REG-China Nonferrous Gold Limited Final Results for the twelve months ended 31 December 2020
30/06/2021 11:10
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Final Results for the twelve months ended 31 December 2020
China Nonferrous Gold Limited
(“CNG” or the “Company”)
Final Results
for the twelve months ended 31 December 2020
China Nonferrous Gold Limited 中国有色黄金有限公司 (AIM: CNG), the
mineral exploration and development company currently developing the Pakrut
gold project in the Republic of Tajikistan, today announces its final results
for the year ended 31 December 2020.
The results below are extracted from the Company’s audited Annual Report and
Financial Statements. Copies of the Annual Report have been dispatched to
shareholders today and are available on the Company’s website
(www.cnfgold.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.cnfgold.com&esheet=52453498&newsitemid=20210630005465&lan=en-US&anchor=www.cnfgold.com&index=1&md5=3e90c01eccdd9433084beaf2927234f2)
).
The Company also confirms that it will post a notice convening the annual
general meeting of the Company in due course. A further announcement will be
made when it is dispatched.
For further information please visit the Company’s website (www.cnfgold.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.cnfgold.com&esheet=52453498&newsitemid=20210630005465&lan=en-US&anchor=www.cnfgold.com&index=2&md5=0b2d8a7f89129c3df7431dbb3e947a26)
) or contact:
China Nonferrous Gold Limited
Zhang Hui, Managing Director
Tel: +86 10 8442 6662
WH Ireland Limited (NOMAD & Broker)
Katy Mitchell (mailto:Katy.Mitchell@whirelandcb.com) , James Sinclair-Ford
Tel: 0207 220 1666
Blytheweigh (PR)
Tim Blythe
Tel: +44 (0)20 7138 3224
Project Summary
The Pakrut gold project, of which CNG has 100 per cent ownership, is situated
in Tajikistan approximately 120 km northeast of the capital city Dushanbe.
Pakrut is located within the Tien Shan gold belt, which extends from
Uzbekistan into Tajikistan, Kyrgyzstan and Western China, and which hosts a
number of multi-million ounce gold deposits.
CNG is currently progressing well in several important aspects, with the
Pakrut gold mine entering normal production and achieving full operational
capacity in 2020.
The Company made significant achievements in 2020 and became an important
gold-production enterprise in Tajikistan. The Pakrut gold mine achieved its
internal production targets for 2020, which brings steady cash flows to
support the sustainable development of the company.
About Tajikistan
Tajikistan is a secular republic located in Central Asia. The country is a
member of the Commonwealth of Independent States and the Shanghai Cooperation
Organisation. Tajikistan hosts numerous operating precious metal mines as well
as the largest aluminium smelter in Central Asia. CNG's management team has
extensive experience in the mining industry in Tajikistan.
The information contained within this announcement is deemed by the Company to
constitute inside information under the Market Abuse Regulation (EU) No.
596/2014.
Chief Executive Officer’s Statement
As CEO of the board, it gives me great pleasure to present the CEO’s
statement of the annual report for the year ended 31 December 2020. Following
the first successful normal production work in 2019, the Company has
progressed well in several important aspects, with the Pakrut gold mine
entering formal production and achieving full operational capacity in 2020.
The Company made significant achievements in 2020 and became an important
gold-production enterprise in Tajikistan. The Pakrut gold mine achieved its
internal production targets for 2020, which brings steady cash flows to
support the sustainable development of the Company.
Operation
From January to December 2020, a total of 640,036 tons of ore was extracted
from the Pakrut gold mine (2019: 731,600 tons), and a total of 684,526 tons of
ore were processed at a grade of 2.16 g/t, 19,874 tons of gold concentrate
were produced at a grade of 68.52 g/t, 1,126 kg gold bullion were poured with
a comprehensive recovery rate of 80.01% (2019:1,168 kg gold bullion).
COVID-19
With COVID-19 continuing to have a significant impact on the global economy,
our priority is the safety and health of our people and ensuring the
Company’s operations can continue in operation as normal. Since the outbreak
of COVID-19 in Tajikistan on April 30 2020, the Company has taken appropriate
steps and effective measures to ensure that staff at protected at site. To
date operations at the mine site at Pakrut continue as normal, and there are
no confirmed or suspected cases in the Company in Tajikistan or China.
Through preventative measures such as social distancing and self-isolation to
reduce COVID-19 spreading and allowing healthcare systems to make critical
adaptations for testing and triage capacity, the impact on working conditions
has been reduced as much as is practical. Beijing has sought to reduce
channels for the transmission of the virus and there have been no cases
reported within the Company to date. The mine is still in normal operation.
The amount of production personnel at the mine site remains sufficient to meet
the required production level, so production is still progressing well at site
in spite of COVID-19 and the target for the first half of 2021 is not affected
by the suspended flights. In addition, the Company organized a private
chartered flight to transport around 45 Chinese employees to Tajikistan from
China on 8 August 2020. We therefore remain confident that the annual internal
production target can be achieved.
Financial results
The development and construction work at the Pakrut Gold Project was finalised
at the end of the 2018 financial year. The Group therefore generated revenue
from full operational production from the beginning of the 2019 financial
year.
Administration expenditure for the year under review was US$17,827,290 (2019:
US$16,336,541). The main reason for the increase this year is due to property
insurance premiums, epidemic isolation costs for employees and supplementary
payment of utility bills from 2016 to 2020, which the authority of Electricity
and Water left some outstanding fees to collect.
The overall loss incurred by the Group was US$6,357,743 (2019: US$21,981,000).
Pakrut generated gold sales revenue of US$64,516,000 (2019: US$49,157,000), a
significant increase as a result of entering full operational production.
During the course of the year, the Group did not enter into any new financing
agreements with shareholders or their associates. Instead, the original
repayment dates in December 2019 on the loan contracts previously signed with
China Nonferrous Metals International Mining Co., Ltd. and China Nonferrous
Metals Mining Group Co., Ltd. (“CNMC Loans”) were extended once more and
are now repayable in December 2022.
In July 2018, CNMC and CNMC Trade Co., Ltd. signed an agreement transferring
one of the loans of US$20 million to China Nonferrous Mining Group Co, Ltd. to
CNMC Trade Co., Ltd which constituted a related party under the AIM Rules for
Companies. In July 2019, the remaining $126.5 million was also transferred to
the same party.
In 2020, the Group repaid US$10 million to China Construction Bank Corporation
Macau Branch (“CCBC”) in respect of its existing loan agreement, of which
US$85 million remains outstanding at the year end. During 2020, the Group
signed a new financing agreement with CCBC for a loan of $14.55 million,
repayable in March 2021.
The existing CCBC loan facilities total US$99.55 million and the CNMC and
CNMIM loan facilities total US$289 million so that, including interest, US$389
million of loans were payable as at 31 December 2020 (approximately US$349m
without interest). US$349m（without interest）is payable within one year of
the financial statements, which includes US$99.55 million due to CCBC and the
remaining balance due to shareholders. As the major shareholder and ultimate
beneficial owner, CNMIM and CNMC will continue strongly supporting the
Company, especially on the extension of the loans. The loan will be extended
again even though it was expired. In addition, regarding the bank facilities,
the Company is confident that it will use the bank’s new loans to
repay/replace the debts. The CCBC loan is due for repayment in the first half
of 2021.
The Group has continued production throughout 2021 despite the outbreak of
COVID-19, enabling it to raise sufficient working capital. As announced on 15
July 2020, in order to ensure the repayment of existing loans a broader
refinancing will be required. Discussions are ongoing and the remaining
discussions are expected to be completed in the near term. The parent Company
CNMC has committed to support the CNG group should this be required for a
period of at least 12 months from the date of approval of these financial
statements.
Events after the Reporting Period
In January 2021, the Company executed an agreement with China CITIC Bank
Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to
CNY 300million which is equivalent to US$46.37m. The CITIC Loan facility is
for a maximum of 12 months and is repayable 12 months from first drawdown. The
terms of the CITIC Loan include an annual interest rate at 2.7% plus 6 month
LIBOR. US$20m of the CITIC Loan was drawn down in January 2021 to replace the
China Construction Bank (CCB) Macau loan of US$20m which fell due in January
2021. A second drawdown of US$14.55m in March 2021 was used to repay the CCB
Asia loan of US$14.55m which fell due for repayment in March 2021.
