REG - Ferro-Alloy Rsrcs - 2022 Final Results and Updated Ore-Body 1 MRE
28/04/2023 07:15
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RNS Number : 7902X Ferro-Alloy Resources Limited 28 April 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET
ABUSE REGULATION (EU) NO. 596/2014 (INCLUDING AS IT FORMS PART OF THE LAWS OF
ENGLAND AND WALES BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018
("MAR").
28 April 2023
Ferro-Alloy Resources Limited
("Ferro-Alloy" or the "Group" or the "Company")
2022 Final Results and Updated Ore-Body 1 Mineral Resource Estimate ("MRE")
Ferro-Alloy Resources Limited (LSE:FAR), the vanadium producer and developer
of the large Balasausqandiq vanadium deposit in Southern Kazakhstan, announces
its final results for the year ended 31 December 2022.
In addition, the Company announces that on the 27 April 2023 it received the
results of the revised mineral resource estimate ("MRE") from SRK Consulting
Ltd ("SRK") for Ore-Body 1 ("OB1") at the Balasausqandiq deposit. Selected
highlights from the report are summarised below with a full announcement
expected to be released on 2 May 2023, once management has reviewed the full
report.
MRE selected highlights (post period)
· An Indicated Mineral Resource of 32.9 million tonnes for OB1 at a mean
grade of 0.62% V(2)O(5) reported at a marginal cut-off grade of 0.4% V(2)O(5)
- equating to 203,364 contained tonnes of V(2)O(5)
· An increase of 8.6 million tonnes (35.4%) of mineral resource and an
increase of 38,058 tonnes (23%) of contained V(2)O(5) by comparison to the
Company's 2018 Competent Persons Report
· The results of the previously reported infill drilling and trenching
programs completed during 2021/22 have been successful in converting 100% of
the Resources to Indicated for the OB1 deposit. No Measured or Inferred
Resource are stated
Financial and corporate highlights
· Group revenues of US$6.27m (2021: US$4.73m), a 28% increase over the
period, but slightly below market expectations
· The Group made an overall loss for the year of US$4.29m (2021: loss of
US$2.83m), a greater loss than market expectations, mainly attributable to the
difficulties importing raw materials during the period, increased costs of
associated reagents and fuel
· Cash in the bank of US$4.33m as at 31 December 2022 (2021:US$2.81m)
· Successful equity fundraising of US$10.0m (approximately £8.6m) in
September 2022 to advance the feasibility study on the Balasausqandiq deposit
· Continue to develop the Group's senior management in readiness for the
main project inception with the appointment of William Callewaert as Chief
Financial Officer, Baurzhan Tleulinov as Mine Project Director and Anvar
Moldakhanov as Kazakhstan Finance Director
Feasibility study
The feasibility study for Stage 1 of the Balasausqandiq project is expected to
be completed in the final quarter of 2023 with Stage 2 to follow in 2024.
Work is progressing well and continues to support or exceed the results of
previous company test work that was disclosed in the 2018 Competent Persons
Report, which indicated a transformative vanadium project producing some
22,400 tonnes of vanadium pentoxide per annum (over 10% of current world
supply), with an operating margin of almost 80% and a project Net Present
Value of c.US$2 billion with relatively modest capital expenditure.
Progress during the period includes:
· Completion of the drilling programme for Ore-Bodies 1,2,3 and 4
· Open pit geotechnical drilling for Ore-Body 1 has been completed with
mechanical testing pending
· Open pit hydrogeological drilling completed
· Full site topographical survey completed
· Metallurgical testing nearing completion indicates high metallurgical
recovery in line with previous Company test work
· Carbon flotation tests show that a >40% carbon concentrate can be
made with good overall carbon recovery. Test work on the resulting rubber
performance shows that partial substitution of this concentrate for carbon
black in the production of rubber for tyres can be made without loss of
performance
Existing operation
Although operations during the year were severely impacted by difficulties
importing raw materials, the Group has made significant progress with the
development of the existing operation.
· The planned expansion of the plant to increase production and to
recover more value from each tonne treated was completed, including:
- Approximately doubling the potential maximum recovery of molybdenum
from additional ion-exchange resin
- Adding a third roaster to the vanadium pentoxide line to increase
maximum throughput of treatable concentrates and a fourth roaster for the
nickel process
- Installation of three new press filters
- Commissioning of a new equipment to convert ammonium metavanadate to
vanadium pentoxide that commands better product pricing in the market
- Implementing a plan to convert the fuel of the roasting ovens used
by the plant from diesel to gas
· Increased the number of vanadium concentrate supply contracts and
diversified source location in order to minimise the risk of failure of
delivery of concentrates by any one supplier
· Funding from a Kazakhstan government agency was received to undertake
a project leading to the production of vanadium oxides for making electrolyte
for vanadium redox flow batteries
Reconciliation of year end losses
· The Company announced a preliminary unaudited loss for the year in
January in the region of US$3.3m. The further losses being reported of c.
US$1m incurred following the finalisation of the year end accounts and are a
result of:
- c. US$210,000 of negative pricing adjustments incurred on long
duration delivery sales contracts due to the falling price of vanadium between
June and November
- c. US$160,000 of post year end stock provisions made against slow
moving and obsolete stock lines held by the Group at the year end
- c. US$55,000 of obsolete asset write offs for Group equipment that
can no longer be repaired or do not have a future useful life
- c. US$205,000 of administrative expenses incurred by the Group after
the year relating to 2022 trading activity
- c. US$370,000 of foreign exchange losses incurred on finalised year
end balances and transactions completed during the year
Outlook
· Positive updated MRE report on the OB1 deposit shows an increase in
contained metal and the successful conversion of 100% of the Resources to
Indicated - post period
· In Q1 2023 a contract was signed with a significant new ongoing
supplier of raw materials to compensate for the shortfalls being experienced
from existing suppliers
· The Group's assumption is for metal prices to remain at current levels
of around US$9.50/lb of vanadium pentoxide and US$24.3/kg of nickel for the
remainder of 2023. Molybdenum prices have come down from the exceptionally
high levels of early 2023 but are expected to remain at current levels of
around US$53/kg.
· With the plant now fully developed and with concentrates expected to
be in good supply, the Company believes that both the production and financial
results for 2023 are likely to be significantly better than 2022 and result in
the Company operating profitably because of:
- increased quantity of concentrates to be treated
- increased recoveries of vanadium, molybdenum and nickel from each
tonne treated
- higher prices expected for vanadium as a result of the conversion of
AMV to vanadium pentoxide or other oxides
- return to more normal levels of transport, fuel and reagent costs
which in 2022 were impacted by the ending of the pandemic and the commencement
of the Ukrainian invasion.
Sir Mick Davis, Non-executive Chairman, commented:
"The management team has acted to address external pressures related to the
constrained raw material supply which impacted financial results during the
year.
Another successful capital raise in September, followed by the endorsement of
the recent mineral resource estimate, enables the Company to continue its
journey towards becoming an important global vanadium producer. At the same
time, it is encouraging to see continuing growth in demand for vanadium
serving both the growing stainless steel and battery market segments."
Commenting on the results, Nick Bridgen, CEO of Ferro-Alloy Resources said:
"It is extremely encouraging that the feasibility study results so far have
met or exceeded the Company's previous work which shows how transformative the
Balasausqandiq project will be for the world's vanadium industry.
"The existing operation has been impacted by supply difficulties during 2022
but the plant is now fully developed and, with concentrates in good supply, we
expect the existing plant to operate profitably from now on, producing a
meaningful contribution to the development of the Balasausqandiq project.
"I am also delighted to have received the updated MRE report from SRK which
has shown some encouraging results at our OB1 deposit. We are reviewing the
report and will provide shareholders with an update on 2 May 2023."
