REG-China Nonferrous Gold Limited Final Results for the twelve months ended 31 December 2022
30/06/2023 13:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230630:nBw4YLsNfa&default-theme=true
Final Results for the twelve months ended 31 December 2022
CHINA NONFERROUS GOLD LIMITED
Chief Executive Officer’s Statement (continued)
The information contained within this announcement is deemed by the Company to
constitute inside information under the Market Abuse Regulation (EU) No.
596/2014.
China Nonferrous Gold Limited
(“CNG” or the “Company”)
Final Results
for the twelve months ended 31 December 2022
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 2022.
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 now 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=53438255&newsitemid=20230630696796&lan=en-US&anchor=www.cnfgold.com&index=1&md5=e9727901228294c7a2ad38f57620ba6c)
).
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)
or contact:
China Nonferrous Gold Limited
Feng Zhishuo, Managing Director
Tel: +86 10 8442 6627
WH Ireland Limited (NOMAD & Broker)
Katy Mitchell (mailto:Katy.Mitchell@whirelandcb.com) , Andrew de Andrade
Tel: 0207 220 1666
Blytheray (PR)
Tim Blythe, Camilla Horsfall
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 2022.
The Company made significant achievements in 2022 and became an important
gold-production enterprise in Tajikistan. The Pakrut gold mine achieved its
internal production targets for 2022, 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.
Chief Executive Officer’s Statement
As CEO of the board, it gives me pleasure to present the CEO’s statement of
the annual report for the year ended 31 December 2022. The Pakrut gold mine
has maintained normal operational capacity from financial year 2019 to date.
The Company made achievements in 2022 and in recent years has become an
important gold-production enterprise in Tajikistan. The Pakrut gold mine
achieved its own, internal production targets for 2022, which brings steady
cash flows to support the sustainable development of the Company’s ongoing
operations.
Operation
During the year ended 31 December 2022, a total of 688,232 tons of ore was
extracted from the Pakrut gold mine (2021: 625,078 tons), and a total of
662,421 tons of ore were processed at a grade of 2.19 g/t (2021: 650,995 tons
of ore processed at a grade of 2.29 g/t), 19,327 tons of gold concentrate were
produced at a grade of 68.50 g/t (2021: 19,918 tons of gold concentrate
produced at a grade of 69.22 g/t), 1,200 kg gold bullion were poured with a
comprehensive recovery rate of 91.63% (2021: 1,249 kg gold bullion with a
recovery rate of 91.61%). In addition, a total of 86 drill holes were
completed, approximately 6,259m, with the associated assays expected back from
the laboratory in due course. A further announcement will be made at that
time.
COVID-19
As the impact of COVID-19 on the global economy has now significantly reduced,
Pakrut has also lifted its quarantine policy. Local employees can commute to
work as normal every day. The Company still pays great attention to
employees’ physical health, and has provided a new equipped clinic.
Currently, there are no COVID-19 cases in Tajikistan. The number of workers at
the mine site remains sufficient to meet the required production targets, so
the production target of 2022 was not affected by Covid. Furthermore, the
suspended flights (introduced due to Covid restrictions) which could have
restricted access to the site for key employees during the year, have now
resumed. From November 2022, flights between China and Tajikistan were
officially resumed, and the quarantine policy was also lifted, making it much
easier for Chinese employees to travel back and forth.
Financial results
The development and construction work at the Pakrut Gold Project was finalised
at the end of the 2018 financial year. The Company has therefore generated
revenue from full operational production from the beginning of the 2019
financial year. Administration expenditure for the year under review was
US$25,109,000 (2021: US$19,879,000). The main reason for the increase this
year is due mainly to the increase in employee compensation in 2022. It is
worth noting this year that due to indicators of impairment at the Pakrut
mine, an impairment charge of US$266m has been recorded in the current year in
respect of the Property, plant and equipment (including Producing mines).
The overall loss incurred by the Company was US$287,043,289 (2021:
US$6,247,062). Pakrut generated revenue from gold sales in the year of
US$68,524,835 (2021: US$71,991,962). The main reason for the decrease in
revenue was a decrease of 49 kilograms in gold sales compared to last year
which resulted from slightly decreased output levels; revenue was also
impacted by the decline in average gold price from $1,800/oz during 2021 to
$1,788/oz.
Financing Arrangements
In January 2022, the Company executed a loan agreement with CNMC Trade Company
Limited (“CNMC Trade”) for a loan of up to USD $34.55 million (the” CNMC
Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank
Corporation Limited (“CITIC”) bank facilities of USD $34.55m (being
USD$20m advanced in January 2021 (“First Loan”) and USD$14.55m advanced in
March 2021 (“Second Loan”).
In January 2022, the Company executed a foreign currency working capital loan
agreement with CITIC for a loan facility of up to US$20 million (the “new
CITIC Loan”), with an annual interest at 3.00% over 6 month LIBOR, which was
used to repay US$20m of the CNMC Loan. In December 2022, the Company repaid a
further US$1m of the CNMC Trade loan.
The existing loan facilities from CITIC and Bank of Shanghai (“BOS”)
totaled US$85 million at the year end and the CNMC and CNMIM loan facilities
totaled US$294m at the year end so that, including accrued interest, the total
amount of borrowings payable by the Company was US$379m at the year end
(approximately US$318m without interest). The existing loans in place with the
Company’s major shareholder (and its associates) were due for repayment
during the 2022 financial year, although repayment has not yet been requested.
Draft loan renewals for all existing loans are currently in circulation. If
progressed these loans would be deemed to be related party transactions
pursuant to Rule 13 of the AIM Rules for Companies, because of the size of the
loans and the relationship between the providers of the loan and the
Company’s major shareholder, therefore execution of these arrangements is
subject to the relevant regulatory approvals and processes. At this stage the
renewal of these loans cannot be guaranteed. Please refer to the ‘going
concern’ disclosure below for further information of loan and financing
matters.
The Company has continued production throughout 2022 despite Covid-19 in terms
of ongoing travel restrictions between China and Tajikistan, enabling it to
generate sufficient working capital for its daily operations. However, in
order to ensure the repayment of the existing loans as detailed above, a
broader refinancing will be required. The Company gradually repaid
interest-bearing liabilities to reduce the asset liability ratio. The US$85
million of loans from external lenders (banks) in place at year end were
refinanced through additional shareholder loans in 2023 – see Events after
the Reporting period section below for further information, as well as going
concern disclosure (see below). The Company will continue to engage with other
commercial banks as well as with its major shareholder in order to ensure
appropriate capital arrangements are in place to enable the financing costs
and principal repayments of the loans to be satisfied.
Events after the Reporting Period
In January 2023, the Company executed a loan agreement with CNMC Trade Company
Limited (“CNMC Trade”) for a loan of up to USD $19.50 million (the “CNMC
Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR. No
extra fees were payable to CNMC Trade for this arrangement, which is repayable
within 3 months from the date of drawdown. CNMC Trade has subsequently
indicated it will to extend this loan for one year from the initial repayment
date, although as set out above, this would be a related party transaction
pursuant to Rule 13 of the AIM Rules for Companies, and is subject to relevant
regulatory approvals and processes, so cannot be guaranteed. This CNMC Loan
was used to repay the existing China CITIC Bank Corporation Limited
(“CITIC”) bank facilities of USD $20m.
In June 2023, the Company executed a loan agreement with CNMC Trade Company
Limited (“CNMC Trade”) for a loan of up to USD $65 million (the “CNMC
Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR, which
is repayable within 3 months from the date of drawdown. This CNMC Loan was
used to repay the existing Bank of Shanghai (Hong Kong) Limited (“BOS”)
loan facility of USD $65m, which was due for repayment on 9 June 2023.
In the first quarter of 2023, the Company repaid US$1.9m of the CNMC Trade
Company Limited (“CNMC Trade”) loan, which was drawn on September 20,
2017.
As set out above, CNMC Trade Company Limited (CNMC Trade), CNMC International
Capitals Company ⅡLimited (CNNICCⅡ) and CNMIM have indicated they will
extend certain existing loans and the extension contracts are in circulation,
subject to regulatory approval and processes pursuant to Rule 13 of the AIM
Rules for Companies, so this cannot be guaranteed. At the date of this report,
the Company had a total of US$316.07 million of debt facilities exclusive of
interest (including banking facilities without interest).
The Company continues to explore a wider refinancing of its loans. Refer also
to Note 28.
In February 2023, the area surrounding the mine site experienced snowfalls
resulting in several avalanches and landslides. On 16 March 2023 the power
supply was re-established and production has resumed at the Pakrut mine site.
On 11 April 2023, the road to the mine site was repaired and re-opened, and
the smelting plant resumed production. Accordingly, normal operations have
resumed at site. The Directors believe that, notwithstanding this
interruption, they will be able to recover gold production to similar levels
to last year. Refer also to Note 28.
Outlook
The Company is maintaining its current production capacity. Whilst maintaining
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.
While we have taken big strides in the production and operation of the Pakrut
gold mine and has achieved much, there are still challenges to overcome and
targets to meet. It was disappointing to receive the updated SRK Report (see
announcement dated 24 April 2023) which updated the JORC Compliant Resource
and reduced the resource at the Company’s Pakrut project and the estimated
life of mine. In addition, and as set out in the going concern statement
below, the majority of the Company’s outstanding loans (approximately
£387m) fall to be paid before the end of the current financial period and at
this stage the Company does not have the financial resources to repay them.
The Directors believe that its major shareholder and associated parties will
continue to support them through the extension of existing loan agreements
(subject to regulatory approval and processes) but there can be no guarantee
that this will occur. The Directors continue to explore all financing
opportunities and will update the market in due course as these progress.
In closing, I would like to take this opportunity to thank all our employees,
management and advisers for their continued hard work in 2022. 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.
Feng Zhishuo
Chief Executive Officer
30 June 2023
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor
Auditors Opinion
We have audited the Company financial statements of China Nonferrous Gold
Limited (the ‘Company’) for the year ended 31 December 2022 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 Company financial statements:
* give a true and fair view of the state of the Company’s affairs as at 31
December 2022 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.
Material uncertainty related to going concern
We draw attention to the Going concern section within the Report of the
Directors below, as well as the going concern accounting policy and Note 28 to
the financial statements, which indicates that the Company’s ability to
continue as a going concern is dependent on continued financial support
regarding non-repayment of its current US$387 million (including accrued
interest) of shareholder and related party loans. There are currently no
formal agreements in place in respect of any refinancing, nor has a financial
support letter been provided to the Company in the current year, and there is
no guarantee that the continued financial support will be forthcoming.
As stated in the disclosures referred to above, these events or conditions,
along with the other matters as set forth in those disclosures, indicate that
a material uncertainty exists that may cast significant doubt on the
Company’s ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
In auditing the financial statements, we have concluded that the directors’
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 Company’s ability to continue to adopt the going concern
basis of accounting included:
* Obtaining an understanding of management’s processes for evaluating the
appropriateness of the use of the going concern basis of accounting;
* Obtaining management’s cash flows forecasts for a period of at least 12
months from the date of expected approval of the financial statements and
comparing these forecasts to the life of mine plan to ensure consistency;
* Holding discussions with management surrounding their expectations with
regards to refinancing and their recent and ongoing communications with the
lenders, and assessing the likelihood of ongoing financial support of the
relevant parties in light of historic evidence;
* Testing the mathematical accuracy of the cashflow forecast model;
* Challenging and sensitising the key assumptions used in management’s base
case model, in particular the forecast production volumes and costs through
comparison to historical actuals and the life of mine plan within the updated
Independent Technical Report, and assessing the commodity price assumptions
through comparison third party forecasts and publicly available information;
and
* Considering whether the disclosures relating to going concern are appropriate.
