REG - East Star Resources - Final Results
18/04/2023 07:00
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RNS Number : 4990W East Star Resources PLC 18 April 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
REGULATION 2014/596/EU WHICH IS PART OF DOMESTIC UK LAW PURSUANT TO THE MARKET
ABUSE (AMENDMENT) (EU EXIT) REGULATIONS (SI 2019/310) ("UK MAR"). UPON THE
PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION (AS DEFINED IN UK
MAR) IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE
REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.
18 April 2023
East Star Resources Plc
("East Star" or the "Company")
Final Results for the 13 Months Ended 31 December 2022
East Star Resources Plc (LSE:EST), which is defining mineral resources in
Kazakhstan for the energy revolution, is pleased to present its annual
financial results for the period ended 31 December 2022 (the "Period"). Owing
to the change in the Company's financial year end from 30 November to 31
December to align with the calendar year, these results cover a Period of 13
months.
Highlights
Corporate
· Re-listed as a Kazakhstan-focused minerals explorer on 10 January
2022 following completion of the acquisition of Discovery Ventures Kazakhstan
Limited ("DVK") and an oversubscribed fundraising of £3.1 million
· Alex Walker, CEO of DVK, appointed Director and CEO of the Company
(based full time in Kazakhstan)
Projects
Copper-Zinc-Lead - Rudny Altai VMS Belt
· 3,640.2-line km of helicopter-borne electromagnetic ("HEM") survey
conducted between May and July 2022 over VMS licences in the world-class Rudny
Altai belt generating:
· Five 'Priority 1' targets - four are drill-ready
· Three 'Priority 2' targets - minor field work required prior to being
drill-ready
· 40 additional targets
· Announced on 15 August 2022 the award of three new volcanogenic
massive sulphide ("VMS") licences incorporating two historic operating
copper-zinc-lead mines, one known deposit, and many historical mineral
occurrences
· Announced on 25 January 2023 (post Period end) the identification of
a substantial copper-zinc-lead-deposit located within the 100% owned 'RA3'
licence (the "Verkhuba Deposit"). An independent JORC-compliant Exploration
Target of 19-23 Mt at 1.4-1.9% CuEq for the Verkhuba Deposit was announced on
21 March 2023. Highlights include:
· Exploration Target defined by 97 drill holes comprising 42,178 m of
historical diamond drilling
· Verification and infill drilling has been planned to upgrade
Exploration Target to JORC-compliant resources with drilling expected to
commence this summer
Rare Earths - East Kostanay
· Announced on 18 May 2022 a farm-in for up to 90% of the Talairyk rare
earth elements ("REE") project. Highlights include:
· Low-cost and zero cash payment entry to a geologically de-risked REE
deposit with Ionic Adsorption Clay (IAC) potential
· Historical resource (non-compliant) of 19,962 tonnes of yttrium plus
REEs
· Announced on 8 August 2022 the award of an additional contiguous
exploration licence at Talairyk
· Undertook 1,001 m of Reverse Circulation ("RC") drilling between
October and November 2022 to confirm historical grades, width and extent of
the mineralisation, and provide samples for metallurgical test work
· Announced assay results on 3 April 2023 (post period end) which
demonstrate high grade intersections across the entire tested area and broad
intersections in every drill hole, validating historical data and providing a
strong indication of an REE deposit of consequential size and grade, with an
average grade of 934.4 ppm and a peak grade of 3 m at 5,402 ppm TREO from 1m
· Leach test work to examine recoverability is ongoing
Gold - Chu-Ili Orogenic Gold Belt
· Exploration programme conducted throughout the period comprising
analysis of historical data, close spaced drone magnetics and rock chip
sampling leading up to a 4,947 m diamond drilling programme on both gold
licences which commenced around 25 July 2022
· Assay results from Apmintas Licence announced on 13 February 2023
(post Period end) demonstrated:
· Anomalous gold mineralisation in all three target areas with
potential economic grades in the Eshkilitau II and Southern Shabdar targets
· Eshkilitau II has potential for a mineralised system with a strike of
>1 km along a fault zone with significant regional exploration upside
potential
· High-grade intersections indicate existence of high-grade zones
within the mineralised systems at Southern Shabdar
· Detailed structural logging is underway with analysis to determine
next steps to progress exploration
Sandy Barblett, Non-executive Chairman, commented:
"This summer will see East Star drilling the significant copper-zinc-lead
Verkhuba Deposit Exploration Target on the Rudny Altai belt as we seek to
upgrade it to a JORC-complaint resource. Success in this objective alone
positions East Star for a significant re-rating. At the same time, we intend
to test priority HEM targets which offer the potential to become additional
copper deposits proximal to Verkhuba, while conducting additional fieldwork
and geophysics to refine more exploration targets.
In relation to our rare earths project, following highly encouraging assay
results from RC drilling, we eagerly await the results of leach test work
which will examine the recoverability potential of the valuable elements
before moving into resource drilling of the historical deposit this year.
On the Chu-Ili gold belt we are determining the next steps in exploration,
likely to focus on 10 km of strike along trend from high grade mines.
We believe Kazakhstan has the mineral wealth and political will to become a
major supplier of critical and strategic minerals. East Star's first mover
advantage is now evident in the portfolio, with the Company positioned as the
listed brownfield resource definition vehicle through which to access the next
wave of mineral discoveries in Kazakhstan."
For further information visit the Company's website at www.eaststarplc.com
(http://www.eaststarplc.com) , or contact:
East Star Resources Plc
Alex Walker, Chief Executive Officer
Tel: +44 (0)20 7390 0234 (via Vigo Consulting)
Peterhouse Capital Limited (Corporate Broker)
Duncan Vasey / Lucy Williams
Tel: +44 (0) 20 7469 0930
Vigo Consulting (Investor Relations)
Ben Simons / Peter Jacob
Tel: +44 (0)20 7390 0234
About East Star Resources Plc
East Star Resources is focused on the discovery and development of strategic
minerals required for the energy revolution. With an initial nine licenses
covering 1,321.5 km² in three mineral rich districts of Kazakhstan, East Star
is undertaking an intensive exploration programme, applying modern geophysics
to discover minerals in levels that were not previously explored. The Company
also intends to further expand its licence portfolio in Kazakhstan. East
Star's management are based permanently on the ground, supported by local
expertise, and joint ventures with the state mining company.
Follow us on social media:
LinkedIn: https://www.linkedin.com/company/east-star-resources/
(https://www.linkedin.com/company/east-star-resources/)
Twitter: https://twitter.com/EastStar_PLC (https://twitter.com/EastStar_PLC)
Subscribe to our email alert service to be notified whenever East Star
releases news:
www.eaststarplc.com/newsalerts (http://www.eaststarplc.com/newsalerts)
The person who arranged for the release of this announcement was Alex Walker,
CEO of the Company.
CHAIRMAN'S STATEMENT
On 10 January 2022, soon after the beginning of this Period under review, East
Star raised gross proceeds of £3.1 million by way of an oversubscribed
placing and subscription and was readmitted to the Official List of the London
Stock Exchange by way of a Standard Listing following its acquisition of 100%
of the share capital of the mineral explorer, Discovery Ventures Kazakhstan
Limited ("DVK").
DVK was formed to take advantage of a convergence of what we believe to be
ideal conditions to explore for and develop mineral deposits in Kazakhstan.
This is predicated on the availability of high-quality regional data and
mapping from historical exploration to which modern interpretation techniques
can now be applied, extensive underexplored areas, low operating and energy
costs, established logistics, the number of majors operating in-country, and a
progressive regulatory framework. In the period since East Star set up in
Kazakhstan, both the European Union and the UK have forged MoUs for the supply
of critical metals. In a statement in October 2022, European Commission
President, Ursula von der Leyen, acknowledged that meeting green and digital
economy goals would require minerals of which Kazakhstan is so rich.
The rapid maturation of East Star's portfolio is testament to the conditions
in-country. Indeed, the period since listing has been nothing short of
exceptional. We came to market as a greenfield explorer in early 2022 with
four licences and have grown to nine licences - or three projects - covering
1,321.5 km(2) in three mineral districts targeting multiple in-demand
commodities. We have, since listing, conducted nearly 5,000 m of diamond core
drilling on gold licences, conducted and interpreted substantial
helicopter-borne electromagnetic surveying over VMS licences, RC drilled our
REE deposit and conducted extensive fieldwork and historical data analysis
across all three projects. We have achieved all this on time and cost
efficiently.
The outcome has been that in little over a year, East Star's shareholders have
gained exposure to forthcoming brownfield resource drilling of potentially
significant copper-zinc-lead and rare earth deposits, both with significant
exploration upside in prolific but underexplored mineral belts and potentially
accelerated development pathways. This, combined with the 10 km of strike with
demonstrated gold at potential economic grades on our Chu-Ili licences makes
for a uniquely exciting portfolio which we believe is at this moment vastly
underappreciated by the stock market.