In March 2021, the Company also extended the repayment period of loans in
place with CNMC Trade Company Limited (CNMC Trade), totaling US$146.50
million, to December 2022. The Company currently has total debt facilities
(including banking facilities), before interest, of c.US$319.5 million. The
CCBC loan which is payable in the first half of 2021 has been repaid with a
new loan from Bank of Shanghai (Hong Kong).
Outlook
The Company is continuing to enhance its production capacity. Whilst improving
production, the Company is also focusing on perfecting and improving the
smelting process by reducing production costs, increasing recovery rates and
improving competitiveness.
The Company has long been dedicated to becoming a significant gold producer in
Central Asia. The Company has also established a strong relationship with the
government of Tajikistan and other Central Asian countries, and it will
consider other appropriate acquisitions at the right time, although there can
be no guarantee that any acquisition will occur.
While we have taken big strides in the production and operation of the Pakrut
gold mine and achieved much, there are still challenges to overcome and
targets to meet, all of which I am confident to accomplish in the coming
months.
Uncertainty created by the coronavirus pandemic on production and operations
still exists in Tajikistan, and the long term effects are difficult to predict
and estimate. The Company will make every effort to meet pandemic prevention
and control requirements, as well as stabilizing and expanding the production
and operation of Pakrut gold mine.
I would like to take this opportunity to thank all our employees, management
and advisers for their continued hard work in 2020. I would also like to
extend my thanks to all our stakeholders for their continued backing over the
years. I very much look forward to updating our shareholders further on the
mine developments, production levels, new strategy and direction.
Zhang Hui
Chief Executive Officer
30 June 2021
Auditors Opinion
We have audited the financial statements of China Nonferrous Gold Limited (the
‘group’) for the year ended 31 December 2020 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows and notes to the financial statements,
including significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the group financial statements:
* give a true and fair view of the state of the group’s affairs as at 31
December 2020 and of its loss for the year then ended; and
* have been properly prepared in accordance with IFRSs as adopted by the
European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the
audit of the financial statements section of our report. We are independent of
the company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director's
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors’
assessment of the group’s ability to continue to adopt the going concern
basis of accounting included an analysis of qualitative and quantitative
aspects within management’s forecast financial information up to the end of
2023, as well as obtaining a letter of support from the group’s related
party lenders, and reviewing the latest financial information of this entity.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Our application of materiality
The scope of our audit was influenced by our application of materiality. We
determined materiality for the financial statements as a whole to be
US$4,478,000 (2019: US$3,500,000) for the group financial statements using 1%
of gross assets as a basis.
We consider gross assets to be the most relevant determinant of the group’s
financial position and performance used by shareholders, with the key
financial statement balances being producing mines, other property, plant and
equipment, inventory and cash. The going concern of the group is dependent on
its ability to fund operations going forward, as well as on the valuation of
its assets, which represent to the underlying value of the group. However, we
consider that loss before tax will also be a key indicator of performance to
financial statements users as the group is still in the early stages of its
production cycle and continues to seek to maximise production and operating
efficiencies at the mine.
Whilst materiality for the financial statements as a whole was set a
US$4,478,000 each significant component of the group was audited to an overall
materiality ranging between US$21,000 and US$2,310,000 with performance
materiality set at 70%. We applied the concept of materiality both in planning
and performing our audit, and in evaluating the effect of misstatement.
Our approach to the audit
In designing our audit we determined materiality, as above, and assessed the
risk of material misstatement in the financial statements. In particular, we
looked at areas requiring the directors to make subjective judgements, for
example in respect of significant accounting estimates including impairment of
producing mines, and considered future events that are inherently uncertain.
We also addressed the risk of management override of internal controls,
including evaluating whether there was evidence of bias by the directors that
represents a risk of material misstatement due to fraud.
A full scope audit was performed on the complete financial information of the
group’s operating components located in Tajikistan and United Kingdom, with
the group’s key accounting function for all being based in China with a
local function in Tajikistan.
The group’s Tajik operations are audited by a non PKF network firm. The
audit team discussed significant events occurring during the year and post
year-end period with the component auditor and performed a review of the
component auditor’s working papers, including review of planning and
completion stage group reporting. The group audit team are responsible for the
scope and direction of the audit process. All other work was performed
remotely by PKF Littlejohn LLP.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key Audit Matter How our scope addressed this matter
Valuation of Producing Mines – Pakrut LLC (Note 12)
Producing mines within PPE is the most material balance within the financial Our work in this area included:
statements and represents the key source from which the group generates
income. The carrying value of Producing mines, as at 31 December 2020, is
$379m (2019: $390m).
*Areview of management’s impairment assessment, including consideration of
There is the risk that the value of the mine is impaired. any net present value calculations used, providing challenge as to the source
of the inputs and obtaining support where possible;
*Ensuring valid mining licenses are held;
*Considering any potential impairment indicators through discussion with
management and the component auditor, who has visited the mine site as part of
their audit, as well as review of announcements to the market and Board
minutes for evidence of impairment; and
*Areview of management’s assessment of the impact of COVID-19 on operations
at the mine site as well as external macroeconomic factors, and consideration
of whether there is evidence to suggest the mine asset should be impaired.
We noted that the lifespan of the mine used in the depletion calculation is 18
years which is 8 years more than the licence currently held by CNG permits.
Based on the information available to management there is currently no reason
to expect the licence extension will not be granted however if it were not
then there is the risk that the key inputs into this calculation would need to
be amended. This could lead to a material impact on the related charge within
the financial statements and therefore on the carrying value of Producing
mines.
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon. The
directors are responsible for the other information contained within the
annual report. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
* We obtained an understanding of the group and the sector in which it operates
to identify laws and regulations that could reasonably be expected to have a
direct effect on the financial statements. We obtained our understanding in
this regard through discussions with management and the internal legal team in
Pakrut. We also selected a specific audit team based on experience with
auditing entities within this industry facing similar audit and business
risks.
* We determined the principal laws and regulations relevant to the group and
parent company in this regard to be those arising from:
* AIM Rules
* Local industry regulations in Tajikistan
* Local tax and employment law in China and Tajikistan
* We designed our audit procedures to ensure the audit team considered whether
there were any indications of non-compliance by the company with those laws
and regulations. These procedures included, but were not limited to:
* enquiries of management;
* review of Board minutes;
* review of legal ledger accounts;
* A review of RNS announcements;
* A review of component auditor’s work surrounding local laws and regulations
in Tajikistan.
* We also identified the risks of material misstatement of the financial
statements due to fraud. Aside from the non-rebuttable presumption of a risk
of fraud arising from management override of controls, we did not identify any
significant fraud risks.
* As in all of our audits, we addressed the risk of fraud arising from
management override of controls by performing audit procedures which included,
but were not limited to: the testing of journals, reviewing accounting
estimates for evidence of bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of
business.
Because of the inherent limitations of an audit, there is a risk that we will
not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation.
This risk increases the more that compliance with a law or regulation is
removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of
non-compliance. The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditors responsibilities
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.frc.org.uk%2Fauditors%2520responsibilities&esheet=52453498&newsitemid=20210630005465&lan=en-US&anchor=www.frc.org.uk%2Fauditors+responsibilities&index=3&md5=1cf2442f0592f671772c3e60d9b23eda)
. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in
accordance with our engagement letter dated 1 June 2020. Our audit work has
been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone, other than the company and the company's
members as a body, for our audit work, for this report, or for the opinions we
have formed.
Joseph Archer (Engagement Partner)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
Date:
Consolidated Statement of Comprehensive Income, Year Ended 31 December 2020
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
2020 2019
US$000 US$000
Revenue 3 64,516 49,157
Cost of sales (35,297) (32,842)
Gross Profit 29,219 16,315
Other operating income 1 116
Administrative expenses 6 (17,827) (16,337)
Loss on foreign exchange (1,076) (905)
Other operating expenses (46) (136)
Operating Profit/(Loss) 10,271 (947)
Finance income 8 196 270
Finance costs 8 (15,999) (20,796)
Loss before Income Tax (5,532) (21,473)
Income tax 7 (824) (508)
Loss for the year attributable to owners of the parent (6,356) (21,981)
Total comprehensive income attributable to owners of the parent for the year (6,356) (21,981)
Basic and Diluted Earnings per share attributable to owners of the parent 9 (1.66) (5.75)
(expressed in cents per share)
All of the activities of the Group are classed as continuing.
