published prices for contracts negotiated globally. No such purchase agreement has been in place in the Group since the sale of the tungsten mine. The shares of Deutsche Rohstoff AG have been traded in the Entry Standard segment of the Frankfurt Stock Exchange since May Market capitalization was around EUR 90m as of 31 December ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 41

44 2. OBJECTIVES AND STRATEGIES In the management report for 2013, the Company set itself the overarching objective of increasing market capitalization to between EUR 150m and EUR 200m in a 12-month view for 2014 / This objective has not yet been achieved for various reasons, but still applies. In order to achieve this, the management board has announced the following measures: Stepping up activities in the area of oil and gas exploration and extraction in the USA Identifying and acquiring undervalued projects in the metal segment Acquiring favorable licenses in the metal segment In the area of oil and gas in the USA, the acquisition of new acreage was delayed on account of the dramatic drop in the price of crude oil in the second half of The management board and Cub Creek Energy s management saw this as an opportunity to rejoin the market under considerably more favorable conditions following the successful sale of the significant assets of Tekton Energy in May As a result, the first acreage was not acquired until the start of January Additional acreage was secured in the first quarter of 2015 such that, in the opinion of management, the Company now has access to a similarly promising acreage portfolio as at the time of Tekton Energy. In the metals division, Deutsche Rohstoff created a project team as early as mid-2014 to systematically evaluate the target markets Australia, Canada and the USA for interesting potential investments in gold, copper and nickel projects. By the fall of 2014 various companies in Australia and the USA were identified as having extremely valuable resources and as being undervalued according to usual criteria. At the start of February 2015, a capital increase was concluded with one of these companies, Hammer Metals, in which Deutsche Rohstoff directly and indirectly (via Strategic Resources Development) secured a share of 15 %. The shares of another shareholder were acquired subsequently. The share in Hammer Metals now totals 17.3 %. The Australian Strategic Resources Development was also granted three licenses in Queensland. Additional investments and license acquisitions are examined on an ongoing basis. In the oil and gas division in the USA, Deutsche Rohstoff aims to develop acreage including production itself or via the companies in which the Group holds a majority of shares. Oil drilling poses a number of individual investments that can be brought to production relatively quickly. The financial risk can thus be managed well. The management team in the USA has decades of experience with this business model. By contrast, the development and commissioning of a metal mine typically entail extremely high costs, which must be borne over a long period of time. On average, it takes around ten years until plans from discovery to development can be brought to production. As Deutsche Rohstoff does not want to run this risk, it invests in high-quality projects in the field of mining that can be resold after a holding period of three to five years. Ceritech s gypsum project is an exception to this, which according to management will require relatively low expenses while generating a high amount of added value. In the long term, management anticipates the possibility of its own production. 3. RESEARCH AND DEVELOPMENT The Group conducts very little research and development aimed at helping to develop or optimize existing projects. As a rule, oil and gas extraction and ore mining make recourse to existing, freely accessible procedures. The Group makes use of service providers, which perform the work using state-of-the-art technology. One exception until the end of 2014 was Ceritech, which outsourced research contracts for alternative procedures for separating rare earths from a mixed rare earth concentrate. However, at the end of 2014, Ceritech s management board decided to discontinue the development of this alternative procedure as the commercial use will not be available in the foreseeable future or at least would not have been achievable without significant additional investments. Within the scope of a gypsum project, Ceritech is working together with service providers to help define and optimize the preparation process. This does not constitute a completely new procedure, but rather a combination of existing and established technologies tailored to specific cases. II. REPORT ON ECONOMIC POSITION 1. MACROECONOMIC AND SECTOR-SPECIFIC ENVIRONMENT The world economy grew by 3.4 % in 2014 (source: IFW [ Institut für Weltwirtschaft : German Institute for the World Economy]), thus continuing its moderate growth of prior years. By contrast, the weak raw materials prices have continued since the start of Among the raw materials relevant to Deutsche Rohstoff, the only exception to this was zinc, which following a recovery at the beginning of the year lost nearly all of its gains 42

45 in the second half of Gold was also developed well with minimal volatility and, at 4 %, was traded at a level below the start of Crude oil recorded the greatest collapse, at least temporarily, of more than 50 %, followed by tin (down 28 %) and copper (down 17 %). WTI ( Western Texas Intermediate ) crude oil reached its reporting period high of USD per barrel on 20 June 2014 and closed 2014 with a loss of 50 % at a low point of USD per barrel. Compared to the start of the year, when WTI recorded USD 95, this still represents a 44 % loss. This is primarily due to the supply side: OPEC is producing significantly above demand, with Saudi Arabia and Iraq reaching record highs US storage capacity utilization remains at a persistently high level The US continues to record increasing extraction rates on account of the shale oil boom in the past years Just to what extent the non-conventional extraction impacts the oil market can be seen in the increase in global oil extraction per day of 1.15 million barrels on average since US daily production rose by an average of 0.93 million barrels in the same period. More than 80 % of this extraction volume increase pertains to US shale oil production (U.S. Department of Energy figures). On the demand side, the International Energy Agency (IEA) forecasts an annual increase in demand of 1.3 % until Towards the end of the decade, demand is expected to exceed 100 million barrels a day. As a result, the increasing demand is expected to compensate for the oversupply in the medium and long term and result in prices above today s level. Prices for the special metals that are important for the Deutsche Rohstoff Group declined throughout The price of tungsten APT (ammonium paratungstate, a primary product for the processing industry) in Europe could not be maintained at the level at the beginning of the year of USD 370 / mtu (metric ton unit, equivalent to approximately 10 kg) and fell to below USD 300 / mtu at the end of the year. This decline is presumably due to the weakening of economic activity in China and lower investments in the oil and gas industry. Tin prices initially developed positively until the end of April 2014, rising to nearly USD 24,000 per metric ton, which represents a multi-year high. The price then fell to below USD 20,000 per metric ton by the end of the year. In the first months of 2015, the price fell temporarily even to below USD 15,000 per metric ton. This price development was contrary to expectations of most market observers, who were very positive on account of declining production in the major producing countries of Peru and Indonesia and had anticipated considerable price hikes. In reality, the production decline in these countries (Indonesia: down 20,000 metric tons in 2014) was compensated by new production in Myanmar. The Asian country, which had been isolated until a few years ago, emerged with huge volumes on the map of tin producers for the first time in Estimated production came to around 30,000 metric tons (source: International Tin Research Institute (ITRI)). Overall this resulted in slight oversupply on the tin market. This year may present another deficit, which tends to support prices. Prices for rare earths decreased further over the course of 2014, with the downwards trend accelerating in some cases in the second half of the year. The price for cerium fell by an additional approx. 35 % in the fiscal year, of this amount 30 % in the second half of the year. Neodymium, another element with a high quantity of gypsum, saw a decrease in value of around 20 %, although the price remained stable in the first half of the year. The negative price development was also seen in the share prices of the only two non-chinese producers. The Australian Lynas reported an 82 % decrease in value over the course of the year, the US company Molycorp 84 %. Currency changes had a significant impact on the Group s business development. The EUR / USD exchange rate played a particularly important role. All important raw materials transactions are made in US dollar. A strong US dollar, i.e., an increasing exchange rate, means that raw materials outside the USA become more expensive. With a rising dollar, demand tends to decrease and thus the price level of raw materials as well. This negative correlation could be seen in connection with the price of crude oil in the second half of The EUR / USD exchange rate stood at more than 1.36 at the start of July By the end of the year the dollar appreciated by 12 % to USD 1.21 / EUR. In the same period, the price of crude oil (WTI) even fell by around 50 %. There was a similar general decline in industrial metals. According to most market observers, the further development of the US dollar will depend on the interest rate trend in the USA and in other important regions. While the US Federal Reserve has indicated that it plans to increase the key interest rates during 2015, other central banks, the European Central Bank among them, aim to further relax their monetary policies. This foreseeable ex- ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 43

46 pansion of the interest difference strengthened the dollar in the second half of 2014 and in the first quarter of Many banks expect the EUR / USD exchange rate to reach around parity or even fall below it. This would most likely have a negative impact on raw material prices. 2. COURSE OF BUSINESS For part of fiscal year 2014, the Deutsche Rohstoff Group produced resources with the two companies, Tekton Energy and Wolfram Camp Mining. From the group perspective, production concluded at Tekton at the end of May 2014 with the sale of significant assets, and at Wolfram Camp Mining at the end of September 2014 with the sale of the two companies that operate the Wolfram Camp Mine. At the end of May 2014, the Deutsche Rohstoff Group sold its Tekton Energy oil and gas extraction operations in the Wattenberg Field in Denver, Colorado, to Extraction, by selling the significant assets and liabilities. In total, a sales price of USD 211.9m (EUR 154.6m) was achieved, % of which pertained to the Deutsche Rohstoff Group. The gain on sale from this transaction thus came to EUR 104m. At the start of June 2014, the Group acquired a % share from the minority interest and now has a total share of % in the renamed company Elster Oil & Gas. At the end of June 2014, Deutsche Rohstoff signed a sales agreement for the two Australian companies Wolfram Camp Mining and Tropical Metals. The buyer was Almonty Industries, a company listed on the Toronto Stock Exchange. An impairment loss of EUR 14m has already been recognized in the Group s semi-annual report in order to account for the assets of Wolfram Camp Mining and Tropical Metals at fair value. Amortization, depreciation and impairment of Wolfram Camp Mining came to EUR 15.94m in the fiscal year. In September 2014, Deutsche Rohstoff sold the tungsten mine to the Canadian company Almonty Industries in exchange for a % share and convertible bonds (coupon rate: 4.00 %; term: 2.5 years) of Almonty Industries Inc. The subsidiaries Wolfram Camp Mining and Tropical Metals were deconsolidated. In addition to Wolfram Camp, Almonty also operates the producing tungsten mine Los Santos in Spain and is developing the Valtreixal project in northern Spain. Almonty s aim is to obtain a large market share of the production of tungsten concentrates outside of China. In addition, several companies explored deposits with the aim of coming closer to production or increasing the value of the respective project. Ceritech (until July 2014: Seltenerden Storkwitz) focused on its new mineralized waste tailings business unit over the course of In February, an agreement was concluded for the first time with a company in a Baltic country, which has tailings with rare earth resources. In the spring, the company contacted various companies in South American countries that also have producing operations that generate the waste product of gypsum containing rare earth elements. Over the course of the year, the company also developed a process for preparing the necessary materials in both the Baltic states and in South America in a cost efficient way. On account of the excellent progress of the activities in the area of mineralized waste tailings while at the same time considerably improving cost effectiveness, Ceritech s management board has decided to initially prioritize the tailings project. Additional processing tests were performed with regard to the Delitzsch license. However, due to prices of rare earths falling at an accelerated rate in the second half of the year, Ceritech then returned the Delitzsch license in February 2015 after efforts to find a buyer had remained fruitless. Work on the ZeroCarb project in collaboration with the company BRAIN was also discontinued. This project had the goal of developing biological methods to separate rare earths from Storkwitz ore. As a result, impairment losses of EUR 0.9m were recognized on the exploration and evaluation costs previously recognized for the Delitzsch license as well as impairment losses of EUR 0.6m on the capitalized development costs for the ZeroCarb project under intangible assets. Rhein Petroleum was involved in two wells in late summer 2014 in Unterallgäu (Lauben and Bedernau 2), which were sunk by the BASF subsidiary Wintershall as operator. Rhein Petroleum and Wintershall are both engaged 50 / 50 in the related licensed sites. The results of the wells are not yet available. At the start of 2015 a new well was drilled in the Northern Rhine Valley, which Rhein Petroleum reported as having struck oil and from which they aim to extract crude oil on a test basis in Deutsche Rohstoff provided financing of EUR 275,000 (2.50 % of total financing) in 2014 for its 10 % share in accordance with the contractual agreement with Tulip Oil in the form of a payment into Rhein Petroleum s capital reserve. The remaining % was assumed by co-shareholder Tulip Oil. The financing share of 7.50 % assumed by Tulip Oil for Deutsche Rohstoff is to be repaid from any profits or income from sales of shares by Deutsche Rohstoff. This entitlement expires after 2021 if repayment has not been made by then. At Tin International, with its operational subsidiary Sachsenzinn, the focus was on the Sadisdorf licensed site in The license was granted to Sachsenzinn at the start of In September 44