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$920,000 (2021: US$3,900,000) for the Company financial statement using an
average of 5% of adjusted loss before tax (adjusted for impairment charge) and
1.5% of gross assets (2021: 1% of gross assets) as a basis.
We consider gross assets to be the most relevant determinant of the
Company’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 Company is
dependent on its ability to fund operations going forward, as well as on the
valuation of its assets, which represent the underlying value of the Company.
As the mine has been in full operational production for several years as at 31
December 2022, it is considered appropriate in the current year to use a
benchmark that includes a measure of profitability together with gross assets.
Given the significant impairment charge during 2022 following the revised
Independent Technical Report, an adjustment to the loss before tax to exclude
this charge from the calculation is considered appropriate in order to avoid
any distortion to sampling and coverage, as this charge will be separately
audited.
Whilst materiality for the financial statement as a whole was set a
US$920,000, each significant component of the Company was audited to an
overall materiality ranging between US$644,000 and US$820,000 with performance
materiality set at 70% (2021: 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
property, plant and equipment (including 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
Company’s operating components located in Tajikistan, with the Company’s
key accounting function for all being based in Tajikistan.
The Company’s Tajik operations are audited by a component auditor. The audit
team discussed significant events occurring during the year and post year-end
period with the component auditor and performed an onsite review of the
component auditor’s working papers, including review of planning and
completion stage Company reporting. The Company audit team also performed a
site visit to the Pakrut gold mine and the smelting plant in Tajikistan. The
Company audit team are responsible for the scope and direction of the audit
process. Work on other components was performed by PKF Littlejohn LLP.
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor
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. In addition to the matter
described in the material uncertainty related to going concern section, we
have determined the matter described below to be the key audit matter to be
communicated in our report.
Key Audit Matter How our scope addressed this matter
Valuation of Property, Plant and Equipment including Producing Mines (Notes 2
and 13)
The Company holds Property, plant and equipment (‘PPE’) of $65m on its Our work in this area included:
Consolidated statement of financial position. This is stated after an
impairment charge of $266m based upon the updated Independent Technical Report
produced by third party expert, SRK Consulting, which stated a significantly *Areview of management’s impairment assessment, including consideration of
lower level of reserves compared to the original Technical Report issued in any net present value (‘NPV’) calculation used. Providing challenge to the
2014. There is a requirement to undertake an impairment review where key inputs and assumptions and corroborating where possible;
indicators of impairment exist. An impairment assessment has been carried out
*Undertaking sensitivity analysis on the NPV calculations to assess the impact
using value in use calculations across the remaining estimated mine life. Such on the headroom for reasonably possible changes to key assumptions;
calculations require management to exercise a significant level of judgement
*Ensuring valid mining licenses are held as at the year-end;
and estimation.
*Considering any potential impairment indicators through discussion with
management and the onsite visit to the mine site during the audit fieldwork,
There is a risk that the carrying value of mine assets is overstated and not as well as review of announcements to the market and board minutes for
fully recoverable, taking into consideration all relevant factors including evidence of impairment;
current and future mined ore grades, production quantities, revenues, direct
*Reviewing accounting entries posted in respect of impairment of PPE to ensure
costs and discount rates, which all feed into the value in use calculations. appropriateness in accordance with IAS 36;
*Performing a review of the updated Independent Technical Report prepared by
management’s expert on the Pakrut Gold Project. Obtaining an understanding
of, corroborating, and providing challenge to, the key assumptions used within
this report in arriving at a net present value for the Pakrut Gold Project –
including forecast gold price, annual production volumes, grades, discount
rate and cost inputs;
*Holding direct discussions with management’s expert in regard to the basis
of preparation of the updated Technical Report, the rationale for key
assumptions used, and interpretation of results;
*Assessing the independence and competence of management’s expert; and
*Review of disclosures relating to PPE, including disclosures relating to key
sources of judgement and estimation used in management’s assessment of
carrying value and impairment.
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 Company 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 Company 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 Company 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 Company 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
discussions with the internal legal team in Pakrut conducted by the component
auditor. 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 Company in
this regard to be those arising from:
* AIM Rules
* Mining 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; and
* A review of component auditor’s work surrounding local laws and regulations
in Tajikistan, including onsite discussion with the component auditor at their
offices in Tajikistan.
* We also identified the risks of material misstatement of the financial
statements due to fraud. We considered, in addition to the non-rebuttable
presumption of a risk of fraud arising from management override of controls,
that there is potential for management bias with regard to assessment of the
carrying value and impairment of PPE including producing mines. The work
performed in this area is detailed above.
* 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/auditorsresponsibilities
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.frc.org.uk%2Fauditorsresponsibilities&esheet=53438255&newsitemid=20230630696796&lan=en-US&anchor=www.frc.org.uk%2Fauditorsresponsibilities&index=2&md5=4bb20c0a55b3a02dc25ed9926fe6ff41)
. 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 20 March 2023. 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.
Signature
David Thompson (Engagement Partner)
For and on behalf of PKF Littlejohn LLP
Registered Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
30 June 2023
The Directors present their annual report and the audited Financial Statements
of China Nonferrous Gold Limited for the year ended 31 December 2022.
Principal Activity
The principal activity of the Company is that of mineral exploitation, mine
development and mining.
BUSINESS REVIEW
Introduction
China Nonferrous Gold Limited (“CNG”) is a mineral exploration,
development and mining Company. The Company’s project is located in central
Asia, having been discovered during the Soviet era. The principal focus of the
Company is the development and exploitation of the Pakrut Gold Project in
Tajikistan.
CNG, following the scheme of arrangement between Kryso Resources Limited
(formerly Kryso Resources Plc) and its shareholders, was admitted to trading
on AIM on 31 July 2013 in order to continue funding the development of the
Pakrut Gold Deposit and the exploration of the Pakrut License Area, and to
better position the Company to obtain and acquire other gold and base metal
deposits in Tajikistan.
The Company’s Executive Directors have a proven track record of operating in
Tajikistan and they believe CNG to be the first foreign Company to obtain a
100% interest in a mining and exploration project in the country.
A review of the activities of the Company during 2022 is provided in the
CEO’s Statement.
Strategy
CNG’s strategy is to maximize shareholder value through the development of
the Company’s exploration properties, proving up additional resources.
CNG’s medium term objective is to become a mid-tier gold producer and
maintain strategic strength, and strive to achieve the production goal of
Pakrut. The directors of CNG have a track record of operating successfully in
Tajikistan and believe CNG to have been the first foreign Company to obtain
100% ownership of a mining and exploration project in Tajikistan.
OPERATING REVIEW
During 2022 the Company has:
* Reached production capacity of 1,886 tons per day from January 2022;
* Processed a total of 662,421 tons of ore at a grade of raw ore of 2.19g/t;
* The recovery rate of processing was 91.14% and the recovery rate of smelting
was 91.63%;
* 19,327 tons of gold concentrate were produced at the grade of 68.50g/t, 1,200
kg gold bullion were poured with comprehensive recovery rate of 91.63%; and
* Generated revenue from production of US$68,524,835.
Pakrut Gold Deposit and License Area
In April 2004, LLC Pakrut, a wholly owned subsidiary of the Company, was
granted a license and geological lease to explore and exploit the Pakrut
License Area which comprises the Pakrut gold deposit and the surrounding 6,300
hectare exploration area located in the metalliferous southern Tien-Shan Fold
Belt. This belt is reputed to have the second largest known gold resource
after the Witwatersrand in South Africa. The exploration license was valid for
10 years and expired on 1 April 2014. An application has been submitted in
accordance with the required procedures to renew the exploration license. The
renewal application is being considered by the Government of Tajikistan.
Exploration and evaluation activities can be carried out at the Pakrut Gold
Deposit in the area covered by the mining license.
In November 2011, the Government of the Republic of Tajikistan issued the
Pakrut 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 current mining license is valid until 2 November 2030.
FINANCIAL REVIEW
The results for the year ended 31 December 2022 were as follows:
2022 2021
US$000 US$000
Revenue 68,525 71,992
Cost of sales (40,085) (37,256)
Impairment of Property, Plant and Equipment (265,953) -
Administrative expenses (25,109) (19,879)
Foreign exchange gain/(loss) 1,075 (1,853)
Other operating expenses (213) (2,416)
Total costs (330,285) 61,404
% Administrative expenses to total costs 39.03%* 32.37%
Operating (loss)/profit (261,760) 10,587
Add: interest receivable 2 6
Less: interest payable (15,242) (10,826)
Loss on ordinary activities before taxation (277,000) (233)
Earnings per share (cents) (750.65) (1.63)
*Calculated excluding impairment charge as non recurring
The main financial Key Performance Indicator (‘KPI’) for the Company is
administration costs as a percentage of total costs (excluding impairment
charge) which continues to be at an acceptable proportion. In 2022, KPI index
is at 39.03% (2021: 32.37%). The increase in administration costs is due to
the scrapping of a batch of ineffective fixed assets by Pakrut last year and
the increase in employee compensation in 2022. The impairment of producing
mine is non-recurring and is excluded from total cost used to calculate the
KPI.
Revenue is also considered to be a KPI and will be increasingly important to
monitor now that the Company has entered full production. Revenue for the year
was US$68.53 million (2021: US$71.99 million). Considering the decline in
average gold price from $1,800/oz during 2021 to $1,788/oz during 2022, as
well as slightly decreased output levels, this decrease is in line with
expectations.
Corporate Responsibility
The Company seeks to build a sustainable and profitable business to maximize
the return to its shareholders and in doing so will not knowingly overlook its
Corporate Responsibilities.
Certain Directors also serve as Directors of other companies involved in
natural resource exploration, development and mining and consequently there
exists the possibility for such Directors to be in a position of conflict. Any
decision made by such Directors involving the Company will be made in
accordance with their duties and obligations to deal fairly and in good faith
with the Company and such other companies. In addition, such Directors will
declare, and refrain from voting on, any matter in which such Directors may
have a conflict of interest.
People
The Company recognises that the success of its ventures is based on the
well-being and health of its employees. All employees have to pass through an
induction process where they are briefed on the Company’s health and safety
policies. The safety of the Company’s employees is of the utmost importance
and is therefore taken seriously in all areas in which the Company’s
employees operate.
The Company is also committed to the development of its employees and
encourages them to attend courses and programs to further develop their own
skills. The Company also aims to provide a favorable working environment which
will continue to draw, retain and motivate its employees so that they can
reach their true potential and share in the Company’s success.
Employees are kept well informed of the performance and objectives of the
Company through established methods of personal briefings and regular
meetings. Employees are given the opportunity to develop and progress
according to their ability. The Company has an employee share option scheme to
encourage employees’ participation in the Company’s performance.
The Company has continued its policy of giving disabled full and fair
consideration for all job vacancies for which they offer themselves as
suitable applicants, having regard to their particular aptitudes and
abilities. With regard to existing disabled employees and those who may become
disabled during the year, the Company examines ways and means of providing
continuing employment under normal terms and conditions and provides training,
career development and promotion, where appropriate.
Social
The Company continues to have a strong relationship with the local communities
in the areas in which it operates, respecting their laws and customs. The
Company employs local people in all levels within the organization; this
ensures a transparent and fair transfer of benefits and support to their
communities where appropriate. The Company engages the local communities in
all aspects of the projects it is actively involved in, from exploration
through to feasibility and production, ensuring that concerns are addressed,
and that support is maintained throughout the entire process.