Publication of Annual Report
The Company's annual report will be available shortly on the Company's website
at www.ferro-alloy.com
For further information, visit www.ferro-alloy.com or contact:
Ferro-Alloy Resources Limited Nick Bridgen (CEO) / William Callewaert (CFO) info@ferro-alloy.com
Shore Capital Toby Gibbs/John More +44 207 408 4090
(Joint Corporate Broker)
Liberum Capital Limited Scott Mathieson/William King +44 20 3100 2000
(Joint Corporate Broker)
St Brides Partners Limited Catherine Leftley/Ana Ribeiro +44 207 236 1177
(Financial PR & IR Adviser)
Report on Operations
Strategy
Operational Review
During 2022 and the first quarter of 2023, the Group made significant progress
with the ongoing feasibility study into the development of the transformative
Balasausqandiq vanadium deposit as well as the expansion of the existing
operations treating bought-in vanadium concentrates.
Feasibility study
The progress made by the Group on the Stage 1 feasibility study is covered
more fully by the feasibility study review.
The highlights of that review are:
- Completion of the drilling programme for Ore-Bodies 1,2,3 and 4;
- Imminent publication of the revised mineral resource estimate for
Ore-Body 1 ("OB1");
- Mine planning for Stage 1 of the feasibility study to commence post
publication of the OB1 mineral resource estimate;
- Open pit geotechnical drilling for OB1 has been completed with
mechanical testing pending;
- A full site topography survey has been taken;
- Extraction of vanadium during acid leaching shows 94-97% vanadium
extraction into solution and 95% adsorbed in ion-exchange in line with
previous Group test work; and
- Flotation tests show that a >40% carbon concentrate can be made
with good overall carbon recovery. Test work on the resulting rubber
performance shows that partial substitution of this concentrate for carbon
black in the production of rubber for tyres can be made without loss of
performance.
Existing operation
The existing operation is the result of the conversion and expansion of the
large scale test-plant that was constructed to pilot and test the
metallurgical processes to be used in the main Balasausqandiq project.
This operation will provide a cash flow to assist with the substantial ongoing
costs of the preparation of the feasibility study and to contribute to the
construction costs of the Balasausqandiq project mining operations.
A second objective is to retain the high-quality technical and operating team
that developed the metallurgical processes to be used in the main
Balasausqandiq project so that they are available to assist with the
feasibility study, design and future construction and operation of Stage 1 and
Stage 2 of the Balasausqandiq project. As a result, the Group's work-force is
experienced and will have a high level of technical and operational expertise
prior to commissioning of the mine. This significantly de-risks the project.
Plant developments
The original test-plant has been adapted to treat bought-in vanadium
concentrates. During 2022 and the start of 2023, the plant has been
significantly expanded and equipment added to enable the full recovery of all
of the components of the purchased concentrates so that a great deal more
value is extracted from each tonne treated and, more importantly, no tailings
or other residues are left on-site.
Although the plant is designed to be flexible and able to treat a variety of
raw materials, the most common raw materials are the spent (charged) catalysts
used to remove impurities from crude oil in refineries. These typically
contain vanadium, molybdenum and nickel, all of which can now be recovered.
Specifically, the Group has completed the following installations at the plant
during the year:
· Added a third roaster to the vanadium pentoxide line to increase
maximum throughput of treatable concentrates;
· Added a fourth roaster to either upgrade the low-grade nickel residues
to high-grade nickel concentrates, or to provide additional vanadium pentoxide
throughput capacity, depending on market prices and demand;
· Procured the equipment to convert the roasting fuel used by the plant
from diesel to natural gas (to be commissioned in May 2023);
· Approximately doubled the maximum recovery of molybdenum by the
addition of additional ion-exchange resin tanks;
· Installed three new press filters;
· Commissioned a new dissociation oven to convert ammonium metavanadate
("AMV") to vanadium pentoxide;
· Purchased a new product drying oven; and
· Equipped a new ferro-molybdenum department to provide greater smelting
capacity and better environmental control.
Together, these additions have transformed the operating capability of the
Group by not only increasing throughput capacity but also maximising the value
recovered from each tonne treated.
Production
During the year, production of vanadium pentoxide and molybdenum (in
ferro-molybdenum) amounted to 305.5 tonnes (2021: 259.6 tonnes) and 36.0
tonnes (2021: 38.7 tonnes), respectively.
Production of Vanadium pentoxide Growth vs last year Production of Molybdenum
Quarter (tonnes of vanadium pentoxide contained in AMV) (tonnes of molybdenum contained in ferro-molybdenum and in calcium molybdate)
Growth vs last year
Q1 81.1 +41% 11.3 -18%
Q2 91.7 +197% 10.4 +395%
Q3 69.9 - 11.0 -19%
Q4 62.8 -38% 3.3 -65%
2022 total 305.5 +17.7% 36.0 -7%
The plant also produced a nickel concentrate for sale to customers during the
year.
Production during 2022 was severely disrupted by a combination of factors that
affected deliveries of concentrates available for processing at the plant.
At the beginning of 2022 both concentrate supplies and transport routes
continued to be adversely affected by residual Covid-19 issues as well as the
piecemeal re-opening of the global economy following lockdown. Domestic riots
in Kazakhstan during January caused further, albeit short-term, disruption,
and then in February, the Russian invasion of Ukraine resulted in increased
disruption across the Group's supply and transport networks.
As a result, transportation prices increased dramatically and some of the
usual freight routes into Kazakhstan were blocked, requiring longer and more
expensive routing. Similarly, the cost and availability of reagents and,
particularly, diesel, were also impacted by the geo-political disruption.
Diesel prices rose significantly over the year and, at times, became
unavailable.
In order to mitigate future concentrate supply issues in light of the ongoing
regional geo-political disturbance and other factors, the Group has:
i. increased the number of vanadium concentrate supply
contracts and diversified source location in order to minimise the risk of
failure of delivery of concentrates by any one supplier; and
ii. implemented a plan to convert the fuel intake of the
roasting ovens used by the plant from diesel to natural gas which will not
only be cheaper, but also be more reliable and will make use of more widely
available gas supplies in the region.
Product prices remained broadly stable during the year:
Start of 2022 Average for the year Current (21 April 2023)
Vanadium pentoxide (US$/lb) 8.50 9.19 9.50
Ferro-molybdenum (US$/kg of Mo) 44.00 43.95 53.00
Nickel (US$/kg) 20.72 25.60 24.33
Development of VRFBs
Vanadium VRFBs (vanadium redox flow batteries) are a means of energy storage
particularly suitable for the longer-duration storage of energy from
intermittent renewable sources in order to make energy available at night and
when there is no wind. VRFBs have certain advantages over lithium-ion
technology, including being scalable, not degrading over time and not catching
fire, which make them more suitable for bulk energy storage.
The world-wide roll-out of VRFBs appears to have started and although
forecasts vary, the general expectation is for the demand for vanadium for
electrolyte purposes to expand to become a significant part of overall
vanadium demand.
The Group has been awarded a grant from the Kazakhstan Science Fund to produce
vanadium oxides for the production of vanadium electrolyte for use in VRFBs.
The grant will be used to buy additional production equipment and to modify
existing equipment to produce vanadium tri-oxide, a test VRFB and some related
equipment for laboratory use. After a period of testing and development, the
plan is to continue to produce and market vanadium tri-oxide and, if there is
demand in the local region, to supply electrolyte. The aim is to position the
Group to be able to supply at a large scale into this potentially very large
market when the main Balasausqandiq project is commissioned.
Production outlook
The planned expansion of the existing operation is now complete. The plant
is, therefore, capable of making significant cash flows to fund the ongoing
costs of completing the Stage 1 feasibility study and contribute to the
funding of the future construction of the Balasausqandiq facilities.
In order to prevent the recurrence of the concentrate supply problems of 2022
and early 2023, the Group has signed additional concentrate supply contracts.
Supplies under previous contracts have resumed and are expected to continue,
so the board of directors ("the Directors" or "the Board") are optimistic that
the historic supply problems have now been resolved.
Vanadium prices are strong, and although difficult to forecast, the Group's
assumption is for them to remain at current levels of around US$9.50/lb of
vanadium pentoxide and US$24.3/kg of nickel. For the remainder of 2023.