47 2014, Sachsenzinn received an independent report according to the Australian JORC standard of estimated resources for Sadisdorf for the first time. The report confirmed the historical data. Sachsenzinn only performed work that required minor financial resources for the two Gottesberg and Geyer licensed sites in the reporting year. On account of the sharp decline of tin prices until the spring of 2015, management deemed it necessary to write-off the previously capitalized exploration and evaluation costs in connection with the Gottesberg and Geyer licenses of around EUR 2m, as it is assumed that both of these sites could only be developed in a cost-effective manner if tin prices were to rise significantly. However, management does not expect prices to reach a reasonable level in the foreseeable future. As a result, work associated with the Sadisdorf license was prioritized, for which cost effectiveness is expected even with lower prices. In July 2014, Deutsche Rohstoff AG initiated a share buyback program, with which 259,075 shares were reacquired by December 2014, corresponding to around 4.9 % of share capital. The Company repurchased own bonds in September 2014 for a nominal value of around EUR 5.1m. The aim was to revalue these bonds. They were correspondingly deducted from the capitalized bond value. Since June 2014, the Group recorded significant exchange rate gains on account of the high US dollar position as a result of the severe devaluation of the Euro. On aggregate, currency changes with an effect on income exceeded EUR 2.4m within the Group. The company Cub Creek Energy with registered offices in Denver, USA, was founded during the year. Cub Creek Energy has set itself the goal of acquiring acreage for the exploration and production of oil in the USA. The business model is the same as for the successful Tekton Energy. The management team is also the same in part. Due to the declining oil prices in the second half of 2014, the first land was not acquired until the start of The management was successful in securing very promising acreage that will enable several dozen horizontal wells without any major investments according to current estimates. Buyers / partners payments are made from production at a later date, which reduces the risk to Cub Creek Energy considerably. In 2014, the Group s business activities changed significantly due to the sale of the US oil business and the tungsten production in Australia. Considerable portions of fixed assets were sold. Significant cash and cash equivalents flowed to the Group, which will be available for new investments. On account of the weak price development of many raw materials, competition surrounding projects has eased and prices have fallen. Management views the Group to be in a very comfortable position as a result of its good financial situation and the market environment described above. 3. NET ASSETS, FINANCIAL POSITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Selected data from the income statement Fiscal year ending 31 December 2014 IN EUR M Revenue Total operating performance Gross profit EBITDA Operating result (EBIT) Earnings before taxes Annual net profit / deficit for the year Total operating performance is defined as revenue less increase or decrease in finished goods and work in process plus own work capitalized plus other operating income plus income from sale / deconsolidation. 2. Gross profit is defined as total operating performance less cost of materials. 3. EBITDA is defined as earnings for the period before interest, taxes, depreciation and amortization on tangible and intangible assets. 4. EBIT is defined as earnings for the period before interest and taxes. In the past fiscal year, the consolidated net income for the year came to EUR 54.0m (prior year: consolidated net loss of EUR 7.7m) with total operating performance of EUR 135.6m (prior year: EUR 21.1m). Total operating performance comprises revenue of EUR 22.9m from the tungsten production of the wholly-owned subsidiary Wolfram Camp Mining until September 2014 and from the oil and gas production of Tekton Energy until the end of May Wolfram Camp Mining and Tropical Metals left the consolidated group at the end of September 2014 and were deconsolidated. The consolidated net income for the year stems nearly exclusively from the sale of the significant assets of Tekton Energy, which is reflected in other operating income of EUR 104m. Write-downs totaling EUR 25.4m comprise write-downs of fixed assets (EUR 25.0m) and write-downs of current assets (EUR 0.4m). As regards fixed assets, EUR 7.5m relates to write-downs and ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 45

48 EUR 17.5m to impairment losses. Impairment losses of EUR 14.0m were recorded in relation to the tungsten mine of Wolfram Camp Mining. An additional EUR 2.0m pertains to the capitalized exploration and evaluation costs in connection with Sachsenzinn s Geyer and Gottesberg licenses. At the level of Ceritech, the remaining impairment losses of EUR 1.5m were recognized on the exploration and evaluation costs previously recognized for the Delitzsch license (EUR 0.9m) as well as on the capitalized development costs for the ZeroCarb project (EUR 0.6m) under intangible assets. The financial result of EUR -4.06m contains an interest payment for the entire year for the first time on the bond that was issued in Income taxes relate nearly exclusively to taxes paid on the gain from the sale of the assets of Tekton Energy in the USA. FINANCIAL POSITION Selected notes to the cash flow statement Fiscal year ending 31 December 2014 IN EUR M Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Increase / decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the fiscal year As in the prior year, there was still no revenue recorded by the other group companies in 2014, as these are exploration companies. Cash and cash equivalents at the end of the fiscal year Other operating expenses came to EUR 10.4m (prior year: EUR 8.1m). This increase is primarily due to the exchange rate losses of around EUR 2.6m incurred in connection with the sale of Wolfram Camp. Furthermore, costs of a nominal value of EUR 0.6m were incurred on account of the repurchase of bonds in Additional costs of EUR 0.6m stem from the recognition of a provision for potential losses in connection with the valuation of derivative financial instruments in By contrast, in the prior year, other operating expenses included non-recurring expenses from the issue of bonds of around EUR 2.0m. Personnel expenses of EUR 5.9m (prior year: EUR 6.2m) decreased on account of the deconsolidation of Wolfram Camp Mining in particular. Write-downs of all fixed assets increased from EUR 1.9m in the prior year by EUR 5.6m to EUR 7.5m in the fiscal year. This is largely attributable to the production at Tekton Energy until the sale of the assets at the end of May Other taxes pertain to production-related taxes incurred on oil and gas income at Tekton Energy in the USA. The significantly positive consolidated net income for the year projected in the prior year was achieved. With consolidated net income for the year of EUR 54.0m, the more specific forecast in the semi-annual financial statements, which anticipated a consolidated net income for the year of at least EUR 50,0m, was far surpassed. This is thanks to the substantial income generated by the sale of the significant assets of Tekton Energy, which more than compensated for the impairments losses on Wolfram Camp. The cash flow from operating activities came to EUR -19.0m in 2014 (2013: EUR -1.8m). The increase primarily stems from the elimination of the accounting gain from the sale of the significant assets and liabilities of EUR 103.6m of Tekton Energy and paid income taxes (EUR 29.1m) in the USA resulting from the Tekton transaction. By contrast, write-downs on fixed assets of EUR 25.0m (prior year: EUR 7.2m) and the decrease in trade receivables of EUR 8.6m (prior year: decrease of EUR 0.4m) had a positive effect on the cash flow from operating activities. Investments in property, plant and equipment rose considerably in This mainly pertained to investments at Tekton Energy until the sale at the end of May The Group received cash payments of EUR 149.3m as part of this sale. Deutsche Rohstoff also increased its shareholdings in particular in the US subsidiaries in the second half of This led to cash payments made of EUR 9.2m. At EUR -47.5m, the cash flow from financing activities decreased by EUR 116.4m compared to the prior year (EUR 68.9m). This above all relates to the distributions from the Tekton transaction to minority interests of EUR 28.8m. In addition, the Group reacquired treasury shares of EUR 5.0m as well as own bonds of EUR 5.7m. Furthermore, the issue of a corporate bond of EUR 62.5m had a non-recurring positive effect on the cash flow from financing activities. As of 31 December 2014, cash and cash equivalents including securities classified as fixed and current assets in the Group came to EUR 103.3m (prior year: EUR 50.5m). Cash and cash equivalents 46

49 correspond to bank balances. Due to the positive development of the USD / EUR exchange rate in the second half of the year, the Company recorded significant exchange rate gains and gains from the remeasurement of cash and cash equivalents totaling EUR 11.9m. The executive board currently takes the view that the Deutsche Rohstoff Group will at all times continue to be in a position to meet its future obligations and to carry out investments on the basis of above-average equity and liquidity. NET ASSETS Selected balance sheet data Fiscal year ending 31 December 2014 IN EUR M Fixed assets Current assets Equity Liabilities Provisions Total assets Of the Group s total assets of EUR 134.7m only 27.0 % or EUR 36.5m can be allocated to fixed assets. Property, plant and equipment decreased from EUR 57.9m in the prior year to EUR 2.3m in Of this figure, EUR 1.7m (prior year: EUR 20.3m) relates to capitalized exploration and evaluation costs, and EUR 0.5m to technical equipment and machinery (prior year: EUR 2.9m). The disposal of all productive oil extraction facilities and producing mines as well as the significant reduction of capitalized exploration and evaluation costs originates primarily from the sale of the significant assets of Tekton Energy and the two Australian entities as well as the associated impairment losses of EUR 14m. As of 31 December 2014, intangible assets of EUR 12.3m (prior year: EUR 4.5m) primarily comprised production rights and extraction licenses of EUR 10.7m and goodwill (prior year: EUR 1.6m). The increase is chiefly due to the purchase of another % of the shares in Elster Oil & Gas by Deutsche Rohstoff USA. Financial assets increased dramatically to EUR 22.0m in the reporting year (prior year: EUR 8.1m). They contain the new investment in Almonty Industries (EUR 7.4m) resulting from the sale of Wolfram Camp and Tropical Metals as well as the convertible bonds of Almonty, also originating from the sale (EUR 5.3m). In addition, the Group carries a bond denominated in USD in its fixed assets which was issued by a large German industrial group. This investment has no relation whatsoever with the operating activities of the Group and merely serves as a long-term investment of excess cash. The 47 % equity investment in Devonian Metals in Canada is still valued at EUR 1.26m, without any change on the prior year. The 10 % investment in Rhein Petroleum is carried at amortized cost of EUR 2.78m (prior year: EUR 2.5m). Inventories in the form of raw materials, consumables and supplies, work in process and finished goods and merchandise, which still totaled EUR 3.8m as of 31 December 2013 and were reported under current assets, decreased to EUR 0.04m as of 31 December This is also an effect of the sale of Wolfram Mine, as the inventories in the prior year mostly comprised the stocks of tungsten and molybdenum concentrates and their precursor products. As of 31 December 2014, there were short-term receivables with a term of less than one year and other assets of EUR 0.8m (prior year: EUR 6.8m). In the prior year virtually all of the receivables were from partners in the US oil extraction business who had not yet contributed their share of the financing. The receivables were collected at the beginning of Securities classified as current assets comprise a US dollar bond as well as other shortterm interest-bearing instruments (e.g. time deposits, commercial papers) that are to be sold again within 12 months. They came to EUR 18.7m in the reporting year (prior year: EUR 6.2m). The increase can be attributed to the fact that cash and cash equivalents were invested in short-term commercial papers over the reporting date. None of these bonds and securities have any connection to the operating business of the Company, but merely serve as short term investments of cash funds. Bank balances come to EUR 74.1m (prior year: EUR 39.8m). The increase is primarily due to income from the sale of the significant assets of Tekton Energy. In the prior year the funds originated from the bond issue which had not yet been invested. Deferred tax assets of EUR 2.0m (prior year: EUR 3.2m) were recognized on usable tax loss carryforwards, mainly at Deutsche Rohstoff AG. The Group s economic situation continues to be shaped by its strong equity position. Equity amounted to EUR 62.5m as of 31 De- ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 47