Environment
The Company has a strict environmental code with which all its employees are
well-versed during the induction process; this not only satisfies the local
environmental code, but also the international code. The Company has
contracted the services of a local environmental consultant who monitors its
operations to ensure that any lapses are immediately brought to the attention
of management.
Risk Factors
There are several principal risk factors outlined below that may affect the
Company’s businesses and which may not all be within the Company’s
control.
PRINCIPAL RISKS AND UNCERTAINTIES
Environmental Risk
The Company’s core operations are located in Pakrut, a mountainous area of
Tajikistan. The area is remote and can be subject to adverse weather
conditions which, as evidenced in the first half of 2017, can impact the
ability of the Company to perform its core operations and may lead to
substantial damage of the Company’s properties. The Company seeks to manage
this risk by taking out appropriate insurance and carefully monitoring weather
reports during the seasons when adverse conditions are most likely and
ensuring that appropriate action is taken to minimise risk to life and
property damage.
Production Risk
The Pakrut Gold Project is now operating at full production capacity. The
Company's existing production equipment is considered to be sufficient to meet
the requirements of the budgeted gold production targets. The right choice of
production equipment has a major impact on productivity and costings.
The production process of the gold should be based on the specific performance
requirements of the product. This requires an increase in production skills
and requires training of Company technicians. Technology is changing rapidly
and existing production technology may have fallen behind, therefore
technicians must continue to develop their knowledge and skillset to keep up
with this pace.
Production risks are related to the possibility that gold production or output
levels are lower than expected. The main sources of production risk are bad
weather conditions and limited production capacity, such as hail, snow
disasters, and limited Chinese technical staff. Despite the control measures
taken, the production risk may also be due to the harsh winter weather and the
breakdown of production equipment and machinery. At present, Pakrut is
adopting risk prevention measures and control strategies for the above risks,
including purchase of equipment spare parts and materials in advance to ensure
the sufficiency of raw materials and the normal operation of the machinery at
the mine site; vigorously training Tajik technical personnel, exerting local
talent policies, and rationally using manpower resources; reasonably
estimating the impact of severe weather to ensure the achievement of the
annual output target.
COVID-19 risk
As the COVID-19 pandemic has largely drawn to a close, the impact of the
epidemic on the operations of enterprises has significantly weakened, and the
Tajik market has gradually begun to open to the outside world. Direct flights
between China and Tajikistan have also begun to operate, two shifts per week,
and there is no need for isolation, greatly shortening the journey time.
Currently, market vitality has accelerated and corporate confidence has
significantly increased, but at the same time, it is necessary to pay
attention to the risks caused by the epidemic, and staff should wear masks in
daily life to prevent viruses.
Exploration and Development Risk
The exploration for, and the development of, mineral deposits involves
significant risks, which even a combination of careful evaluation, experience
and knowledge may not eliminate. While the discovery of an ore body may result
in substantial rewards, few properties which are explored ultimately develop
into producing mines. Major resources are required to establish ore reserves,
to develop metallurgical processes and to construct mining and processing
facilities at the Pakrut site.
There is no certainty that the exploration and development expenditures made
by the Company as described in these financial statements will result in a
commercially feasible mining operation. There is aggressive competition within
the mining industry for the discovery and acquisition of properties considered
to have commercial potential. The Company will compete with other companies,
many of which have greater financial resources, for the opportunity to
participate in promising projects. Significant capital investment is required
to achieve commercial production from successful exploration efforts.
The commercial viability of a deposit is dependent on a number of factors.
These include deposit attributes such as size, grade and proximity to
infrastructure; current and future market prices which can be cyclical;
government regulations including those relating to prices, taxes, royalties,
land tenure, land use, importing and exporting of minerals and environmental
protection. The effect of these factors, either alone or in combination,
cannot be entirely predicted, and their impact may result in the Company not
receiving an adequate return on invested capital.
There is no assurance the Company will be able to adhere to the current
development and production schedule or that the required capital and operating
expenditure will be accurate. The Company’s development plans may be
adversely affected by delays and the failure to obtain the necessary
approvals, licenses or permits to commence production or technical or
construction difficulties which are beyond the Company’s control.
Operational risks and hazards include: unexpected maintenance, technical
problems or delays in obtaining machinery and equipment, interruptions from
adverse weather conditions, industrial accidents, power or fuel supply
interruptions and unexpected variations in geological conditions.
Mineral geological exploration and mining is a time-consuming, profitable, and
highly challenging task. Therefore, it is expected that it will take a number
of years from commencement to reach full operational capacity and to realise
production efficiencies. In the early stages of geological exploration, there
are uncertainties inherent in the process, as a result of incomplete equipment
and facilities (under construction), less advanced technical capabilities, and
limited experience in the early stages of development and extraction. This
lack of experience can lead to imperfect work plans.
SRK has produced a JORC compliant, independent technical report (see
announcement dated 23 April 2023 for further details). The estimated Mineral
Resource reported (Measured and Indicated) (as at 31 December 2022) are as
follows: based on the cut-off grade of 1.0g/t, the ore tonnage is 6.7 million
tonnes, the average grade is 2.1g/t, and the contained gold is about 14
tonnes. The estimated ore reserves reported (Proved and Probable) are as
follows: based on the cut-off grade of 1.5g/t, the ore tonnage is 4.2 million
tonnes, the average grade is 1.9g/t, and the contained gold is about 8.1
tonnes. Based on a production scale of 700,000 tonnes/year（this production
capacity is estimated based on the actual resources and mining capacity of
Pakrut, and SRK has also recognized this level of production capacity based on
on-site inspections), the remaining production service life of the Pakrut Gold
Project is 6.3 years (calculated from 1 January 2023).
The risks inherent in developing the Company’s projects are mitigated to
some extent by the strategic alliance with China Nonferrous Metals Int’l
Mining Co. Ltd, which is a member of a Company with a number of active mining
operations.
Regulatory and Legal Risk
Substantially all of the Company’s business and operations are governed by
the laws, rules and regulations in Tajikistan which can contain inherent
ambiguities, uncertainty, inconsistency and contradictions with regards to
their application, interpretation, implementation and enforcement. In
particular, the laws, rules and regulations which the Company is subject to,
including, but not limited to, those relating to foreign investments, subsoil
use, land use, licensing, customs, foreign currency, environmental protection
and taxation are still evolving and remain uncertain in many respects.
In addition, the judicial system in Tajikistan may not be independent and
immune from the economic, political and nationalistic influences in Tajikistan
and the decisions of the courts are often not transparent and available to the
public. In many circumstances there are no prior court decisions for reference
and the interpretations of the laws, rules and regulations by the courts in
Tajikistan remain ambiguous and it is difficult to predict or to seek
effective legal redress. The regulatory authorities in Tajikistan are
entrusted with a high degree of discretion and authority in the application,
interpretation, implementation and enforcement of the laws, rules and
regulations potentially resulting in ambiguous and inconsistent actions.
There is no assurance that the Company will be able to comply with all new
laws, rules and regulations applicable to its mining operations or any changes
in laws, rules and regulations. Furthermore, the legal protections available
to the Company may be limited and could have a material impact on the results
of the Company and the imposition of penalties and/or regulatory action. In
addition, the process of obtaining, retaining or renewing licenses and permits
could be time-consuming and costly and could give rise to unexpected delays
and expenses. The Company seeks and obtains sufficient and appropriate legal
advice where considered necessary.
The Company’s existing licenses and permits could be revoked, terminated or
not extended in accordance with expectations by the Tajikistan Government, the
local government or the Tajikistan courts under certain circumstances,
including failure to comply with the conditions imposed by the licenses and
permits, which may include the provision of regular reports to the relevant
regulatory authority, obtaining sufficient insurance coverage, adherence to
the permitted extraction of mineral resources or complying with the
obligations relating to sustainable management, subsoil, environmental
protection and health and safety regulations. Failure to obtain, retain or
renew the relevant licenses and permits required at all or on a timely basis
could have a material adverse effect on the Company’s financial condition.
The Company works closely with the Government and local government departments
on the mine project in order to ensure all parties are kept up to date on
progress and closely monitors compliance with the conditions imposed under its
existing licenses and permits.
Economic Risk
The profitability of the Company’s future operations may be significantly
affected by changes in the market prices for the materials it may produce and
is affected by numerous macroeconomic factors beyond the Company’s control.
The level of interest rates, the rate of inflation, world supply, and the
stability of exchange rates can all cause fluctuations in the price. Such
external factors are in turn influenced by changes in international investment
patterns and monetary systems and also political developments. Metal prices
have fluctuated in recent years, particularly gold, and future significant
price declines could cause future commercial production to be uneconomic and
have a material adverse effect on the Company’s financial condition.
Economic risk is continually evaluated by the Company, including expectations
of future events, and action undertaken as necessary.
Certain payments, in order to earn or maintain property interests, are to be
made in local currency in the jurisdiction where the applicable property is
located. As a result, fluctuations in the Chinese Renminbi and the Tajik
Somoni could have a material adverse effect on the Company’s financial
results which are denominated and reported in US dollars. Where possible the
Company maintains bank and cash balances in the same denomination as its
expected liabilities. The Company does not currently hedge its exposure to
foreign currencies.
The Company currently has a comprehensive program of insurance but does not
carry insurance to protect against certain risks and nor can it guarantee that
its level of insurance is sufficient to cover all outcomes and eventualities.
As a result, the Company may become subject to liability to include
environmental pollution, political risk and other hazards against which the
Company cannot insure or which it may elect not to insure. The payment of such
liabilities may have a material adverse effect on the Company’s financial
condition.
Pakrut is located in Tajikistan, an overseas country, and the tax pressure is
not insignificant. Due to the regional poverty and developing status of the
host country, the Directors understand that government funds are tight, and
tax has become the main source of national revenue. In 2020, Pakrut further
strengthened its internal control and basic management, and has formulated tax
management measures that meet the Company's management needs, that enables the
team to promptly assess tax-related risks and related countermeasures in the
Company's business and management processes, and is responsible for
establishing and maintaining good relationships with the relevant tax
authorities in order to make representations in regard to potential changes to
tax law, tax planning, and tax incentives in order to safeguard the Company's
overall interests.
At present, it can be seen that there are many loans and a high asset
liability ratio of CNG. At present, CNG aims to reduce its asset liability
ratio by gradually repaying interest bearing liabilities when it has the
financial ability to do so. Pakrut will continue to take measures such as
improving quality and efficiency, reducing costs where possible, and paying
attention to changes in the gold price, striving to ensure that the delivery
price of gold is higher than the market average, actively monitoring exchange
rate changes, managing its foreign exchange risk, and other measures to
improve cash flows, whilst actively exploring new paths to repay the ultimate
parent company's (and related entities’) loans, and continuously and
effectively reducing the asset liability ratio. See the going concern section
for further explanation.
Financial Risk
The Company’s operations expose it to a number of financial risks. These are
discussed under ‘Financial Risk Management’ within Note 1 of the Financial
Statements.
Political and Country Risk
Substantially all of the Company’s business and operations are conducted in
Tajikistan. The political, economic, legal and social situation in Tajikistan
introduces a certain degree of risk with respect to the Company’s
activities. The Government of Tajikistan exercises control over such matters
as exploration and mining licenses, permitting, exporting and taxation, which
may adversely impact the Company’s ability to carry out exploration,
development and mining activities.