Molybdenum prices have come down from the exceptionally high levels of early
2023 but are expected to remain at current levels of around US$53/kg.
With the plant now fully developed and with concentrates expected to be in
good supply, the Group expects the existing plant to operate profitably,
producing a meaningful positive cash flow, for the remainder of 2023 and
beyond.
Financial Review
Earnings
The Group reported increased revenues of US$6.27m for the year compared to
US$4.73m in 2021, reflecting a 33% increase in sales over the period.
US$'000 2022 2021
Revenue from shipments recorded at the price at time of dispatch 6,773 4,709
Adjustments to revenue after final price determination and fair value changes (502) 22
Total Revenue 6,271 4,731
Revenue is recognised at the time of transfer of control of the Group's
products to the customer but, as is common in the industry, the final pricing
determination is often based on assay and prices after arrival of the goods at
the final port of destination. The adjustments to revenue reflect these final
pricing determinations which occur after the relevant revenue is initially
recognised.
Between mid-June and the end of November the market price of vanadium
pentoxide fell from around US$10.50/lb to c. US$7.50/lb and, therefore, a
number of the Group's sales contracts entered into before June were subject to
a negative final pricing determination upon arrival at the final port of
destination leading to an overall negative revenue adjustment of c. US$0.5m
for the year. The price of vanadium pentoxide has subsequently risen to c.
US$10/lb after the year end.
Cost of sales increased to US$7.5m from US$4.9m in 2021 primarily reflecting
increases in the prices of the raw materials used in the production process of
AMV and other products. In particular, as a result of the Russian invasion of
Ukraine, a number of the reagents used by the plant and sourced from the CIS
significantly increased in price during the year, as did the cost of diesel.
The prices of reagents and diesel have both stabilised after the year end, and
as noted in the Operational Review, the Group is taking steps to convert the
fuel supply for the roasting ovens from diesel to natural gas which is a
significantly cheaper form of fuel and more widely available in country. The
largest part of the cost of sales is the purchase of raw materials, the price
for which is determined as a percentage of the value of the content of
vanadium at the prices prevailing at the time of purchase.
Administrative expenses of US$2.5m (2021: US$2.5m) were broadly in line with
the prior year other than wages and salary costs which have increased by
approximately US$0.58m as a result of the recruitment of a number of senior
management employees during the year including a group finance director, mine
project director and Kazakhstan finance director. The Group has not suffered
any non-refundable VAT write-downs during the year as was the case in 2021
(US$0.5m).
The Group incurred other expenses during the year of US$0.43m (2021:
US$0.011m) comprising currency conversion losses (representing transactional
foreign exchange differences), an agreed write down of slow moving / obsolete
stocks held at the existing plant and the write-off of unrepairable factory
equipment.
The Group made an overall loss for the year of US$4.29m (2021: loss of
US$2.83m).
Cashflow
Net cash outflows from operating activities, before changes in working
capital, for the year totalled US$3.46m (2021: US$4.98m) following adjustments
for depreciation, amortisation, inventory write-downs and net finance gains.
Changes in trade and other receivables increased to US$1m (2021: US$0.4m) as a
result of the recognition of a significant VAT refund due from the Kazakh tax
authorities at the year end (received after the year end). Changes in trade
payables increased to US$1.56m (2021: decrease US$ 0.85m) in light of
substantial orders of concentrates for processing at the existing plant, yet
to be paid for by the Group.
Net cash outflows from investing activities totalled US$4.3m (2021: US$2.5m)
and included US$1.47m (2021: US$2.2m) of capital expenditure associated with
the planned expansion of the processing operation's production facilities (see
Operational Review) and US$2.87m (2021: US$0.33m) of expenditure on the Stage
1 feasibility study capitalised as an exploration and evaluation asset (see
Note 13).
Net cash inflows from financing activities for the year were US$9.19m (2021:
US$10.06m), representing the proceeds of the US$10m cash equity fundraise
conducted during the year (2021: US$5.9m) less the costs of the fundraise of
US$0.43m (2021: US$0.24m), repayment of a bondholder entitled to an early
redemption of US$0.3m (2021: proceeds received of US$0.48m) and interest
payable to the Company's residual bondholders of US$0.08m (2021: US$0.08m).
The Group held cash of US$4.33m at 31 December 2022 (2021: US$2.81m).
Balance sheet review
Total non-current assets increased to US$10.93m from US$7.25m principally due
to the continued capitalisation of the feasibility study as an exploration and
evaluation asset and the addition of new equipment at the production plant.
Current assets increased from US$5.7m to US$8m, reflecting a significant VAT
refund due from the Kazakh tax authorities at the year end and an increase in
cash from the finance raising activities completed during the year, as noted
below.
Total non-current liabilities decreased by approximately US$0.9m during the
year from US$0.94m to US$0.03m as a result of the Company's outstanding bond
liabilities being reclassified to current liabilities to reflect their
maturity in March 2023.
Current liabilities increased from US$1.34m to US$3.5m as a result of the
outstanding bond reclassification noted above and the purchase of significant
quantities of concentrate for the existing operation prior to the year end.
Corporate
During September 2022, the Company completed an equity fundraise by way of a
placing, in addition to direct subscriptions, of ordinary shares of the
Company. As a result, the Company issued 72,025,351 new ordinary shares for
cash at a price of 12 pence per share raising a total of £8.64m (US$10.0m).
Key performance indicators
The Group is in a period of development and its current operations, the
processing of bought-in secondary vanadium-containing materials for extraction
of vanadium, are relatively small in comparison with the main objective of the
Group to develop the Balasausqandiq deposit and processing facility. Moreover,
the current operations are themselves undergoing a significant expansion which
means that operations are not in a steady state capable of meaningful
inter-period comparisons. The Directors are, therefore, of the opinion that
key performance indicators may be misleading if not considered in the context
of the development of the operation as a whole for which the information for
shareholders is better given in a descriptive manner than in tabular form.
Furthermore, the existing processing business of the Group is complex and the
business model has been developed to allow maximum flexibility in the type of
raw materials treated so that market variations in raw material prices can be
moderated by the ability to select raw materials which may be more profitable
to treat notwithstanding they be of lower grade and result in a lower level of
production. Nevertheless, the Directors consider that the main indicator of
performance, although subject to interpretation as described above, is the
level of production (refer to the Operational Review for further information).
Feasibility Study Review
The main objective of the Group is to bring into production the Balasausqandiq
deposit and to build a processing plant to treat one million tonnes of ore per
year (Stage 1) mined from OB1 and later increase to a total of four million
tonnes per year (Stage 2) through the additional mining of Ore Bodies 2, 3 and
4 ("OB2, 3 and 4").
An initial feasibility study has been completed under Kazakhstan standards and
is in the process of being upgraded and expanded to western bankable standards
by the Group's appointed feasibility study consultants, SRK Consulting
(Kazakhstan) Limited.
Balasausqandiq deposit
The Balasausqandiq deposit is exceptional in a number of ways. Primarily, it
is not a typical vanadiferous magnetite deposit but a sedimentary deposit and
is expected to have far lower capital and operating costs.
Furthermore:
· The ore is amenable to a whole-ore pressure acid leach process which
gives a far higher metallurgical recovery than conventional magnetite
extraction;
· Pre-concentration of the ore and high temperature roasting are not
required;
· There are potentially valuable by- or co- products within the ore,
principally carbon, which can be easily recovered without significant
additional processing;
· Major infrastructure items of power and road and rail connections
already exist on site or nearby;
· The Balasausqandiq deposit is a very large deposit and is easily mined
from an open pit. Stages 1 and 2 combined envisage production of 24,000 tonnes
per year of vanadium pentoxide, over 10% of known current world supply; and
· The Competent Person's Report of 2018 indicated exceptional financial
characteristics, with an overall net present value ("NPV") of US$2 billion, an
operating margin of nearly 80%, and low capital costs.