50 cember 2014 (prior year: EUR 38.9m). The year-on-year increase is primarily due to the net retained earnings as well as the gains from currency translation due to the devaluation of the euro compared to the US dollar. As a result, the equity ratio rose from 29.6 % to 46.4 % as of the balance sheet date. Liabilities of EUR 67.8m (prior year: EUR 90.2m) mainly consist of the bond (EUR 57.1m), bank loans (EUR 6.4m), interest payable on the bond (EUR 2.2m) and tax liabilities (EUR 0.7m). In the prior year, trade payables of some EUR 14m were carried in the US. The item stood at close to zero at the end of 2014 as the operating business in the USA was sold in the course of the year. Deutsche Rohstoff repurchased own bonds in September 2014 for a nominal value of EUR 5.1m which reduced the bond liability to EUR 57.1m. The bank loan was restructured at the end of It now falls due at the end of 2018 but can be repaid at any time. The loan is subject to a floating rate of interest that is coupled to the EURIBOR. Interest expenses in the first quarter were moderate as the interest rate was just 0.57 % p.a. Due to the low burden from interest and the great degree of flexibility, management has decided not to repay the loan for the time being. Provisions decreased on the prior year from EUR 2.0m to EUR 1.5m. In the table below, the Company provides an overview of further indicators that are of particular importance for assessing its ability to service debt. However, this is based on the perspective prevailing on the reporting date of 31 December ADDITIONAL SELECTED FINANCIAL INFORMATION Fiscal year ending 31 December EBIT Interest Coverage Ratio n / a EBITDA Interest Coverage Ratio Total DEBT / EBITDA Total net Debt / EBITDA Risk Bearing Capital Total Debt / Capital Ratio of EBITDA (EBITDA is defined as EBIT plus depreciation and amortization) to interest expenses and similar expenses. 3 Ratio of financial liabilities (financial liabilities are defined as liabilities to banks plus liabilities from bonds plus other interest-bearing liabilities) to EBITDA. 4 Ratio of net financial liabilities (net financial liabilities are defined as total debt less cash and cash equivalents) to EBITDA. Cash and cash equivalents are defined as securities classified as fixed and current assets plus any bank balances. 5 Ratio of liability capital (liability capital is defined as equity to total assets). 6 Ratio of financial liabilities (total debt) to financial liabilities plus equity. OVERALL ASSESSMENT From executive board s view, the economic and financial situation of the Group is excellent. Business has developed favorably, particularly with regard to the sale of significant assets. The sale of the significant assets of Tekton Energy occurred at a particularly favorable time as the oil price was more or less at its peak after a long boom phase, resulting in very high proceeds from the sale. As a result, the Group currently enjoys excellent liquidity. In the second half of the year, the Group also profited from the strong rise in the US dollar, as most of the cash and cash equivalents were denominated in US dollar. The amounts denominated in US dollar in the US have a positive impact on the currency translation of equity. Equity and the equity ratio increased significantly as the positive effect from the sale easily outweighed the negative effect from selling the mine in Australia. The sale of Wolfram Camp Mining and the write-down of several other fixed asset items significantly reduced the operating risks of the mine and other risks pertinent to the balance sheet. In future, the execeutive board perceives great opportunities from its investment in Almonty, as bundling production with Almonty will enable it to negotiate better prices with customers. On the assets side of the balance sheet, 78 % of total assets consisted of cash and cash equivalents, including securities classified as fixed and current assets at the end of Due to the excellent liquidity, the management believes it will be able to buy top quality products at favorable conditions and thus lay the foundation for strong value growth in the future. 1 Ratio of EBIT (EBIT is defined as revenue plus changes in inventories plus other own work capitalized plus other operating income less cost of materials less personnel expenses less depreciation and amortization less other operating expenses less other taxes plus income from equity investments) to interest expenses and similar expenses. III. SUBSEQUENT EVENTS The following events had a significant impact on the development of business after the reporting date and prior to the end of May

51 In February 2015, Deutsche Rohstoff AG offered to repurchase bonds from its creditors at a price of 105 % of their face value. The offer was limited to a nominal amount of EUR 20m. In sum, bonds amounting to a nominal EUR 5.6m were offered and duly repurchased by Deutsche Rohstoff AG. Subsequent to the repurchase, the remaining bonds amount to EUR 51.5m. Also in February 2015, Deutsche Rohstoff and Almonty Industries settled all debts that arose from the sale of the Wolfram Camp Mine to Almonty in September In sum, the amount of convertible bonds, which Almonty had issued to Deutsche Rohstoff, decreased from CAD 7.5m to CAD 6m. This purchase price adjustment was already considered in fiscal year Cub Creek Energy secured approximately 2,000 acres (8.1 km2) in Wattenberg-Feld in March 2015, from which oil and gas reserves can be extracted. The acreage lies south of the field sold in May and corresponds in size to the core acreage of Tekton. Deutsche Rohstoff therefore assumes that the potential output of the new acreage will be similar to that formerly carried by the Tekton field. In February 2015, Deutsche Rohstoff AG subscribed to a capital increase at Hammer Metals, an Australian exploration company and acquired in sum million shares for a price of AUD 0.08 each. Consequently, the investment amounted to EUR 0.86m. Moreover Deutsche Rohstoff AG obtained options to purchase an additional 3.8 million shares at a price of AUD This option can be exercised within 36 months. In March 2015, it acquired a further 2 million shares at a price of AUD from a co-shareholder who also granted an option to purchase a further 2 million shares at a price of AUD This acquisition gives Deutsche Rohstoff AG a total of million shares which corresponds to a shareholding of 17.3 % in the entity and is thus the largest single shareholder of Hammer Metals. In March 2015 Rhein Petroleum reported on a well that had found oil ( Schwarzbach 1 ) in its licensed site of the Northern Upper Rhine. The Company plans to drill an exploration well commencing in the middle of the year to determine the potential of the field. The continued depreciation of the Euro compared to the US dollar since the end of 2014 led to additional significant gains from currency translation. At the end of December, the two currencies traded at a rate of USD 1.21 / EUR. By the end of May, by contrast, the exchange rate was just under USD 1.10 / EUR, representing a further depreciation of some 9 % in the euro. The annual general meeting of Ceritech decided at the beginning of April to reduce its share capital to zero in the course of a simplified capital reduction and simultaneously raise capital by cash contribution, providing the company a cash injection of EUR 1.4m. The annual general meeting passed the resolution with a large majority. It has since been entered in the commercial register. The capital increase by cash contribution is expected to be conducted in June Most of these funds will be contributed by Deutsche Rohstoff AG. IV. REPORT ON EXPECTED DEVELOPMENTS AND ON OPPORTUNITIES AND RISKS 1. FORECAST Following the sale of the significant assets of Tekton Energy and the sale of Wolfram Camp Mining and Tropical Metals, the Group s portfolio of activities has changed significantly. The focus remains on developing new oil and gas projects in the USA. New oil wells are planned in Elster and Cub Creek in 2015 and In addition, new investments will be made in the Metals division, including particularly in the gypsum projects of Ceritech. The executive board constantly examines new projects. In light of its very good liquidity, the Group can take advantage of opportunities as they arise. Deutsche Rohstoff believes that global demand for goods and energy and therefore the demand for all types of resources will continue to increase further in the medium- and long-term future. In the short-term, however, the demand for resources could fluctuate greatly with a corresponding effect on prices. The development of China is of particular importance for the commodities markets, as the country has become the greatest consumer of resources in many categories. Should growth in China continue to slow down, this would presumably have serious consequences for the commodities sector. For internal management, the Group uses the consolidated profit for the year as the most significant financial performance indicator. The executive board expects the Group to make a high single digit loss in 2015, as revenue from the new wells in the USA will probably not be sufficient to cover the day-to-day running costs, including the interest on the bond. In the event that assets are sold, such as Elster Oil & Gas, the Company might return a profit for the year. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 49

52 2. RISKS AND OPPORTUNITIES MANAGING OPPORTUNITIES AND RISKS The operations of Deutsche Rohstoff AG itself are limited. All major activities take place at the subsidiaries and equity investments, each of which has its own management. The activities in the mining and oil and gas sectors are subject to a large number of risks and opportunities, both within and beyond the Company. We seek to identify and leverage opportunities at an early stage, without neglecting or underestimating the associated risks. The management of Deutsche Rohstoff AG, and the management of the group companies, attaches particular importance to identifying risks in good time, estimating the consequences of the respective risks occurring, evaluating and, if possible, quantifying the likelihood of occurrence on an ongoing basis. The executive board of the holding company in Heidelberg uses a range of tools to identify opportunities and detect risks at an early stage and counteract them: The annual financial planning is prepared for the holding company as well as for the subsidiaries on a monthly basis and is subject to constant variance analysis. Variances of more than 10 % will be taken as an opportunity to examine the corresponding costs directly or to adjust the planning if necessary. The credit and cash management of the subsidiaries is ensured at all times via the parent company. There is close cooperation with those responsible for finances based on monthly capital and liquidity planning. Once a month the subsidiaries prepare a report that provides detailed information on production, exploration, personnel, safety and the environment. Two to three times a month, extensive telephone conferences are held with the management of the subsidiaries. The executive board is given information on all current developments and discusses upcoming measures at these telephone conferences. In addition, personal visits on site or by the management of subsidiaries in Heidelberg provide an opportunity to discuss the respective situation comprehensively and to plan the next months and years from an operational perspective. These personal visits take place at least twice a year. There is also a regular exchange at management level with the equity investments in the form of on-site visits as well as telephone calls and correspondence. RISKS AND OPPORTUNITIES The opportunities and risks are divided into five categories: Systemic opportunities and risks Industry opportunities and risks Performance-related opportunities and risks Financial opportunities and risks Other opportunities and risks The management of the individual companies focuses on the significant opportunities and risks. Such significant opportunities and risks are discussed with the Group s executive board on an ongoing basis. They are the subject of regular telephone calls, reports, minutes and discussions during on-site visits. It is generally the responsibility of the highest management level of each subsidiary to predict opportunities and risks and regularly report to the management of the Group. The management of the Group, together with those responsible, specifies measures aimed at mitigating risks. Systemic opportunities and risks This category includes one of the main risks that arise in the resources business, namely the risk of a decrease in prices of the resources produced. Decreasing prices can have substantial effects on the profitability of extraction and on the liquidity requirements of the respective group companies. If the prices that can be achieved per unit produced permanently drop below the costs incurred for the production of such a unit, the Company s ability to continue as a going concern may be jeopardized. In the Deutsche Rohstoff Group, the price risk mostly relates to oil and gas at present. Cub Creek Energy and Elster Oil & Gas regularly use sensitivity analyses to calculate how earnings and cash flow change with various prices for oil and gas. If there were to be a long-term drop in the price for WTI oil to below USD 55 / barrel, the new horizontal wells would no longer pay for themselves as quickly as management considers appropriate from an opportunities and risk perspective. If the price level were below this threshold, no new wells would presumably be sunk. Deciding not to drill would affect the results of operations, but would under no circumstance put a risk on the company s continued existence. Currently, prices are slightly above this threshold. Cub Creek Energy and Elster Oil & Gas expect a long-term oil price of between USD 55 and USD 70 / barrel. As with oil and gas production, there is also a price risk in the production of tungsten concentrates. If the price for the concentrates were to permanently fall below the production cost, Almonty In- 50