Consolidated Statement of Financial Position
Note As at As at
31 December 2020 31 December 2019
US$000 US$000
Non-Current Assets
Property, plant and equipment 12 373,201 402,548
Total Non-Current Assets 373,201 402,548
Current Assets
Inventories 15 15,911 16,856
Trade and other receivables 16 5,649 4,766
Cash and cash equivalents 27,196 11,120
Total Current Assets 48,756 32,743
Non-Current Liabilities
Borrowings 17 (19,822) (103,586)
Provisions for other liabilities and charges 19 (995) (913)
Total Non-Current Liabilities (20,817) (104,499)
Current Liabilities
Borrowings 17 (368,919) (267,527)
Trade and other payables 18 (52,363) (77,050)
Total Current Liabilities (421,282) (344,577)
Net Current Liabilities (372,526) (311,843)
Net Liabilities (20,143) (13,785)
Equity attributable to the owners of the parent
Share capital 21 38 38
Share premium 65,901 65,901
Other reserve 10,175 10,175
Retained earnings (96,257) (89,899)
Total Equity (20,143) (13,785)
Consolidated Statement of Cash Flow
31 December 31 December
2020 2019
US$000 US$000
Cash flows from Operating Activities (Note 23) 17,137 3,624
Net cash generated from Operating Activities 17,137 3,624
Cash flows from Investing Activities
Purchase of property, plant and equipment (1,942) (5,842)
Interest received 196 270
Net cash used in Investing Activities (1,746) (5,572)
Cash flows from Financing Activities
Proceeds from borrowings (net of capitalised issue costs) 14,550 20,000
Repayment of borrowings (10,000) (10,000)
Interest paid (3,866) (5,295)
Net cash generated from Financing Activities 684 4,705
Net increase/(decrease) in Cash and cash equivalents 16,075 2,757
Cash and cash equivalents at beginning of the year 11,120 8,363
Cash and cash equivalents at end of the year 27,196 11,120
Consolidated Statement of Changes in Equity
Attributable to owners of the parent
Share capital Share premium Other reserve Retained earnings Total
US$000 US$000 US$000 US$000 US$000
Balance at 1 January 2019 38 65,901 10,175 (67,918) 8,196
Loss for the year - - - (21,981) (21,981)
Total comprehensive loss for the year 38 65,901 10,175 (89,899) (13,785)
Total transactions with owners of the parent, recognised directly in equity - - - - -
Balance at 31 December 2019 38 65,901 10,175 (89,899) (13,785)
Balance at 1 January 2020 38 65,901 10,175 (89,899) (13,785)
Loss for the year - - - (6,356) (6,356)
Total comprehensive loss for the year
Total transactions with owners of the parent, recognised directly in equity - - - - -
Balance at 31 December 2020 38 65,901 10,175 (96,255) (20,141)
Notes to the Financial Statements
1. Financial Risk Management
The Group’s operations expose it to a number of financial risks; principally
the availability of adequate funding, movements in interest rates and
fluctuations in foreign currency exchange rates. Continuous monitoring of
these risks ensures that the Group is protected against any adverse effects of
such risks so far as it is possible and foreseeable.
Market Risk
a. Cash Flow and Interest Rate Risk
The continued operation of the Group is dependent on the ability to raise
sufficient working capital until the mine produces sufficient quantities of
gold to be self-sufficient. The Group currently finances itself through the
issue of equity share capital and the secured loan facilities from CNMIM, CNMC
and CCB. Management monitors its cash and future funding requirements through
the use of cash flow forecasts. All cash not immediately required for working
capital purposes is held on short term deposit. The Group’s exposure to
interest rate fluctuations on cash balances is restricted to the rate earned
on these short-term deposits. The potential impact of such fluctuations is not
considered material to the financial statements.
The Group’s interest rate risk arises from long-term borrowings. The Group
has both variable and fixed rate borrowings. Borrowings issued at variable
rates expose the Group to cash flow interest rate risk which is partially
offset by cash invested at variable rates. The annual fixed interest rate for
the CNMIM loan is 9% for all USD and RMB denominated tranches. All payments of
principal and interest in respect of the RMB denominated tranche are repayable
at a fixed RMB: USD exchange rate. The interest rate on the CCB loan of US$65
million is 2.10% per annum over the quarterly LIBOR rate and the loan is
repayable in US$. The interest rate on the new CCB loan of US$20 million is
1.20% per annum over the quarterly LIBOR rate and the loan is repayable in
US$. The interest rate on the CNMC loan of US$90 million taken out in 2018 is
fixed at 5.8% per annum, calculated and paid on a half yearly basis. The
interest rate on CNMCTC loans totaling $146.5 million is 3.70% per annum over
the six month LIBOR rate and the loan is repayable in US$.
At 31 December 2020, the potential impact of fluctuations in interest rates is
not considered material to the financial statements.
b. Foreign Currency Risk
The Group operates internationally and is exposed to foreign exchange risk
arising from currency exposures. Currency risk is the risk that the fair value
or future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The Group has cash assets denominated in UK
Sterling, United States Dollars, Tajik Somoni and PRC Renminbi and incurs
liabilities for its working capital expenditure in all of these denominations.
Payments are made in all of these denominations at the pre-agreed price and
converted (if necessary) as soon as payment needs to occur. Currency
conversions and provisions for expenditure are only made as soon as debts are
due and payable. The Group is therefore exposed to currency risk in so far as
its liabilities are incurred in UK Sterling, PRC Renminbi and Tajik Somoni,
and fluctuations occur due to changes in the exchange rates against the
functional and presentational currency of US Dollar. The table below details
the split of the cash held as at 31 December 2020 between the various
currencies.
Somoni GBP Sterling US Dollar Renminbi Total US$000
30,212 27 16,057 53,198 13,157
Due to the different nature of assets and liabilities, changes in asset value
caused by exchange rate changes have different ways of affecting a Company's
free cash flow. Therefore, it must be considered separately when evaluating
the value of an enterprise. The first is the monetary items in the corporate
balance sheet. Typical monetary items include monetary funds, loans, accounts
receivable and accounts payable. When the exchange rate changes, the
above-mentioned assets or liabilities of the enterprise accounted in foreign
currencies will increase or depreciate accordingly. For example, in the
context of the depreciation of the Renminbi, the foreign currency deposits
(Somoni/USD) held by enterprises will appreciate, which in itself has a
substantial impact on the present value of cash. The foreign currency-settled
bonds or other debts issued by companies can be repaid at a lower RMB cost,
which can save companies more funds that can be used for free distribution,
thereby promoting the enhancement of corporate value.
During 2020, the Group’s principal revenue, costs, assets and liabilities,
including intercompany loans were denominated in USD. The Group manages
foreign currency risk by matching receipts and payments and monitoring
movements in exchange rates. The Group does not currently hedge its exposure
to foreign currencies and recognises the profits and losses resulting from
currency fluctuations as and when they arise. At the year end the Group did
not have material exposure to foreign exchange risk relating to its non-US$
denominated bank deposits and as such this not disclosed. The year-end
exchange rates used in the preparation of the financial statements for 2020
and 2019 were as follows:
Somoni to USD GBP to USD Renminbi to USD
31 December 2020 11.30 1.3625 6.5250
31 December 2019 9.6872 1.31162 6.9762
1. Financial Risk Management (continued)
Liquidity Risk and Credit Risk
The continued operation of the Group is dependent on the ability to raise
sufficient working capital. As noted above, the Group currently finances
itself through the issue of equity and borrowings from CNMIM, CNMC and CCB.
Management monitors its cash and future funding requirements through the use
of cash flow forecasts. The Group enters into capital commitments to fund
operations, and any surplus cash not immediately required for working capital
purposes is held on short term deposit.
The table below summarises the maturity profile of the Group’s financial
liabilities based on contractual undiscounted payments.