The development of the deposit is planned to be in two stages, Stage 1 and
Stage 2. Stage 1 will involve the construction and operation of an initial
process plant treating one million tonnes per year of ore, followed, as soon
as commissioning has been successfully concluded, by a Stage 2 operation for a
further three million tonnes per year. The staging is to allow for the
reduction of engineering scale-up risk and to also allow time for the
development of markets as production increases. The staged development also
reduces the amount of capital that has to be raised for the initial
development, with the second stage to be largely financed by the earnings of
the first.
The feasibility study is also being carried out in two stages, with the
results of the first stage scheduled to be announced in the fourth quarter of
2023 and those for the second stage in 2024.
Exploration
There are six known ore-bodies in the deposit which have been named OB1 - 6,
and there is some evidence of a seventh. Of these, only OB1 had previously
been explored sufficiently to declare a resource under the CRIRSCO approved
standards.
The Group's recent drilling campaign, now completed, has included 19,720
meters of drilling on OB1, 2, 3, and 4 with a view to being able to identify
CRIRSCO compliant resources and, eventually, reserves, sufficient to provide
feed for two stages of development, the first involving the processing of one
million tonnes per year of ore, and the second an additional three million
tonnes per year.
OB1
The exploration of OB1 during the year involved infill drilling and trenching
to reduce the section spacing from around 500m to 250m, so as to be able to
further define and upgrade the resource.
Following receipt and analysis of the assaying from the updated drilling
programme, a revised resource estimate for OB1 is expected by the Company
imminently.
OB2, 3 and 4
The drilling of OB2, 3 and 4 has been completed and receipt of the final assay
results and corresponding mineral resource estimate is expected later in the
year. Some 25% of the planned exploration area has proved to be difficult and
expensive to access and as a result has not been drilled (albeit the Company
does not expect the area of difficult topography to create difficulties for
actual mining).
The new mineral resource estimate for these ore-bodies will exclude the area
of difficult topography in the expectation that the remaining area will
provide sufficient ore to feed the Stage 2 development.
Open pit geotechnical drilling
Open pit geotechnical drilling for OB1 has been completed and geotechnical
sample collection and mechanical testing is currently in progress. The results
of the drilling and subsequent mechanical testing programme will be used to
confirm the open pit slope design.
Open pit hydrogeological drilling
Open pit hydrogeological drilling for OB1 has commenced and is expected to
finish on schedule during July 2023. The results of the drilling will
determine potential water inflows and pore pressures in the pit walls,
providing inputs to the geotechnical and mine planning studies.
Water supply hydrogeological drilling
A geophysical survey of the water supply bore field area has been completed.
The results of the survey will be used to define the fieldwork and drilling
programme required to define the water extraction bore field required to
support the project's water needs.
Site topography survey
A full topography survey of the deposit utilising both aerial drone footage
and satellite imagery has been completed to identify the sites most suitable
for the location of the process plant and planned tailing storage facility.
Processing
Metallurgy
Extraction of vanadium during acid leaching, following initial pilot and
subsequent testing, continues to be above Group expectations with 94-97%
vanadium extraction into solution.
Metallurgical testing including ore body variability tests, solid liquid
separation tests and ion exchange testing continues at SGS Canada Inc ("SGS")
supervised and managed by Tetra Tech Limited ("Tetra Tech").
Testing of the carbon element of the ore has been added to the scope of work
at SGS targeting a
minimum 40% carbon grade product with carbon flotation optimisation work
continuing contemporaneously. Testing of the product for use in making rubber
by substitution for carbon black has been successfully completed and a further
test programme to produce tyre industry normative data has been commissioned.
Process design
The process plant design by Tetra Tech is focussed on employing the results of
the SGS laboratory
test work to initially design the comminution, leaching circuit and full
process design criteria for the Stage 1 plant.
Carbon
Test work on the extraction of a carbon concentrate and on its use as a
substitute for carbon black has been included within the scope of the Stage 1
feasibility study. Flotation tests show that the necessary >40% concentrate
can be made with good overall carbon recovery. Test work on the resulting
rubber performance shows that partial substitution of this concentrate for
carbon black in the production of rubber for tyres can be made without loss of
performance. A further programme aimed at facilitating marketing is planned.
Test work on an alternative use for the carbon-rich tailings for use in the
smelting of ferro-silicon is ongoing.
Conclusion
The results of the feasibility study for Stage 1 so far support or exceed the
results indicated in the Company's 2018 Competent Person's Report which
indicated a project (combined Stage 1 and Stage 2) NPV of some US$2 billion.
The Company expects the publication of the Stage 1 feasibility study in the
fourth quarter this year to significantly raise awareness of the emergence of
this transformational addition to the global vanadium market.
Discussions with various potential investors and debt funders have already
been initiated but the publication of the study will be the trigger for the
finalisation of these plans.
Consolidated Statement of Profit or Loss and Other Comprehensive Income for
the year ended 31 December 2022
Note 2022 2021
$000
$000
Revenue from customers (pricing at shipment) 4 6,773 4,709
Other revenue (adjustments to price after delivery and fair value 4 (502) 22
changes)
Total revenue 4 6,271 4,731
Cost of sales 5 (7,516) (4,893)
Gross loss (1,245) (162)
Other income 6 77 28
Administrative expenses 7 (2,545) (2,471)
Distribution expenses (265) (94)
Other expenses 8 (426) (11)
Loss from operating activities (4,404) (2,710)
Net finance income / (costs) 10 118 (117)
Loss before income tax (4,286) (2,827)
11 - -
Income tax
Loss for the period (4,286) (2,827)
Other comprehensive loss
Items that may be reclassified subsequently to profit or loss
Exchange differences arising on translation of foreign operations (541) (158)
Total comprehensive loss for the period (4,827) (2,985)
Loss per share (basic and diluted) (US$) 20 (0.011) (0.008)
Consolidated Statement of Financial Position as at 31 December 2022 Note 31 December 2022 31 December 2021
$000
$000
ASSETS
Non-current assets
Property, plant and equipment 12 5,434 4,863
Exploration and evaluation assets 13 4,208 1,434
Intangible assets 14 19 21
Prepayments 18 1,273 930
Total non-current assets 10,934 7,248
Current assets
Inventories 16 1,628 2,100
Trade and other receivables 17 1,151 116
Prepayments 18 911 670
Cash and cash equivalents 19 4,331 2,810
Total current assets 8,021 5,696
Total assets 18,955 12,944
EQUITY AND LIABILITIES
Equity
Share capital 20 50,827 41,252
Convertible loan notes 20 4,019 4,019
Additional paid-in capital 397 397
Share-based payment reserve 20 5 -
Foreign currency translation reserve (4,161) (3,620)
Accumulated losses (35,674) (31,388)
Total equity 15,413 10,660
Non-current liabilities
Loans and borrowings 21 - 901
Provisions 22 33 42
Total non-current liabilities 33 943
Current liabilities
Loans and borrowings 21 1,108 489
Trade and other payables 23 2,383 828
Interest payable 18 24
Total current liabilities 3,509 1,341
Total liabilities 3,542 2,284
Total equity and liabilities 18,955 12,944
These consolidated financial statements were approved by the Board of
Directors on 27 April 2023 and were signed on its behalf by:
William Callewaert
Director
The notes form part of these consolidated financial statements.