Review of Operations
Copper-Zinc-Lead - Rudny Altai VMS Belt
During the year the Company acquired two licences (80% held in DVK) in the
Rudny Altai region, one of the largest VMS provinces in the world, in a joint
venture with the state mining company Tau Ken Samruk (20% held in Tau Ken
Samruk). On 15 August 2022, East Star announced the award of three additional
contiguous licences (100% East Star) incorporating two historical operating
(extremely high grade), copper-lead-zinc mines, one known deposit, and many
historical mineral occurrences.
We conducted 3,640.2-line km of HEM survey between May and July 2022 over
these licences resulting in the generation of five 'Priority 1' targets - four
drill-ready; three 'Priority 2' targets with minor field work required prior
to being drill-ready; and 40 additional targets.
On 25 January 2023 (post Period end) we announced the identification of a
substantial copper-zinc-lead-deposit located within East Star's 100% owned
'RA3' licence (the "Verkhuba Deposit"). An independent JORC-compliant
Exploration Target of 19-23 Mt at 1.4-1.9% CuEq for the Verkhuba Deposit was
announced on 21 March 2023. The Exploration Target has been defined by 97
drill holes comprising 42,178 m of historical diamond drilling providing a
reasonable level of confidence in the geological interpretation.
This is without doubt the most exciting development in the portfolio in the
Period. We are now planning verification and infill drilling to convert the
Exploration Target to JORC-compliant resources with drilling expected to
commence this summer. A conversion of the target to JORC resources offers the
potential for a transformational re-rating in East Star's value just to equal
the average value of peer group copper deposits, before considering the
potential for additional tonnage of the ore bodies, significant exploration
upside from HEM targets, and a potential route to low-CAPEX development
leveraging the regional infrastructure already in place and excess processing
capacity from both Glencore (Kazzinc) and KAZ Minerals.
Rare Earths - East Kostanay
The critical need for REEs to support the energy revolution is well
publicised. On 18 May 2022, East Star announced a farm-in for up to 90% of the
Talairyk Ionic Adsorption Clay (IAC) REE project. This represented a low-cost
and zero cash payment entry to a geologically de-risked IAC hosted REE deposit
with a historical resource (non-compliant) of 19,962 tonnes of yttrium plus
REEs.
On 8 August 2022, we increased our exposure to REEs with the announcement of
the award of an additional contiguous exploration licence at Talairyk and
began a work programme aimed ultimately at confirming and expanding the
historical resource and assessing recoverability potential of the REEs.
1,001 m of RC drilling was conducted by East Star between October and November
2022 to confirm historical grades, width and extent of the mineralisation, and
provide samples for metallurgical test work. On 3 April 2023 (post Period
end), we announced assay results which demonstrate high grade intersections
across the entire tested area and broad intersections in every drill hole,
validating historical data and providing a strong indication of an REE deposit
of consequential size and grade, with an average grade of 934.4 ppm and a peak
grade of 3m at 5,402 ppm TREO from 1m.
Leach test work to examine recoverability rates of the REEs is underway.
Positive results will give us the confidence to move rapidly into resource
drilling of the historical deposit to bring it to JORC standards and commence
development studies.
Gold - Chu-Ili Orogenic Gold Belt
A huge amount of exploration activity has been conducted on East Star's gold
licences during the Period and, while the exciting developments in our
critical metals projects have understandably taken priority in recent months
given their near-term development potential, we have not lost sight of the
potential to define a million ounces of gold on acreage where our diamond
drill results and shallow artisanal mines are a visible sign of a working gold
system especially at a time when gold is now above $2,000 per oz.
East Star's exploration programme conducted throughout the period comprised
analysis of historical data, close spaced drone magnetics, and rock chip
sampling leading up to nearly 5,000 m of diamond drilling on both gold
licences which commenced around 25 July 2022.
Assay results from the Apmintas Licence were announced on 13 February 2023
(post Period end) and demonstrated anomalous gold mineralisation in all three
target areas with potential economic grades in the Eshkilitau II and Southern
Shabdar targets. Eshkilitau II has potential for a mineralised system with a
strike of more than 1 km along a fault zone with significant regional
exploration upside potential, while high-grade intersections indicate the
existence of high-grade zones within the mineralised systems at Southern
Shabdar. Detailed structural logging is underway, the analysis of which will
determine the next steps to progress exploration.
Key East Star Financial Indicators
· Cash and cash equivalents at Period end were £1.456 million
· Loss before taxation for the Period was £3.106million (includes
£1.73 million reverse acquisition expense (non-cash) on acquisition of DVK)
· Net cash flow for the period was £1.437 million
· The Group held net assets at Period end of £3.812 million
Summary
This summer will see East Star drilling the significant copper-zinc-lead
Verkhuba Deposit Exploration Target on the Rudny Altai belt as we seek to
upgrade it to a JORC-complaint resource. Given the extensive historical
drilling and Company data analysis that underpins this Exploration Target, we
have a reasonable level of confidence in achieving this. Success in this
objective alone positions East Star for a significant re-rating.
At the same time, we intend to test priority HEM targets which offer the
potential to become additional copper deposits proximal to the Verkhuba
Deposit, while conducting additional fieldwork and geophysics to refine more
exploration targets.
In relation to our rare earths project, following highly encouraging assay
results from RC drilling, we eagerly await the results of leach test work
which will examine the recoverability potential of the valuable elements
before moving into resource drilling of the historical deposit this year.
On the Chu-Ili gold belt we are determining the next steps in exploration,
likely to focus on 10 km of strike along trend from high grade mines.
We believe Kazakhstan has the mineral wealth and political will to become a
major supplier of critical and strategic minerals. East Star's first mover
advantage is now evident in the portfolio, with the Company positioned as the
listed brownfield resource definition vehicle through which to access the next
wave of mineral discoveries in Kazakhstan.
I would like to take this opportunity to commend our CEO, Alex Walker, who is
based permanently in Kazakhstan, and our whole team in Kazakhstan, who have in
the Period conducted successful work programmes safely and cost effectively
across three projects which now position East Star to deliver, this year, JORC
resources of metals needed for the energy revolution. As always, we thank
shareholders for their continued support.
Sandy Barblett
Non-Executive Chairman
17 April 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AS AT 31 DECEMBER 2022
Audited Unaudited
Period ended 31 December 2022
Year ended 31 December 2021
Note £'000 £'000
Continuing Operations
Revenue - -
Administrative expenses 4 (1,131) (47)
Share based payments (244) -
Operating loss (1,375) (47)
Finance expenses 5 - (39)
Reverse acquisition expense 24 (1,730) -
Loss before taxation (3,105) (86)
Taxation on loss of ordinary activities 8 - -
Loss for the year from continuing operations (3,105) (86)
Other comprehensive income 9 70 (4)
Total comprehensive loss for the year attributable to shareholders from (3,035) (90)
continuing operations
Basic & dilutive earnings per share - pence 10 (1.72) (0.07)
The statement of comprehensive income has been prepared on the basis that all
operations are continuing operations.
The notes form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022
Audited Unaudited
As at 31 December
As at 31 December
2022
2021
Note £'000 £'000
NON-CURRENT ASSETS
Exploration assets 11 2,268 -
Earn in advance (financial asset) 12 57 -
Property, plant and equipment 13 25 25
TOTAL NON-CURRENT ASSETS 2,350 25
CURRENT ASSETS
Cash and cash equivalents 15 1,456 17
Trade and other receivables 17 133 964
TOTAL CURRENT ASSETS 1,589 981
TOTAL ASSETS 3,939 1,006
CURRENT LIABILITIES
Trade and other payables 19 127 40
Loan notes 20 - 765
Borrowings 21 - 75
TOTAL CURRENT LIABILITIES 127 880
TOTAL LIABILITIES 127 880
NET ASSETS 3,812 126
EQUITY
Share capital 22 1,823 53
Share premium 22 5,891 132
Other equity reserve - 31
Share capital to issue 24 3,750 -
Share based payment reserve 23 268 -
Foreign exchange reserve 66 (4)
Reverse acquisition reserve 24 (4,795) -
Retained earnings (3,191) (86)
TOTAL EQUITY 3,812 126
*Non-controlling interest of £33 exists with Joint Venture Partner (Tau-Ken
Samruk) not stated above.
The Company has taken advantage of section 408 of the Companies Act 2006 and
consequently a profit and loss account has not been presented for the Company.
The Company's total comprehensive loss for the financial period was £971,025
(2021: £421,212)
The financial statements were approved and authorised for issue by the board
on 17 April 2023 and were signed on its behalf by:
Director - Anthony Eastman
The notes form an integral part of these consolidated financial statements.