Less than 1 Year Between Between Over Total Carrying amount
US$000 1 and 2 Years 2 and 5 Years 5 Years US$000 US$000
US$000 US$000 US$000
Year ended
31 December 2020
Interest-bearing borrowings 368,919 19,822 - - 388,741 388,741
Trade and other payables 52,363 - - - 52,363 52,363
Provisions for other liabilities - - - 2,481 2,481 995
421,453 19,822 - 2,481 443,585 442,099
Year ended
31 December 2019
Interest-bearing borrowings 267,527 103,586 - - 371,113 371,113
Trade and other payables 77,050 - - - 77,050 77,050
Provisions for other liabilities - - - 2,481 2,481 913
344,577 103,586 - 2,481 450,644 449,076
The Group holds bank accounts with banks in the UK, PRC and Tajikistan with
the following credit ratings:
Credit rating 2020 2019
US$000 US$000
A 21,212 5,314
No independent credit rating available 5,984 5,806
27,196 11,120
If a bank has no credit rating, the Group assesses the credit quality through
local knowledge and past experience in the particular jurisdiction.
Capital Risk Management
The Group consider equity to be their capital. The Group’s objective when
managing their capital is to safeguard the Group’s ability to continue as a
going concern in order to provide returns for shareholders and to enable the
Group to continue its exploration, evaluation and mine construction. The Group
holds debt in the form of both shareholder and external loans and defines
capital based on the total equity of the Company. Except for the secured loan
facilities from CNMIM, CNMC and CCB, the Group’s current policy for raising
capital is through equity issues and debt financing. The Group is not
currently required to monitor its gearing ratio and is not exposed to any
externally imposed capital requirements.
2. Critical Accounting Estimates, Assumptions and Judgments
The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amount of assets and liabilities are set
out below. Estimates and assumptions are continually evaluated and are based
on management’s experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
Uncertainty about these assumptions and estimates could result in outcomes
that require a material adjustment to the carrying amount of assets and
liabilities affected in future periods.
The Group has identified the following areas where significant estimates,
assumptions and judgments are required. The most significant judgment for the
Group is the assumption that exploration and development at its sites will
ultimately lead to a commercial mining operation. Failure to do so could lead
to impairment of the mine.
Estimated impairment of Producing mines (Note 12)
The Group tests annually whether exploration, evaluation and licensing assets
and producing mines have suffered any impairment. The recoverable amounts of
the cash generating units (“CGUs”) have been determined based on value in
use calculations which require the use of estimates and assumptions such as
long-term commodity prices, gold recovery rates, discount rates, operating
costs and therefore expected margins, future capital requirements and mineral
resource estimates (see below). These estimates and assumptions are subject to
risk and uncertainty and therefore there is a possibility that changes in
circumstances will impact the recoverable amount. Management has assessed its
CGUs as being individual exploration and mine sites, which is the lowest level
for which cash inflows are independent of those of other assets or CGUs.
In assessing the carrying amounts of its exploration, evaluation and licensing
assets and producing mines at Pakrut, the Directors have used an independently
prepared and Director approved bankable feasibility study
(http://www.cnfgold.com/projects/pakrut-gold-project
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.cnfgold.com%2Fprojects%2Fpakrut-gold-project&esheet=52453498&newsitemid=20210630005465&lan=en-US&anchor=http%3A%2F%2Fwww.cnfgold.com%2Fprojects%2Fpakrut-gold-project&index=4&md5=4eea36b24558b3d248127f51650cdcb3)
). The period used in management’s assessment is the anticipated life of the
mine to the expiration of the license in 2030 with revenues being generated
from full production from January 2019.
The calculation assumes a mining capacity of 2,000 tonnes of ore daily
increasing to 4,000 tonnes per day. Estimated production volumes are based on
detailed life-of-mine plans and take into account development plans for the
mines agreed by management as part of the long-term planning process.
Production volumes are dependent on a number of variables, such as: the
recoverable quantities; the production profile; the cost of the development of
the infrastructure necessary to extract the reserves; the production costs;
the contractual duration of mining rights; and the selling price of the
commodities extracted. Gold revenues have been estimated over that period at a
price of US$1,600 based on management’s estimates, which are derived from
forward price curves and long-term views of global supply and demand, building
on past experience of the industry and consistent with external sources.
The total cost per ounce is estimated to be around US$780 with a gross margin
of circa 60%. Royalties have been calculated at 6% of sales revenues and
corporate income tax at 13%, according to the relevant laws in Tajikistan. A
discount rate of 10% has been utilised.
The calculations have been tested for sensitivity to changes in the key
assumptions. The most sensitive inputs in the calculation of the value in use
are operating and direct costs, the gold price, and the discount rate. An
impairment to the mine value would occur if, compared to the base case
scenario, the discount rate were to increase to 14%, gold prices fell by 9%,
or direct costs were to increase by 27%.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
Approval of Pakrut reserves by Tajik Department of Geology
In November 2011, the Government of the Republic of Tajikistan issued the
Pakrut Gold Project mining license to LLC Pakrut. According to the terms of
the license, the amount of ore that can be mined is variable depending upon
the mine plan. The plan submitted by the Group envisages an initial processing
capacity of 760,000 tons of ore per annum, increasing to 800,000 tons per
annum. The mining license is valid until 2 November 2030.
The mining license issued in November 2011 currently entitles the Group to
mine JORC compliant resources (measured, indicated and inferred) of 904,000
ounces out of total JORC compliant resources of 4,383,000 ounces at Pakrut,
excluding the Eastern Pakrut, Rufigar and Sulfidnoye ore zones. The JORC
compliant resources include the results from the Group’s exploration and
evaluation work subsequent to the mining license issue date.
LLC Pakrut has sought approval of the increased JORC compliant resources from
the Tajik Department of Geology and the Scientific and Technical Counsel which
includes the results of all exploration and evaluation activities undertaken
by the Group between 2009 and 2013. The application is currently subject to
that approval process and the Directors are not aware of any legal or other
impediments which would prevent approval of their application and therefore
permit the Group to mine the increased resources. However, the approval
process currently remains incomplete.
The mine design and construction work undertaken to date, together with the
assessment of the recoverable amount of ‘Producing mines’ (see below), is
based upon the total quantity of JORC compliant resources of which part falls
outside the area covered by the mining license and still subject to formal
approval, as noted above. Failure to obtain this approval would lead to an
impairment of ‘Mines under Construction’, together with inventories, and
also impact the going concern basis of preparation of the Financial
Statements. The Group has made the judgement that this approval will be
forthcoming. No provision for impairment has been recognised in these
Financial Statements relating to this uncertainty.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
Mineral resource and reserve estimates
Reserves are estimates of the amount of resources that can be economically and
legally extracted from the Group’s mining properties. The Group estimates
its mineral resources based on information compiled by appropriately qualified
persons relating to the geological and technical data on the size, depth,
shape and grade of the ore body and suitable production techniques and
recovery rates. This analysis requires complex geological judgments to
interpret the data. The estimation of the recoverable amount is based upon
factors such as estimates of commodity prices, future capital expenditure and
production costs along with geological assumptions made in estimating the size
and grade of the resources. Details of the mineral resources and reserve
estimates can be found on www.cnfgold.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.cnfgold.com&esheet=52453498&newsitemid=20210630005465&lan=en-US&anchor=www.cnfgold.com&index=5&md5=bd112489c66f0d6a269e73f3865fda7d)
.
The Group estimates and reports mineral resource estimates in line with the
principles contained in the Australasian Code for Reporting Exploration
Results, Mineral Resources and Ore Reserves (December 2004), which is prepared
by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of
Mining and Metallurgy, Australian Institute of Geoscientists and Minerals
Council of Australia, known as the “JORC Code”. The determination of a
JORC resource is itself an estimation process that involves varying degrees of
uncertainty depending on how the resources are classified (i.e. measured,
indicated or inferred).
As additional geological information is produced during the operation of a
mine and through additional exploration activity, mineral resource estimates
may change. Such changes may impact on the Group’s reported financial
position which includes the carrying value of property, plant and equipment
and inventories.