Consolidated Statement of Changes in Equity for the year ended 31 December Share Convertible Additional paid in capital Share-based Foreign currency translation reserve Accumulated Total
2022
capital
loan notes
$000
payment
$000
losses
$000
$000
$000
reserve
$000
$000
Balance at 1 January 2021 35,606 - 397 - (3,462) (28,561) 3,980
Loss for the year - - - - - (2,827) (2,827)
Other comprehensive expenses
Exchange differences arising on translation of foreign operations - - - - (158) - (158)
Total comprehensive loss for the year - - - - (158) (2,827) (2,985)
Transactions with owners, recorded directly in equity
Shares issued, net of issue costs 5,646 - - - - - 5,646
Convertible loan notes - 4,019 - - - - 4,019
Balance at 31 December 2021 41,252 4,019 397 - (3,620) (31,388) 10,660
Balance at 1 January 2022 41,252 4,019 397 - (3,620) (31,388) 10,660
Loss for the year - - - - - (4,286) (4,286)
Other comprehensive expenses
Exchange differences arising on translation of foreign operations - - - - (541) - (541)
Total comprehensive loss for the year - - - - (541) (4,286) (4,827)
Transactions with owners, recorded directly in equity
Shares issued, net of issue costs (Note 20) 9,575 - - - - - 9,575
Other transactions recognised directly in equity - - - 5 5
Balance at 31 December 2022 50,827 4,019 397 5 (4,161) (35,674) 15,413
Consolidated Statement of Cash Flows for the year ended 31 December 2022
2022 2021
$000
$000
Cash flows from operating activities
Loss for the year Note (4,286) (2,827)
Adjustments for:
Depreciation and amortisation 5, 7 505 455
Write-off of property, plant and equipment 54 (84)
Write-down of inventory to net realisable value 8 160 -
Write-off of VAT non-refundable 7 - 499
Share-based payment expense 20 5 -
Net finance (gain) / loss 10 (118) 117
Cash used in operating activities before changes in working capital (3,680) (1,840)
Change in inventories 312 (1,209)
Change in trade and other receivables (1,035) (397)
Change in prepayments (584) (628)
Change in trade and other payables 1,555 (846)
Change in receivables/payables at FVTPL - (59)
Net cash used in operating activities (3,432) (4,979)
Cash flows from investing activities
Acquisition of property, plant and equipment 12 (1,466) (2,211)
Acquisition of exploration and evaluation assets 13 (2,871) (333)
Acquisition of intangible assets 14 (1) (1)
Proceeds on fixed asset disposal 6 36 (1)
Net cash used in investing activities (4,302) (2,545)
Cash flows from financing activities
Proceeds from issue of share capital 20 10,000 5,900
Transaction costs on share subscriptions (425) (254)
Proceeds from issuance of convertible loan notes - 4,019
Repayment / proceeds from borrowings 21 (300) 476
Interest paid 21 (82) (80)
Net cash from financing activities 9,193 10,061
Net increase in cash and cash equivalents 1,459 2,537
Cash and cash equivalents at the beginning of year 19 2,810 707
Effect of movements in exchange rates on cash and cash equivalents 62 (434)
Cash and cash equivalents at the end of the year 4,331 2,810
Notes to the consolidated financial statements for the year ended 31 December 2022
1 Basis of preparation
The consolidated financial statements for the year ended 31 December 2022
comprise the Company and the following subsidiaries:
Company Location Company's share in share capital Primary activities
Energy Metals Limited UK 100% Dormant
Vanadium Products LLC Kazakhstan 100% Performs services for the Group
Firma Balausa LLC Kazakhstan 100% Production and sale of vanadium and associated by-products
Balausa Processing Company LLC Kazakhstan 100% Development of processing facilities
(a) Statement of compliance
These financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union ("IFRS").
(b) Basis of measurement
The consolidated financial statements are prepared on the historical cost
basis except as otherwise noted below.
(c) Functional and presentation currency
The national currency of Kazakhstan is the Kazakhstan Tenge ("KZT) which is
also the functional currency of the Group's operating subsidiaries. The
functional currency of the Company is US Dollars ("US$"). The presentation
currency of the consolidated financial statements is US Dollars.
(d) Going concern
The consolidated financial statements are prepared in accordance with IFRS on
a going concern basis.
The Directors have reviewed the Group's cash flow forecasts for a period of at
least 12 months from the date of approval of the financial statements,
together with sensitivities and mitigating actions. In addition, the Directors
have given specific consideration to the continued risks and uncertainties
associated with the geopolitical situation with respect to Russia and Ukraine.
The Group now has the facilities and capacity in place to operate profitably
and although the amount of those profits available to fund the Stage 1
feasibility study and investment programme may vary with metal prices and
other factors, the Directors are confident that the Company has sufficient
resources to continue as a going concern for at least the next 12 months.
2 Use of estimates and judgements
Preparing the financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expenses.
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.
Carrying value of processing operations
The Directors have tested the processing operations' property, plant and
equipment ("PP&E") for impairment (Note 12) at 31 December 2022. In doing
so, net present value cash flow forecasts were prepared using the value in use
method which required key estimates including vanadium pentoxide,
ferro-molybdenum and ferro-nickel prices, production including the impact of
ongoing PP&E maintenance costs and an appropriate discount rate. Key
estimates included:
· Production volumes of 67 tonnes per month of vanadium pentoxide (as
ammonium metavanadate ("AMV")), 8 tonnes of molybdenum (as ferro-molybdenum)
and 18 tonnes of nickel (as nickel concentrate / ferro-nickel).
· Average prices of vanadium pentoxide of US$9.19/lb, ferro-molybdenum
of US$43.95/kg and nickel of US$25.60/kg in 2022 and thereafter, reflecting
management estimates having consideration of market commentary less a
discount, and used by the Company as a long-term assumption for other planning
purposes.
· Discount rate of 10% post tax in real terms.
Based on the key assumptions set out above, the recoverable amount of PP&E
(US$ 15.9m) exceeds its carrying amount (US$ 5.4m) by US$ 10.5m and therefore
PP&E were not impaired.
Sensitivity analysis
Any impairment is dependent on judgement used in determining the most
appropriate basis for the assumptions and estimates made by management,
particularly in relation to the key assumptions described above. Sensitivity
analysis to potential changes in key assumptions has, therefore, been provided
below.
The impact on the impairment calculation of applying different assumptions to
product sales prices, production volumes and post-tax discount rates, all
other inputs remaining equal, would be as follows:
Decrease in headroom
US$'000
Impact if product sales prices reduced by 10%: (7,529)
Impact if production volumes decreased by 10%:
(6,992)
Impact if post-tax discount rate increased by 2 percentage points: (2,077)
Inventories (Note 16)
The Group holds material inventories which are assessed for impairment at each
reporting date. The assessment of net realisable value requires consideration
of future cost to process and sell and spot market prices at year end less
applicable discounts. The estimates are based on market data and historical
trends.
Exploration and evaluation assets (Note 13)
The Group holds material exploration and evaluation assets and judgement is
applied in determining whether impairment indicators exist under the Group's
accounting policy. In determining that no impairment indicator exists
management have considered the Competent Person's Report on the asset, the
strategic plans for exploration and future development and the status of the
Subsoil Use Agreement. Judgement was required in determining that the
application for deferral of obligations under the licence (Note 25) will be
granted and management anticipate such approvals being provided given their
understanding of the Kazakh market and plans for the asset.
3 Significant accounting policies
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements and have been
applied consistently by Group entities, except for the implementation of new
standards and interpretations.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that
control commences until the date that control ceases. The accounting policies
of subsidiaries have been changed when necessary to align them with the
policies adopted by the Group.
(ii) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses
arising from intra-group transactions, are eliminated in preparing the
consolidated financial statements. Unrealised losses are eliminated in the
same way as unrealised gains, but only to the extent that there is no evidence
of impairment.
(b) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional
currencies of Group entities at exchange rates at the dates of the
transactions.
Monetary assets and liabilities denominated in foreign currencies at the
reporting date are translated to the functional currency at the exchange rate
at that date.
Non-monetary items in a foreign currency that are measured based on historical
cost are translated using the exchange rate at the date of the transaction.
Foreign currency differences arising in translation are recognised in profit
or loss.
(ii) Presentation currency
The assets and liabilities of foreign operations are translated to US$ at the
exchange rates prevailing at the reporting date. The income and expenses of
foreign operations are translated to US$ at the average exchange rate for the
period, which approximates the exchange rates at the dates of the
transactions. Where specific material transactions occur, such as impairments
or reversals of impairments, the daily exchange rate is applied when the
impact is material.