53 dustries may face risks to its ability to survive as a going concern. Unlike in oil production, the Company has to cover relatively high operating costs, which are also largely fixed and can be reduced only with a certain lead time. Conversely, a rising price would have a very significant effect on the results of operations, financial position and net assets at all group companies and equity investments. This therefore presents a significant opportunity. The executive board sees good chances that the price of oil and gas and some metals will rise over the course of 2015 or by 2016 at the latest. The Company s investments are mainly in US dollars and, to a much lesser extent, in Australian dollars. The related currency risk is significant and is reflected in both the income statement and in the balance sheet. The management constantly reviews the options for hedging or mitigating the currency risk. To this end, forward exchange contracts are regularly concluded in order to secure a certain exchange rate for foreign currency items that will be paid back on a specified date. With regard to currencies, the management sees the opportunity to generate considerable additional earnings. Should the euro continue to lose value against the US dollar in the medium term, as the majority of market observers expect (see Deutsche Bank, Commerzbank), this would mean a significant increase in the value of the investments as well as higher returns in euros. Industry opportunities and risks As deposits of resources are bound to a particular location, they generally depend to a large extent on the political and legal environment. The Deutsche Rohstoff Group therefore operates only in countries where a stable and reliable environment is to be expected. Nevertheless, there may be regulatory changes that significantly influence the profitability of projects in these countries. Such an effect could arise if the use of fracking technology were to be restricted in Colorado. However, the management currently regards this risk as low. Due to the booming commodities market, there was a shortage in the availability of suitable personnel and service providers in recent years, particularly in Australia. At present, this risk appears to have disappeared as many projects are being put on ice, particularly due to poor financing opportunities. Most services as well as equipment and material can be purchased cheaper now in Australia and most particularly in the USA than was the case a few months ago. We do not expect this situation to deteriorate at all over the remainder of the year. Performance-related opportunities and risks In the area of service provision, there are the following significant risks relating to extraction companies. These risks can arise either individually or in combination, with each having a significant influence on the Group s net assets, financial situation and results of operations, but particularly if they occur in combination: Extraction rates: The commercial success of the wells of the oil companies depends on the extraction rates or the total amount that it is currently possible to extract. If the extractable volume is significantly lower than 250,000 BOE, the Net Cash Value of the well may not be positive. The management teams of Cub Creek Energy and Elster Oil & Gas constantly review their assumptions relating to the possible extraction rates on the basis of new findings generated by the companies themselves or by competitors operating in the vicinity. This is intended to avoid poor drilling results and extraction rates. Of course, better-than-expected extraction rates present an opportunity with a positive effect on the results of operations. Exploration results are, by their nature, predictable to only a limited extent. The exploration activities within the Group therefore carry the risk of wells or other types of exploration not being as successful as hoped. As a consequence, the value of the capitalized exploration expenses could decrease or these expenses could become completely worthless. However, due to the relatively low capitalized balance sheet values, the influence on the Group as a whole following the sale of the oil and gas activities is not particularly high and in no way jeopardizes the company s continued existence. By contrast, better-than-expected exploration can have a considerable positive influence, particularly on net assets. Financial opportunities and risks The ability to finance project development is one of the key success factors in the extraction of resources. As of the end of 2014, Deutsche Rohstoff had above-average equity reserves and high cash reserves. Nevertheless, the parent company could have to borrow additional funding to complete horizontal drilling programs in the USA or to acquire new projects. Funding requirements can also be higher than planned on account of delays or cost increases for the projects. Whether or not additional funding can be procured going forward hinges on the success of the current and future project activities, the conditions on the capital market, and other factors. If it is not possible to borrow funds at favorable conditions or indeed at any conditions, the management could possibly be forced to reduce the operating expenses by delaying, limiting or discontinuing project development. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 51

54 In general, the Deutsche Rohstoff Group endeavors to counter the financing risk with a very conservative financing policy. The reach of the cash available constitutes a major performance indicator. Ongoing discussions are held with potential providers of equity and borrowed capital in an attempt to create further funding opportunities that can also be used independently of the capital market. Some group companies carry substantial amounts of unused tax losses or the ability offset future investments against profits. This applies in particular to Deutsche Rohstoff USA and Deutsche Rohstoff AG. The executive board assumes that, based on current tax legislation, these loss carryforwards and other deductions can be carried forward and used for offsetting against future or past profits in accordance with the tax regulations (e.g., minimum taxation). If changes in the law at short notice, a change in the capital or ownership structures or other events mean that it is not possible to use the tax loss carryforwards in full or in part, e.g., because it is not possible to yield long-term profits with resources projects, income tax payments would then be incurred on the profits expected to be recorded in the future if the respective subsidiaries develop successfully. These tax payments would burden liquidity and capitalized deferred taxes could be impaired in value. The executive board therefore regularly reviews the recoverability of deferred tax assets recognized on loss carryforwards. Local tax advisors have been engaged to recognize and remedy tax risks at an early stage in all countries where the Group has a domicile. the executive board, there are only marginal operating risks at the time this report was released. This will only change when new oil production is commissioned. The most significant risks at present are the currency risk and the risks pertaining to the further development of the exploration companies. However, both of these risks are manageable and even in the most unfavorable case would not jeopardize the continued existence of the Company. The executive board therefore believes that the overall business risk is low. The two main risks are also countered by opportunities arising from a continuing favorable exchange rate or successful development of projects by the exploration companies. In addition, thanks to its very good liquidity situation, the Company has the opportunity to invest in promising new activities. Heidelberg, 1 June 2015 The Executive Board Dr. Thomas Gutschlag Dr. Jörg Reichert Other opportunities and risks In the area of other risks, the risk of accidents affecting employees or third parties and the natural environment should be mentioned. Accidents of this kind can result in damages claims and additionally tarnish the Company s reputation. Both can negatively impact results of operations and net assets, and in extreme cases even put a risk on the Company s continued existence. The management strives to avoid incidents in the area of HSE (Health, Safety, Environment) entirely. There are clearly defined, detailed rules that employees and visitors alike must observe. The number of incidents in this area is the major non-financial performance indicator. Overall picture of the risk situation Following the sale of the significant assets of the oil and gas activities and the sale of the subsidiaries Wolfram Camp Mining and Tropical Metals, almost 80 % of the assets of the Deutsche Rohstoff Group consist of cash and cash and cash equivalents and securities. Most of this is held in US dollars. In the view of 52

55 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 53

56 CONSOLIDATED BALANCE SHEET ASSETS 31/12/ /12/2013 EUR EUR A. FIXED ASSETS I. Intangible assets 1. Purchased franchises, industrial and similar rights and assets, and licenses in such rights and assets 10,676,744 3,555, Goodwill 1,601, ,574 12,278,615 4,540,972 II. Property, plant and equipment 1. Land, land rights and buildings, including buildings on third-party land 0 1,856, Petroleum extraction equipment and producing mines 0 32,801, Exploration and evaluation 1,646,905 20,152, Plant and machinery 512,526 2,872, Other equipment, furniture and fixtures 94, ,101 2,253,618 57,892,622 III. Financial assets 1. Equity investments 11,455,464 3,702, Securities classified as fixed assets 10,504,384 4,397,634 21,959,848 8,099,729 B. CURRENT ASSETS I. Inventories 1. Raw materials, consumables and supplies 0 1,980, Work in process 0 1,589, Finished goods and merchandise 37, ,559 37,557 3,762,720 II. Receivables and other assets 1. Trade receivables 106, , Receivables from other investees and investors 0 340, Other assets 725,982 5,558, ,310 6,878,300 III. Securities classified as current assets 18,731,270 6,247,962 IV. Bank balances 74,089,486 39,815,478 C. PREPAID EXPENSES 191, ,259 D. DEFERRED TAX ASSETS 4,322,322 4,157,460 TOTAL ASSETS 134,696, ,532,501 54

57 EQUITY AND LIABILITIES 31/12/ /12/2013 EUR EUR A. EQUITY I. Subscribed capital 5,322,147 5,322,147 less nominal value of treasury shares -259,075 5,063,072 Conditional capital: EUR 2,000,000 (prior year: EUR 2,000,000) II. Capital reserves 29,628,615 29,628,615 III. Revenue reserves 0 0 IV. Equity difference from currency translation 4,213,459-6,599,815 V. Consolidated net retained profit 21,252, ,960 VI. Minority interests 2,331,158 9,723,486 62,488,466 38,894,392 B. PROVISIONS Other provisions 1,540,304 1,993,241 1,540,304 1,993,241 C. LIABILITIES 1. Bonds, thereof convertible: EUR 0 57,111,000 62,237, Liabilities to banks 6,406,537 9,248, Prepayments received on account of orders 0 932, Trade payables 216,566 13,928, Other liabilities 4,086,860 3,894,756 67,820,963 90,240,874 D. DEFERRED TAX LIABILITIES 2,846, ,944 TOTAL EQUITY AND LIABILITIES 134,696, ,532,501 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 55

58 CONSOLIDATED INCOME STATEMENT 01/01 31/12/ /01 31/12/2013 EUR EUR 1. REVENUE 22,870,648 17,762, INCREASE IN FINISHED GOODS AND WORK IN PROCESS 1,860, , OTHER OWN WORK CAPITALIZED 154,596 1,824, OTHER OPERATING INCOME 110,683, , COST OF MATERIALS 5,079,688 4,818,548 a) Cost of raw materials, consumables and supplies and of purchased merchandise 573,640 1,415,953 b) Cost of purchased services 4,506,048 3,402, PERSONNEL EXPENSES 5,937,225 6,241,134 a) Wages and salaries 5,833,832 6,139,558 b) Social security, pensions and other benefit costs 103, ,576 thereof for old-age pensions: EUR 4,634 (prior year: EUR 18,523) 7. AMORTIZATION, DEPRECIATION AND WRITE-DOWNS 25,434,019 7,301,555 a) of intangible assets and property, plant and equipment 25,041,710 7,151,555 b) on current assets 392, , OTHER OPERATING EXPENSES 10,392,052 8,129, OTHER INTEREST AND SIMILAR INCOME 922, , DEPRECIATION OF FINANCIAL ASSETS AND SECURITIES CLASSIFIED AS CURRENT ASSETS 0 36, INTEREST AND SIMILAR EXPENSES 4,987,091 2,721, RESULT FROM ORDINARY ACTIVITIES 84,661,645-7,809, INCOME TAXES 28,813,115-1,165,625 thereof income from changes in recognized deferred taxes: EUR -278,179 (prior year: EUR -1,165,625) 14. OTHER TAXES 1,831,908 1,011, CONSOLIDATED NET INCOME (+) / LOSS (-) OF THE GROUP FOR THE YEAR 54,016,622-7,654, PROFIT (-) / LOSS (+) ATTRIBUTABLE TO MINORITY INTERESTS -28,844, , PROFIT CARRYFORWARD (+) 819,960 9,124, TRANSFER TO REVENUE RESERVES -4,739, CONSOLIDATED NET RETAINED PROFIT 21,252, ,960 56