Estimated economically recoverable reserves are used in determining the
depreciation and/or amortisation of mine-specific assets. This results in a
depreciation/amortisation charge proportional to the depletion of the
anticipated remaining life-of-mine production. The life of each item, which is
assessed at least annually, has regard to both its physical life limitations
and present assessments of economically recoverable reserves of the mine
property at which the asset is located. These calculations require the use of
estimates and assumptions, including the amount of recoverable reserves and
estimates of future capital expenditure. The calculation of the UOP rate of
depreciation/amortisation could be impacted to the extent that actual
production in the future is different from current forecast production based
on economically recoverable reserves, or if future capital expenditure
estimates change. Changes to economically recoverable reserves could arise due
to changes in the factors or assumptions used in estimating reserves,
including:
* The effect on economically recoverable reserves of differences between actual
commodity prices and commodity price assumptions;
* Unforeseen operational issues.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
Depreciation/Amortisation (Note 12)
As the mine entered full production during the period, 2019 was the first
period for which depreciation / amortisation was charged in respect of the
producing mine assets. As mentioned in the judgement above judgement is
required in the calculation of this amount with the key estimates considered
to be surrounding the amount of economically recoverable resources and the
lifespan of the asset. The economically recoverable reserves are considered to
be those detailed out on the website (see above for link) and the lifespan of
the mine is considered to be 18 years. As mentioned above the Group currently
only has a mining license that is valid until November 2030 which is less than
the 18 year period used within the depreciation/amortisation calculation.
After considering the information available to them which includes discussions
with Tajik officials and the required timing for extending the mining license,
management have made the judgement that they will be able to secure the
necessary extensions and therefore continue to the mine for a period of 18
years. If a 10 year license period were to be used then depreciation for 2020
would be approximately $14.49 million.
3. Segment Information
The following segments are based on the management reports received by the
Executive Directors, who are the chief operating decision makers. The Group
operates principally in three geographical areas, UK, PRC and Tajikistan, with
operations managed on a project by project basis within Tajikistan. For
segment reporting purposes, the operations of the Cayman Islands registered
parent Company are included in the UK and PRC segment as these segments are
jointly managed
2020 UK and PRC Tajikistan Pakrut Total
US$000 US$000 US$000
Revenue - 64,516 64,516
Cost of sales - (35,297) (35,297)
Administrative expenses (including foreign exchange) (2,313) (16,591) (18,904)
Other operating expenses - (46) (46)
Impairment - - -
Other operating income - 1 1
Operating profit/(loss) (2,313) 12,583 10,270
Finance costs (15,999) - (15,999)
Finance income 151 45 196
Income tax - (824) (824)
Loss for the year (18,115) 11,804 (6,357)
Total assets 24,472 397,567 422,039
Total liabilities 418,203 23,898 442,099
Additions to property, plant and equipment - 1,942 1,942
The Group’s mining activities are located in Tajikistan, principally within
the Pakrut Gold Project. Support and administration services are provided from
the UK and PRC. Inter-segment revenue is eliminated on consolidation and is
conducted on mutually agreed terms between Group companies.
All revenue generated in the period was from the government of Tajikistan.
2019 UK and PRC Tajikistan Pakrut Total
US$000 US$000 US$000
Revenue - 49,157 49,157
Cost of sales - (32,842) (32,842)
Administrative expenses (including foreign exchange) (4,536) (12,705) (17,241)
Other operating expenses (136) (136)
Impairment - - -
Other operating income - 116 116
Operating profit/(loss) (4,536) 3,590 (947)
Finance costs (20,796) - (20,796)
Finance income 270 - 270
Income tax - (508) (508)
Loss for the year (25,062) 3,082 (21,981)
Total assets 8,787 426,504 435,291
Total liabilities 414,609 34,467 449,076
Depreciation 22 2,544 2,566
Additions to property, plant and equipment - 5,842 5,842
4. Particulars of Employees
The average number of staff employed by the Group during the financial year
amounted to:
2020 2019
No. No.
Administrative and management 125 129
Operational staff 607 574
732 703
The aggregate costs of the above were:
2020 2019
US$000 US$000
Wages and salaries 4,379 4,721
Basic pension cost 885 861
5,265 5,582
No staff costs were capitalised since the Group entering into full producing
from January 2019.
5. Directors’ Emoluments
The Directors’ emoluments in respect of qualifying services were:
Salary and fees Total
2020 US$ US$
Mr Boyi Liang* 76,797 76,797
Mr Yong Li 23,088 23,088
Mr Lixian Yu 197,131 197,131
Mr Delin Feng 194,921 194,921
Mr Xiuzhi Shi 22,233 22,233
Mr Hui Zhang** 61,142 61,142
576,311 576,311
Salary and fees Total
2019 US$ US$
Mr Boyi Liang 49,360 49,360
Mr Xiang Wu 17,953 17,953
Mr Yong Li 22,853 22,853
Mr Lixian Yu 227,754 227,754
Mr Delin Feng 140,340 140,340
Mr Xiuzhi Shi 22,989 22,989
481,249 481,249
Key management comprises Executive and Non-Executive Directors and all
emoluments are short term in nature.
* Mr Boyi Liang was appointed on 30 July 2019 and resigned on 25 September
2020
** Mr Hui Zhang was appointed on 25 September 2020
6. Expenses by nature
2020 2019
US$000 US$000
Employee benefit expenses 6,617 6,057
Operating lease expenses 145 186
Depreciation 3,200 2,566
Legal, professional and regulatory costs 170 338
Travel and entertaining 125 232
Social & other taxes 6,287 5,721
Other Expenses 258 159
Commission/bank fees 1,025 1,077
Total administrative expenses 17,827 16,337
6. Expenses by nature (continued)
2020
US$000 2019
US$000
Fees payable to the Company’s auditor for the audit of the consolidated 114 104
financial statements
Fees payable to the Company’s auditor for other services: 3 3
*Tax compliance services
117 107
7. Income Tax
a. Analysis of Charge in the Year
2020 2019
US$000 US$000
Current tax:
Current tax 824 508
Deferred tax - -
Total 824 508
No provision for income taxes arose in the Cayman Islands, the UK, British
Virgin Islands. A current income tax expense arose in Tajikistan during the
year as LLC Pakrut sold gold in the amount of TJS 671,738,902 – equivalent
to US$ 64,515,782 (2019: TJS 469,386,040 – equivalent to US$ 49,156,539).
Thereby, the Company paid the amount of advance payments of income tax
according to the Tax Code of the Republic of Tajikistan, being 1.00% of
revenue.
7. Income Tax (continued)
Factors Affecting Current Tax Charge
The tax assessed on the loss for the year is higher than the weighted average
standard rate of corporation tax of 20% (2019 – 20%).
2020 2019
US$000 US$000
Loss before income tax (5,451) (21,473)
Loss on ordinary activities by weighted average rate of tax at 20% (2019 – (1,090) (4,295)
20%)
Expenses not deductible for tax purposes 640 513
Tax losses for which no deferred income tax asset was recognised 1,274 4,289
Current tax payable 824 508
The Group did not recognise deferred income tax assets of approximately
US$1,274,000 (2019: US$4,289,000). Unused Tajik tax losses amounting to
approx. US$16,772,000 at 31 December 2020 can be carried forward for three
years from the year incurred and used against future taxable income at 15%.
8. Finance Income and Costs
2020 2019
US$000 US$000
Finance Income
Interest income on short term bank deposits 196 270
Finance Costs
Interest expense on shareholder’s loans wholly repayable within five years 13,111 16,304
Interest expense on bank borrowings wholly repayable within five years 2,888 4,493
Less: Borrowing costs capitalised in qualifying assets -
Finance costs 15,999 20,797
9. Earnings per Share
2020 2019
US$ US$
Basic and diluted earnings per share (cents) (1.66) (5.75)
The basic earnings per share is calculated by dividing the loss attributable
to equity holders after tax of US$ 6,357,000 (2019: 21,981,000) by the
weighted average number of shares in issue and carrying the right to receive
dividend. For the year ended 31 December 2020 this was 382,392,292 (2019–
382,392,292) shares.
As the Group has incurred a loss for the year, no option or warrant is
potentially dilutive, and hence the basic and diluted earnings per share are
the same. At the year end, there were nil (2019: nil) share options
outstanding that are potentially dilutive in the future.
10. Intangible Assets
Exploration and evaluation assets
US$000
Cost
At 1 January 2018, 31 December 2018, 31 December 2019 and 31 December 2020 9,941
Impairment
At 1 January 2018, 31 December 2018, 31 December 2019 and 31 December 2020 (9,941)
Net Book Value
At 31 December 2018, 31 December 2019 and 31 December 2020 -
The exploration and evaluation assets represent internally generated costs in
connection with the Group’s exploration and evaluation activities.
Expenditure is transferred from exploration and evaluation assets to mines
under construction once the work completed to date supports the future
development of the property and such development receives appropriate
approvals.