COMPANY STATMEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022
Audited Audited
As at 31 December
As at 30 November
2022
2021
Note £'000 £'000
NON-CURRENT ASSETS
Investment 14 6,268 -
Intercompany receivables 16 2,734
TOTAL NON-CURRENT ASSETS 9,002 -
CURRENT ASSETS
Cash and cash equivalents 15 1,407 1,248
Trade and other receivables 17 16 72
Loan notes 18 - 608
Other current assets - 10
TOTAL CURRENT ASSETS 1,423 1,938
TOTAL ASSETS 10,425 1,938
CURRENT LIABILITIES
Trade and other payables 19 85 139
TOTAL CURRENT LIABILITIES 85 139
TOTAL LIABILITIES 85 139
NET ASSETS 10,340 1,799
EQUITY
Share capital 22 1,823 695
Share premium account 22 5,891 1,501
Share capital to issue 24 3,750 -
Share based payment reserve 23 268 24
Retained Earnings (1,392) (421)
TOTAL EQUITY 10,340 1,799
The financial statements were approved and authorised for issue by the board
on 17 April 2023 and were signed on its behalf by:
Director - Anthony Eastman
The notes form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2022
Share Capital Share Premium Equity reserve SBP reserve Foreign exchange reserve Reverse acquisition reserve Share Capital issue Retained Earnings Total Equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 December 2020 45 - - - - - - - 45
Loss for period - - - - - - - (86) (86)
Other comprehensive income - - - - (4) - - - (4)
Total comprehensive expense for year - - - - (4) - - (86) (90)
Transactions with owners in own capacity
Ordinary shares issued 8 132 - - - - - - 140
Equity value of convertible loan notes - - 31 - - - - - 31
Transactions with owners in own capacity 8 132 31 - - - - - 171
Balance at 31 December 2021 53 132 31 - (4) - - (86) 126
Loss for period - - - - - - - (3,105) (3,105)
Other comprehensive income - - - - 70 - - - 70
Total comprehensive income for year - - - - 70 - - (3,105) (3,035)
Transactions with owners in own capacity
Recognition of PLC equity at acquisition date 695 1,501 - 24 - 1,257 - - 3,477
Remove share capital of DVK (53) (132) (31) - - 216 - - -
Issue of shares for acquisition of subsidiary 504 2,014 - - - (6,268) 3,750 - -
Issue of shares for placing 624 2,494 - - - - - - 3,118
Share issue costs - (118) - - - - - - (118)
Broker warrants issued - - - 132 - - - - 132
Employee options issued - - - 112 - - - - 112
Transactions with owners in own capacity 1,770 5,759 (31) 268 - (4,795) 3,750 - 6,721
Balance at 31 December 2022 1,823 5,891 - 268 66 (4,795) 3,750 (3,191) 3,812
COMPANY STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2022
Share capital Share premium SBP reserve Share capital to issue Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000 £'000
Loss for period - - - - (442) (442)
Other comprehensive income - - - - 21 21
Total comprehensive expense for year - - - - (421) (421)
Transactions with owners in own capacity
Ordinary Shares issued in the period 695 1,588 - - - 2,283
Broker Warrants Issued - - 24 - - 24
Share Issue Costs - (87) - - - (87)
Transactions with owners in own capacity 695 1,501 24 - - 2,220
Balance at 30 November 2021 695 1,501 24 - (421) 1,799
Loss for period - - - - (971) (971)
Other comprehensive income - - - - - -
Total comprehensive income for year - - - - (971) (971)
Transactions with owners in own capacity
Ordinary Shares issued in the period 1,128 4,508 - - - 5,636
Performance shares on acquisition - - - 3,750 - 3,750
Advisor warrants issued - - 132 - - 132
Employee options issued - - 112 - - 112
Share Issue Costs - (118) - - - (118)
Transactions with owners in own capacity 1,128 4,390 244 3,750 - 9,512
Balance at 31 December 2022 1,823 5,891 268 3,750 (1,392) 10,340
CONSOLIDATED STATEMENT OF CASHFLOWS FOR PERIOD ENDED 31 DECEMBER 2022
Audited Unaudited
Period ended Year ended
31 December 2022
31 December 2021
Note £'000 £'000
Cash flow from operating activities
Loss for the financial year (3,105) (90)
Adjustments for:
Share based payments 244 -
Reverse acquisition expense 1,730 -
Depreciation & amortization 9 -
Interest charge on convertible loan note - 39
Settlement of fees through issue of equity 18 -
Foreign exchange movements 70 (4)
Changes in working capital:
Decrease / (increase) in trade and other receivables 830 (922)
Increase in trade and other payables 87 629
Net cash outflow from operating activities (117) (348)
Cash flows from investing activities
Purchase of property, plant and equipment (9) (25)
Investment in exploration and financial assets (1,449) -
Cash acquired on acquisition of subsidiary 22 -
Net cash flow from investing activities (1,436) (25)
Cash flows from financing activities
Proceeds from issue of shares 3,100 138
Share issue costs (118) -
Issue of convertible loan notes - 249
Net cash flow from financing activities 2,982 387
Net increase in cash and cash equivalents 1,429 14
Cash and cash equivalents at beginning of the period 16 9
Foreign exchange effect on cash balance 11 (7)
Cash and cash equivalents at end of the period 15 1,456 16
During the period there were the following material non-cash transactions:
· 50.35 million shares as consideration on the acquisition of Discovery
Ventures Kazakhstan
· Settlement of East star convertible loan notes through issue of
equity
· Settlement of Ilwella convertible loan notes through issue of equity
The notes form an integral part of these consolidated financial statements.
COMPANY STATEMENT OF CAHSFLOWS FOR THE 13 MONTH PERIOD ENDED 31 DECEMBER 2022
Audited Audited
13 months ended
Period ended
31 December 2022
30 November 2021
Note £'000 £'000
Cash flow from operating activities
Loss for the financial year (971) (421)
Adjustments for:
Share based payments 244 24
Settlement of fees through issue of equity 18 (21)
Revaluation adjustments to fair value - (77)
Changes in working capital:
Decrease / (increase) in trade and other receivables 66 (81)
(Decrease) / increase in trade and other payables (53) 139
Net cash outflow from operating activities (696) (437)
Cash flows from investing activities
Purchase of convertible loan notes - (511)
Loans to subsidiaries (2,127) -
Net cash flow from investing activities (2,127) (511)
Cash flows from financing activities
Proceeds from Issue of Shares 3,100 2,283
Share Issue Costs (118) (87)
Net cash flow from financing activities 2,982 2,196
Net increase in cash and cash equivalents 159 1,248
Cash and cash equivalents at beginning of the period 15 1,248 -
Cash and cash equivalents at end of the period 15 1,407 1,248
During the period there were the following material non-cash transactions:
· 50.35 million shares as consideration on the acquisition of Discovery
Ventures Kazakhstan
· Settlement of East star convertible loan notes through issue of
equity
The notes form an integral part of these consolidated financial statements.
NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2022
1. General Information
East Star Resources Plc was incorporated on 17 November 2020 in England and
Wales and remains domiciled there with Registered Number 13025608 under the
Companies Act 2006, under the name Cawmed Resources Limited. The Company
subsequently changed its name to East Star Resources Limited on 27 January
2021 and on 3(rd) March 2021 re-registered as a plc.
The address of its registered office is Eccleston Yards, 25 Eccleston Place,
London SW1W 9NF, United Kingdom.
The principal activity of the Company is to seek suitable investment
opportunities primarily in the natural resources sector.
The Company originally listed on the London Stock Exchange ("LSE") on 4(th)
May 2021. The Company was suspended from trading on 19(th) July 2021 whilst
managing a reverse takeover transaction and was then re-admitted to trading on
10(th) January 2022. The Company successfully completed the acquisition of its
Kazakhstan based subsidiary - "Discovery Ventures Kazakhstan Limited" on 10
January and since then has been increasing exploration operations within the
region. The consolidated financial statements are presented for the Company
and all of its subsidiaries ("the Group").
2. Accounting policies
The principal accounting policies applied in preparation of these financial
statements are set out below. These policies have been consistently applied
unless otherwise stated.
2.1 Basis of preparation
The consolidated and parent company financial statements ("financial
statements") for the period ended 31 December 2022 have been prepared by East
Star Resources Plc in accordance with UK-adopted International Accounting
Standards ("IAS UK"). The Financial Statements have also been prepared under
the historical cost convention, as modified by the revaluation of financial
assets at fair value through profit or loss.
The functional currency for each entity in the Group is determined as the
currency of the primary economic environment in which it operates. The
functional currency of the Company is Pounds Sterling (£) as this is the
currency that finance was raised in.
The functional currency of its subsidiaries is the Kazakhstan Tenge. For all
subsidiaries these are the currencies that mainly influence labour, material
and other costs of providing services. However, the presentational currency
for the subsidiaries is United States Dollar ($) as this is the currency that
the subsidiaries are required to report to national mining authorities in.
The Group has chosen to present its consolidated financial statements in
Pounds Sterling (£), as the Directors believe it is a more convenient
presentational currency for users of the consolidated financial statements.
Foreign operations are included in accordance with the policies set out below.