Foreign currency differences are recognised in other comprehensive income and
are presented within the foreign currency translation reserve in equity.
Foreign currency differences arising on intercompany loans, where the loans
are not planned to be repaid within the foreseeable future and form part of a
net investment, are recorded within other comprehensive income and are
presented within the foreign currency translation reserve in equity.
(c) Financial instruments
Financial assets and financial liabilities are recognised in the Group's
consolidated statement of financial position when the Group becomes a party to
the contractual provisions of the instrument.
(i) Financial assets
Financial assets are classified as either financial assets at amortised cost,
at fair value through other comprehensive income ("FVTOCI") or at FVTPL
depending upon the business model for managing the financial assets and the
nature of the contractual cash flow characteristics of the financial asset.
A loss allowance for expected credit losses is determined for all financial
assets, other than those at FVTPL, at the end of each reporting period. The
Group applies a simplified approach to measure the credit loss allowance for
trade receivables using the lifetime expected credit loss provision. The
lifetime expected credit loss is evaluated for each trade receivable taking
into account payment history, payments made subsequent to year end and prior
to reporting, past default experience and the impact of any other relevant and
current observable data. The Group applies a general approach on all other
receivables classified as financial assets. The general approach recognises
lifetime expected credit losses when there has been a significant increase in
credit risk since initial recognition.
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another
party. The Group derecognises financial liabilities when the Group's
obligations are discharged, cancelled or have expired.
(ii) Customer contracts
Under some of its customer sale arrangements, the Group receives a provisional
payment upon satisfaction of its performance obligations based on the spot
price at that date, which occurs prior to the final price determination, with
the Group then subsequently receiving or paying the difference between the
final price and quantity and the provisional payment. As a result of the
pricing structure, the instrument is classified at FVTPL and measured at fair
value with changes in fair value recorded as other revenue.
(iii) Other receivables
Other receivables are accounted for at amortised cost. Other receivables do
not carry any interest and are stated at their nominal value as reduced by
appropriate expected credit loss allowances for estimated recoverable amounts
as the interest that would be recognised from discounting future cash payments
over the short payment period is not considered to be material.
(iv) Cash and cash equivalents
Cash and cash equivalents comprise cash balances in banks, call deposits and
highly liquid investments with maturities of three months or less from the
acquisition date that are subject to insignificant risk of changes in their
fair value, and petty cash.
(v) Financial liabilities
The Group has the following non-derivative financial liabilities: borrowings
and trade and other payables. Such financial liabilities are recognised
initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition these financial liabilities are measured at
amortised cost using the effective interest method.
(vi) Long-term borrowings
After initial recognition, interest-bearing borrowings are subsequently
measured at amortised cost using the effective interest rate method. Gains and
losses are recognised in profit or loss. Amortised cost is calculated by
taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the effective interest rate. The effective
interest rate amortisation is included as finance costs in the statement of
profit or loss.
(vii) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares are recognised as a deduction
from equity, net of any tax effects.
(d) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated
depreciation and impairment losses. Land is measured at cost.
Cost includes expenditure that is directly attributable to the acquisition of
the asset. The cost of self-constructed assets includes the cost of materials
and direct labour, any other costs directly attributable to bringing the asset
into a working condition for its intended use, the costs of dismantling and
removing the items and restoring the site on which they are located.
When parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items (major components) of
property, plant and equipment.
The gain or loss on disposal of an item of property, plant and equipment is
determined by comparing the proceeds from disposal with the carrying amount of
property, plant and equipment, and is recognised net within other income/other
expenses in profit or loss.
(ii) Subsequent costs
The cost of replacing part of an item of property, plant and equipment is
recognised in the carrying amount of the item if it is probable that the
future economic benefits embodied within the part will flow to the Group and
its cost can be measured reliably. The carrying amount of the replaced part is
derecognised. The costs of the day-to-day servicing of property, plant and
equipment are recognised in profit or loss as incurred.
(iii) Depreciation
Depreciation is based on the cost of an asset less its residual value.
Significant components of individual assets are assessed and if a component
has a useful life that is different from the remainder of that asset, that
component is depreciated separately.
Depreciation is recognised in profit or loss on a straight-line basis over the
estimated useful lives of each part of an item of property, plant and
equipment, since this most closely reflects the expected pattern of
consumption of the future economic benefits embodied in the asset. Leased
assets are depreciated over the shorter of the lease term and their useful
lives unless it is reasonably certain that the Group will obtain ownership by
the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and prior periods are as follows:
·
Buildings
10-50 years;
· Plant and equipment 4-20 years;
· Vehicles
4-7
years;
· Computers
3-6 years; and
·
Other
3-10 years.
Depreciation methods, useful lives and residual values are reviewed at each
financial year end and adjusted prospectively if appropriate.
Assets under construction are not depreciated and begin being depreciated once
they are ready and available for use in the manner intended by management.
(e) Exploration and evaluation assets
Exploration and evaluation expenditure for each area of interest once the
legal right to explore has been acquired, other than that acquired through a
purchase transaction, is carried forward as an asset provided that one of the
following conditions is met.
· Such costs are expected to be recouped through successful exploration
and development of the area of interest or, alternatively, by its sale; or
· Exploration and evaluation activities in the area of interest have
not yet reached a stage which permits a reasonable assessment of the existence
or otherwise of economically recoverable reserves, and active and significant
operations in relation to the area are continuing.
Exploration and evaluation costs are capitalised as incurred. Exploration and
evaluation assets are classified as tangible or intangible based on their
nature. Exploration expenditure which fails to meet at least one of the
conditions outlined above is written off. Administrative and general expenses
relating to exploration and evaluation activities are expensed as incurred.
The exploration and evaluation assets shall no longer be classified as such
when the technical feasibility and commercial viability of extracting a
mineral resource are demonstrable. This includes consideration of a variety of
factors such as whether the requisite permits have been awarded, whether
funding required for development is sufficiently certain of being secured,
whether an appropriate mining method and mine development plan is established
and the results of exploration data including internal and external
assessments.
Exploration and evaluation assets will be reclassified either as tangible or
intangible development assets and amortised on a unit-of-production method
based on proved reserves.
Exploration and evaluation assets are assessed for impairment when facts and
circumstances suggest that the carrying amount of exploration and evaluation
assets may exceed their recoverable amount, which is the case when: the period
of exploration license has expired and it is not expected to be renewed;
substantial expenditure on further exploration is not planned; exploration has
not led to the discovery of commercially viable reserves; or indications exist
that exploration and evaluation assets will not be recovered in full from
successful development or by sale.
Impairment losses recognised in prior periods are assessed at each reporting
date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount.
(f) Intangible assets
(i) Intangible assets with finite useful lives
Intangible assets that are acquired by the Group, which have finite useful
lives, are measured at cost less accumulated amortisation and accumulated
impairment losses.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All
other expenditure, including expenditure on internally generated goodwill and
brands, is recognised in profit or loss as incurred.
(iii) Amortisation
Amortisation is calculated over the cost of the asset, or other amount
substituted for cost, less its residual value.
Amortisation is recognised in profit or loss on a straight-line basis over the
estimated useful lives of intangible assets from the date that they are
available for use since this most closely reflects the expected pattern of
consumption of future economic benefits embodied in the asset.
The estimated useful lives for the current and comparative periods are as
follows:
·
Patents
10-20 years; and
· Mineral
rights
20 years.
Amortisation methods, useful lives and residual values are reviewed at each
financial year end and adjusted if appropriate.
(g) Leased assets
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of the
following lease payments: fixed payments (including in-substance fixed
payments), less any lease incentives receivable and variable payments based on
index or rate amounts expected to be payable by the Group under residual
value guarantees, payments of penalties for terminating the lease, if the
lease term reflects the Group exercising that option. Lease payments to be
made under reasonably certain extension options are also included in the
measurement of the liability. The lease payments are discounted using the
interest rate implicit in the lease. If that rate cannot be readily
determined, which is generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the individual lessee
would have To pay to borrow the funds necessary to obtain an asset of similar
value to the right-of-use asset in a similar economic environment with similar
terms, security and conditions.