The rights of LLC Pakrut to carry out exploration and evaluation activity at
the Pakrut deposit expired on 1 April 2014. The renewal application by the
Group to extend the exploration license is being considered by the Government
of Tajikistan. Although the Directors are not aware of any legal or other
impediments which would ultimately prevent approval of the license extension,
the Directors fully impaired the carrying value of the exploration and
evaluation assets during 2014 due to non-renewal of the Exploration License.
Exploration and evaluation activities can continue at the Pakrut Gold Deposit
in the area covered by the mining license. Currently, staff members of Pakrut
are coordinating with the local government for exploration licenses.
11. Mines under Construction
Cost Mining rights US$000 Construction in progress US$000 Total US$000
At 1 January 2019 35,022 364,378 399,400
Additions - - -
Transfer to PPE (35,022) (364,378) (399,400)
At 31 December 2019 and 1 January 2020 - - -
- - -
Additions
Transfer to PPE - - -
At 31 December 2020 - - -
Mining rights comprised of exploration and evaluation assets up to the date
the Pakrut Gold Project was determined to be technically feasible and
commercially viable. All subsequent exploration and evaluation expenditure at
this site was capitalised within mining rights. Mining rights also included
the subsoil contract signature bonus and payments to obtain land use rights.
Construction in progress comprised the mine, smelting plant, tailings pond,
power lines and road construction work carried out at the Pakrut Gold Project
by contractors and directly by the Group. It also included the borrowing costs
associated with the loan to finance the mine, construction from China
Nonferrous Metals Intl Mining Co. Limited (“CNMIM”) and China Construction
Bank (“CCB”), together with associated legal, professional and consultancy
costs.
Mines under construction are not depreciated until construction is completed
and the assets are available for their intended use and signified by the
formal commissioning of the mine for production. Construction was completed at
the end of the 2018 financial year with the mine being deemed to be fully
operational at the start of the 2019 financial year and all accumulated
capitalised costs were transferred into Property, Plant and Equipment at 1
January 2019.
12. Property, Plant and Equipment
Land Office furniture Motor Plant and machinery Producing mines Assets under construction Total
US$000 and equipment vehicles US$000 US$000 US$000 US$000
US$000 US$000
Cost
At 1 January 2019 32 755 10,772 14,990 - - 26,549
Additions - 152 - 2,129 - 3,561 5,842
Transfer from MUC - - - - 398,639 761 399,400
Disposals - (320) (2,074) - - - (2,394)
At 31 December 2019 32 587 8,698 17,119 398,639 4,322 429,396
Additions - 106 - 1,836 - - 1,942
Transfer from MUC - - - - - - -
Transfer from Assets under Construction - - 4,322 - (4,322) -
-
Settlement of historical liabilities - - - - (20,214) - (20,214)
Disposals - - - - - - -
At 31 December 2020 32 693 8,698 23,277 378,425 - 411,125
12. Property, Plant and Equipment (continued)
Accumulated Depreciation
At 1 January 2019 - 611 7,909 10,607 - - 19,127
Charge for the year - 31 392 869 8,823 - 10,115
Disposal - (320) (2,074) - - - (2,394)
At 31 December 2019 - 322 6,227 11,476 8,823 - 26,849
Charge for the year - 32 414 2,580 8,045 - 11,072
Disposal - - - - - - -
At 31 December 2020 - 354 6,641 14,056 16,868 - 37,920
Net Book Value
At 31 December 2020 32 339 2,057 9,221 361,557 - 373,205
At 31 December 2019 32 265 2,471 5,643 389,816 4,322 402,548
In 2019 as the mine entered full production, mines under construction were
transferred into Property, Plant & Equipment under the sub-category of
Producing mines as presented above, and depreciation/depletion charged as per
the accounting policies.
The carrying value of the PPE, most notably producing mines, and the
depreciation / depletion methodology used, are both considered to be key
accounting judgements. Detail of these are disclosed in Note 2 along with the
related key estimates.
13. Subsidiary Undertakings
The Group had the following subsidiary undertakings as at 31 December 2020:
Name of Company Holding Country of Incorporation Proportion of Voting Rights held Nature of Business Registered addresses
Directly held
Kryso Resources (BVI) Limited Ordinary shares British Virgin Islands 100% Holding Company 190 Elgin Avenue, Grand Cayman, KY1-9005, Cayman Islands
(CNG)
Kryso Resources Limited Ordinary shares UK 100% Holding Company Unit 2.24, the Plaza 535 Kings Road
(CNG)
Indirectly held
International Mining Supplies and Services Limited (BVI holds 100% share) Ordinary shares UK 100% Service Company Unit 2.24, the Plaza 535 Kings Road
(BVI)
LLC Pakrut (BVI holds 100% share) Ordinary shares Tajikistan 100% Mineral exploitation, development and mining Bahor district, Vahdat, Tajikistan
(BVI)
14. Financial Instruments by category
Financial assets at amortised cost
US$000
31 December 2020
Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments 3,016
Cash and cash equivalents 27,196
Total 30,212
Financial liabilities at
amortised
cost
US$000
31 December 2020
Liabilities per Statement of Financial Position
Borrowings 388,741
Provisions for other liabilities and charges 995
Trade and other payables, excluding non-financial liabilities 52,363
Total 442,099
14. Financial Instruments by category (continued)
Financial assets at amortised cost
US$000
31 December 2019
Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments 3,137
Cash and cash equivalents 11,120
Total 14,258
Financial liabilities at amortised cost
US$000
31 December 2019
Liabilities per Statement of Financial Position
Borrowings 371,113
Provisions for other liabilities and charges 913
Trade and other payables, excluding non-financial liabilities 77,050
Total 449,076
15. Inventories
2020 2019
US$000 US$000
Gold - -
Construction materials and processing equipment 15,911 16,856
15,911 16,856
The inventory balance in 2020 relates to raw materials and semi-finished
products used in gold production.
16. Trade and Other Receivables
Group Group
2020 2019
US$000 US$000
Other receivables 3,016 3,137
Prepayments and deposits 2,633 1,629
Total 5,649 4,766
None of the receivables are past due. The fair values are equal to the
carrying amounts.
Other receivables includes $2,758,418 due from related party CNMIM in relation
to funds received from the insurance provider after the snowfall disaster,
which were received on behalf of CNG.
17. Borrowings
2020 2019
US$000 US$000
Bank borrowings 99,550 95,000
Other loans 289,191 276,113
Total 388,741 371,113
Non-current portion 19,822 103,586
Current portion 368,919 267,527
The fair value of borrowings equals their carrying amounts, as the impact of
discounting is not significant.
CNMIM loan
In accordance with the terms of the Subscription Agreement and Warrant
Instrument dated 27 July 2010 between Kryso Resources Limited (formerly Kryso
Resources Plc) and CNMIM, a subsidiary Company of significant shareholder
China Nonferrous Metals Mining (Group) Co. Limited (“China Nonferrous”),
CNMIM was required to use its best endeavors to secure mine funding for the
construction and development of the Pakrut Gold Project.
The USD tranche of the loan has been settled in full and US$Nil was
outstanding as at 31 December 2020 (2019: US$Nil). The amount outstanding on
the RMB tranche of the loan as at 31 December 2020 was US$12,683,599 (2019:
US$12,683,599).
CNMC loans
The loan agreement between CNMC International Capitals Company Limited and
China Nonferrous Gold Limited was signed on 20 September 2017. Under this
agreement, CNMC International Capitals Company Limited provided a loan
facility of US$6,500,000 to CNG. This loan was used to improve the daily
business operations of CNG.
The full amount of the loan was drawn down on the 20 September 2017. The loan
contains annual fixed interest at 4%, however where the loan is used for a
purpose other than that stated in the contract (see comments above), the
proportion of the loan used will incur interest at a fixed rate of 8% per
annum. Payment of interest is made quarterly.
During 2019, the loan was transferred from CNMC International Capitals Company
Limited to another member of the group, CNMC Trade. On 15 July 2020, a loan
extension agreement was signed extending the repayment date until 20 December
2020. The extension agreement incurs interest at a rate of 6 months LIBOR +
3.7%.
On 26 March 2021, a loan extension agreement was signed extending the
repayment date until 20 December 2022. The extension agreement incurs interest
at a rate of 3 months LIBOR + 3.25%.