During the period the Company changed its accounting reference date from
30(th) November to 31(st) December to align itself with its newly acquired
subsidiary. Consequently, the current year covers a 13 month period, whereas
the prior year is a 12-month period and so is not entirely comparable year on
year. This change in periods relates only to the parent company financial
statements. Consolidated financial statements are prepared to 31 December for
2021 and 2022.
2.2 Going concern
The financial statements have been prepared on a going concern basis, which
assumes that the Group will continue to meet its liabilities as they fall due.
In January 2022 the Company successfully completed a Reverse Takeover ("RTO")
whilst simultaneously completing a placing that allowed the Group to raise
£3.1m gross. Post transaction the Group had in excess of £3.5m in cash
(£1.456m at period end) and consequently exhibits a strong balance sheet
position.
On acquisition of Discovery Ventures Kazakhstan Limited the Group acquired the
rights to multiple mining licenses within Kazakhstan. The forecast capital
commitments of the Group have been analysed carefully in relation to expected
spends on each one of the mining licenses and the board is comfortable that
the working capital commitments can be fully satisfied by the current cash
position. The major capital commitments of DVK and its subsidiaries can be
seen in Note 29.
These considerations combined with other mitigating factors (Directors are
prepared to forego salaries if necessary to support the Company) that the
directors have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing the financial
statements.
2.3 Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. Per IFRS 10, control is achieved when the Company:
· has the power over the investee;
· is exposed, or has rights, to variable returns from its involvement
with the investee; and
· has the ability to use its power to affects its returns.
The Company reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control listed above. When the Company has less than a majority
of the voting rights of an investee, it considers that it has power over the
investee when the voting rights are sufficient to give it the practical
ability to direct the relevant activities of the investee unilaterally. The
Company considers all relevant facts and circumstances in assessing whether or
not the Company's voting rights in an investee are sufficient to give it
power, including:
· the size of the Company's holding of voting rights relative to the size
and dispersion of holdings of the other vote holders;
· potential voting rights held by the Company, other vote holders or
other parties;
· rights arising from other contractual arrangements; and
· any additional facts and circumstances that indicate that the Company
has, or does not have, the current ability to direct the relevant activities
at the time that decisions need to be made, including voting patterns at
previous shareholders' meetings.
Consolidation of a subsidiary begins when the Company obtains control over the
subsidiary and ceases when the Company loses control of the subsidiary.
Specifically, the results of subsidiaries acquired or disposed of during the
year are included in profit or loss from the date the Company gains control
until the date when the Company ceases to control the subsidiary. Where
necessary, adjustments are made to the financial statements of subsidiaries to
bring the accounting policies used into line with the Group's accounting
policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows
relating to transactions between the members of the Group are eliminated on
consolidation.
Reverse acquisition accounting treatment
During the period East Star Resources Plc acquired the entire share capital of
Discovery Ventures Kazakhstan Ltd. As East Star Resources ("accounting
acquiree") was purely a cash shell at time of acquisition it did not
constitute a business and therefore the acquisition was treated as a reverse
acquisition of DVK ("accounting acquirer") and outside the scope of IFRS 3.
As a result of this the consolidated financial statements have been prepared
to reflect the consolidated results of the Group from acquisition date on 10
January 2022. The consolidated period is the 12 month period ending 31
December 2022 and incorporates results from DVK for the entire period and
results from East Star from acquisition date on 10 January 2022. Comparatives
have been prepared to reflect the results of the accounting acquirer for the
year ending 31 December 2021.
2.4 Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, and demand
deposits with banks and other financial institutions. The Group holds the
majority of group funds in Lloyds bank equivalent accounts through a forex
platform (Alpha FX). Supplementary working capital funds are held in online
banking platforms in the UK (Revolut) and physical banks in Kazakhstan.
2.5 Equity
Share capital is determined using the nominal value of shares that have been
issued.
The Share premium account includes any premiums received on the initial
issuing of the share capital. Any transaction costs associated with the
issuing of shares are deducted from the Share premium account, net of any
related income tax benefits.
Equity-settled share-based payments are credited to a share-based payment
reserve as a component of equity until related options or warrants are
exercised or lapse.
Retained losses includes all current and prior period results as disclosed in
the income statement.
Foreign currency differences are recognised in other comprehensive income and
accumulated in the foreign exchange reserve except to the extent that the
translation difference is allocated to non-controlling interests.
https://www.lawinsider.com/clause/reverse-acquisition-reserve
(https://www.lawinsider.com/clause/reverse-acquisition-reserveThe) The
(https://www.lawinsider.com/clause/reverse-acquisition-reserveThe) reverse
acquisition reserve was recognised during the formation of the Group when the
legal acquiree was considered to be the accounting acquirer under the rules of
IFRS 3. As the accounting acquiree was not a business under IFRS 3, a part of
the transaction was outside the scope of IFRS 3. This resulted in the
recognition of a 'reverse acquisition reserve' on consolidation and is set out
in more detail in note 24.
Share capital to issue reserve relates to shares to be settled via the issue
of the Company's shares at the year-end which meet the definition of equity
per IAS 32 are classified as shares to be issue within equity and are held at
fair value.
2.6 Foreign currency translation
The results and financial position of all the Group entities (none of which
has the currency of a hyperinflationary economy) that have a functional
currency different from the presentation currency are translated into the
presentation currency as follows:
(i) assets and liabilities for each statement of financial position presented
are translated at the closing rate at the date of that statement;
(ii) income and expenses for each income statement are translated at spot
exchange rates (unless the spot is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the rate on the dates of the
transactions); and
(iii) all resulting exchange differences are recognised in the Statement of
Comprehensive Income and accumulated in the foreign exchange reserve in
equity.
When a foreign operation is disposed of in its entirety or partially such that
control is lost, the cumulative amount in the translation reserve related to
that foreign operation is reclassified to profit or loss as part of the gain
or loss on disposal. Exchange differences arising, if any, are recognised in
other comprehensive income and accumulated in a foreign exchange reserve
(attributed to non-controlling interests as appropriate).
2.7 Financial instruments
IFRS 9 requires an entity to address the classification, measurement and
recognition of financial assets and liabilities.
a) Classification
The Group classifies its financial assets in the following measurement
categories:
· those to be measured subsequently at fair value (either through
OCI or through profit or loss);
· those to be measured at amortised cost; and
· those to be measured subsequently at fair value through profit or
loss.
The classification depends on the Group's business model for managing the
financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will be recorded either
in profit or loss or in OCI. For investments in equity instruments that are
not held for trading, this will depend on whether the Group has made an
irrevocable election at the time of initial recognition to account for the
equity investment at fair value through other comprehensive income (FVOCI).
b) Recognition
Purchases and sales of financial assets are recognised on trade date (that
is, the date on which the Group commits to purchase or sell the asset).
Financial assets are derecognised when the rights to receive cash flows
from the financial assets have expired or have been transferred and the Group
has transferred substantially all the risks and rewards of ownership.
c) Measurement
At initial recognition, the Group measures a financial asset at its fair value
plus, in the case of a financial asset not at fair value through profit or
loss (FVPL), transaction costs that are directly attributable to the
acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are expensed in profit
or loss.
Debt instruments
Amortised cost: Assets that are held for collection of contractual cash flows,
where those cash flows represent solely payments of principal and interest,
are measured at amortised cost. Interest income from these financial
assets is included in finance income using the effective interest rate
method. Any gain or loss arising on derecognition is recognised directly in
profit or loss and presented in other gains/(losses) together with foreign
exchange gains and losses. Impairment losses are presented as a separate line
item in the statement of profit or loss.
Equity instruments
The Group subsequently measures all equity investments at fair value. Where
the Group's management has elected to present fair value gains and losses on
equity investments in OCI, there is no subsequent reclassification of fair
value gains and losses to profit or loss following the derecognition of the
investment. Dividends from such investments continue to be recognised in
profit or loss as other income when the Group's right to receive payments is
established. Changes in the fair value of financial assets at FVPL
are recognised in other gains/(losses) in the statement of profit or loss as
applicable. Impairment losses (and reversal of impairment losses) on equity
investments measured at FVOCI are not reported separately from other changes
in fair value.
d) Impairment
The Group assesses, on a forward-looking basis, the expected credit losses
associated with any debt instruments carried at amortised cost.
The impairment methodology applied depends on whether there has been a
significant increase in credit risk. For trade receivables, the Group applies
the simplified approach permitted by IFRS 9, which requires expected lifetime
losses to be recognised from initial recognition of the receivables.
2.8 Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently
measured at amortised cost using the effective interest method, less any
allowance for expected credit losses. Trade receivables are generally due for
settlement within 30 days.
2.9 Trade and other payables
These amounts represent liabilities for goods and services provided to the
consolidated entity prior to the end of the financial year and which are
unpaid. Due to their short-term nature, they are measured at amortised cost
and are not discounted. The amounts are unsecured and are usually paid within
30 days of recognition.
2.10 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any accumulated impairment losses.