Government activity, which could include non-renewal of licenses, may result
in any income receivable by the Company being adversely affected. In
particular, changes in the application or interpretation of mining and
exploration laws and/or taxation provisions in Tajikistan could adversely
affect the value of the Company’s interests.
No assurance can be given that the Company will be able to maintain or obtain
effective security or insurance for any of its assets or personnel at its
operations in Tajikistan; this may affect the Company’s operations or plans
in the future. A moderate degree of security is also currently required to
mitigate the risk of loss by theft, either by the Company’s employees or by
third parties, and controls are implemented where possible to minimize this
risk. No assurance can be given that such factors will not have a material
adverse effect on the Company’s ability to undertake exploration,
development and mining activities in respect to present and future properties
in Tajikistan.
Tax risk
In 2022, compared with 2021, the corporate income tax increased significantly
by $4,030,795. The main reason is that the calculation criteria of income tax
changed, and therefore the company has provided for additional income tax
according to the tax accounting standards of Tajikistan.
The Company will further strengthen communication with the tax department in
Tajikistan and actively respond to tax requirements and enquiries in order to
protect the legitimate rights and interests of the enterprise.
Funding
The Company may need to secure further funding for loan repayment purposes.
There is the risk that this may not be forthcoming which would impact the
Company operations. The Company has numerous funding options available and
remains in close contact with its controlling shareholder who have, up to now,
provided economic support as required.
Since 2016, CNMC has been continuously providing financial support letters
either through the provision of additional loans or not pursuing non-repayment
of existing loans. Currently, due to the regulatory environment, it is
difficult for CNMC to continue to issue financial support letters to the
Company. The Directors do not have any reason to believe that CNMC will take
any action or legal enforcement against CNG in the event of default on
existing borrowings, and we draw attention to the historic (including as
recently as June 2023) willingness of CNMC to provide ongoing financial
support to the Company. See going concern section below for further discussion
with regard to current and ongoing funding needs.
Performance of Key Personnel and Employees
The Company seeks to mitigate this risk by actively engaging with its
employees and seeking to offer a secure work environment with appropriate pay
levels to maintain both motivation and loyalty to the Company.
Results and Dividends
The results for the year and the Company’s financial position at the end of
the year are shown in the following Financial Statements. The Directors do not
recommend the payment of a dividend (2021: US$Nil).
Future Developments
Future prospects are set out in the CEO’s Statement on page 9 under
‘Outlook’.
Directors and their Interests
The Directors who served the Company during the year do not hold any
beneficial interests in the shares of the Company (2021: None).
No Director who served during the period held any share options in the
Company.
Remuneration of the Directors is disclosed in Note 5.
Substantial shareholdings
As at the date of these financial statements, the Directors were aware of the
following shareholdings in excess of 3% of the Company’s issued share
capital.
Number of ordinary shares Percentage of issued share capital
China Nonferrous Metals Int’l Mining Co Ltd 146,666,667 38.36
Zhao Bin 50,090,304 13.10
Golden Max Company 33,823,113 8.85
Huang Lihou 33,068,430 8.65
BOCOM International 16,500,000 4.31
Rainbow Bridge Investment Fund 12,335,489 3.23
Going Concern
The Company’s business activities, together with the factors likely to
affect its future development, performance and position are set out in the
CEO’s Statement on pages 6 to 9. Note 1 to the financial statements includes
the Company’s objectives, policies and processes for managing its capital;
its financial risk management objectives; and its exposures to credit risk and
liquidity risk.
The Company financial statements are prepared on a going concern basis and the
Company’s current and forecast cash position and working capital shows that
for the period up to 31 December 2025 the Company will have sufficient funds
on hand to realise its assets and meet its obligations as they fall due,
excluding loan financing costs and repayment of loans, for a minimum of 12
months following the date of approval of these financial statements.
In making their assessment, the Directors also have considered the level of
production and operations at the mine site, in conjunction with the updated
resource and reserve estimates as per the revised Independent Technical Report
produced by SRK Consulting (see Note 2), and how the Company will be able to
use the cash inflows from these operations to support its working capital
position and repay loans when they fall due. As all shareholder loan
extensions are provided on a one-year basis, the cCmpany applies to its
ultimate controlling party, CNMC, each year in advance of the loan repayment
date falling due, following the application process that has been in place for
a number of years. As at the current date, following post year end refinancing
of the two external bank loans with Bank of Shanghai and China CITIC Bank (See
Note 28), the Company has the following loans payable:
Lender Amount (principal) at Amount (interest Total Repayment date
the date of this report
accrued) at the date of
this report
CNMC Trade Company Ltd 123,600,000.00 39,707,401.87 282,357,401.87 20/12/2022
CNMC Trade Company Ltd 20,000,000.00 26/11/2022
CNMC Trade Company Ltd 14,550,000.00 31/12/2022
CNMC Trade Company Ltd 19,500,000.00 19/04/2023
CNMC Trade Company Ltd 65,000,000.00 06/09/2023
CNMICC 60,744,168.83 21,260,359.47 82,004,528.30 08/12/2022
CNMIM 12,683,598.78 10,075,085.73 22,758,684.51 31/05/2022
Total shareholder loans 316,077,767.61 71,042,847.07 387,120,614.67
repayable in year to 30
June 2024
The Company is currently in the process of finalizing extension agreements for
all of the above loans – the agreements are as yet unsigned by both parties
and also remain subject to regulatory approvals and processes as detailed in
the CEO’s statement. Other than the $19.5 million of CNMC loans, that will
expire on 19 April 2024, and $12,683,599 of CNMIM loan, that will expire on 31
May 2024, other loans are all to be due within 12 months from 31 December 2022
as per the draft loan renewal agreements. In previous financial years, the
Company’s ultimate controlling party, CNMC, has provided a letter of
financial support to the Company confirming its intentions to continue to
support the Company as and when required. In the current year, this letter of
support could not be obtained. In relation to the provision of financial
support, it is difficult for the ultimate controlling party, and related
entities, to continue issuing a support letter in advance of the loan
repayment date.
So far, the Company has not received any information in written form or
otherwise to indicate changes to the intentions of the Company's ultimate
major shareholder, CNMC Company, which is currently the Company's key
creditor. The Company's management has continued to maintain open
communication with its ultimate major shareholder.
CNMC has historically renewed the shareholder loans on an annual basis with no
issues, and the Directors are not aware of any reason why these renewals would
not continue to be forthcoming upon application by the Company. Most recently,
in June 2023, CNMC issued a new shareholder loan of $65m to enable the company
to repay its outstanding loan to Bank of Shanghai.
In terms of security against the loans, the following is in place per the loan
agreements:
* CNG has pledged 100% of its equity interest in Kryso Resources (BVI) Limited,
which owns 100% of the Pakrut Gold Project, as security for repayment of the
$120m CNMC Trade loan disclosed in the above table; and
* CNG has pledged 100% of its equity interest in Pakrut LLC to major
shareholder, CNMIM, in respect of the $12.7m CNMIM loan disclosed in the above
table.
Other than the above, the remaining loans are unsecured and there is not any
legal action or contractual recourse that can be taken against the Company in
the event of default or late repayment of these loans. Management do not have
reason to believe that any action will be taken in respect of the securities
noted above based on communications with these parties and historic evidence
of financial support as noted above. Other than the two external bank loans
which were refinanced through shareholder loans post year end, the remaining
shareholder loans are past due at the year end. The lenders, CNMIM and CNMC,
have indicated they will extend the loans by 1 year from the repayment dates
shown in the table above in all cases other than the $65m short term loan due
to CNMC, as this is not yet due for repayment and therefore the application
will be made at that time. The extension agreements are due to be signed soon
although they remain subject to regulatory processes and procedures pursuant
to Rule 13 of the AIM Rules for Companies as detailed in the CEO’s
statement. The expectation is that the CNMIM Loan will be extended to 31 May
2024. Meanwhile the Company will continue to hold open communication with
these parties, as well as external lenders, in seeking further refinancing
options ahead of these renewal dates falling due. There is no expectation that
this will not be possible. However, as at the date of this report there are no
binding agreements in place and there is no guarantee that the facilities will
be renewed, and therefore a material uncertainty exists with regard to going
concern.
The Directors have also considered the Company’s daily working capital
requirements in order to continue its operations and remain in business. This
assessment includes a detailed cash flow forecast for the financial years
2023-2025, based on the following key assumptions:
- Gold price of US$/oz 1,750 in 2023, falling to US$/oz 1,430 after 2025
- Life of mine is 6.3 years, with production expected to cease in 2029
- Gold recovery rate of 81.9% from processing and metallurgy
- The latest resource evaluation data of SRK based on on-site surveys and
current metallurgical recovery rates (as per updated Technical Report)
From this assessment, it can be concluded that the current level of working
capital, as well as the cash inflows over the next 12 months to 30 June 2024
from the activities at the mine site, will be sufficient to meet these working
capital requirements and any committed and contractual expenditure over this
period, excluding loan financing costs and repayment of loans as discussed
above. The daily operating conditions and the basic conditions of cash flows
of the Pakrut Gold mine have not undergone any fundamental change at the end
of 2022 compared with previous years. After making due enquiries the Directors
have a reasonable expectation that the Company and Company have access to
adequate resources to continue in operational existence for the foreseeable
future which is considered to be at least 12 months from the date of the
signing of these financial statements. Based on the facts above, a material
uncertainty exists in relation to obtaining formal loan refinancing both now
and in the future, and the auditor has made reference to this in their audit
opinion. The Company continues to adopt the going concern basis in preparing
the annual report and financial statements.
Events after the Reporting Period
Details of events after the reporting period are set out in the Chief
Executive Officer’s Statement and in Note 28 to the Financial Statements.
Relevant Audit Information
The Directors who held office at the date of approval of this Report of the
Directors confirm that, so far as they are individually aware, there is no
relevant audit information of which the Company’s auditor is unaware; and
each Director has taken all the steps that they ought reasonably to have taken
as a Director to make themselves aware of any relevant audit information and
to establish that the auditor is aware of that information.
Auditor
PKF Littlejohn LLP has signified its willingness to continue in office as
auditor.
Signed by order of the Director
Mr Feng Zhishuo
30 June 2023
2022 2021
US$000 US$000
Revenue 3 68,525 71,992
Cost of sales (40,085) (37,256)
Gross Profit 28,440 34,736
Impairment of Property, plant and equipment 13 (265,953) -
Administrative expenses 6 (25,109) (19,879)
Gain/(Loss) on foreign exchange 1,075 (1,855)
Other operating expenses 7 (213) (2,416)
Operating (Loss)/Profit (261,760) 10,585
Finance income 9 2 6
Finance costs 9 (15,242) (10,826)
Loss before Income Tax (277,000) (235)
Income tax 8 (10,043) (6,012)
Loss for the year attributable to owners of the parent (287,043) (6,247)
Total comprehensive income attributable to owners of the parent for the year (287,043) (6,247)
Basic and Diluted Earnings per share attributable to owners of the parent 10 (750.65) (1.63)
(expressed in cents per share)
All of the activities of the Company are classed as continuing.
The accounting policies and notes on pages 48 to 110 form part of these
Financial Statements.