59 CONSOLIDATED CASH FLOW STATEMENT NET INCOME FOR THE PERIOD (INCLUDING MINORITY INTERESTS) 54,016,622-7,654,898 + / - Interest expenses / income 4,064,768 35,185 + / - Income tax expenses / income 28,813,115 0 NET INCOME / LOSS BEFORE INTEREST AND INCOME TAXES 86,894,505-7,619,713 + / - Write-downs / write-ups of fixed assets 25,041,710 7,151,555 + / - Increase / decrease in provisions 1,417, ,817 - / + Gains / losses from the disposal of Wolfram Camp Mining Pty. Ltd. and Tropical Metals Pty. Ltd. 231, / + Gain / loss from the sale of assets and liabilities of Elster Oil & Gas group -103,605, / - Other non-cash expenses / income 2,875,092 1,176,629 - / + Gains / losses from the partial disposal of companies that remain fully consolidated 0-506,352 + / - Interest income / expenses received / paid -4,262,649-35,185 + / - Income taxes received / paid -29,091, / + Increase / decrease in inventories -1,941, ,490 - / + Increase / decrease in trade receivables 8,583, ,000 - / + Increase / decrease in other assets and assets that cannot be allocated to investing or financing activities EUR EUR 4,345, ,737 + / - Increase / decrease in trade payables -4,303, ,478 + / - Increase / decrease in other liabilities and liabilities that cannot be Allocated to investing or financing activities -5,161, ,272 CASH FLOW FROM OPERATING ACTIVITIES -18,976,237-1,768,228 + Cash received from disposals of property, plant and equipment 149,278,647 1,554 - Cash paid for investments in property, plant and equipment -37,735,225-25,463,389 - Cash paid for investments in intangible assets -195, ,740 - Cash paid for investments in fixed financial assets -1,125,771-4,851,547 + Cash received from the sale of consolidated companies and other business entities 0 588,552 - Cash paid for the purchase of consolidated companies and other business entities -9,148,938-2,921,497 + Cash received in connection with short-term financial management of cash investments 21,825,928 2,275,435 - Cash paid in connection with short-term financial management of cash investments -33,311,434-6,247,962 CASH FLOW FROM INVESTING ACTIVITIES 89,587,868-37,276,594 + Cash received from equity contributions (capital increases, sale of treasury shares, etc.) 0 4,558,469 - Cash paid to owners and minority interests (dividends, acquisition of treasury shares, redemption of shares, other distributions) -38,929, ,215 + Cash received from the issue of bonds and from loans 0 67,599,890 - Cash repayments of bonds and loans -8,539,697-2,749,064 CASH FLOW FROM FINANCING ACTIVITIES -47,468,873 68,877,081 CHANGE IN CASH AND CASH EQUIVALENTS 23,142,758 29,832,259 + Cash and cash equivalents at the beginning of the period 39,815,478 9,983,219 + Changes in cash and cash equivalents due to exchange rates or changes in the basis of consolidation 11,921, Changes in cash and cash equivalents due to changes in the basis of consolidation -789,815 0 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 74,089,485 39,815,478 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 57

60 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN EUR SUBSCRIBED CAPITAL CAPITAL RESERVES REVENUE RESERVES EQUITY DIFFERENCE FROM CURRENCY TRANSLATION AS OF 01/01/2013 5,322,147 29,219, ,452 Capital increase 0 409, Foreign currency translation ,494,363 Reclassifications Profit distribution Net income / net loss for the year AS OF 31/12/2013 5,322,147 29,628, ,599,815 AS OF 01/01/2014 5,322,147 29,628, ,599,815 Capital repayment and distribution to minority interests Transfer to the revenue reserves Acquisition of treasury shares Foreign currency translation ,739, , ,739, ,813,274 Reclassifications Net income / net loss for the year AS OF 31/12/2014 5,063,072 29,628, ,213,459 58

61 PROFIT / LOSS CARRYFORWARD NET INCOME / LOSS FOR THE YEAR EQUITY OF THE DRAG GROUP MINORITY INTERESTS CONSOLIDATED EQUITY 6,511,434 3,145,212 44,092,794 4,845,694 48,938, ,161 4,228,219 4,637, ,494, ,494,363 3,145,212-3,145, , , , ,304,471-8,304, ,573-7,654,898 9,124,431-8,304,471 29,170,906 9,723,486 38,894,392 9,124,431-8,304,471 29,170,906 9,723,486 38,894, ,237,213-36,237, ,739, ,998, ,998, ,813, ,813,274-8,304,471 8,304, ,171,737 25,171,737 28,844,885 54,016, ,960 20,432,202 60,157,308 2,331,158 62,488,466 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 59

62 CONSOLIDATED STATEMENT OF CHANGES IN FIXED ASSETS ACQUISITION AND PRODUCTION COST IN EUR 01/01/2014 ADDITIONS DISPOSALS I. INTANGIBLE ASSETS 1. Purchased franchises, industrial and similar rights and assets, and licenses in such rights and assets 5,011,882 7,881,744-33, Goodwill 1,354,445 1,194, ,490 6,366,327 9,076, ,463 II. PROPERTY, PLANT AND EQUIPMENT 1. Land, land rights and buildings, including buildings on third-party land 1,869, ,779, Petroleum extraction equipment and producing mines 34,594,738 24,434,040-48,843, Exploration and evaluation 21,116, ,730-6,263, Plant and machinery 6,456, , Other equipment, furniture and fixtures 336,057 85,344-99,707 64,373,108 25,336,213-56,986,973 III. FINANCIAL ASSETS 1. Equity investments 3,702,095 7,753, Securities classified as fixed assets 4,397,634 6,106, ,099,729 13,860, ,839,164 48,272,420-57,375,436 60

63 CHANGES IN BASIS OF CONSOLIDATION RECLASSIFICATIONS FOREIGN CURRENCY TRANSLATION 31/12/2014-1,523,223-65, ,697 11,599, ,194,300-1,523,223-65, ,697 13,794,107-66,904-57,583 34, ,024,791 8,865, , ,306,532-9,704, ,619 4,477,093-7,777, , , , , , ,716-29,367,111 65,320 1,671,483 5,092, ,455, ,504, ,959,847-30,890, ,000,180 40,845,991 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 61

64 CONSOLIDATED STATEMENT OF CHANGES IN FIXED ASSETS ACCUMULATED AMORTIZATION, DEPRECIATION AND WRITE-DOWNS IN EUR 01/01/2014 ADDITIONS DISPOSALS I. INTANGIBLE ASSETS 1. Purchased franchises, industrial and similar rights and assets, and licenses in such rights and assets 1,456, ,148-3, Goodwill 368, , ,088 1,825,355 1,176, ,949 II. PROPERTY, PLANT AND EQUIPMENT 1. Land, land rights and buildings, including buildings on third-party land 13,338 4, Petroleum extraction equipment and producing mines 1,792,923 20,474,246-6,063, Exploration and evaluation 963,574 2,894, Plant and machinery 3,583, , Other equipment, furniture and fixtures 126,956 55,813-23,911 6,480,486 23,864,915-6,087,470 III. FINANCIAL ASSETS 1. Equity investments Securities classified as fixed assets ,305,841 25,041,710-6,203,419 62

65 NET CARRYING AMOUNTS CHANGES IN BASIS OF CONSOLIDATION RECLASSIFICA- TIONS FOREIGN CURREN- CY TRANSLATION 31/12/ /12/ /12/2013-1,431, , ,062 10,676,744 3,555, ,428 1,601, ,574-1,431, ,322 1,515,490 12,278,615 4,540,972-18, ,856,195-15,974, , , ,801,815-1,071, ,581 2,830,188 1,646,905 20,152,842-4,766, , ,950-38, ,526 2,872, , ,431 46,529 94, ,101-21,946, ,412 2,838,419 2,253,618 57,892, ,455,464 3,702, ,504,384 4,397, ,959,848 8,099,729-23,377, ,734 4,353,909 36,492,081 70,533,323 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 63

66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The consolidated financial statements of Deutsche Rohstoff were prepared in accordance with the accounting provisions of Secs. 290 et seq. HGB [ Handelsgesetzbuch : German Commercial Code]. The consolidated income statement is classified using the nature of expense method. To improve clarity, we summarize individual consolidated balance sheet and income statement items and present and comment on them separately in these notes to the consolidated financial statements. For the same reason, we also indicate in the notes whether individual items are related to other items and thereof items. The consolidated financial statements are presented in euro (EUR). Unless otherwise indicated, all figures are rounded up or down to the nearest euro in accordance with commercial rounding practice. Please note that differences can result from the use of rounded amounts and percentages. 3. CONSOLIDATION PRINCIPLES Companies which were consolidated for the first time due to an acquisition were accounted for using the purchase method as of the date on which the companies became a subsidiary. The carrying amount of the shares belonging to the parent company is offset against the equity of the subsidiary attributable to those shares. Equity is stated at the fair value of the assets, liabilities, prepaid expenses and deferred income to be included in the consolidated financial statements at the time of consolidation. Any remaining asset difference is disclosed as goodwill; any difference on the liabilities side is disclosed separately in equity. The fair value of the assets, liabilities, prepaid expenses and deferred income is determined as of the date on which the company became a subsidiary; this is also the date of acquisition accounting. Intercompany receivables and liabilities, revenue, income and expenses and any intercompany profits and losses were eliminated. 2. BASIS OF CONSOLIDATION The consolidated financial statements include Deutsche Rohstoff AG as well as two German and seven foreign subsidiaries. In the prior year, the consolidated financial statements included two German and eight foreign subsidiaries. Please also refer to 5.2. Information on shareholdings. The two Australian companies Wolfram Camp Mining and Tropical Metals were deconsolidated as a result of the sale of 100 % of shares held in September This gave rise to expenses of around EUR 231 k, which were disclosed under Other operating expenses. In addition, the US subsidiary Cub Creek Energy, which was founded in 2014 with registered offices in Denver, USA, was consolidated for the first time. The company has set itself the goal of acquiring land for the exploration and production of oil in the US. Due to the declining oil prices in the second half of 2014, the first land was not acquired until the start of ACCOUNTING AND VALUATION METHODS The following accounting and valuation methods were used to prepare the financial statements. The financial statements of the companies included in the consolidated financial statements were prepared in accordance with uniform accounting and valuation methods. Purchased intangible assets are recognized at acquisition or production cost and are amortized over their useful lives using the straight-line method if they have a limited life. The useful life ranges from 3 to 20 years. Intangible assets primarily comprise production rights as well as exploration and mining licenses. Exploration licenses are amortized using the straight-line method over the anticipated total exploration period as of the date of acquisition. By contrast, mining licenses are amortized over the expected remaining useful life of the deposit using the straight-line method. There is one exception regarding the straight-line depreciation method for production rights, which are depreciated according to the degree of utilization. The degree of utilization reflects the economic rate of depreciation. Extraordinary write-downs are recognized if the impairment is expected to be permanent. 64