When the Group acquires any plant and equipment it is stated in the accounts
at its cost of acquisition less a provision.
Depreciation is charged to write off the costs less estimated residual value
of plant and equipment on a straight basis over their estimated useful lives
being:
· Plant and equipment 5-7 years
· Furniture and fittings 5-7 years
· Computer equipment 3 years
Estimated useful lives and residual values are reviewed each year and amended
as required.
2.11 Exploration and evaluation assets
Intangible assets represent exploration and evaluation assets (IFRS 6 assets),
being the cost of acquisition by the Group of rights, licences and know-how.
Such expenditure requires the immediate write-off of exploration and
development expenditure that the Directors do not consider to be supported by
the existence of commercial reserves.
All costs associated with mineral exploration and investments, are capitalised
on a project-by-project basis, pending determination of the feasibility of the
project. Costs incurred include appropriate technical and administrative
expenses but not general overheads and these assets are not amortised until
technical feasibility and commercial viability is established. If an
exploration project is successful, the related expenditures will be
transferred to "mining assets" and amortised over the estimated life of the
commercial ore reserves on a unit of production basis.
The recoverability of all exploration and development costs is dependent upon
the discovery of economically recoverable reserves, the ability of the Group
to obtain necessary financing to complete the development of reserves and
future profitable production or proceeds from the disposition thereof.
Exploration and evaluation assets shall no longer be classified as such when
the technical feasibility and commercial viability of extracting mineral
resources are demonstrable. When relevant, such assets shall be assessed for
impairment, and any impairment loss recognised, before reclassification to
"Mine development".
2.12 Share based payments
The Group has made awards of warrants and options on its unissued share
capital to certain parties in return for services provided to the Group. The
valuation of these warrants involved making a number of critical estimates
relating to price volatility, future dividend yields, expected life of the
options and interest rates. These assumptions have been integrated into the
Black Scholes Option Pricing model and the Monte Carlo valuation model to
derive a value for any share-based payments. These assumptions are described
in more detail in note 23.
The expense charged to the Statement of Comprehensive Income during the year
in relation to share based payments was £244,283.
2.13 Taxation
Tax currently payable is based on taxable profit for the period. Taxable
profit differs from profit as reported in the income statement because it
excludes items of income and expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on temporary
differences between the carrying amounts of assets and liabilities in the
group or parent company financial statements and the corresponding tax bases
used in the computation of taxable profit and is accounted for using the
balance sheet liability method. As there is no reasonable expectation of
future revenues to which tax losses could be applied no deferred tax asset has
been recognised.
2.14 Leases
The Group recognises the guidelines set out in "IFRS 16 - Leases" and are
allocated between principal and finance cost. The finance cost is charged to
profit or loss over the lease period. Right-of-use assets are measured at cost
which comprises the following:
· The amount of the initial measurement of the lease liability;
· Any lease payments made at or before the commencement date less any
lease incentives received;
· Any initial direct costs; and
· Restoration costs.
Payments associated with short-term leases (term less than 12 months) and all
leases of low-value assets (generally less than £5k) are recognised on a
straight-line basis as an expense in profit or loss. The short term lease
exemption has been utilised by the Group in relation to property leases held
in the Kazakhstan and the UK. These leases are on a rolling month-month basis
and hence there is no long term commitment entered into and are also low-value
assets.
2.15 Convertible loan notes, borrowings and borrowing costs
Convertible loan notes classified as financial liabilities and borrowings are
recognised initially at fair value, net of transaction costs. After initial
recognition, loans are subsequently carried at amortised cost. Any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised in the statement of comprehensive income over the period of the
borrowings using the effective interest method. Fees paid on the establishment
of loan facilities are capitalised as a prepayment for liquidity services and
amortised over the period of the loan to which it relates.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability or at least 12 months
after the end of the reporting period.
2.16 Contingent asset
A contingent asset is a possible asset that arises from past events, and whose
existence will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the entity.
Contingent assets in these financial statements relate to VAT that is only
offsetable against future revenue and hence these amounts are contingent on
this occurrence and are classified as so.
2.17 Other comprehensive income
Gains or losses on the translation of currencies into the presentational
currency are recognised as other comprehensive income in the Statement of
Profit and Loss and Other Comprehensive Income and transferred to a separate
foreign exchange reserve under equity.
2.18 Critical accounting judgements and key sources of
estimation uncertainty
The preparation of the financial statements in conformity with IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expense. Actual results may differ from these
estimates. Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in which
the estimates are revised and in any future periods affected. The areas
involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial statements, are
disclosed below:
Impairment of investments and loans to subsidiaries - Note 14 & 16
The Group and the Company assess at each reporting date whether there is any
objective evidence that investments in and loans to subsidiaries are
impaired. To determine whether there is objective evidence of impairment, a
considerable amount of estimation is required in assessing the ultimate
realisation of these investments/receivables, including valuation,
creditworthiness and future cashflows. As at the year end the Directors do not
assess there to be any impairment of these amounts.
Recoverable value of exploration assets - Note 11
Costs capitalised in respect of the Group's mining assets are required to be
assessed for impairment under the provisions of IFRS 6. Such an estimate
requires the Group to exercise judgement in respect of the indicators of
impairment and also in respect of inputs used in the models which are used to
support the carrying value of the assets. Such inputs include estimates of
mineral reserves, production profiles, commodity prices, capital expenditure,
inflation rates, and pre-tax discount rates that reflect current market
assessments of (a) the time value of money; and (b) the risks specific to the
asset for which the future cash flow estimates have not been adjusted. The
Directors concluded that there was no impairment as at 31 December 2022.
Share based payments - Note 23
The Group issues options and warrants to its employees, directors, investors
and advisors. These are valued in accordance with IFRS 2 "Share-based
payments". In calculating the related charge on issuing shares and warrants
the Group will use a variety of estimates and judgements in respect of inputs
used including share price volatility, risk free rate, and expected life.
Changes to these inputs may impact the related charge.
Valuation of contingent consideration payable - Note 24
The Group has recorded a contingent consideration liability of £3.75m as at
31 December 2022 relating to the reverse acquisition of DVK. An estimate must
be made when determining the value of contingent consideration to be
recognised at each balance sheet date. Changes in assumptions could cause an
increase, or reduction, in the amount of contingent consideration payable,
with a resulting charge or credit in the consolidated income statement.
The contingent consideration (in the form of performance shares) is based upon
the achievement of performance milestones relating to confirmation- of -a
-mineral -resource -on -one -of -the -Licences -of -at -least -one -million-
ounces -of gold -equivalent -at- an -average- grade -of -at -least -two
-grammes- per -tonne -of -gold -equivalent -as defined -by -an -independent-
professional- firm -appointed -by -the - Group -to -either -JORC -Code or -NI
43-101-classification- standards. The Directors believe that there is a
moderate probability that these conditions will be met however not in the 12
month period so it has been classified as a non-current liability in the
statement of financial position.
2.19 New standards and interpretations not yet adopted
At the date of approval of these financial statements, the following standards
and interpretations which have not been applied in these financial statements
were in issue but not yet effective (and in some cases have not yet been
adopted by the UK):
Standard Impact on initial application Effective date
Annual Improvements 2018-2020 Cycle 1 January 2023
IAS 1 Classification of liabilities Current or Non-current 1 January 2023
IAS 8 Accounting estimates 1 January 2023
IAS 12 Deferred tax arising from a single transaction 1 January 2023
The effect of these amended Standards and Interpretations which are in issue
but not yet mandatorily effective is not expected to be material.
The Directors are evaluating the impact that these standards may have on the
financial statements of Group.
3. Segmental analysis
The Group manages its operations in two segments, being exploration activities
in Kazakhstan and corporate functions in the United Kingdom. The results of
these segments are regularly reviewed by the board as a basis for the
allocation of resources, in conjunction with individual investment appraisals,
and to assess their performance.
The Group generated no revenue during the year ended 31 December 2022
(2021:£0).
United Kingdom Kazakhstan Total
£'000 £'000 £'000
Administrative expenses (675) (177) (852)
Share based payments (244) - (244)
VAT write off - (279) (279)
Operating loss from continued operations per reportable segment (919) (456) (1,375)
Reportable segment assets 1,423 2,516 3,939
Reportable segment liabilities (85) (42) (127)
Total 1,338 2,474 3,812
Segment assets and liabilities are allocated based on geographical location.