CHINA NONFERROUS GOLD LIMITED
Consolidation statement of Financial Position
Note As at As at
31 December 2022
31 December 2021
US$000
US$000
Non-Current Assets
Property, plant and equipment 13 65,074 364,337
Total Non-Current Assets 65,074 364,337
Current Assets
Inventories 16 16,709 17,334
Trade and other receivables 17 2,514 4,202
Cash and cash equivalents 4,544 7,472
Total Current Assets 23,767 29,008
Non-Current Liabilities
Other payables 19 (1,235) -
Borrowings 18 - (65,000)
Provisions for other liabilities and charges 20 (2,658) (1,084)
Total Non-Current Liabilities (3,893) (66,084)
Current Liabilities
Borrowings 18 (379,368) (303,953)
Trade and other payables 19 (19,011) (49,696)
Total Current Liabilities (398,379) (353,649)
Net Current Liabilities (374,612) (324,841)
Net Liabilities (313,431) (26,388)
Equity attributable to the owners of the parent
Share capital 22 38 38
Share premium 65,901 65,901
Other reserve 10,175 10,175
Retained earnings (389,545) (102,502)
Total Equity (313,431) (26,388)
These Financial Statements were approved and authorised for issue by the
Directors on 30 June 2023 and are signed on their behalf by:
Mr Zhishuo Feng
Managing Director
The accounting policies and notes on pages 48 to 110 form part of these
Financial Statements.
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 2021 38 65,901 10,175 (96,255) (20,141)
Loss for the year - - - (6,247) (6,247)
Total comprehensive income for the year - - - (6,247) (6,247)
Total transactions with owners of the - - - - -
parent, recognised directly in equity
Balance at 31 December 2021 38 65,901 10,175 (102,502) (26,388)
Balance at 1 January 2022 38 65,901 10,175 (102,502) (26,388)
Loss for the year - - - (287,043) (287,043)
Total comprehensive income for the year - - - (287,043) (287,043)
Total transactions with owners of the - - - - -
parent, recognised directly in equity
Balance at 31 December 2022 38 65,901 10,175 (389,545) (313,431)
Description and purpose of reserves:
1. Share capital: share capital consists of amounts subscribed for share capital
at nominal value.
2. Share premium: share premium consists of amounts subscribed for share capital
in excess of nominal value.
3. Other reserve: other reserve comprises the capital re-organisation reserve
under the scheme of arrangement.
4. Retained earnings: cumulative net gains and losses recognised in the
consolidated statement of comprehensive income. Also included in this figure
is the share options and warrants reserve established in 2013 as part of the
capital restructuring program. This reserve holds a $Nil balance and has been
recycled in full through retained earnings as all options and warrants have
expired (see Note 23).
The accounting policies and notes on pages 48 to 110 form part of these
Financial Statements.
31 December 31 December
2022 2021
US$000 US$000
Cash flows from Operating Activities (Note 24) 8,865 13,904
Net cash generated from Operating Activities 8,865 13,904
Cash flows from Investing Activities
Purchase of property, plant and equipment (7,625) (994)
Interest received 2 6
Net cash used in Investing Activities (7,623) (988)
Cash flows from Financing Activities
Proceeds from borrowings (net of capitalised issue costs) 54,550 99,550
Repayment of borrowings (55,550) (128,806)
Interest paid (3,170) (3,384)
Net cash generated from Financing Activities (4,170) (32,640)
Net decrease in Cash and cash equivalents (2,928) (19,724)
Cash and cash equivalents at beginning of the year 7,472 27,196
Cash and cash equivalents at end of the year 4,544 7,472
The accounting policies and notes on pages 48 to 110 form part of these
Financial Statements.
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
Notes to the Financial Statements
1. Financial Risk Management
The Company’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 Company 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 Company is dependent on the ability to raise
sufficient working capital until the mine produces sufficient quantities of
gold to be self-sufficient. The Company currently finances itself through the
issue of equity share capital and the secured loan facilities from CNMIM and
CNMC. 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 Company’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 Company’ s interest rate risk arises from long-term borrowings. The
Company has both variable and fixed rate borrowings. Borrowings issued at
variable rates expose the Company 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 BOS
loan of US$65 million is 1.50% per annum over the quarterly LIBOR rate and the
loan is repayable in US$. The interest rate on the CITIC loan of US$20 million
is 3.00% per annum over the 6 month LIBOR rate and the loan is repayable in
US$. The interest rate on the CNMC loan of US$206.24million is 3.25% per annum
over the quarterly LIBOR rate, and of US$14.55million is 3%.
1. Financial Risk Management (continued)
At 31 December 2022, the potential impact of fluctuations in interest rates is
considered material to the financial statements.
b. Foreign Currency Risk
The Company 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 Company 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 Company 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 2022 between the various
currencies.
Somoni GBP Sterling US Dollar Renminbi Total US$000
1,763 5 2,363 413 4,544
Due to the different nature of assets and liabilities, changes in asset value
caused by exchange rate changes have different ways of affecting a Company's
free cash flow. Therefore, it must be considered separately when evaluating
the value of an enterprise. The first is the monetary items in the corporate
balance sheet. Typical monetary items include monetary funds, loans, accounts
receivable and accounts payable. When the exchange rate changes, the
above-mentioned assets or liabilities of the enterprise accounted in foreign
currencies will increase or depreciate accordingly. For example, in the
context of the depreciation of the Renminbi, the foreign currency deposits
(Somoni/USD) held by enterprises will appreciate, which in itself has a
substantial impact on the present value of cash. The foreign currency-settled
bonds or other debts issued by companies can be repaid at a lower RMB cost,
which can save companies more funds that can be used for free distribution,
thereby promoting the enhancement of corporate value.
1. Financial Risk Management (continued)
During 2022, the Company’s principal revenue, costs, assets and liabilities,
including intercompany loans were denominated in USD. The Company manages
foreign currency risk by matching receipts and payments and monitoring
movements in exchange rates. The Company does not currently hedge its exposure
to foreign currencies and recognises the profits and losses resulting from
currency fluctuations as and when they arise. At the year end the Company did
not have material exposure to foreign exchange risk relating to its non-US$
denominated bank deposits and as such this not disclosed. The year-end
exchange rates used in the preparation of the financial statements for 2022
and 2021 were as follows:
Somoni to USD GBP to USD Renminbi to USD
31 December 2022 10.2024 1.2053 6.9646
31 December 2021 11.3000 1.3499 6.3757
Liquidity Risk and Credit Risk
The continued operation of the Company is dependent on the ability to raise
sufficient working capital. As noted above, the Company currently finances
itself through the issue of equity and borrowings from CNMIM, CNMC, CITIC and
Bank of Shanghai. Management monitors its cash and future funding requirements
through the use of cash flow forecasts. The Company enters into capital
commitments to fund operations, and any surplus cash not immediately required
for working capital purposes is held on short term deposit.
1. Financial Risk Management (continued)
The table below summarises the maturity profile of the Company’s financial
liabilities based on contractual undiscounted payments.
Less than 1 Between Between Over Total Carrying
Year
2 and 5 Years
5 Years
US$000
amount
US$000
1 and 2
US$000
US$000
US$000
Years
US$000
Year ended
31 December 2022
Interest-bearing borrowings 379,368 - - - 379,368 379,368
Trade and other payables 19,011 - 1,235 - 20,246 20,246
Provisions for other liabilities - - - 5,180 5,180 5,180
398,379 - 1,235 5,180 404,794 404,794
1. Financial Risk Management (continued)
Year ended
31 December 2021
Interest-bearing borrowings 303,953 65,000 - - 368,953 368,953
Trade and other payables 49,696 - - - 49,696 49,696
Provisions for other liabilities - - - 4,988 4,988 4,988
353,649 65,000 - 4,988 423,637 423,637
The Company holds bank accounts with banks in the UK, PRC and Tajikistan with
the following credit ratings:
Credit rating 2022 2021
US$000
US$000
A 1,964 3,229
No independent credit rating available 2,580 4,243
4,544 7,472
If a bank has no credit rating, the Company assesses the credit quality
through local knowledge and past experience in the particular jurisdiction.
1. Financial Risk Management (continued)
Capital Risk Management
The Company consider equity to be their capital. The Company’s objective
when managing their capital is to safeguard the Company’s ability to
continue as a going concern in order to provide returns for shareholders and
to enable the Company to continue its exploration, evaluation and mine
construction. The Company 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, the Company’s
current policy for raising capital is through equity issues and debt
financing. The Company 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 Company has identified the following areas where significant estimates,
assumptions and judgments are required. The most significant judgment for the
Company 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 further impairment of the mine.
Estimated impairment of Property, Plant and Equipment including Producing
Mines (Note 13)
The Company 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.
Whilst gold production at Pakrut initially commenced in the second half of
2015, the ramp-up of mining and processing was achieved from late 2018
onwards, with production capacity of 2,000 tonnes per day reached in early
2020. The Company has reported an operating profit from mining activities
since 2020.
The value in use calculations up to the year ended 31 December 2021 were based
on the following key assumptions:
* SRK’s previous technical report in 2014, together with the feasibility study
undertaken by Beijing General Research Institute of Mining and Metallurgy
(“BGRIMM”) in 2015;
* Total expected JORC compliant resources of 4,383,000 ounces, of which 904,000
ounces was covered by the mining license issued in November 2011. The higher
JORC resource figure at Pakrut, including the Eastern Pakrut ore zone, but
excluding the Rufigar and Sulfidnoye ore zones, includes the results of all
exploration and evaluation activities to 2013 and therefore to a date
subsequent to the mining license application and award. The exploration
license expired on 1 April 2014;
* The intention was to seek approval from the Tajik authorities of the enlarged
JORC resource, and ultimately seek an extension to the mining license which
expires on 2 November 2030.
Based on the above assumptions, the value in use exceeded the carrying value
of the Producing Mine Asset, and no impairment was recognised in the financial
statements as at 31 December 2021.
Key assumptions in the Updated Technical Report prepared by SRK Consulting as
at 31 December 2022
SRK was engaged to complete an updated Mineral Resources and Ore Reserves
estimate, as well as a technical review of production operations of the Pakrut
Project as at 31 December 2022, taking into consideration the “reasonable
prospect of eventual economic extraction”.
A comparison of the SRK results as at 2022 compared to 2013 at the resources
and reserves level highlights the key differences in the results between the
two dates. Only the Pakrut and Eastern Pakrut ore zones are included in the
tables below. The revised ore reserve estimates reported by SRK as at 31
December 2022 reflect actual production data collated since 2018 and the
change in strategy to continue with the existing capacity of 2,000 tpd rather
than ramp up capacity to 4,000 tpd.
Resources – Pakrut @ 1g/t cut-off:
2013 Category Mt Au (g/t) Au (koz) Au (kg)
Measured 18.06 3.23 1,874 58,280
Indicated 7.91 2.39 608 18,915
M&I 25.97 5.62 2,482 77,195
Inferred 24.96 1.98 1,586 49,322
2022 Category Mt Au (g/t) Au (koz) Au (kg)
Measured 2.08 2.02 135 4,193
Indicated 4.64 2.07 308 9,590
M&I 6.71 4.09 443 13,873
Inferred 7.82 2.21 556 17,289
Reserves – Pakrut @ 1.5&1.6g/t cut-off (Zone 1):
2013 Category Mt Au (g/t) Au (koz) Au (kg)
Proved 11.81 3.60 1,370 42,623
Probable 2.16 2.80 196 6,106
Total 13.97 6.40 1,567 48,729
2022 Category Mt Au (g/t) Au (koz) Au (kg)
Proved 1.33 2.01 86 2,676
Probable 2.91 1.87 175 5,443
Total 4.24 3.88 261 8,119
The above tables show significant differences in resources and reserves
between the two reports, the key reasons being:
* the new Mineral Resource Estimate, is exclusive of all mined-out materials
since the Company commenced operations in 2015, whereas at the time of the
previous resource estimated the materials were in-situ without depletion
(mining at site had not commenced). 172,200 oz of gold have been extracted to
date.