A loan agreement between CNMC International Capitals Company Limited and China
Nonferrous Gold Limited was signed on 27 April 2016. Under this agreement,
CNMC International Capitals Company Limited provided a loan facility of
US$120,000,000 to China Nonferrous Gold Limited. This loan was used to
refinance the previous ICBC loan of the same amount, and the purpose of these
funds was for development, operations and management of the Pakrut Gold
Project, including operating and related expenses.
The full amount of the loan was drawn down on the 27 April 2016. The loan
contains annual fixed interest at 4%, however where the loan is used for a
purpose other than that stated in the contract (Pakrut Mine – see comments
above), the proportion of the loan used will incur interest at a fixed rate of
8% per annum. Payment of interest will be made biannually in June and
December.
During 2019, the loan was transferred from CNMC International Capitals Company
Limited to another member of the group, CNMC Trade. On 15 July 2020, a loan
extension agreement was signed extending the repayment date until 20 December
2020. The extension agreement incurs interest at a rate of 6 months LIBOR +
3.7%.
The Group has pledged its 100% equity interest in China Nonferrous Gold
Limited to CNMC as security for repayment of the loan.
A loan agreement between CNMC International Capitals Company Limited and China
Nonferrous Gold Limited was signed on 27 May 2016 for a total amount of
US$20,000,000, which was drawn down in full on 27 June 2016. The loan period
per the contract was 6 months, from 27 May 2016 to 26 November 2016.The loan
contains a fixed interest rate of 4% per annum, which is calculated on a
monthly basis from the 21(st) of the month to the 20 of the following month.
During 2018, the loan was transferred from CNMC International Capitals Company
Limited to another member of the group, CNMC Trade. A further extension has
been signed extending the repayment date until 26 November 2020. On 26 March
2021, a loan extension agreement was signed extending the repayment date until
20 December 2022. The extension agreement incurs interest at a rate of 3
months LIBOR + 3.25%.
A loan agreement between CNMC International Capitals Company II Limited (CNMC
International) and China Nonferrous Gold Limited was signed on 8 February 2018
for a total amount of US$90,000,000, which was drawn down in full on 9
February 2018. The loan was provided for the purposes of the construction,
operations and management of the Pakrut Gold Project, including operating and
related expenses. This use is in line with the terms of the agreement. The
loan period per the contract was from 9 February 2018 to 8 December 2020.
The loan contains a fixed interest rate of 5.8% per annum, which is calculated
on a half yearly basis from the 21(st) of December to the 20(th) June, and
from the 21(st) June to 20(th) December. Payment of interest will be made
biannually in June and December of each year. Where the loan is used for a
purpose other than that stated in the contract (see comments above), the
proportion of the loan used will incur interest at a fixed rate of 11.6% per
annum. At the repayment date, interest will be charged at 8.7% on any unpaid
balance. On 8 February 2021 US$20,000,000 was repaid, and on 26 March 2021, a
loan extension agreement was signed extending the repayment date of
US$70,000,000 until 20 December 2022. The extension agreement incurs interest
at a rate of 3 months LIBOR + 3.25%. The Company has repaid
US$9.26m（¥60million）of its outstanding loan in June 2021.
CCB loans
The first loan agreement between China Construction Bank (“CCB”) and China
Nonferrous Gold Limited was signed on 14 June 2016. Under this agreement CCB
provided a loan facility of US$100,000,000 to China Nonferrous Gold Limited.
This loan was used to refinance a previous loan from CNMC of US$55,000,000,
with the remainder used for development, operations and management of the
Pakrut Gold Project, including operating and related expenses. This use is in
line with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued by China
Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under
the terms of the loan agreement, for an aggregate amount of not less than
US$103,092,783.51, with validity of not less than 60 months in favor of CCB.
The full amount of the loan was drawn down on 30 June 2016. The loan incurs
interest at a rate of 3 months LIBOR + 2.1% and is payable in arrears at the
end of each applicable interest period.
The loan is repayable in 8 installments commencing 18 months from drawdown
date and every 6 months thereafter as follows:
31/12/17 – US$5,000,000
30/06/18– US$5,000,000
31/12/18 – US$5,000,000
30/06/19 – US$5,000,000
31/12/19 – US$5,000,000
30/06/20 – US$5,000,000
31/12/20 – US$5,000,000
30/06/21 – Balance of loan
The second loan agreement between China Construction Bank (“CCB”) and
China Nonferrous Gold Limited was signed on 29 January 2019. Under this
agreement CCB provided a loan facility of US$20,000,000 to China Nonferrous
Gold Limited. This loan was used for the purpose of working capital for Pakrut
Gold Project. This use is in line with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued by China
Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under
the terms of the loan agreement, for an aggregate amount of not less than
US$20,620,000, with validity of not less than 12 months in favor of CCB.
The full amount of the loan was drawn down on 29 January 2019. The loan incurs
interest at a rate of 3 months LIBOR + 1.2% and is payable quarterly in
arrears. It has been repaid on 29 January 2021.
The third loan agreement between China Construction Bank (“CCB”) and China
Nonferrous Gold Limited was signed on 9 March 2020. Under this agreement CCB
provided a loan facility of US$14,550,000 to China Nonferrous Gold Limited.
This loan was used for the purpose of working capital for Pakrut Gold Project.
This use is in line with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued by China
Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under
the terms of the loan agreement, for an aggregate amount of not less than
US$30,000,000, with validity of not less than 12 months in favor of CCB.
The full amount of the loan was drawn down on 13 April 2020. The loan incurs
interest at a rate of 3 months LIBOR + 1.15% and is payable quarterly in
arrears. It has been repaid on 16 March 2021.
18. Trade and other payables
2020 2019
US$000 US$000
Trade and other payables 52,363 77,050
52,363 77,050
Trade and other payables include amounts due of US$46,354,408 (2019:
US$61,010,581) in relation to mine development.
19. Provisions for Other Liabilities and Charges
Rehabilitation Total
US$000 US$000
At 1 January 2020 913 913
Unwinding of discount 82 82
At 31 December 2020 995 995
All provisions are non-current.
The Group makes full provision for the future cost of rehabilitating the mine
site and associated production facilities on a discounted basis at the time of
constructing the mine and installing those facilities.
The rehabilitation provision represents the present value of rehabilitation
costs relating to the Pakrut mine site, which are expected to be incurred up
to 2030, which is the expiration date of the mining license. The provision has
been created based upon the feasibility study. Assumptions based upon the
current economic environment within Tajikistan have been made, which
management believes are a reasonable basis upon which to estimate the future
liability and will be reviewed regularly to take into account any material
changes to the assumptions. The actual rehabilitation costs and works required
will ultimately depend upon future market prices for the necessary
rehabilitation works required, changes in future regulatory requirements and
the timing on when the mine ceases to operate commercially.
The discount rate used in the calculation of the provision as at 31 December
2020 is 9% per annum. The value of the undiscounted provision is US$2,481,000
(2019: US$2,481,000).
20. Treasury Policy and Financial Instruments
The Group operates informal treasury policies which include ongoing
assessments of interest rate management and borrowing policy. The Board
approves all decisions on treasury policy.
Facilities are arranged, based on criteria determined by the Board, as
required to finance the long-term requirements of the Group. The Group has
financed its activities by the raising of funds through the placing of shares
and through the issue and subsequent exercise of options and warrants.
There are no material differences between the book value and fair value of the
financial assets at the year end. Except for the impact of discounting on the
provisions for liabilities and other charges, there are no material
differences between the book value and fair value of financial liabilities at
the year end.
21. Share Capital
2020 2020 2019 2019
No. of Share No. of Share
ordinary Capital ordinary Capital
shares US$000 shares US$000
At 1 January (Ordinary shares of $0.0001) each 382,392,292 38 382,392,292 38
Issued during the year - - - -
At 31 December (Ordinary shares of US$0.0001 each) 382,392,292 38 382,392,292 38
All shares are authorised for issue and fully paid.
22. Share Based payments
Options can be granted to any employee of the Group in accordance with the
rules of the Group in accordance with the rules of the Unapproved Share Option
Scheme. The option price is not to be less than the initial Placing Price or
the price on the day of issue. The options cannot be exercised for a period of
at least one year from the date of grant. In the event of any employee to whom
options have been granted ceasing to be an employee of the Group he or she
will have a set period in which to exercise those options (depending on the
reasons for leaving), falling which, the options will lapse.