4. Administrative expenses
Administrative expenses for the Group can further be broken down as per below:
Period ended 31 December 2022 Year ended 31 December 2021
£'000
£'000
Professional fees (340) -
Directors fees (335) (3)
Salaries & wages (89) (31)
Insurance (25) -
Travel & entertainment (33) -
Foreign exchange 83 -
VAT write off (279) -
Other administrative expenses (113) (13)
Total (1,131) (47)
5. Finance expenses
Finance income consists of the revaluation of loan notes to fair value:
Period ended 31 December 2022 Year ended 31 December 2021
£'000
£'000
Interest expenses - (39)
- (39)
6. Employees
The average number of persons employed by the Group (including directors)
during the period ended 31 December 2022 was:
31 December 2022 31 December 2021
No of employees No of employees
Management 4 3
Non-management 7 -
11 3
Aggregate payroll costs of these person were as follows:
Period ended 31 December 2022 Year ended 31 December 2021
£'000
£'000
Management 335 3
Non-management 108 31
443 34
The highest paid director received total remuneration of £308,000 (2021:
£14,000)
7. Auditor's Remuneration
Period ended 31 December 2022 Year ended 31 December 2021
£'000
£'000
Fees payable for the audit of the Group's financial statements 45 35
Fees payable for review of the Group's interim financial statements 3 -
Fees payable for other services - Reporting accountant services in respect to - 15
reverse acquisition
48 50
8. Taxation
Period ended Year ended
31 December 2022 31 December 2021
£'000 £'000
A reconciliation of the tax charge appearing in the income statement to the
tax that would result from applying the standard rate of tax to the results
for the year is:
Loss per accounts (3,105) (421)
Tax credit at the weighted standard average rate of corporation tax in the UK (606) (80)
of 19% and Kazakhstan of 20%
Adjustment for items disallowable for tax 375 57
Tax losses for which no deferred tax is recognised 231 23
Tax expense recognised in accounts - -
The Group has total carried forward losses of £1,250k. The taxed value of the
unrecognised deferred tax asset is £238k and these losses do not expire. No
deferred tax assets in respect of tax losses have not been recognised in the
accounts because there is currently insufficient evidence of the timing of
suitable future taxable profits against which they can be recovered.
On 15 March 2023 it was announced that from 1 April 2023 the UK corporation
tax rate would increase from 19% to 25% for profits over £250,000. Profits
made under the £250,000 threshold will continue to be taxed at a rate of 19%.
The Group will continue to calculate the effective tax rate at 19%.
9. Other comprehensive income
Items credited to the other comprehensive income line in the statement of
comprehensive income relate to the impact of foreign exchange movements when
translating the statement of financial position from functional to
presentational currencies on consolidation. The corresponding movement is
offset against the foreign exchange reserve in the statement of financial
position:
Period ended 31 December 2022 Year ended 31 December 2021
£'000
£'000
Foreign currency movements 70 (4)
70 (4)
10. Earnings per share
The calculation of the basic and diluted earnings per share is calculated by
dividing the profit or loss for the year by the weighted average number of
ordinary shares in issue during the year.
Year ended Year ended
31 December 2022 31 December 2021
Loss attributable to shareholders of East Star Resources Plc - £'000 (3,105) (86)
Weighted number of ordinary shares in issue 180,843,292 123,231,836
Basic & dilutive earnings per share from continuing operations - pence (1.72) (0.07)
The weighted average number of shares is adjusted for the impact of the
reverse acquisition as follows:
Prior to the reverse takeover, the number of shares is based on DVK, adjusted
using the share exchange ratio arising on the reverse takeover; and from the
date of the reverse takeover, the number of share is based on the Company. The
prior year number of shares is also adjusted using the share exchange ratio.
There is no difference between the diluted loss per share and the basic loss
per share presented. Share options and warrants could potentially dilute basic
earnings per share in the future but were not included in the calculation of
diluted earnings per share as they are anti-dilutive for the year presented.
See note 23 for further details.
11. Exploration assets
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Exploration & evaluation assets 2,268 - - -
Exploration and evaluation assets relate specifically to mining licenses held
in the Kazakhstan based subsidiaries. The Group holds a total of 8 licenses
plus one jointly through a farm in arrangement with Phoenix Mining ltd across
3 mineral districts being specifically the Chu-Ili belt, East Kostanay region
and Rudny Altai belt. The majority of investment in the assets has been across
the Chu-Ili and Rudny held licenses to date.
12. Earn in advance (financial asset)
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Earn in advance (financial asset) 57 - - -
The asset held jointly with Phoenix Mining Ltd is classified below as a
financial asset as it does not currently satisfy all the requirements of IFRS
6 to be capitalised as an exploration asset.
13. Property, plant & equipment
Group
Plant and equipment £'000 Furniture and fittings £'000 Computer equipment £'000 Total
£'000
Cost
Opening balance - 1 January 2021 - - - -
Additions 26 1 3 30
At 31 December 2021 26 1 3 30
Depreciation
Opening balance - 1 January 2021 - - - -
Charge for the period (5) - - (5)
At 31 December 2021 (5) - - (5)
Net book value 31 December 2021 21 1 3 25
Plant and equipment £'000 Furniture and fittings £'000 Computer equipment £'000 Total
£'000
Cost
Opening balance - 1 January 2022 26 1 3 30
Additions 3 1 4 8
At 31 December 2022 29 2 7 38
Depreciation
Opening balance - 1 January 2022 (5) - - (5)
Charge for the period (7) - (1) (8)
At 31 December 2022 (12) - (1) (13)
Net book value 31 December 2021 21 1 3 25
Net book value 31 December 2022 17 2 6 25
14. Investment in subsidiaries
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Investment in DVK - - 6,268 -
- - 6,268
On 10 January 2022 the Company completed the successful acquisition of DVK
through a reverse takeover. The Company issued 50,350,000 shares at £0.05 to
the shareholders of DVK in order to acquire the entire share capital of DVK.
As part of the investment the Company has also recognised a contingent
liability to issue 75,000,000 shares at £0.05 on the satisfaction of specific
performance milestones. The transaction was treated as a reverse acquisition
as detailed in note 24.
Name Business Activity Country of Incorporation Registered Address Percentage Holding
Discovery Ventures Kazakhstan Limited Mineral exploration Kazakhstan Block C4.3, Office 140, Z05T3F5, Nur Sultan, Kazakhstan 100%
Chu Lli Resources ltd* Mineral exploration Kazakhstan Mangilik Yel 55/22, Block C4.3, Office 140, Z05T3F5, Nur Sultan, Kazakhstan 80%
Rudny Resources ltd* Mineral exploration Kazakhstan Mangilik Yel 55/22, Block C4.3, Office 140, Z05T3F5, Nur Sultan, Kazakhstan 80%
*Subsidiaries held indirectly through Discovery Ventures Kazakhstan
15. Cash and cash equivalents
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Cash at bank 1,456 17 1,407 1,248
16. Inter-company receivable
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Inter-company loan - DVK - - 2,734 -
- - 2,734 -
17. Trade and other receivables
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
VAT receivable 15 - 6 72
Prepayments 24 2 - -
Receivable - 876 - -
from joint venture
Other debtors 94 86 10 -
133 964 16 72
Receivable from Tau-Ken Samruk ("TKS") relates to exploration costs spent on
the joint venture specifically relating to Licence 1067EL. The JV agreement
with TKS allows for reimbursement of exploration funds which were reimbursed
in the 2022 year.
18. Loan notes
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Convertible loan note - - - 608
- - - 608
As part of the binding term sheet entered into on 31 October 2021 the Company
subscribed for convertible loan notes in Discovery Ventures Kazakhstan (DVK).
On completion of the acquisition of DVK on 10 January 2022 the notes converted
to an inter-company loan with the Company being the lender and DVK the
borrower.
19. Trade and other payables
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Trade payables 54 11 32 90
Accruals 54 - 45 49
Other payables 19 29 8 -
127 40 85 139
20. Loan notes
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Convertible loan note - Illwella(1) - 243 - -
Convertible loan note - East Star(2) - 522 - -
- 765 - -
(1) On 14 January 2021 DVK issued a convertible note to Ilwella Pty Ltd. This
note was settled as part of the acquisition by East Star Resources through the
issue of 5,350,000 shares at a value of £0.05 (see note 24).
(2) On 31 October 2021 DVK issued 4 convertible notes to East Star Resources.
On completion of the acquisition of DVK on 10 January 2022 the notes converted
to an inter-company loan with the Company being the lender and DVK the
borrower.
21. Borrowings
Group Company
As at As at As at As at
31 December 2022
31 December 2021
31 December 2022
30 November 2021
£'000
£'000
£'000
£'000
Loan - East Star Resources - 75 - -
- 75 - -
In December 2021 the Company agreed to a short term, interest free loan with
DVK to service its working capital requirements until the acquisition. This
loan was repaid in the first quarter of 2022.
22. Share capital and share premium
Group
Ordinary Shares Share Capital Share Premium Total
# £'000 £'000 £'000
At 1 January 2021 60,000 45 - 45
Issue of ordinary shares 10,590 8 132 140
At 31 December 2021 70,590 53 132 185
Transfer of capital to reverse acquisition reserve(1) (70,590) (53) (132) (185)
Share capital of the Company at acquisition(2) 69,540,164 695 1,501 2,196
Issue of shares for acquisition of subsidiary(3) 50,350,000 504 2,014 2,518
Issue of ordinary shares(4) 62,360,000 624 2,494 3,118
Share issue costs - - (118) (118)
At 31 December 2022 182,250,164 1,823 5,891 7,714
(1) On 10 January 2022 the Group eliminated the share capital of DVK as part
of the reverse acquisition.