67 Goodwill from acquisition accounting of shares is amortized pro rata temporis over a period of five years. The estimated useful lives are based on the expected production periods and volumes, the appropriateness of which is evaluated on a regular basis and adjusted downwards as necessary. Property, plant and equipment are recognized at acquisition or production cost and are depreciated if they have a limited life. The cost of self-constructed assets includes direct costs as well as a proportionate share of overheads. In the prior year, property, plant and equipment contained the categories petroleum extraction equipment and producing mines on account of the specific features of an extractive company. The petroleum extraction equipment related to extraction equipment operated by Elster Oil & Gas (formerly: Tekton Energy) in the Wattenberg oil and gas field in Windsor, Colorado (USA). This equipment was sold in full in May In the prior year, the tungsten mine of Wolfram Camp Mining and Tropical Metals in the state of Queensland (Australia) was recognized in the item petroleum extraction equipment and producing mines under fixed assets. The tungsten mine was derecognized from consolidated property, plant and equipment on account of the deconsolidation and sale of these two companies in September As a result, this item was no longer disclosed as of 31 December Classification of property, plant and equipment also contains a classification item Exploration and evaluation. The item contains expenses incurred during the exploration and evaluation phase in direct connection with the discovery of minable material and which directly serve the procurement of raw materials more likely than not to generate future cash flows. Direct costs and a proportionate share of overheads are recognized. As of the date of commercial extraction / production, these items are reclassified to the respective fixed asset items. Should it emerge that, due to events or changes in circumstances, the estimated raw materials available are not sustainable or fall significantly short of expectations or the yield is not sufficient for viable extraction, the assets affected are written off through profit or loss. Property, plant and equipment are depreciated over their estimated useful lives using the straight-line method. The useful life for plant and machinery ranges between 8 and 25 years, for other equipment, furniture and fixtures between 3 and 13 years. Producing mines are depreciated over a period of between 10 and 25 years in line with the estimated extraction activities. There is one exception regarding the straight-line depreciation method for petroleum extraction equipment, which is depreciated according to the degree of utilization. The degree of utilization reflects the economic rate of depreciation. Extraordinary write-downs are recognized if the impairment is expected to be permanent. Financial assets are recognized at the lower of cost or market. Inventories are recognized at the lower of cost or market. Inventories of self-extracted raw materials are valued at production cost and raw materials, consumables and supplies purchased from third parties are valued at the lower of average cost or market on the balance sheet date. Finished goods and work in process are valued at production cost. In addition to the direct cost of materials, direct labor and other special direct costs, production costs include production and materials overheads as well as depreciation. Borrowing costs were not included in production cost. General and administrative expenses were also not capitalized. In all cases, valuation was at net realizable value, i.e., the cost to complete was deducted from the expected sales prices. Receivables and other assets were stated at their nominal value less allowances for specific risks. As pending transactions, derivative financial instruments are generally not recognized. Gains on hedging instruments that cannot be designated to corresponding hedged items are only realized upon maturity. Unrealized losses from derivative financial instruments are recognized with an effect on income if they are not included in a hedge and the unrealized losses are not compensated for by offsetting changes in the value of the hedged item. Other securities classified as current assets are recognized at acquisition cost or, if applicable, at the lower listed or market prices on the balance sheet date. Prepaid expenses include payments made prior to the balance sheet date that relate to expenses for a particular period after this date. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 65

68 Other provisions account for all uncertain liabilities and potential losses from pending transactions. They are recognized at the settlement value deemed necessary according to prudent business judgment (i.e., including future cost and price increases). Provisions with a residual term of more than one year were discounted. Recultivation provisions were primarily recognized for field clearance and well plugging. This involves recognizing a pro rata addition, taking into account expected future price and cost increases as well as discounts in line with the respective remaining term. Provisions are discounted using an interest rate suitable for instruments of an equivalent term in accordance with the RückAbzinsV [ Rückstellungsabzinsungsverordnung : German Ordinance on the Discounting of Provisions]. Liabilities were recorded at the settlement value. To determine deferred taxes arising due to temporary or quasi-permanent differences between the carrying amounts of assets, liabilities, prepaid expenses and deferred income in the statutory accounts and their tax carrying amounts or due to tax loss carryforwards, the resulting tax burden and relief are valued using the company-specific tax rates at the time the differences reverse; these amounts are not discounted. Differences due to consolidation procedures in accordance with Secs. 300 to 307 HGB are taken into account; differences arising on the first-time recognition of goodwill or a negative consolidation difference are not included. Deferred tax assets were recognized on tax loss carryforwards if expected to be offset within the next five years. Deferred tax assets and liabilities are not offset. Currency translation Foreign currency assets and liabilities were translated using the average spot rate on the balance sheet date. If they had residual terms of more than one year, the realization principle and the historical cost principle were applied. Except for equity, assets and liabilities in the financial statements prepared in foreign currency were translated into euro at the mean spot rate on the balance sheet date. Equity is translated at historical exchange rates. The items of the income statement are translated into euros at the average exchange rate. The resulting translation difference is recognized in consolidated equity under the item Equity difference from currency translation. 5. NOTES TO THE CONSOLIDATED BALANCE SHEET 5.1. FIXED ASSETS The development of fixed assets, including amortization, depreciation and write-downs for the fiscal year, is shown in the statement of changes in fixed assets. Acquisition accounting for the Elster Oil & Gas LLC (formerly: Tekton Energy LLC) Group resulted in goodwill totaling EUR 1,354 k in 2011 and As a result of the disposal of the significant fixed assets, the goodwill recognized in 2011 was written down by the residual book value of EUR 242 k in the current fiscal year. In the fiscal year 2013, Deutsche Rohstoff s shareholding in the Elster Oil & Gas Group increased by a further 8.25 percentage points. An additional percentage points were acquired from minority interests in the fiscal year This resulted in the capitalization of hidden reserves of EUR 2,921 k (fiscal 2013) and EUR 5,648 k (fiscal 2014) in the item Purchased franchises, industrial and similar rights and assets, and licenses in such rights and assets. The item Purchased franchises, industrial rights and similar rights and assets, and licenses in such rights and assets breaks down as follows, see table The petroleum extraction equipment relates to oil and gas fields in North America. The petroleum extraction equipment as well as capitalized exploration and evaluation costs were written off in full on account of the sale of the Elster Oil & Gas Group s significant fixed assets in May Elster Oil & Gas capitalized exploration and evaluation costs of around EUR 1,035 k as of 31 December 2014; they relate to the Magpie acreage and were added in the current fiscal year. The tungsten mine of Wolfram Camp Mining in the state of Queensland, Australia, recognized in the item Petroleum extraction equipment and producing mines in the prior year was derecognized on account of the deconsolidation of this company in September In 2014, impairment losses were recorded on the Geyer and Gottesberg exploration licenses as well as the associated capitalized exploration and evaluation costs of Sachsenzinn recognized in Exploration and evaluation totaling around EUR 2 m. An additional impairment loss of EUR 0.9 m was recorded on the capitalized exploration and evaluation costs for Ceritech s Delitzsch license. In this context, we refer to 6.3. (Write-downs). 66

69 The item Exploration and evaluation breaks down as follows, see table INFORMATION ON SHAREHOLDINGS See table INVENTORIES Inventories relate to gold as finished goods. All other items recognized in the prior year relate to the company Wolfram Camp Mining, which was deconsolidated in RECEIVABLES AND OTHER ASSETS The remaining terms of receivables and other assets break down as follows, see table und DERIVATIVE FINANCIAL INSTRUMENTS In order to make use of the lower euro interest rates, the loan taken out at Bank Austria by Deutsche Rohstoff AG in connection with the financing of Wolfram Camp Mining was converted from USD to EUR. The loan is serviced with sales proceeds generated in USD. A cross-currency swap with a term until 31 December 2016 was taken out to hedge the risk from currency fluctuation. Derivative financial instruments are measured at fair value on the basis of published market prices. If there is no price listed on an active market, other suitable valuation methods are used. The market value of the cross-currency swap was provided by the relevant contractual partner (financial service provider) with which the hedging transaction was concluded. A provision for potential losses was recognized in the amount of the negative fair value. In this context, we refer to 5.9. (Other provisions), see table PREPAID EXPENSES Prepaid expenses primarily relate to prepaid insurance and rent DEFERRED TAXES A group tax rate of approximately 31 % was used for calculating deferred taxes. Deferred tax assets were recognized on tax loss carryforwards of roughly EUR 6.8 m (prior year: EUR 10.5 m), see table 5.7. TAB PURCHASED FRANCHISES, INDUSTRIAL RIGHTS AND SIMILAR RIGHTS AND ASSETS, AND LICENSES IN SUCH RIGHTS AND ASSETS PROJECT / COMPANY RAW MATERIAL Elster Oil & Gas LLC Oil and gas 10,630,565 2,826,516 Other Various 46, ,882 10,676,744 3,555,398 TAB EXPLORATION AND EVALUATION PROJECT / COMPANY PROJECT / COMPANY Elster Oil & Gas LLC Elster Oil & Gas LLC 1,034,829 17,013,690 Cub Creek Energy LLC Cub Creek Energy LLC 76,873 0 Sachsenzinn GmbH Sachsenzinn GmbH 32,296 1,922,861 Tin International Pty Ltd. Tin International Pty Ltd. 185, ,355 Tropical Metals Pty Ltd Tropical Metals Pty Ltd 0 151,850 Ceritech AG Ceritech AG 317, ,086 1,646,905 20,152,842 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 67

70 TAB INFORMATION ON SHAREHOLDINGS REGISTERED OFFICE INCL. SHARES IN ACC. WITH SEC. 16 AKTG DIRECT % INDIRECT % TOTAL % FISCAL YEAR EQUITY IN LC NET INCOME / LOSS FOR THE YEAR IN LC CONSOLIDATED AFFILIATES Deutsche Rohstoff AG Heidelberg, Germany Deutsche Rohstoff USA Inc Wilmington, USA Elster Oil & Gas LLC Denver, USA Tekton Windsor LLC Denver, USA Diamond Valley Energy Park LLC Denver, USA Cub Creek Energy LLC Denver, USA Tin International Pty Ltd Sydney, Australia Strategic Resources Development Pty Ltd Taringa, Australia Sachsenzinn GmbH Chemnitz, Germany Ceritech AG Leipzig, Germany OTHER EQUITY INVESTMENTS * Devonian Metals Inc * New Westminster, Canada / ,600,429-93,545 Jutland Petroleum GmbH ** Heidelberg, Germany ,915-93,211 Almonty Industries Inc * Toronto, Canada / ,096,000 11,346,00 Rhein Petroleum GmbH Heidelberg, Germany ,560,002-4,668,245 * Measured at group amortized cost, as Deutsche Rohstoff AG cannot exert significant influence on the business or financial policies of these companies. ** On account of immateriality, the company (Sec. 296 (2) HGB) was valued at group acquisition cost in Other equity investments. 1 Balance sheet date: 30 April Balance sheet date: 30 September

71 TAB RECEIVABLES AND OTHER ASSETS 31/12/2014 IN EUR < 1 YEAR > 1 YEAR TOTAL Trade receivables 106, ,328 Other assets 530, , , ,310 31/12/2013 IN EUR < 1 YEAR > 1 YEAR TOTAL Trade receivables 978, ,448 Receivables from other investees and investors 340, ,940 Other assets 5,469,538 89,374 5,558,912 6,878,300 TAB OTHER ASSETS IN EUR Forderung aus Verkauf Deutsche Rohstoff Australia Kautionen Forderungen gegen das Finanzamt Umsatzsteuerforderungen Ansprüche aus Kostenerstattung Abgrenzung Zinsertrag Übrige TAB 5.5. DERIVATIVE FINANCIAL INSTRUMENTS CATEGORIE NOMINAL AMOUNT FAIR VALUE BOOK VALUE (IF AVAILABLE) BALANCE SHEET ITEM (IF RECOGNIZED) IN EUR Currency transactions 5,992, , ,658 Other provisions ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 69