There were no share options outstanding at the year end.
23. Cash flow information
31 December 2020 31 December 2019
US$000 US$000
Cash flows from Operating Activities
Loss before income tax (5,451) (21,473)
Adjustments for:
Finance income (196) (270)
Finance costs 15,999 20,796
Depreciation 11,072 7,722
Foreign exchange loss 1,076 905
Change in working capital:
Inventory 945 487
Trade and other receivables (1,004) (904)
Trade and other payables (5,405) (7,039)
Other current assets 121 (154)
Other current liabilities (19) 3,554
Net Cash generated from Operating Activities 17,137 3,624
23. Cash flow information (continued)
Net debt reconciliation
31 December 2020 31 December 2019
US$000 US$000
Cash and cash equivalents 27,196 11,120
Borrowings – repayable within one year (368,919) (267,527)
Borrowing – repayable after one year (19,822) (103,586)
Net debt (361,545) (359,993)
31 December 2020 31 December 2019
US$000 US$000
Cash and cash equivalents 21,196 11,120
Borrowings – fixed interest rates (126,538) (116,685)
Borrowings – variable interest rates (262,204) (254,429)
Net debt (361,545) (359,993)
23. Cash flow information (continued)
Borrowings due within 1 year Borrowings due after 1 year
Cash at bank US$000 US$000 Total
US$000 US$000
Net debt as at 1 January 2019 8,363 (162,724) (182,285) (336,645)
Cash flows 2,757 10,000 (14,705) (1,948)
Interest accrued - - (21,400) (21,400)
Movement between current and non-current - (114,803) 114,803 -
Net debt as at 31 December 2019 11,120 (267,527) (103,586) (359,993)
Cash flows 16,076 (677) - 15,392
Interest accrued - - (16,950) (16,950)
Movement between current and non-current - (100,715) 100,715 -
Net debt as at 31 December 2020 27,196 (368,919) (19,822) (361,545)
24. Controlling Party
The Directors consider China Nonferrous Metals Mining (Group) Co. Limited
(“CNMC”) to be the ultimate controlling party, by virtue of their
shareholding and representation on the Board of Directors.
25. Contingent Liabilities
During 2018, a contract was entered into between LLC Pakrut & LLC WenJian,
a Company set up by a former employee of Pakrut (Dept. 2), to provide
outsourced services including the extraction of ore, delivery of ore to
smelting plant, cleaning of mine, mine development and construction works. LLC
WenJian is not considered to be a related party.
Although LLC WenJian hold the relevant license for the construction works, the
Company does not hold a license in accordance with the laws of Tajikistan
“On subsoil” and “On licensing of certain types of activities” for
implementing the other services they have been contracted to perform. This is
a breach of Tajik laws and regulations which could result in penalties being
imposed on both parties to the contract. The outcome of this situation is
unclear and could result in fines imposed with the worst-case scenario being
that Pakrut could have their own license rescinded by the Tajik government.
There is no visibility surrounding the value or nature of any penalty at this
time.
26. Related Party Transactions
The amount paid by the Company and Kryso Resources Limited to CNMIM for
interest on the loan in 2020 amounted to US$Nil (2019:US$Nil). The amount due
to CNMIM as at 31 December 2020 was US$19,821,708 (2019: US$18,586,242). CNMIM
is a significant shareholder of China Nonferrous Gold Limited and Boyi Liang
and Hui Zhang are CEO and President of CNMIM respectively. During 2020, CNG
did not pay any interest to CNMC.
The amount payable by the Company to CNMC for interest on the loans in 2020
amounted to US$5,292,500 (2019: US$5,989,013). The amount due to CNMC as at 31
December 2020 was US$106,709,291 (2019: US$101,402,291). CNMC is the ultimate
parent of China Nonferrous Gold Limited and Feng Delin is Chief Accountant of
CNMC.
27. Related Party Transactions (continued)
During 2020, 15MCC (a related party to CNG through being a subsidiary of CNMC,
the Company’s ultimate controlling party) provided equipment and materials,
together with installation and construction work to the Group amounting to
US$Nil (2019: $Nil) and the Group advanced payments to 15MCC amounting to
US$1,524,503 (2019: $3,945,580). As at 31 December 2020, the total liability
due to 15MCC was US$15,917,473 (2019: US$28,541,552).
In 2015 the Group entered into an additional consultancy contract with CNMC
Hongtoushan Fushun Mining Co Ltd., through CNMIM as agent as follows:
Smelting and Processing Agreement
CNMC Hongtoushan Fushun Mining Co Ltd. (CNHFMG) is a copper mine and
processing operation owned by CNMC. On 7th of September 2015, the Group
entered into a smelting and processing agreement with CNHFMG.
Under the terms of the Agreement, CNG will pay to CNHFMG an amount of RMB
17.99 (approximately US$2.8) per gram of finished gold once the Project
commences the 12-month production period. Prior to this period the Company
will cover the labour and associated costs of CNFMG. Once in production, in
the event the recovery of the plant is above the Beijing General Research
Institute of Mining and Metallurgy forecast rate over the life of production
of 82.99 percent, CNHFMG will share 40 percent of the profits from the upside
directly due to the increased recovery. In the event recovery is below 75
percent, CNHFMG will bear 20 per cent of any loss incurred by the Company from
the Project due to directly to recovery levels.
During 2020, CNHFMG provided equipment and materials, together with
installation and construction work to the Group amounting to US$Nil
(2019:US$Nil) and the Group advanced payments to CNHFMG amount to
US$304,887(2019: US$166,962). As at 31 December 2020, the total liability due
to CNHFMG was US$575,565.
During the year of 2020 CNMC provided a guarantee for standby letters of
credit amounting to US$30,000,000 as security for the Group’s bank loan
facility with China Construction Bank. During the year of 2019, CNMC provided
a guarantee from standby letters of credit amounting to US$134,020,629 as
security for the Group’s bank loan facility with China Construction Bank.
27. Related Party Transactions (continued)
During 2020, there is a total receivable amount of $2,739,702 (2019:
US$2,739,702 ) owed by CNMIM for the insurance claim on the 2017 snowfall
disaster which is held on the Group’s behalf. There is also a total amount
of US$25,079 payable by the entities within the group owed to CNMIM as at 31
December 2020 (2019: US$25,079).
As at 31 December 2020, there is a total payable amount of $226,080 (2019:
$226,080) owed to Daye Nonferrous Metal Group Holding Co., Ltd, a subsidiary
of the ultimate controlling party, CNMC.
28. Events after the Reporting Period
In January 2021, the Company executed an agreement with China CITIC Bank
Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to
CNY 300million which is equivalent to US$46.37m. The CITIC Loan facility is
for a maximum of 12 months and is repayable 12 months from first drawdown. The
terms of the CITIC Loan includes an annual interest rate at 2.7% plus 6 month
LIBOR. US$20m of the CITIC Loan has been drawn down in January 2021 to replace
the China Construction Bank (CCB) Macau loan of US$20m which became due in
January 2021. Second drawdown of US$14.55m in March 2021 was used to repay the
CCB Asia loan of US$14.55m which was due for repayment in March 2021.
The Group has continued production throughout 2020 despite the outbreak of
COVID-19, enabling it to raise sufficient working capital. As announced on 25
June 2021, The Company has executed an agreement with Bank of Shanghai (Hong
Kong) Limited (“BOS”) for a loan facility of up to US $65 million (the
“BOS Loan”). The Loan facility is for a maximum of 24 months and is
repayable 24 months from the drawdown. The total amount of US$65m of the BOS
Loan is expected to be drawn down before the end of the month in order to
repay the CCBC Macau loan, of which US $65m remains outstanding.
As announced in February 2021, the Company repaid US$20m of its outstanding
loan with CNMC International Capitals Company Ⅱ Limited (“CNMC
International”) in accordance with its terms. The Company extended the
repayment period of loans in place with CNMC Trade Company Limited (CNMC
Trade) and CNMC International, totaling US$216.50 million, to December 2022.
Then in June 2021，the Company repaid US$9.26m（¥60million） of its
outstanding loan with CNMC International. The Company currently has total debt
facilities (including banking facilities), before interest, of c.US$319.5
million.
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