(2) On 10 January 2022 the Group brought to account the pre-existing share
capital of East Star Resources as part of the reverse acquisition.
(3) On 10 January 2022 the Company issued 50,350,000 shares at £0.05 to the
shareholders of DVK as consideration for the acquisition.
(4) On 10 January 2022 the Company issued 62,360,000 shares at £0.05 as part
of a share placement accompanying the readmission to the London Stock
Exchange.
Company
Ordinary Shares Share Capital Share Premium Total
# £'000 £'000 £'000
Issue of ordinary shares on incorporation 100,000 1 - 1
Issue of ordinary shares 5,900,000 59 - 59
Issue of ordinary shares 23,850,217 238 - 238
Issue of ordinary shares 39,689,947 397 1,588 1,985
Share issue costs - - (87) (87)
At 30 November 2021 69,540,154 695 1,501 2,196
Issue of shares for acquisition of subsidiary(1) 50,350,000 504 2,014 2,518
Issue of ordinary shares(2) 62,360,000 624 2,494 3,118
Share issue costs - - (118) -
At 31 December 2022 182,250,164 1,823 5,891 7,714
(1) On 10 January 2022 the Company issued 50,350,000 shares at £0.05 to the
shareholders of DVK as consideration for the acquisition.
(2) On 10 January 2022 the Company issued 62,360,000 shares at £0.05 as part
of a share placement accompanying the readmission to the London Stock
Exchange.
The share premium represents the difference between the nominal value of the
shares issued and the actual amount subscribed less; the cost of issue of the
shares, the value of the bonus share issue, or any bonus warrant issue.
The Company has only one class of share. All ordinary shares have equal voting
rights and rank pari passu for the distribution of dividends and repayment of
capital.
23. Share based payment reserves
Group Company
£'000 £'000
Opening balance - 1 December 2021 - 24
Acquired equity as part of acquisition 24 -
Advisor warrants issued(1) 132 132
Employee options issued(2) 112 112
As at 31 December 2022 268 268
(1) On 10 January 2022, 5,467,505 warrants were issued to advisors and have
been fair valued in accordance with IFRS 2 at the fair value of the services
received. This amount is attributable to the cost of re-admission to the LSE
and therefore has been accounted for in the Share based payments reserve.
(1) On 10 January 2022, 2,146,000 warrants were issued to the Company's broker
Peterhouse Capital and have been fair valued in accordance with IFRS 2 at the
fair value of the services received. This amount is attributable to the cost
of re-admission to the LSE and therefore has been accounted for in the share
based payments reserve.
(2) On 13 December 2021, 11,250,000 employee options were granted. These
options have an exercise price of £0.05 and expire 5 years from the grant
date.
Share based payments valuation
The charges associated with the share based payments have been applied to the
statement of profit or loss and other comprehensive income. The following
tables summarises the valuation techniques and inputs used to calculate the
values of share based payments in the period:
Warrants
Grant date Number Share price Exercise price Volatility RF Rate Technique
£ £ % %
10/01/2022 5,467,505 0.05 0.05 50 3.1 Black Scholes
10/01/2022 2,146,000 0.05 0.05 50 3.1 Black Scholes
Options
Grant date Number Share price Exercise price Volatility % RF Rate % Technique
£ £
13/12/2021 3,750,000 0.05 0.05 50 3.1 Black Scholes
13/12/2021 3,750,000 0.05 0.05 50 3.1 Monte Carlo
13/12/2021 3,750,000 0.05 0.05 50 3.1 Monte Carlo
Warrants
As at 31 December 2022
Weighted average exercise price Number of
warrants
Brought forward at 1 November 2021 5p 7,200,000
Granted in period 5p 7,613,505
Vested in period 5p 7,613,505
Outstanding at 31 December 2022 5p 14,813,505
Exercisable at 31 December 2022 5p 14,813,505
The weighted average time to expiry of the warrants as at 31 December 2022 is
2.03 years.
Options
As at 31 December 2022
Weighted average exercise price Number of options
Brought forward at 1 November 2021 5p
-
Granted in period 5p 11,250,000
Vested in period 5p 3,750,000
Outstanding at 31 December 2022 5p 11,250,000
Exercisable at 31 December 2022 5p 3,750,000
The weighted average time to expiry of the options as at 31 December 2022 is
3.95 years.
The option vesting conditions of the 11,250,000 employee options are listed
below:
Vesting Event Trigger for Vesting Number of options vested on date of vesting
1 Six months from the date of RTO admission One third of the total options issued
2 Share price traded at £0.075 for at least 5 consecutive days One third of the total options issued
3 Share price traded at £0.10 for at least 5 consecutive days All remaining unvested options not having vested following vesting event 1
& 2
24. Reverse acquisition
On 10 January 2022, the Company acquired, through an issue of 45,000,000
consideration shares the entire share capital of DVK, whose principal activity
is to undertake exploration activities relating to gold and copper mineral
resources in Kazakhstan.
Although the transaction resulted in DVK becoming a wholly owned subsidiary of
the Company, the transaction constitutes a reverse acquisition as in
substance, it has resulted in a fundamental change in the business of the
Company with the sole director of DVK becoming the Chief Executive Officer of
the Company. Thus, the executive management of DVK now exerts significant
influence over the executive management of the Company.
The shareholders of DVK acquired a 27.63% interest in the Company and the
transaction has therefore been accounted for as a reverse acquisition. As the
Company's activities prior to the acquisition were purely the maintenance of
the Main Market LSE Listing, acquiring DVK and raising equity finance to
provide the required funding for the operations of the acquisition the
directors did not consider this to meet the definition of a business in
accordance with IFRS 3.
Accordingly, this reverse acquisition does not constitute a business
combination. Although, the reverse acquisition is not a business combination,
the Company has become a legal parent and is required to apply IFRS 10 and
prepare consolidated financial statements. The Directors have prepared these
financial statements using the reverse acquisition methodology, but rather
than recognising goodwill, the difference between the equity value given up by
the DVK shareholders and the share of the fair value of net assets gained by
the DVK shareholders is charged to the statement of comprehensive income as a
share-based payment on reverse acquisition, and represents in substance the
cost of acquiring a Main Market LSE listing.
In accordance with reverse acquisition accounting principles, these
consolidated financial statements represent a continuation of the consolidated
statements of DVK and its subsidiaries and include:
· The assets and liabilities of DVK and its subsidiaries at their
pre-acquisition carrying value amounts and the results for both periods; and
· The assets and liabilities of the Company as at 10 January 2022 and
its results from the date of the reverse acquisition on 10 January 2022 to 31
May 2022.
On 10 January 2022, the Company issued 45,000,000 ordinary shares to acquire
the entire share capital of DVK. As part of the acquisition the Company also
agreed to settle a separate convertible loan note held by DVK through the
issue of 5,350,000 shares. On the same date, the Company was readmitted to the
Main Market of the LSE, after completing its second placing round with a
placing share price of £0.05 and therefore the Company has valued the
investment in DVK at £6,267,500. (This figure includes both the initial
consideration mentioned above as well as the contingent consideration on
completion milestones).
Because the legal subsidiary, DVK, was treated on consolidation as the
accounting acquirer and the legal Parent Company, East Star, was treated as
the accounting subsidiary, the fair value of the shares deemed to have been
issued by DVK was calculated at £3,477,008 based on an assessment of the
purchase consideration for a 100% holding of East Star of 69,540,164 shares at
a weighted average placing price of £0.05 per share (being the share price of
East Star at acquisition).
The fair value of the net assets of East Star at acquisition was as follows:
£'000
Cash and cash equivalents 1,835
Convertible loan notes 609
Other receivables 151
Trade and other payables (848)
Net assets 1,747
The difference between the deemed cost (£3,477,008) and the fair value of the
net assets assumed above of £1,747,053 resulted in £1,729,955 being expensed
within "reverse acquisition expenses" in accordance with IFRS 2, Share Based
Payments, reflecting the economic cost to DVK shareholders of acquiring a
quoted entity.
The reverse acquisition reserve which arose from the reverse takeover is made
up as follows:
£'000
Pre-acquisition equity(1) (473)
DVK share capital at acquisition(2) 216
Investment in DVK(3) (6,268)
Reverse acquisition expense(4) 1,730
(4,795)
1. Recognition of pre-acquisition equity of East Star as at 10 January
2022.
2. DVK had equity at the date of acquisition of £216,050. As
these financial statements present the capital structure of the legal parent
entity, the equity of DVK is eliminated.
3. The value of the shares issued by the Company in exchange for
the entire share capital of DVK as at the share price used in the placing that
occurred simultaneously (£0.05). The above entry is required to eliminate
the balance sheet impact of this transaction.