(h) Inventories
Inventories are measured at the lower of cost and net realisable value. The
cost of inventories is based on first-in first-out method, and includes
expenditure incurred in acquiring the inventories, production or conversion
costs and other costs incurred in bringing them to their existing location and
condition. In the case of manufactured inventories and work in progress, cost
includes an appropriate share of production overheads based on normal
operating capacity.
Net realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses.
(i) Impairment
(i) Non-financial assets
The carrying amounts of the Group's non-financial assets, other than
inventories and deferred tax assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such
indication exists, then the asset's recoverable amount is estimated. An
impairment loss is recognised if the carrying amount of an asset or its
related cash-generating unit ("CGU") exceeds its estimated recoverable amount.
The recoverable amount of an asset or CGU is the greater of its value in use
and its fair value less costs to sell (otherwise referred to as fair value
less cost to develop in the industry). Fair value less costs to sell is
determined by discounting the post-tax cash flows expected to be generated by
the cash-generating unit, net of associated selling costs, and takes into
account assumptions market participants would use in estimating fair value. In
assessing the value in use, the estimated future cash flows are adjusted for
the risks specific to the asset/cash-generating unit and are discounted to
their present value that reflects the current market indicators. In assessing
value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset or CGU. For the
purpose of impairment testing, assets that cannot be tested individually are
grouped together into the smallest group of assets that generates cash inflows
from continuing use that are largely independent of the cash inflows of other
assets or CGUs.
The Group's corporate assets do not generate separate cash inflows. If there
is an indication that a corporate asset may be impaired, then the recoverable
amount is determined for the cash generating unit to which the corporate asset
belongs.
An impairment loss is recognised if the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment losses are
recognised in profit or loss.
Impairment losses recognised in prior periods are assessed at each reporting
date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is reversed only to
the extent that the asset's carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation,
if no impairment loss had been recognised.
(j) Employee benefits
(i) Defined contribution plans
The Group does not incur any expenses in relation to the provision of pensions
or other post-employment benefits to its employees. In accordance with
Kazakhstan state pension social insurance regulations, the Group withholds
pension contributions from Kazakhstan based employee salaries and transfers
them into State operated pension funds. Once the contributions have been paid,
the Group has no further pension obligations. Upon retirement of employees,
all pension payments are administered by the pension funds directly.
(ii) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is recognised
for the amount expected to be paid under short-term cash bonus or
profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably.
(k) Provisions
(i) Recognition and measurement
A provision is recognised if, as a result of a past event, the Group has a
present legal or constructive obligation that can be estimated reliably, and
it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability. The unwinding of
the discount is recognised as a finance cost.
(ii) Site restoration
In accordance with the Group's environmental policy and applicable legal
requirements, a provision for site restoration is recognised when the land is
disturbed as a result of pit development and plant decommissioning with a
corresponding increase in exploration and evaluation costs or property, plant
and equipment. Subsequent changes in the provision due to estimates are
recorded as a change in the relevant asset. The provision is discounted at a
risk-free rate with the costs incorporating risks relevant to the site
restoration and an unwinding charge is recognised within finance costs for the
unwinding of the discount.
(l) Revenue
(i) Goods sold
Revenue from customers comprises the sale of vanadium and molybdenum products
with other revenues from gravel and waste rock being non-significant. Revenue
from vanadium products is recognised at a point in time when the customer has
a legally binding obligation to settle under the terms of the contract and
when the performance obligations have been satisfied, which is once control of
the goods has transferred to the buyer at a designated delivery point at which
point possession, title and risk transfers.
The Group commonly receives a provisional payment at the date control passes
with reference to spot prices at that date. The final consideration is subject
to quantity / quality adjustments and final pricing based on market prices
determined after the product reaches its port of destination. The quantity /
quality adjustments represent a form of variable consideration and revenue is
constrained to record amounts for which it is highly probable no reversal will
be required. However, given the short period to delivery post year end the
final quantity / quality adjustments are known and revenue for the period is
adjusted to reflect the final quantity / quality occurring subsequent to year
end if material.
Changes in final consideration due to market prices is not determined to
qualify as variable consideration within the scope of the IFRS 15 "Revenue
from Customers". Changes in fair value as a result of market prices are
recorded within revenue as other revenue.
(m) Finance costs
Finance costs comprise interest expense on borrowings, unwinding of the
discount on provisions for historical costs and site restoration and foreign
currency losses. Borrowing costs that are not directly attributable to the
acquisition, construction or production of a qualifying asset are recognised
in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis as either
finance income or finance cost depending on whether foreign currency movements
result in a net gain or loss, this includes exchange gains and losses that
arise on trade and other receivables and trade and other payables in foreign
currency.
(n) Income tax
Income tax expense comprises current and deferred tax. Current tax and
deferred tax are recognised in profit or loss except to the extent that they
relate to items recognised directly in equity or in other comprehensive
income.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous
years. Deferred tax is recognised in respect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is not
recognised for temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss. Deferred tax is
measured at the tax rates that are expected to be applied to the temporary
differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax assets and liabilities, and they
relate to income taxes levied by the same tax authority on the same taxable
entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will
be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and
deductible temporary differences, to the extent that it is probable that
future taxable profits will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be
realised.
(o) Earnings per share
The Company presents basic and diluted earnings per share ("EPS") data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period, adjusted for own
shares held. Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted average number of
ordinary shares outstanding, adjusted for own shares held, for the effects of
all dilutive potential ordinary shares.
(p) Segment reporting
An operating segment is a component of the Group that engages in business
activities from which it may earn revenues and incur expenses (including
revenues and expenses related to transactions with other components of the
same Group); whose operating results are regularly reviewed by the chief
operating decision maker to make decisions about resources to be allocated to
the segment and assess its performance, and for which discrete financial
information is available.
(q) Share-based payments
(i) Share-based payment transactions
The Company grants share options to certain Directors and Group employees
("Equity-Settled Transactions") under the Company's share option plan. The
Directors determine the specific grant terms within the limits set by the
Company's share option plan.
(ii) Equity-settled transactions
The costs of Equity-Settled Transactions are measured by reference to the fair
value at the grant date and are recognised, together with a corresponding
increase in equity, over the period in which the performance and/or service
conditions are fulfilled, ending on the date on which the relevant persons
become fully entitled to the award (the "Vesting Date"). The cumulative
expense recognised for Equity-Settled Transactions at each reporting date
until the Vesting Date reflects the Company's best estimate of the number of
equity instruments that will ultimately vest. The profit or loss charge or
credit for a period represents the movement in cumulative expense recognised
as at the beginning and end of that period and the corresponding amount is
represented in share-based payments reserve. No expense is recognised for
awards that do not ultimately vest.
Where the terms of an equity-settled award are modified, the minimum expense
recognised is the expense as if the terms had not been modified. An additional
expense is recognised for any modification which increases the total fair
value of the share-based payment arrangement or is otherwise beneficial to the
Director or Group employee as measured at the date of modification.
Where Equity-Settled Transactions are awarded to Directors or Group employees,
the fair value of the share options at the date of grant is charged to the
profit and loss statement over the vesting period. Non-market performance
vesting conditions are taken into account by adjusting the number of equity
instruments expected to vest at each reporting date so that, ultimately, the
cumulative amount
recognised over the vesting period is based on the number of the options that
will eventually vest. Market performance vesting conditions are incorporated
into the fair value of the equity instrument at the grant date.
Upon exercise of share options, the proceeds received are allocated to share
capital together with any associated balance in the share-based payments
reserve are transferred to retained earnings. The dilutive effect of
outstanding options is reflected as additional dilution in the computation of
diluted earnings per share.