72 TAB DEFERRED TAXES IN EUR 31/12/ /12/2013 DEFERRED TAX ASSETS ON DIFFERENCES IN CARRYING AMOUNTS FOR Deferred tax assets on differences in carrying amounts for Property, plant and equipment 0 274,536 Receivables and other assets 206, ,575 Other provisions 536, ,903 Liabilities 1,538,952 0 Total 2,281,644 1,001,014 Deferred taxes on loss carryforwards 2,040,678 3,156,446 TOTAL DEFERRED TAX ASSETS 4,322,322 4,157,460 DEFERRED TAX LIABILITIES ON DIFFERENCES IN CARRYING AMOUNTS FOR Intangible assets 1,555,527 31,272 Property, plant and equipment 0 127,409 Securities classified as current assets 129,186 0 Bank balances 1,161,624 0 Liabilities 0 243,732 Deferred income 0 1,581 TOTAL DEFERRED TAX LIABILITIES 2,846, ,994 TOTAL DEFERRED TAXES, NET 1,475,985 3,753,466 TAB OTHER PROVISIONS IN EUR 01/01/2014 UTILIZATION REVERSAL ALLOCATION CHANGE BASIS OF CON- SOLIDATION CURRENCY 31/12/2014 Other provisions 1,993, , ,973 2,304,687-1,726,467 75,492 1,540,304 70

73 5.8. EQUITY The development of equity is shown in the statement of changes in equity. As of 31 December 2014, the subscribed capital of EUR 5,322 k (prior year: EUR 5,322 k) corresponds to the balance sheet item recognized at the parent company. By 31 December 2014, Deutsche Rohstoff AG had repurchased a total of 259,075 shares with an imputed value of share capital of EUR 1.00 each. As of 31 December 2014, the Company s treasury shares thus amounted to 259,075 with an imputed value of share capital of EUR 259, (4.868 %). Treasury shares are valued at an average acquisition cost of EUR per share, thus a total of EUR 4,998, (prior year: EUR 0). Treasury shares were acquired for the purpose of flexibly managing the Company s cash requirements. The nominal value of treasury shares is deducted from subscribed capital on the face of the balance sheet in accordance with Sec. 272 (1a) HGB (EUR 259,075.00). An amount of EUR 4,739, of the net income for the year was posted to other revenue reserves in the fiscal year. The difference between the nominal value of the treasury shares and the acquisition cost of treasury shares of EUR 4,739, was offset against revenue reserves. The capital reserves remained unchanged at EUR 29,628, Of the consolidated equity earned, an amount of EUR 1,056 k as of 31 December 2014 (prior year: EUR 2,242 k) is not distributable due to legal restrictions in accordance with Sec. 268 (8) HGB, as deferred tax assets exceed deferred tax liabilities OTHER PROVISIONS Other provisions developed as follows, see table 5.9. Other provisions essentially relate to provisions for personnel expenses and potential losses in connection with the valuation of the cross-currency swap LIABILITIES Liabilities are listed in the table below, see table The item Bonds, non-convertible includes liabilities from a corporate bond. The corporate bond amounts to EUR 57,111, as of 31 December 2014 (prior year: EUR 62,237,000.00) on account of the Company s repurchasing of bonds of a nominal value of EUR 5,126, and the redemption of these bonds in NOTES TO THE CONSOLIDATED INCOME STATEMENT 6.1. REVENUE Revenue by segment and region breaks down as follows: IN EUR High-tech metals 6,208,022 8,579,490 Oil 14,745,864 7,813,407 Gas 1,837,338 1,225,842 Other 79, ,261 22,870,648 17,762,000 IN EUR Germany 79, ,261 USA 16,583,202 9,039,249 Australia and Asia 6,208,022 8,579,490 22,870,648 17,762,000 Other revenue relates among other things to management services rendered to other investees and investors. Revenue is only comparable with the prior year to a limited extent due to the sale of the significant assets and liabilities of the Elster Oil & Gas Group as well as the both of the Australian companies Wolfram Camp Mining and Tropical Metals during the year OTHER OPERATING INCOME This item mainly relates to the gain on sale in connection with the sale of the significant assets and liabilities of the Elster Oil & Gas Group (EUR 104 m). Other operating income comprises the following, see table WRITE-DOWNS Write-downs include impairment losses of around EUR 17.5 m and relate to the tungsten mine (EUR 14 m) in Australia, exploration and evaluation (EUR 2.9 m) in Germany as well as franchises and ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 71

74 TAB LIABILITIES DUE IN (YEARS) 31/12/2014 IN EUR < 1 YEAR 1 TO5 YEARS > 5 YEARS TOTAL THEREOF SECURED Bonds, non-convertible 0 57,111, ,111,000 0 Liabilities to banks 414,025 5,992, ,406,537 6,406,537 Trade payables 216, ,566 0 Other liabilities 4,044,323 42, ,086,860 0 thereof for social security 8, ,755 0 thereof for taxes 644, ,882 0 DUE IN (YEARS) 31/12/2013 IN EUR < 1 YEAR 1 TO5 YEARS > 5 YEARS TOTAL THEREOF SECURED Bonds, non-convertible 0 62,237, ,237,000 0 Liabilities to banks 3,255,698 5,992, ,248,211 8,239,700 Prepayments received on account of orders 932, ,580 0 Trade payables 13,928, ,928,328 0 Other liabilities 3,894, ,894,756 0 thereof for social security 2, ,158 0 thereof for taxes 102,670 1,278, ,380,776 0 TAB OTHER OPERATING INCOME IN EUR Income from the sale of fixed assets of the Elster Oil & Gas Group 104,322,975 0 Income from exchange rate gains 5,749, ,745 Income from the disposal of companies that remain fully consolidated 0 588,552 Sundry other income 610, , ,683, ,646 72

75 other rights (EUR 0.6 m) in Germany in order to account for these assets at fair value due to permanent impairment. The impairment losses of EUR 0.6 m relate to development costs of Ceritech AG s alternative procedures for separating rare earths that were capitalized in the past. The impairment loss of EUR 14 m was recorded at the end of June 2014 for the tungsten mine of Wolfram Camp Mining. The companies operating this mine, Wolfram Camp Mining and Tropical Metals, were sold in September In this context, we refer to 6.4. (Other operating expenses) OTHER OPERATING EXPENSES Other operating expenses break down as follows, see table 6.4. The deconsolidation costs of EUR 231,341 relate to the expenses from the sale of 100 % of shares in both Australian companies Wolfram Camp Mining and Tropical Metals as of 21 September INCOME TAXES IN EUR Income (-) / expense (+) from changes in deferred taxes 7. OTHER NOTES 7.1. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT The disclosure of hidden reserves in connection with the acquisition of further shares in the Elster Oil & Gas Group by Deutsche Rohstoff is recorded under the item Cash paid for the purchase of consolidated companies and other business entities. Cash and cash equivalents comprise the balance sheet item Bank balances RELATED PARTY TRANSACTIONS In the fiscal year, there were no significant transactions with related parties that were not conducted at arm s length CONTINGENT LIABILITIES AND OTHER FINANCIAL OBLIGATIONS CONTINGENT LIABILITIES There are no contingent liabilities. -278,179-1,165, ,179-1,165,625 OFF-BALANCE-SHEET TRANSACTIONS See table OTHER FINANCIAL OBLIGATIONS In addition to the contingent liabilities and off-balance-sheet transactions, there are other financial obligations, see table STOCK OPTION PROGRAM In accordance with the resolution approved at the annual general meeting of Deutsche Rohstoff AG on 22 July 2011, the management board was authorized until 31 December 2013 to launch stock option plans and to issue, once or in several tranches, up to 225,000 stock options with subscription rights to new registered no-par value shares in the Company representing a pro-rata amount of EUR 1.00 of the share capital per share with a term of up to seven years to members of management of the Company s affiliates in Germany and abroad and their affiliates in Germany and abroad, subject to the condition that each stock option grants the right to subscribe a new share in the Company. By resolution dated 13 September 2011, the management board made use of the authorization for the first time and issued 90,000 stock options to members of management of the Company s affiliates in Germany and abroad as well as 28,000 stock options to the Company s employees and its affiliates in Germany and abroad. By resolution dated 3 January 2012, the management board once again made use of the authorization and issued 50,000 stock options to members of management of the Company s affiliates in Germany and abroad as well as 41,000 stock options to the Company s employees and its affiliates in Germany and abroad. Following the issue of these stock options, there remain 8,000 options for employees and no further options for members of management. In the meantime, three employees to whom the options had been issued had left Deutsche Rohstoff AG or affiliates. A total of 28,000 options were returned to the Company. Together with the 8,000 options that had not been issued under the first two tranches, a total of 36,000 options were available for reissue. On 14 June 2013, the management board made use of the authorization by the annual general meeting and, in a third tranche, issued 32,000 stock options to employees of the Company. In 2014, 50,000 stock options were returned from the second tranche, which had been granted to members of management of the Company s affiliates in Germany and abroad. Furthermore, an employee left a German affiliate in 2014, as a result of which an additional 3,000 stock options were returned from the third tranche. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 73

76 TAB OTHER OPERATING EXPENSES IN EUR Operating expenses 1,427, ,696 Non-recognizable exploration and evaluation expenses 273, ,517 Administrative expenses 3,684,420 2,003,741 Selling expenses 548, ,839 Other expenses 4,458,290 4,380,476 10,392,052 8,129,268 FOR OPERATING EXPENSES Rent and leases 742, ,438 Maintenance, third-party repairs for land and buildings 0 406,244 Utilities 684,947 71,014 1,427, ,696 FOR ADMINISTRATIVE EXPENSES Legal and consulting fees 800, ,560 Bookkeeping costs 132,752 86,762 Insurance premiums 139, ,198 Costs incurred by the supervisory board and similar bodies 133,500 59,639 Rent and leases 196, ,907 Cost of preparing and auditing the financial statements 169, ,492 IT expenses (rent, maintenance, consulting, etc.) 42,604 81,934 Contributions 21,890 23,511 Office materials 30,067 15,872 Post and telephone expenses, data transfer 35,430 34,621 Bank charges and fees 20,735 65,197 Cost of repurchasing bonds 572,022 0 Allocation to provision for potential losses 625,658 0 Freight out 120,003 0 Cost of stock exchange listing 205,686 0 Other administrative expenses 437, ,046 3,684,420 2,003,741 FOR SELLING EXPENSES Travel expenses 200, ,068 Advertising and sales promotion 31,768 69,996 Royalties 158, ,153 Other selling expenses 157, , , ,839 74

77 IN EUR FOR OTHER EXPENSES Deconsolidation costs 231,341 0 Exchange rate losses 3,305, ,839 Incidental personnel expenses / training 15,327 3,045 Vehicle expenses 99, ,560 Losses from the disposal of property, plant and equipment 14,134 0 Allocation to other provisions 0 10,356 Donations 9,482 20,511 SME bond 0 1,971,029 Sundry other operating expenses * 782,306 1,399,134 4,458,290 4,380,475 * In the reporting year, this item includes expenses related to other periods of EUR 510 k. TAB OFF-BALANCE-SHEET TRANSACTIONS PURPOSE RISKS REWARDS Operating leases Safeguard the liquidity situation and improve the equity ratio Risks arise from the non-cancelable minimum lease term as well as higher refinancing costs. Short-term contractual obligations, allowing leased items to be upgraded to keep up with technical progress. TAB OFF-BALANCE-SHEET TRANSACTIONS IN EUR DUE < 1 YEAR DUE > 1 YEAR 2014 DUE < 1 YEAR DUE > 1 YEAR 2013 Office rent 121, , , , , ,626 Vehicle leasing 20,518 19,943 40,461 14,405 14,595 29,001 Other 2, ,365 4,333 4,367 8, , ,327 TAB EMPLOYEES HEADCOUNT PRODUCTION ADMINISTRATION TOTAL PRODUCTION ADMINISTRATION TOTAL Wage earners 27,0 0 27,0 65,0 0 65,0 Salaried employees 0 19,0 19,0 0 23,0 23,0 Trainees 2,0 0 2, ,0 19,0 48,0 65,0 23,0 88,0 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 75