I. Initial consideration: 45 million shares at £0.05 (£2,250,000)
II. Contingent consideration: 75 million shares at £0.05 (£3,750,000)
III. Convertible loan notes settled on behalf of DVK through issue of
5.35m shares at £0.05 (£267,500)
4. The reverse acquisition expense represents the difference
between the value of the equity issued by the Company, and the deemed
consideration given by DVK to acquire the Company.
25. Financial Instruments and Risk Management
Capital management
The Group manages its capital to ensure that entities in the Group will be
able to continue as a going concern while maximising the return to
stakeholders. The overall strategy of the Company and the Group is to minimise
costs and liquidity risk.
The capital structure of the Group consists of equity attributable to equity
holders of the parent, comprising issued share capital, share premium, reverse
acquisition reserves, foreign exchange reserves and retained earnings as
disclosed in the Consolidated Statement of Changes of Equity.
The Group is exposed to a number of risks through its normal operations, the
most significant of which are interest, credit, foreign exchange and liquidity
risks.
The management of these risks is vested to the Board of Directors. The
sensitivity has been prepared assuming the liability outstanding was
outstanding for the whole period. In all cases presented, a negative number in
profit and loss represents an increase in expense/decrease in income.
General objectives and policies
As alluded to in the Directors report the overall objective of the Board is to
set policies that seek to reduce risk as far as practical without unduly
affecting the Group's competitiveness and flexibility. Further details
regarding these policies are detailed below.
Principal financial instruments
The principal financial instruments used by the Group from which the financial
risk arises are as follows:
Policy on financial risk management
The Group's principal financial instruments comprise cash and cash
equivalents, other receivables, trade and other payables. The Group's
accounting policies and methods adopted, including the criteria for
recognition, the basis on which income and expenses are recognised in respect
of each class of financial asset, financial liability and equity instrument
are set out in note 2 - "Accounting Policies".
The Group does not use financial instruments for speculative purposes. The
carrying value of all financial assets and liabilities approximates to their
fair value.
Derivatives, financial instruments and risk management
The Group does not use derivative instruments or other financial instruments
to manage its exposure to fluctuations in foreign currency exchange rates,
interest rates and commodity prices.
Foreign currency risk
The Group operates in a global market with income and costs arising in a
number of currencies and is exposed to foreign currency risk arising from
commercial transactions, translation of assets and liabilities and net
investment in foreign subsidiaries. Exposure to commercial transactions arise
from sales or purchases by operating companies in currencies other than the
Group's functional currency. Currency exposures are reviewed regularly.
The Group has a limited level of exposure to foreign exchange risk through its
foreign currency denominated cash balances, trade receivables and payables
31 Dec 2022
$USD $'000
Cash and cash equivalents 49
Trade and other receivables 443
Trade and other payables (33)
459
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. The Group
has adopted a policy of only dealing with creditworthy counterparties. The
Group's exposure and the credit ratings of its counterparties are monitored by
the Board of Directors to ensure that the aggregate value of transactions is
spread amongst approved counterparties.
The Group applies IFRS 9 to measure expected credit losses for receivables,
these are regularly monitored and assessed. Receivables are subject to an
expected credit loss provision when it is probable that amounts outstanding
are not recoverable as set out in the accounting policy.
The Group's principal financial assets are cash and cash equivalents. Cash
equivalents include amounts held on deposit with financial institutions.
The credit risk on liquid funds held in current accounts and available on
demand is limited because the Group's counterparties are banks with high
credit-ratings assigned by international credit-rating agencies.
The Group has zero trade receivables and therefore there is no risk relating
to a 3(rd) party being unable to service its obligations.
No financial assets have indicators of impairment.
The Group's maximum exposure to credit risk is limited to the carrying amount
of financial assets recorded in the financial statements.
Interest rate risk
The Group currently has no borrowings. The Group's principal financial assets
are cash and cash equivalents. Cash equivalents include amounts held on
deposit with financial institutions. The effect of variable interest rates is
not significant.
Liquidity risk
During the period ended 31 December 2022, the Group was financed by cash
raised through equity funding. Funds raised surplus to immediate requirements
are held as cash deposits in Sterling except for minor working capital
requirements held in subsidiary bank accounts.
In managing liquidity risk, the main objective of the Group is to ensure that
it has the ability to pay all of its liabilities as they fall due. The Group
monitors its levels of working capital to ensure that it can meet its
liabilities as they fall due.
The table below shows the undiscounted cash flows on the Group's financial
liabilities as at 31 December 2022 on the basis of their earliest possible
contractual maturity.
Total Within 2 months Within 2-6 months
£'000 £'000 £'000
At 31 Dec 2022
Trade payables 54 54 -
Payroll Accruals 19 19 -
26. Financial assets and liabilities
Financial assets/liabilities at fair value through profit or loss Financial assets/liabilities at amortised cost
Group - Year ended 31 Dec 2022 2021 2022 2021
£'000 £'000 £'000 £'000
Trade and other receivables(1) - - 109 964
Cash and cash equivalents - - 1,456 17
Loan notes - - - (765)
Borrowings - - - (75)
Trade and other payables(2) - - (73) (40)
- - 1,492 101
Financial assets/liabilities at fair value through profit or loss Financial assets/liabilities at amortised cost
Company - Period ended 31 Dec 2022 2021 2022 2021
£'000 £'000 £'000 £'000
Trade and other receivables(1) - - 15 71
Loan notes - - - 608
Cash and cash equivalents - - 1,407 1,248
Trade and other payables(2) - - (40) (90)
- - 1,382 1,837
(1) Trade and other receivables excludes prepayments
(2) Trade and other payables excludes accruals
27. Related Party Transactions
Directors remuneration
During the period Directors received the following remuneration:
Base salary Bonus Total
£'000 £'000 £'000
Sandy Barblett 34 - 34
Anthony Eastman 34 - 34
Alexander Walker* 153 75 228
Charles Wood 8 - 8
David Minchin 31 - 31
260 75 335
*During the period a bonus was paid to Alex Walker of $100,000 USD relating to
milestones achieved prior to the acquisition of DVK on 10 January 2022. The
East Star board of Directors agreed to pay this bonus post the transaction
occurring and has been recognised in the accounts of DVK.
Warrants Warrants Options Options
# £'000 # £'000
Sandy Barblett - - 250,000 2
Anthony Eastman 1,399,681 15 - -
Alexander Walker - - 8,000,000 80
Charles Wood 2,536,922 27 - -
David Minchin - - 1,500,000 15
3,936,603 42 9,750,000 97
Provision of services
During the year, £95,643 was paid to Orana Corporate of which both Anthony
Eastman and Charles Wood were directors of East Star and Orana during the
period. The breakdown of fees is detailed below:
· Corporate finance fees: £40,000
· Accounting and company secretary fees: £31,413
· Commission on fundraise: £24,230
Other than these there were no other related party transactions.
28. Ultimate Controlling Party
As at 31 December 2022, there was no ultimate controlling party of the Group.
29. Capital Commitments
The Group is committed to the following minimum expenditure across various
licenses within 12 months from 31 December 2022:
License area License Owner Annual minimal expenditures on exploration
£
Apmintas 774-EL Chu-lii Resources Limited 101,161
Dalny 670-EL Chu-lii Resources Limited 47,552
Novo 2 847-EL Rudny Resources Limited 128,601
Novo 1 914-EL Rudny Resources Limited 132,478
RA 1 1799-EL Discovery Ventures Kazakhstan Limited 29,197
RA 2 1794-EL Discovery Ventures Kazakhstan Limited 10,904
RA 3 1795-EL Discovery Ventures Kazakhstan Limited 16,887
Talairyk 1 1796-EL Discovery Ventures Kazakhstan Limited 43,992
Talairyk 1067-EL Phoenix Mining Ltd (DVK farming in) 12,369
30. Contingent assets
VAT recoverable
The subsidiaries of East Star Resources had accrued an amount of £279,174
relating to VAT incurred on expenditure on the various mining licenses to 31
December 2022. As the Group is currently not generating revenue these amounts
can not be offset but are retained in the event that revenue is generated in a
period of 5 years from incurring the expense.
Per "IAS 37 - Provisions, Contingent Liabilities and Contingent Assets" this
amount should not be recognised as an asset due to the uncertainty of economic
benefits flowing to the Group but is disclosed as a contingent asset as the
inflow of economic benefits is probable.
31. Contingent liabilities
There were no contingent liabilities over the Group as at 31 December 2022.
32. Events Subsequent to period end
Long term incentive plan
On 1 March 2023 the remuneration committee approved the adoption of a long
term incentive plan ("LTIP"). On the recommendation of the Remuneration
Committee, the Company has granted an aggregate of 4,794,686 options over new
ordinary shares in the Company to employees and non-executive directors of the
Company (the "Options") to be approved by shareholders at the next Annual
General Meeting.
There were no other events subsequent to period end requiring disclosure.
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