* a total of five gold mineralization zones (“GMZs”) are delineated at
Pakrut. Namely GMZ 1, 3, 5, 6 and 7. The Measured and Indicated Mineral
Resources are situated in GMZ 1 and GMZ 3. Previous resource estimates have
included GMZ 3 (Eastern Pakrut), but operating practices indicate that the
gold grade in this GMZ 3 is less than 1.5g/t and therefore not currently
economic. Accordingly, this Mineral Resource Estimate only incorporates GMZ 1
(Pakrut) and LLC Pakrut intends to exploit just GMZ 1 in the future.
* the Cut-off grade of gold has increased from 0.5 g/t used in previous Mineral
Resource Estimates to 1.0 g/t for this Mineral Resource Statement, reducing
the amount of material that is included in the Mineral Resource Estimate
because operational performance shows that mining dilution is higher than
previously estimated.
* A considerable amount of data from new boreholes and channels has been added
to the database originally used in previous Mineral Resource Estimates,
following actual operational and further exploration activities, which has
increased the awareness and knowledge of the geometry of the Pakrut Deposit.
* The Pakrut gold mineralisation is associated with structural alteration and is
of vein type deposit, which can make the geological interpretation of the ore
body more complicated when compared to other deposit types. This can be
particularly challenging for the resource estimation at the exploration stage
(the previous Mineral Resource Estimates were prepared at an exploration
stage). However, the use of underground drilling and channeling activities
during the construction and production stage has enabled a more comprehensive
understanding and interpretation of local geology of the deposit.
The revised value in use (discounted cash flow) as at 31 December 2022 of
$62.4millon was calculated by SRK using the data per the above tables and the
following assumptions, and the Board, in considering the impairment to the
mine asset, have also carefully considered and are in agreement with these
assumptions:
- 10% discount rate (the discount rate is selected by SRK according to
industry experience and benchmarking)
- Gold price of US$/oz 1,750 in 2023, falling to US$/oz 1,430 after 2025 (SRK
uses the CMF--China Macroeconomy forum prediction method to search for the
highest, lowest, and middle prices in the economic database from 2023 to 2036)
- Life of mine is 6.3 years, with production expected to cease in 2029 (SRK
has obtained the latest resource evaluation data based on on-site surveys and
current metallurgical recovery rates; 2023-2027:700,000t/year
2028:526,572.60t/y 2029:210,588.97t/y)
- Gold recovery rate of 81.9% from processing and metallurgy
Sensitivity analysis was conducted based on the base scenario against the
changes of capital expenditure (“CAPEX”), operating expenditure
(“OPEX”), and production income. The analysis shows that changes in metal
prices have the most significant effect on the NPV. A 0.5% change in the gold
price used in the base case model would result in a change in the NPV of
approximately $900k. A 1% change in the discount rate used would result in an
increase / decrease of $1.6m / $1.5m respectively.
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. Estimated remaining life of mine for the project based
on current Ore Reserve estimates is now 6.3 years, producing on average 43,000
ounces from 700,000 tonnes of ores per annum until 2029.
All the ore mined is assumed to be fed to the processing plant. The Operating
expenses forecasts which were estimated based on last three years (2020 -
2022) actual Operating expenses. Depreciation and amortization have been
excluded in the operating cost estimates. Royalty tax is approximately 6% of
sale revenues. The corporate income tax is the maximum of 18% of taxable
revenues and 1% of sales revenues. Other taxes are minor.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
As there is no significant expansion for the Pakrut project planned, the
additional capital expenditure relates only to mine closure costs estimated by
SRK to be approximately USD 5,180,000 (2.5% of total Operating expenses) –
these amounts are excluded from the NPV calculated by SRK and have therefore
been added to the carrying value of mine assets at present value of $2.7m.
These costs are not expected to be incurred before financial year 2029, which
is the revised end of mine life per the revised technical report. There is a
need to consider also any potential residual value of assets including plants
and smelters which may be realized at the time of mine closure through sale of
these assets – in order to be prudent, however, management have not reduced
the estimated closure costs by any potential value in these assets as this is
uncertain at the current time. The net present value ("NPV") calculated by SRK
based upon the above is US$62.4m, which gives rise to an impairment charge in
the 2022 financial statements of approximately US$266m.
Based on the latest SRK evaluation report and net present value calculation,
management have considered it appropriate to record this impairment charge in
the 2022 financial statements in order to fairly present the carrying value of
the mine asset. This NPV does not however include the present value of the
revised rehabilitation provision estimates, totalling $2.7m at the year end,
as detailed below.
Rehabilitation provision (Note 20)
An enterprise shall, in accordance with the provisions of IAS 37 Provisions,
Contingent Liabilities and Contingent Assets, calculate and determine the
amount of costs expected to be incurred at the end of the mine life in respect
of reclamation and rehabilitation of the mine site and surrounding areas, in
accordance with the provisions of the license agreement and relevant mining
legislation in Tajikistan. It is the Company's understanding that the
reclamation and greening work of tailings ponds and waste disposal sites in
mining enterprises is to be funded by the company during the closure of the
mine, and to be inspected and accepted by government departments.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
In the 2022 Technical Report, SRK Consulting estimated a total undiscounted
rehabilitation provision of $5.18 million (2.5% of the operating cost of
$207.21 million from 2023 to 2029), discounted at year end using a 10%
discount rate to $2.7 million, as an additional cost to be incurred relating
to the closure of the mine site, including the tailings dam and smelting
facilities. This is a revised estimate compared with the Company’s previous
estimates (2021:undiscounted rehabilitation provision of $4.99 million) and
this results from the much more advanced current stage of operations when
compared with the previous technical report from 2013. Additional knowledge is
now available to the company, as well as additional construction and
development work having been carried out since that time meaning that
additional costs will need to be incurred at the time of mine closure, hence
the increase in provision which can be seen in Note 20.
Management believes that this is a reasonable basis for estimating future
liabilities and will conduct regular reviews to consider any significant
changes in assumptions. The actual costs will ultimately depend on the future
market price of the necessary rehabilitation and closure works, changes in
future regulatory requirements, and other uncertainties at the time of ceasing
commercial operation.
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 mining license issued in November 2011 currently entitles
the Company 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 Company’s
exploration and evaluation work subsequent to the mining license issue date.
At present, LLC Pakrut does not intend to seek the approval from the Tajik
government for the updated resources and reserves.
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 Company’s mining properties. The Company
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.
The Company 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 2012), 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 Company’s reported financial
position which includes the carrying value of property, plant and equipment
and inventories.
SRK was engaged to complete an updated Mineral Resource and Ore Reserve
estimate as of 31 December 2022.
A comparison of the SRK results as at 2022 compared to 2013 at the resources
and reserves level highlights the key differences in the results between the
two dates. The revised ore reserve estimates reported by SRK as at 31 December
2022 reflect actual production data collated since 2018 and the change in
strategy to continue with the existing capacity of 2,000 tpd rather than ramp
up capacity to 4,000 tpd. The significant differences between the 2013 and
2022 reports are disclosed in the Impairment section above.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
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.
Depreciation/Amortisation (Note 13)
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 6.3 years.
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 Company
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.
2022 UK and PRC Tajikistan Pakrut Total
US$000
US$000
US$000
Revenue - 68,525 68,525
Cost of sales - (40,085) (40,085)
Impairment of producing mine (265,953) (265,953)
Administrative expenses (1,785) (23,324) (25,109)
Foreign exchange 1,075 1,075
Other operating expenses - (213) (213)
Operating loss (1,785) (259,975) (261,760)
Finance costs (15,243) - (15,243)
Finance income 2 - 2
Income tax - (10,043) (10,043)
Loss for the year (17,026) (270,018) (287,044)
Total assets - 88,841 88,841
Total liabilities - 402,272 402,272
Additions to property, plant and equipment - 7,625 7,625
3. Segment Information (continued)
The Company’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 Company
companies.
All revenue generated in the period was from the government of Tajikistan.
2021 UK and PRC Tajikistan Pakrut Total
US$000
US$000
US$000
Revenue - 71,992 71,992
Cost of sales - (37,256) (37,256)
Administrative expenses (including foreign exchange) (9,454) (12,280) (21,734)
Other operating expenses 2,117 (4,534) (2,416)
Operating profit/(loss) (9,454) 20,039 10,585
Finance costs (10,825) - (10,825)
Finance income 6 - 6
Income tax - (6,012) (6,012)
(Loss)/profit for the year (20,273) 14,027 (6,247)
Total assets 3,101 390,246 393,347
Total liabilities 383,777 35,957 419,734
Additions to property, plant and equipment - 994 994
4. Particulars of Employees
The average number of staff employed by the Company during the financial year
amounted to:
2022 2021
No.
No.
Administrative and management 113 116
Operational staff 588 590
701 706
The aggregate costs of the above were:
2022 2021
US$000
US$000
Wages and salaries 5,277 4,575
Basic pension cost 989 1,036
6,266 5,611
5. Directors’ Emoluments
The Directors’ emoluments in respect of qualifying services were:
Salary and fees Total
2022 US$ US$
Mr Wang Xiaohua 187,082 187,082
Mr Yong Li 22,685 22,685
Mr Lixian Yu 99,787 99,787
Mr Xiuzhi Shi 22,566 22,566
Mr Hui Zhang 224,516 224,516
556,636 556,636
Salary and fees Total
2021 US$ US$
Mr Wang Xiaohua* 50,850 50,850
Mr Yong Li 24,905 24,905
Mr Lixian Yu 109,475 109,475
Mr Delin Feng** 124,946 124,946
Mr Xiuzhi Shi 24,971 24,971
Mr Hui Zhang 246,324 246,324
581,471 581,471
*Mr Xiaohua Wang was appointed in November 2021
**Mr Delin Feng resigned in November 2021
Key management comprises Executive and Non-Executive Directors and all
emoluments are short term in nature.
6. Expenses by nature
2022 2021
US$000 US$000
Employee benefit expenses 7,147 6,758
Operating lease expenses 3 50
Depreciation 2,732 3,023
Legal, professional and regulatory costs 398 515
Travel and entertaining 650 521
Social & other taxes 10,674 6,609
Other expenses 2,505 1,067
Commission/bank fees 1,000 1,336
Total administrative expenses 25,109 19,879
6. Expenses by nature (continued)
2022 2021
US$000
US$000
Fees payable to the Company’s auditor for the audit of the consolidated 133 119
financial statements
Fees payable to the Company’s auditor for other services: - -
*Tax compliance services
133 119
7. Other operating expenses
2022 2021
US$000
US$000
Loss on disposal of fixed assets - 2,307
Public welfare donation expenditure 213 2,227
Gain on dissolution of subsidiaries - (2,118)
213 2,416
Total other expenses in 2022 were US$213,013 (2021: US$2,416,000), which
comprises of Pakrut's local donation expenditure. According to local
regulations of the Tajik government, Chinese enterprises make donations to the
local area every year. The main reason for the significant decrease in
donation expenditure in 2022 is that the Tajik government requested to fulfill
the investment agreement last year, resulting in a significant amount of
donation expenditure.