78 The Company resolved to make use of the option of cash settlement due to the very positive liquidity situation the Company, contrary to the previous resolutions. As a consequence, a provision of EUR 680,000 in total was recognized for EUR 510,000 relates to the years 2011 to As of the date they were granted, the stock options had a value of EUR 0 k (prior year: EUR 0 k). As of the balance sheet date, this figure stood at EUR 847 k (prior year: EUR 2,705 k). This decrease is attributable to the decline of the share price of Deutsche Rohstoff AG since the last balance sheet date EMPLOYEES The average number of employees during the fiscal year is presented below, see table TOTAL REMUNERATION OF THE EXECUTIVE BOARD Remuneration of the management board of Deutsche Rohstoff AG for performing its functions at the parent company and the subsidiaries amounted to EUR 721 k (prior year: EUR 474 k) TOTAL SUPERVISORY BOARD REMUNERATION Remuneration of the supervisory board of Deutsche Rohstoff AG for performing its functions at the parent company and the subsidiaries amounted to EUR 113 k (prior year: EUR 39 k) AUDITOR FEES AND SERVICES The total fees charged by the group auditor for the fiscal year amount to EUR 94 k and relate to audit services. Heidelberg, 1 June 2015 The average number of employees is calculated by adding together a quarter of the total employees as of 31 March, 30 June, 30 September and 31 December. The Executive Board Dr. Thomas Gutschlag Dr. Jörg Reichert 7.5. CORPORATE BODIES EXECUTIVE BOARD Dr. Thomas Gutschlag, Mannheim Dr. Jörg Reichert, Leipzig (since 1 January 2015) Dr. Titus Gebel, Schönau (until 31 December 2014) SUPERVISORY BOARD Martin Billhardt, Cuxhaven (Chairman) Chairman of the Executive Board of PNE WIND AG Prof. Dr. Gregor Borg, Halle Head of the working group on petrology and economic geology (Fachgruppe für Petrologie und Lagerstättenforschung) at the University of Halle-Wittenberg Wolfgang Seybold, Esslingen am Neckar Banking professional, General Manager of AXINO Investment GmbH 76

79 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 77

80 REPORT OF THE SUPERVISORY BOARD DEAR SHAREHOLDERS, Over the past financial year, the Supervisory Board performed its duties in accordance with law, the statutes and rules of procedure, and intensively supervised the Executive Board s business conduct, in terms of fulfilling its advisory and regulatory role. In all decisions that were of fundamental importance to the company, the Supervisory Board was directly involved. Within the scope of fulfilling its duty, the Executive Board reported to the Supervisory Board regularly, promptly and comprehensively, both in writing and orally and / or by telephone, on matters of corporate planning, the situation and development of the company and its affiliated subsidiaries and affiliated companies, as well as all significant business transactions. The Supervisory Board has voted, after careful consideration and consultation, on the decisions or actions of the Executive Board, which are subject to approval by law, the Articles of Association of the Rules of Procedure of the Executive Board, as well as other decisions of fundamental importance. In my capacity as the Chairman of the Supervisory Board, I have retained constant contact with the Executive Board and regularly kept myself informed about the development of the company and its subsidiaries. This was in particular the sale of the majority of Tekton Windsor LLC s assets, the divestment of Wolfram Camp Mining Pty Ltd and Tropical Metals Pty Ltd, the formation of Cub Creek Energy LLC as well as the activities of the exploration companies Tin International Pty Ltd, Ceritech AG (formerly Seltenerden Storkwitz AG), Rhein Petroleum GmbH, Jutland Petroleum GmbH and Devonian Metals, Inc. MEETINGS OF THE SUPERVISORY BOARD AND KEY POINTS OF DELIBERATION In the fiscal year 2014, a total of six Supervisory Board meetings were held. All meetings were held with physical attendance. No committees were formed. The focus of the meetings of the Supervisory Board in the financial year 2014 were on the following subjects: the sale of the majority of Tekton Windsor LLC s assets to Extraction Oil& Gas LLC in May 2014; the sale of the Australian companies Wolfram Camp Mining Pty Ltd and Tropical Metals Pty Ltd, which jointly owned 100 % of the Wolfram Camp Mine in Queensland / Australia, and its influence on the balance sheet in May and June 2014; the appraisal of the financial statements and the approval of the consolidated financial statements for the financial year 2013 at the financial meeting on June 2, 2014, following an extensive discussion with the auditors for the financial statements and consolidated financial statements for the fiscal year 2013; the formation of Cub Creek Energy LLC in Denver / USA in June 2014; the progress of exploration and processing activities of Tin International Pty Ltd and Ceritech AG (formerly Seltenerden Storkwitz AG); the share buyback program in the second half of the year 2014; the corporate bond buyback program in September 2014; the investment of the company s liquid assets; the evaluation of exchange rate trends, particularly of the EUR / USD; the adjustment of the corporate strategy after the divestment of Wolfram Camp Pty Ltd and Tropical Metals Pty Ltd, as well as the majority of Tekton Windsor LLC s assets; the investment and budgeting plans for the fiscal year 2015; The budget adjustments for the fiscal year 2014 established by the Executive Board and the budget planning for the fiscal year 2015 were reviewed in detail and approved by the Supervisory Board. The strategic direction of the company and the group was advised, reviewed and adapted on the basis of medium-andlong-term corporate planning and scenario comparisons. The Supervisory Board thoroughly analyzed and tested the information received from the Executive Board, and discussed it with the Executive board. Special attention was paid to the risk situation and risk management. The Executive Board regularly informed the Supervisory Board of the situation regarding net assets, finances and earnings at Deutsche Rohstoff AG and its affiliated subsidiaries and associated companies. In addition to that and outside of the Supervisory Board meetings, the Supervisory Board approved business transactions which are subject to approval according to the law, the bylaws of the company or the rules of procedure for the Executive Board. 78

81 These were in particular the Supervisory Board approvals on March 4, 2014 to sell the majority Tekton Energy s assets; on March 21, 2014 to form Cub Creek Energy LLC; on April 24, 2014 to conclude a loan agreement with Seltenerden Storkwitz AG (now Ceritech AG); on June 30, 2014 to sell all stakes in Wolfram Camp Mining Pty Ltd and Tropical Metals Pty Ltd and on December 12, 2014 to appoint Dr. Jörg Reichert to the Executive Board of the company. ANNUAL FINANCIAL STATEMENTS, CONSOLIDATED FINANCIAL STATEMENTS, THE GROUP MANAGEMENT REPORT AND THE PROPOSAL FOR THE UTILIZATION OF NET RETAINED PROFITS Ernst & Young GmbH, an auditing firm based in Stuttgart, branch Mannheim, Theodor-Heuss-Anlage 2, Mannheim (EY), was appointed on July 22, 2014 by the Annual General Meeting as auditors and Group auditors for the financial year They were then appointed by the Supervisory Board to conduct the audit of the separate and consolidated financial statements of the company. EY examined the individual and consolidated financial statements (including group management report) provided by the Executive Board, for the financial year 2014, and issued an unqualified audit certificate. REPORT OF THE SUPERVISORY BOARD After careful examination of the financial statements, the consolidated financial statements and the group management report for the financial statements and the group management report for the financial year 2014, the Supervisory Board has raised no objections, nor has it raised any objections to the proposal of the Executive Board for the utilization of retained net profits. The Supervisory Board concurred with the audit results of EY and approved the financial statements and the consolidated financial statements of Deutsche Rohstoff AG. The financial statements of Deutsche Rohstoff AG are thus approved. The Supervisory Board would like to thank the members of the Executive Board and all employees for their commitment and hard work in Heidelberg, June 2015 On behalf of the Supervisory Board Martin Billhardt Chairman All Supervisory Board members received the specific documentation relevant to the financial statements in good time before the meeting of the Supervisory Board on June 1, 2015, in particular the annual financial statements and consolidated financial statements, the related audit reports of EY and the proposal of the Executive Board for the utilization of net retained profits. All members of the Supervisory Board examined the above-mentioned documents in detail in preparation for this meeting. At the financial meeting, the annual financial statements, the consolidated financial statements, the group management report and the proposal for the utilization of retained net profits were discussed with the Executive Board. The Supervisory Board has independently examined each of the annual financial statements prepared by the Executive Board, as well as the consolidated financial statements and the group management report, for their lawfulness, correctness, suitability and cost-effectiveness, as well as the proposal of the Executive Board for the utilization of the net retained profits. The responsible partner of EY, as well as the Audit Manager, also participated in this meeting on June 1, They reported on the analysis, commented on the key audit areas and made themselves available to the Supervisory Board for additional questions and information. ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 79

82 AUDIT OPINION TO DEUTSCHE ROHSTOFF AG We have audited the consolidated financial statements prepared by Deutsche Rohstoff AG, Heidelberg, comprising the balance sheet, the income statement, the cash flow statement, the statement of changes in equity and the notes to the consolidated financial statements together with the group management report for the fiscal year from 1 January to 31 December The preparation of the consolidated financial statements and the group management report in accordance with German commercial law is the responsibility of the Company s management. Our responsibility is to express an opinion on the consolidated financial statements and the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with [German] principles of proper accounting and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with the legal requirements and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with [German] principles of proper accounting. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group s position and suitably presents the opportunities and risks of future development. Mannheim, 1 June 2015 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Günnewig Wirtschaftsprüfer [German Public Auditor] Hällmeyer Wirtschaftsprüfer [German Public Auditor] 80

83 ANNUAL REPORT 2014 DEUTSCHE ROHSTOFF GROUP 81

84 KONTAKTDATEN Deutsche Rohstoff AG Friedrich-Ebert-Anlage Heidelberg Germany Telephone Telefax Registered at the Local State Court of Mannheim Registered number: Securities Code WKN A0XYG7 (Share) Securities Code WKN A1R07G (Bond) DISCLAIMER FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that reflect the management s current views in respect of future developments. Such statements are subject to risks and uncertainties that are beyond the ability of Deutsche Rohstoff AG (DRAG) to control or estimate precisely. Such statements may include future market conditions and economic environment, the behaviour of other market participants, the successful acquisition or sale of group companies or interests and the actions of government bodies. Should any of the above stated risks or other risks and uncertainties occur, or should the assumptions underlying any of these statements prove incorrect, then the actual results may differ significantly from those expressed or implied by such statements. DRAG neither intends nor assumes any obligation to update any forward-looking statements to reflect events or developments that take place after the date of this report. DEVIATIONS RESULTING FROM TECHNICAL GROUNDS For technical reasons (e.g. resulting from the conversion of electronic formats) deviations may arise between the accounting documents contained in this Annual Report and those submitted to the electronic Federal Gazette in Germany. In this case the version submitted to the electronic Federal Gazette shall be considered the binding version. / DeutscheRohstoffAG / user / This English version of the Annual Report is a translation of the original German version; in the event of any deviation, the German version of the Annual Report shall take precedence over the English version. PUBLISHER Deutsche Rohstoff AG Friedrich-Ebert-Anlage Heidelberg Telephone Telefax info@rohstoff.de This Annual Report was published on 2 June

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