Kryso Resources Limited (UK) and International Mining Supplies & Services
Limited were struck off and dissolved in October 2021. Kryso Resources Limited
(BVI) Beijing Representative Office was dissolved in August 2021. All the
assets and liabilities of these three companies have been transferred to Kryso
Resources Limited (BVI), another subsidiary company within the Company which
resulted in the loss of CNG on dissolution of subsidiaries.
8. Income Tax
a. Analysis of Charge in the Year
2022 2021
US$000 US$000
Current tax:
Current tax 10,043 6,012
Deferred tax - -
Total 10,043 6,012
No provision for income taxes arose in the Cayman Islands, the UK, British
Virgin Islands. A current income tax expense arose in Tajikistan during the
year as LLC Pakrut sold gold in the amount of TJS 755,867,248 – equivalent
to US$ 68,524,835 (2021: TJS 814,171,620 – equivalent to US$ 71,991,962).
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.
The main reasons for the substantial increase in income tax compared with last
year are as follows: The calculation criteria of income tax was amended during
2022 which resulted in additional income tax payable of $4.03million in
respect of income tax.
The company has continued to strengthen the study and research on the tax law
of Tajikistan to reduce tax losses; secondly, strengthen the visit and
communication with the tax bureau and the Tax Committee, maintain good
relations, and continue to reduce the prepaid tax.
8. 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 18% (2021 – 20%).
2022 2021
US$000
US$000
Loss before income tax (278,085) (235)
Loss on ordinary activities by weighted average rate of tax at 18% (2021: 20%) (50,055)) (47)
Expenses not deductible for tax purposes 544 630
Tax losses for which no deferred income tax asset was recognized/(Utilisation 49,511 (611)
of tax losses)
Pakrut income tax 10,043 6,012
Current tax payable 10,043 6,012
The Company did not recognise deferred tax assets of approximately US$Nil
(2021:$Nil). Unused Tajik tax losses amounting to approx Nill at 31 December
2022 can be carried forward for three years from the year incurred and used
against future taxable income at 15%
9. Finance Income and Costs
2022 2021
US$000 US$000
Finance Income
Interest income on short term bank deposits 2 6
Finance Costs
Interest expense on shareholder’s loans wholly repayable within five years 12,340 7,315
Interest expense on bank borrowings wholly repayable within five years 2,902 3,510
Finance costs 15,242 10,825
10. Earnings per Share
2022 2021
US$ US$
Basic and diluted earnings per share (cents) (757.60) (1.63)
The basic earnings per share is calculated by dividing the loss attributable
to equity holders after tax of US$289,701,494 (2021: US$6,245,000) by the
weighted average number of shares in issue and carrying the right to receive
dividend. For the year ended 31 December 2022 this was 382,392,292 (2021:
382,392,292) shares.
As the Company 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 (2021: nil) share options
outstanding that are potentially dilutive in the future.
11. Intangible Assets
The exploration and evaluation assets represent internally generated costs in
connection with the Company’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
Company 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.
12. Mines under Construction
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 Company. It also included the borrowing
costs associated with the loan to finance the mine, construction from China
Nonferrous Metals Intl Mining Co. Limited (“CNMIM”), 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.
Construction in progress during the year ended 31 December 2022 comprises the
commencement of construction of an additional tailings facility at the Pakrut
mine site.
13. Property, Plant and Equipment
Land Office Motor Plant and Producing Assets under Total
US$000
furniture
vehicles
machinery
mines
construction
US$000
and
US$000
US$000
US$000
US$000
equipment
US$000
Cost
At 1 January 2021 32 693 8,698 23,277 378,425 - 411,125
Additions - - 190 805 - - 994
Disposals - (90) (3,465) (2,639) - - (6,193)
Settlement of amount of historic liabilities to contractors - - - - 4,307 - 4,307
At 31 December 2021 32 602 5,423 21,443 382,732 - 410,233
Additions - 36 92 1,475 - 6,022 7,625
Transfer from Assets under Construction 812 (812)
Settlement of amount of historic liabilities to contractors - - - - (29,904) - (29,904)
Impairment - - - - (265,953) - (265,953)
At 31 December 2022 32 638 5,515 22,918 87,687 5,210 122,000
13. Property, Plant and Equipment (continued)
Accumulated Depreciation
At 1 January 2021 - 354 6,641 14,056 16,873 - 37,924
Charge for the year - - 319 2,521 9,026 - 11,866
Disposals - (90) (2,112) (1,690) - - (3,892)
At 31 December 2021 - 264 4,847 14,888 25,899 - 45,898
Charge for the year - 35 157 2,341 8,496 - 11,028
At 31 December 2022 - 299 5,005 17,228 34,395 - 59,926
Net Book Value
At 31 December 2022 32 339 510 5,690 53,292 5,210 65,074
At 31 December 2021 32 341 575 6,555 356,833 - 364,377
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 estimate
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
14. Subsidiary Undertakings
The Company had the following subsidiary undertakings as at 31 December 2022:
Name of Company Holding Country of Proportion of Voting Rights held Nature of Registered
Incorporation
Business
addresses
Directly held
Kryso Resources Ordinary shares (CNG) British Virgin Islands 100% Holding 190 Elgin Avenue,
(BVI) Limited
Company
Grand Cayman,
KY1-9005,
Cayman Islands
Indirectly held
LLC Pakrut (BVI Ordinary shares Tajikistan 100% Mineral exploitation, Bahor district,
holds 100% share)
(BVI)
development and
Vahdat,
mining
Tajikistan
15. Financial Instruments by category
Financial assets at amortised cost
US$000
31 December 2022
Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments 1,291
Cash and cash equivalents 4,544
Total 5,835
Financial liabilities at
amortised
cost
US$000
31 December 2022
Liabilities per Statement of Financial Position
Borrowings 379,368
Provisions for other liabilities and charges 2,658
Long term liabilities 1,235
Trade and other payables, excluding non-financial liabilities 19,011
Total 402,272
15. Financial Instruments by category (continued)
Financial assets at amortised cost
US$000
31 December 2021
Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments 3,565
Cash and cash equivalents 7,472
Total 11,037
Financial liabilities at amortised cost
US$000
31 December 2021
Liabilities per Statement of Financial Position
Borrowings 368,953
Provisions for other liabilities and charges 1,084
Trade and other payables, excluding non-financial liabilities 49,696
Total 419,733
16. Inventories
2022 2021
US$000 US$000
Construction materials and processing equipment 16,709 17,334
16,709 17,334
Construction materials and processing equipment relates to raw materials and
semi-finished products used in gold production.
17. Trade and Other Receivables
Company Company
2022 2021
US$000 US$000
Other receivables 1,291 3,565
Prepayments and deposits 1,223 638
Total 2,514 4,203
None of the receivables are past due. The fair values are equal to the
carrying amounts.
18. Borrowings
2022 2021
US$000 US$000
Bank borrowings 85,000 99,550
Other loans 294,368 269,403
Total 379,368 368,953
Non-current portion - 65,000
Current portion 379,368 303,953
The fair value of borrowings equals their carrying amounts, as the impact of
discounting is not significant.
CNMIM loan
The USD tranche of the loan has been settled in full and US$Nil was
outstanding as at 31 December 2022 (2021: US$Nil). The amount outstanding on
the RMB tranche of the loan as at 31 December 2022 was US$12,683,599 (2021:
US$12,683,599).
CNMC loans
The loan agreement between CNMC International Capitals Company Limited and CNG
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 China Nonferrous
Gold Limited.
The full amount of the loan was drawn down on 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 Company, 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 CNG
was signed on 27 April 2016. Under this agreement, CNMC International Capitals
Company Limited provided a loan facility of US$120,000,000 to CNG. 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 Company, CNMC Trade. 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%.
The Company 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 and CNG 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 21st of the month to the 20 of the
following month.
During 2018, the loan was transferred from CNMC to another member of the
Company, 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 2022. The extension
agreement incurs interest at a rate of 3 months LIBOR + 3.25%.
In January 2022, the Company executed a loan agreement with CNMC Trade Company
Limited (“CNMC Trade”) for a loan of US $34.55 million (the “CNMC
Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank
Corporation Limited (“CITIC”) bank facilities of US $34.55m.
In January 2022, the Company executed a foreign currency working capital loan
agreement with China CITIC Bank Corporation Limited (Zhuhai Branch)
(“CITIC”) for a loan facility of US$20 million , with an annual interest
at 3.00% over 6 month LIBOR, which was used to repay US$20m of the CNMC Loan.
In January 2023, the Company executed a loan agreement with CNMC Trade Company
Limited (“CNMC Trade”) for a loan of US $19.50 million (the“CNMC
Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR. This
CNMC Loan has been used to repay the existing China CITIC Bank Corporation
Limited (“CITIC”) bank facilities of USD $20m.
In June 2023, the Company executed a loan agreement with CNMC Trade Company
Limited (“CNMC Trade”) for a loan of USD$65 million (the “CNMC Loan”)
including an annual interest rate at 0.5% plus 3 month LIBOR.
In December 2022 ,the Company repaid US$1m of the CNMC Trade. And In the first
quarter of 2023 ,the Company repaid US$1.9m of the CNMC Trade.
A loan agreement between CNMC International Capitals Company Ⅱ Limited (CNMC
International) and CNG 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 21st of December to the 20th June, and from
the 21st June to 20th December. Payment of interest will be made annually 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 8
December 2022,and the extension agreement incurs interest at a rate of 3
months LIBOR + 3.25%.In June 2021, the Company repaid
US$9.26m（¥60million）of its outstanding loan.
CITIC loans
In 2022, the Company executed a loan agreement with CNMC Trade Company Limited
(“CNMC Trade”) for a loan of up to USD $34.55 million (the“CNMC
Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank
Corporation Limited (“CITIC”) bank facilities of USD $34.55m (being USD20m
advanced in January 2021 (“First Loan”) and USD $14.55m advanced in March
2021 (“Second Loan”).
In January 2021, the Company executed an agreement with China CITIC Bank
Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to
CNY300million 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. US$20m
of the CITIC Loan was drawn down in January 2021 including an annual interest
rate at 2.7% plus 6 month LIBOR. It had been repaid on 20 January 2022.
Another US$14.55m of the CITIC Loan was drawn down in March 2021 including an
annual interest rate at 2.71% plus 12 month LIBOR. It had been repaid on 26
January 2022.
In January 2022, the Company executed a foreign currency working capital loan
agreement with China CITIC Bank Corporation Limited (Zhuhai Branch)
(“CITIC”) for a loan facility of up to US$20 million , with an annual
interest at 3.00% over 6 month LIBOR, which was used to repay US$20m of the
CNMC Loan. It has been repaid on 24 January 2023.
Bank of Shanghai loan
The Company 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 was drawn down
on 28 June 2021 in order to repay the CCBC Macau loan. The loan is secured by
Standby Letter(s) of Credit to be issued by Bank of Shanghai, Beijing Branch,
and guaranteed by CNMC under the terms of the loan agreement, for an aggregate
amount of not less than US$66,000,000, with validity of not less than 24
months in favor of BOS. The loan has been repaid in full on 9 June 2023.
19. Trade and other payables
2022 2021
US$000 US$000
Trade and other payables – non-current
Other payables 1,235 -
Total non-current liabilities 1,235 -
Trade and other payables – current
Trade and other payables 19,011 49,696
Total current liabilities 19,011 49,696
Total trade and other payables 20,246 49,696
The significant decrease relates to adjustments made on the settlement of
final amounts payable to contractors during the year for historic construction
work at the mine site.
The long term liabilities represent amounts owed to contractor company
Zhejiang Wenjian. Agreement regarding the balance payable was signed pre-year
end and is now repayable in full in 5 years.
20. Provisions for Other Liabilities and Charges
Rehabilitation Total
US$000
US$000
At 1 January 2022 1,085 1,085
Unwinding of discount 90 90
Add: increase in provision 1,483 1,483
At 31 December 2022 2,658 2,658
All provisions are non-current.
The Company 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 2029, which is the revised mine life based on the resource estimates per
the SRK Consulting updated technical report. As part of the latest resource
assessment report issued by SKR for the Pakrut mine in 2022, new estimated
liabilities were calculated based on the revised expectation of mine closure
costs at 31 December 2022.
The discount rate used in the calculation of the provision as at 31 December
2022 year end was 10% (2021 - 9%) per annum. The value of the undiscounted
provision is US$5,180,167 (2021: US$2,481,000).
21. Treasury Policy and Financial Instruments
The Company 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 Company. The Company 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.
22. Share Capital
2022 2022 2021 2021
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.
23. Share Based payments
Options can be granted to any employee of the Company in accordance with the
rules of the Company 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
Company 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.
24. Cash flow information
31 December 2022 31 December 2021
US$000 US$000
Cash flows from Operating Activities
Loss before income tax (288,128) (235)
Adjustments for:
Impairment charge 265,953 -
Finance income 2 (6)
Finance costs 15,242 10,826
Depreciation 18,685 7,972
Foreign exchange loss (1,075) 1,853
Change in working capital:
Inventory 625 (1,423)
Trade and other receivables (1,689) (1,869)
Trade and other payables 3,467 3,222
Other current assets (2,928) (549)
Other current liabilities (1,290) (5,890)
Net Cash generated from Operating Activities 8,865 13,904
24. Cash flow information (continued)
Net debt reconciliation
31 December 2022 31 December 2021
US$000
US$000
Cash and cash equivalents 4,544 7,472
Borrowings – repayable within one year (379,368) (303,953)
Borrowing – repayable after one year - (65,000)
Net debt (374,824) (361,481)
31 December 2022 31 December 2021
US$000
US$000
Cash and cash equivalents 4,544 7,472
Borrowings – fixed interest rates (22,466) (117,664)
Borrowings – variable interest rates (356,902) (251,289)
Net debt (374,824) (361,481)
24. Cash flow information (continued)
Borrowings due Borrowings due
within 1 year
after 1 year
Cash at bank
US$000
US$000
Total
US$000
US$000
Net debt as at 1 January 2021 27,196 (368,919) (19,822) (361,545)
Cash flows (19,724) 30,613 - 10,889
Interest accrued - - (10,825) (10,825)
Movement between current and non-current - 34,353 (34,353) -
Net debt as at 31 December 2021 7,472 (303,953) (65,000) (361,481)
Cash flows (2,928) - - (2,928)
Interest accrued - (10,415) - (10,415)
Movement between current and non-current - (65,000) 65,000 -
Net debt as at 31 December 2022 4,544 (379,368) - (374,824)
25. Controlling Party
The Directors consider China Nonferrous Metals Mining (Company) Co. Limited
(“CNMC”) to be the ultimate controlling party, by virtue of their
shareholding and representation on the Board of Directors.
26. Contingent Liabilities
During 2018, a contract was entered into between LLC Pakrut & LLC WenJian,
a Company set up by a former employee of Pakrut (Dept. 2), to provide
outsourced services including the extraction of ore, delivery of ore to
smelting plant, cleaning of mine, mine development and construction works. LLC
WenJian is not considered to be a related party.
Although LLC WenJian hold the relevant license for the construction works, the
Company does not hold a license in accordance with the laws of Tajikistan
“On subsoil” and “On licensing of certain types of activities” for
implementing the other services they have been contracted to perform. This is
a breach of Tajik laws and regulations which could result in penalties being
imposed on both parties to the contract. The outcome of this situation is
unclear and could result in fines imposed with the worst-case scenario being
that Pakrut could have their own license rescinded by the Tajik government.
There is no visibility surrounding the value or nature of any penalty at this
time.
27. Related Party Transactions
The amount paid by the Company and Kryso Resources Limited to CNMIM for
interest on the loan in 2022 amounted to US$Nil (2021:US$Nil). The amount
payable by the Company to CNMIM for interest on the loan in 2022 amounted to
US$1,275,337 (2021: US$1,257,032). CNMIM is a significant shareholder of China
Nonferrous Gold Limited.
The amount payable by the Company to CNMC Trade for interest on the loans in
2022 amounted to US$7,944,521 (2021: US$5,062,816). The amount payable by the
Company to CNMC International Capitals Company Ⅱ for interest on the loans
in 2022 amounted to US$3,119,918 (2021: US$2,207,276). CNMC is the ultimate
parent of China Nonferrous Gold Limited.
During the year of 2022, CNMC guaranteed the Company's loan to China CITIC
Bank with a total amount of US$20 million.
During 2022, 15MCC (a related party to CNG through being a subsidiary of CNMC,
the Company’s ultimate controlling party) provided equipment and materials,
together with installation and construction work to the Company amounting to
US$Nil (2021: $Nil) and the Company advanced payments to 15MCC amounting to
US$Nil in 2022 (2021:Nill). As at 31 December 2022, the total liability due to
15MCC was US$10,949,107 (2021: US$11,819,082 ).
In 2015 the Company 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 Company
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$2.8) per gram of finished gold once the Project
commences the 12-month production period. Prior to this period the Company
will cover the labour and associated costs of CNFMG. Once in production, in
the event the recovery of the plant is above the Beijing General Research
Institute of Mining and Metallurgy forecast rate over the life of production
of 82.99 percent, CNHFMG will share 40 percent of the profits from the upside
directly due to the increased recovery. In the event recovery is below 75
percent, CNHFMG will bear 20 per cent of any loss incurred by the Company from
the Project due to directly to recovery levels.
During 2022, CNHFMG provided equipment and materials, together with
installation and construction work to the Company amounting to US$Nil
(2021:US$Nil) and the Company advanced payments to CNHFMG amounting of 2022
was US$375,141.69(2021:US$Nill). As at 31 December 2022, the total liability
due to CNHFMG was Nill (the arrears have been paid off in January 2022). As of
January 2022, the project funds between the company and CNHFMG have been fully
settled.
As of December 31, 2022, Pakrut still has gold sales business with Daye
Nonferrous Metals. In December 2022, a total of 200.509 kg of gold were sold
in related party transactions, with an amount of $12,424,619.54, which has
been received. However, in 2023, according to the currently signed gold sales
contract, as the Tajik government does not agree to export the gold for sale,
the gold will not be exported for sale and will no longer be sold to Daye
Nonferrous Metals.
28. Events after the Reporting Period
Loans and financing
In January 2023, the Company executed a loan agreement with CNMC Trade Company
Limited (“CNMC Trade”) for a loan of up to USD $19.50 million (the“CNMC
Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR and no
extra fees payable to CNMC Trade for this arrangement, which is repayable
within 3 months from the date of drawdown. CNMC Trade has indicated it will
extend this loan for one year from the initial repayment date, and subject to
regulatory approval and processes pursuant to AIM Rule 13 of the AIM Rules for
Companies the extension contract should be signed soon. This CNMC Loan has
been used to repay the existing China CITIC Bank Corporation Limited
(“CITIC”) bank facilities of USD $20m.
In June 2023, the Company executed a loan agreement with CNMC Trade Company
Limited (“CNMC Trade”) for a loan of up to USD $65 million (the“CNMC
Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR, which
is repayable within 3 months from the date of drawdown. This CNMC Loan has
been used to repay the existing Bank of Shanghai (Hong Kong) Limited
(“BOS”) loan facility of USD $65m, which was due for repayment on 9 June
2023.
In the first quarter of 2023, the Company repaid US$1.9m of the CNMC Trade
Company Limited (“CNMC Trade”) loan, which was drawn on September 20,
2017.
Both CNMC Trade Company Limited (CNMC Trade) and CNMC International Capitals
Company ⅡLimited (CNNICCⅡ) have indicated they will extend the expired
loans for one year from the previous due date, and subject to regulatory
approvals and processes, the results of which cannot be guaranteed, the
extension contracts should be signed soon. CNMIM has also agreed to extend the
expired loan with CNG to 31 May 2024 subject to regulatory approvals. At this
stage there can be no guarantee that these loans will be extended. The Company
at the date of this report has total of US$316.07 million of debt facilities
(including banking facilities without interest).
Snowfall at Pakrut Gold Mine
In February 2023, the area surrounding the Pakrut gold mine site experienced
high levels of snowfall resulting in several avalanches and landslides. There
were no casualties at site and the Pakrut site itself remained undamaged.
However, the avalanches did damage one electric power transmission tower that
supplies the mine resulting in a consequential interruption of the power
supply. In addition, the roads to the site were damaged. The lack of power
meant that the underground mining and the processing plant were suspended with
immediate effect. The smelting plant was suspended from 28 February 2023 until
the power issue was resolved. Accordingly, there was no production at site for
at least one month with a consequential impact on revenues and financial
results. The Company deployed emergency maintenance teams to the area to
urgently carry out repair work on the road and to recover the power supply
facilities. On 16 March 2023，the power supply was re-established and
production resumed at the Pakrut mine site. On 11 April 2023， the road to
the mine site was repaired and is now open, and the smelting plant has resumed
production. Accordingly, normal operations have resumed at site according
schedule.
SRK report
The Company signed a service agreement with SRK (SRK Consulting China Co.,
Ltd.) to review the resource estimation of the Pakrut gold mine to update the
latest resource data. The Technical Report (“ITR”) was completed by SRK
Consulting China Limited (“SRK”) and Company released an update to it
Mineral Resource and Ore Reserve estimates for Pakrut in accordance with the
Australasian Code for Reporting of Exploration Results, Mineral Resources and
Ore Reserves (“JORC Code”, 2012 edition as current effective edition). The
update reflects a substantial reduction in the Mineral Resource Estimate
released by the Company (under its previous name of Kryso Resources plc) on 17
June 2013, and reflects the Company’s increasing knowledge and access to the
underground ore body as operational work has progressed.
Specific detailed information can be found on the website:
https://www.businesswire.com/news/home/20230424005462/en/
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.businesswire.com%2Fnews%2Fhome%2F20230424005462%2Fen%2F&esheet=53438255&newsitemid=20230630696796&lan=en-US&anchor=https%3A%2F%2Fwww.businesswire.com%2Fnews%2Fhome%2F20230424005462%2Fen%2F&index=3&md5=2fbc91d0b87066b422a6a757f7e30c2f)
Change of Board
On 30 May 2023, Mr. Zhang has tendered his resignation as managing director
with immediate effect. At the same time, Mr. Feng Zhishuo was appointed as
managing director of the Company and an Executive Director of the Company with
immediate effect.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20230630696796/en/
(https://www.businesswire.com/news/home/20230630696796/en/)
China Nonferrous Gold Limited
Copyright Business Wire 2023Recent news on China Nonferrous Gold
See all newsREG - AIM China NonferrousGold - Cancellation - China Nonferrous Gold Limited
AnnouncementREG-China Nonferrous Gold Limited Cancellation of Admission to Trading on AIM
AnnouncementREG-China Nonferrous Gold Limited Financial Position Update
AnnouncementREG-China Nonferrous Gold Limited Financial Position
AnnouncementREG-China Nonferrous Gold Limited Financial Position
Announcement