The Company utilises the Black-Scholes option pricing model to estimate the
fair value of share options granted to Directors and Group employees. The use
of this model requires management to make various estimates and assumptions
that impact the value assigned to the share options including the forecast
future volatility of the share price, the risk-free interest rate, dividend
yield, the expected life of the share options and the expected number of
shares which will vest. See Note 20 for further details.
(r) New and amended standards adopted
No new standards and interpretations issued by the IASB have had a significant
impact on the consolidated financial statements.
4 Revenue
2022 2021
$000
$000
Sales of vanadium products 5,163 4,078
Sales of calcium molybdate - 392
Sales of ferro-molybdenum 1,509 161
Sales of gravel and waste rock 86 61
Service revenue 15 17
Total revenue from customers under IFRS 15 6,773 4,709
Other revenue - change in fair value of customer contracts (502) 22
Total revenue 6,271 4,731
Vanadium and molybdenum products
Under certain sales contracts the single performance obligation is the
delivery of AMV to the designated delivery point at which point possession,
title and risk on the product transfers to the buyer. The buyer makes an
initial provisional payment based on volumes and quantities assessed by the
Company and market spot prices of vanadium pentoxide for AMV at the date of
shipment. The final payment is received once the product has reached its final
destination with adjustments for quality / quantity and pricing. The final
pricing is based on the historical average market prices during a quotation
period based on the date the product reaches the port of destination and an
adjusting payment or receipt will be made to the revenue initially received.
Where the final payment for a shipment made prior to the end of an accounting
period has not been determined before the end of that period, the revenue is
recognised based on the spot price that prevails at the end of the accounting
period.
Other revenue related to the change in the fair value of amounts receivable
and payable under the sales contracts between the date of initial recognition
and the period end resulting from market prices are recorded as other revenue.
5 Cost of sales
2022 2021
$000
$000
Materials 5,863 3,709
Wages, salaries and related taxes 937 656
Depreciation 406 425
Electricity 111 99
Other 199 4
7,516 4,893
6 Other income
2022 2021
$000
$000
Currency conversion gain 41 -
Other (Sales of equipment) 36 28
77 28
7 Administrative expenses
2022 2021
$000
$000
Wages, salaries and related taxes 1,619 1,035
Professional services 263 305
Write-off of non-refundable VAT - 499
Taxes other than income tax 15 17
Listing and reorganisation expenses 162 119
Audit 111 151
Materials 37 75
Rent 53 37
Depreciation and amortisation 99 30
Insurance 44 22
Bank fees 23 20
Travel expenses 16 18
Security - 14
Research - 11
Communication and information services 12 7
Other 91 111
2,545 2,471
8 Other expenses
2022 2021
$000
$000
Currency conversion loss 204 -
Write-down of inventory to net realisable value 160 -
Write-down of obsolete assets 54 11
Share-based payment expense 5 -
Other 3
426 11
9 Personnel costs
2022 2021
$000
$000
Wages, salaries and related taxes 2,569 1,711
2,569 1,711
During 2022 personnel costs of US$937,000 (2021: US$630,000) have been charged to cost of sales, US$1,619,000 (2021: US$1,035,000) to administrative expenses and US$43,000 (2021: US$46,000) were charged to cost of inventories which were not yet sold as at the year end.
10 Finance costs
2022 2021
$000
$000
Net foreign exchange (gain) / costs (195) 35
Interest expense on financial liabilities (bonds) 77 82
Net finance (income) / costs (118) 117
11 Income tax
The Group's applicable tax rates in 2022 are an income tax rate of 20% for
Kazakhstan registered subsidiaries (2021: 20%) and 0% (2021: 0%) for Guernsey
registered companies. The Kazakh tax rate has been applied below as this is
most reflective of the Group's trading operations and tax profile.
During the years ended 31 December 2022 and 2021 the Group incurred tax losses
and, therefore, did not recognise any current income tax expense.
Unrecognised deferred tax assets are described in Note 15.
Reconciliation of effective tax rate:
2022 2021
$000 % $000 %
Loss before tax (Group) (4,286) 100 (2,827) 100
Income tax at the applicable tax rate (857) 20 (565) 20
Effect of unrecognised deferred tax assets / (utilisation of previously 923 (22) 581 (13)
unrecognised losses)
Net non-deductible expenses/non-taxable income or loss (66) 2 (16) (7)
- - - -
12 Property, plant and equipment
Land and buildings Plant and equipment Vehicles Computers Other Construction in progress Total
$000
$000
$000
$000
$000
$000
$000
Cost
Balance at 1 January 2021 1,529 1,853 541 36 99 1,560 5,618
Additions 8 154 14 4 14 2,523 2,717
Transfers 569 740 7 - - (1,316) -
Disposals - (51) (39) - (8) (80) (178)
Foreign currency translation difference (46) (57) (14) (1) (3) (55) (176)
Balance at 31 December 2021 2,060 2,639 509 39 102 2,632 7,981
Balance at 1 January 2022 2,060 2,639 509 39 102 2,632 7,981
Additions 37 188 - 10 89 1,142 1,466
Transfers 23 83 - - - (106) -
Disposals (23) (9) (17) (4) (10) (41) (104)
Foreign currency translation difference (138) (178) (34) (2) (7) (179) (538)
Balance at 31 December 2022 1,959 2,723 458 43 174 3,448 8,805
Depreciation
Balance at 1 January 2021 629 1,779 340 22 48 - 2,818
Depreciation for the period 76 343 35 7 11 - 472
Disposals - (45) (39) - (10) - (94)
Foreign currency translation difference (17) (49) (9) (1) (2) - (78)
Balance at 31 December 2021 688 2,028 327 28 47 - 3,118
Balance at 1 January 2022 688 2,028 327 28 47 - 3,118
Depreciation for the period 66 374 34 5 25 - 504
Disposals - (9) (17) (3) (11) - (40)
Foreign currency translation difference (46) (137) (22) (2) (4) - (211)
Balance at 31 December 2022 708 2,256 322 28 57 - 3,371
Carrying amounts
At 1 January 2021 900 74 201 14 51 1,560 2,800
At 31 December 2021 1,372 611 182 11 55 2,632 4,863
At 31 December 2022 1,251 467 136 15 117 3,448 5,434
During 2022 a depreciation expense of US$406,000 (2021: US$424,000) has been
charged to cost of sales, excluding cost of finished goods that were not sold
at year end, US$98,000 (2021: US$30,000) to administrative expenses, and
US$4,000 has been charged to cost of finished goods that were not sold at the
year end (2021: US$1,000). Construction in progress relates to upgrades to the
processing plant associated with the expansion of the facility.
13 Exploration and evaluation assets
The Group's exploration and evaluation assets ("E&EA") relate to the
Balasausqandiq deposit. During the year, the Group capitalised the cost of
geological and geotechnical drilling work, technical design, sample assaying
and project management costs, all relating to the Company's Stage 1
feasibility study. As at 31 December 2022 the carrying value of exploration
and evaluation assets was US$4.2m (2021: US$1.43m).
2022 2021
$000
$000
Balance at 1 January 1,434 813
Additions (Stage 1 feasibility study) 2,871 626
Change in estimate (asset restoration obligation) - (14)
Foreign currency translation difference (97) 9
Balance at 31 December 4,208 1,434
14 Intangible assets
Mineral rights Patents Computer software Total
$000
$000
$000
$000
Cost
Balance at 1 January 2021 91 32 3 126
Additions - 1 - 1
Foreign currency translation difference (3) - - (3)
Balance at 31 December 2021 88 33 3 124
Balance at 1 January 2022 88 33 3 124
Additions - 1 - 1
Foreign currency translation difference (5) (2) - (7)
Balance at 31 December 2022 83 32 3 118
Amortisation
Balance at 1 January 2021 91 11 3 105
Amortisation for the year - 1 - 1
Foreign currency translation difference (3) - - (3)
Balance at 31 December 2021 88 12 3 103
Balance at 1 January 2022 88 12 3 103
Amortisation for the year - 1 - 1
Foreign currency translation difference (5) - - (5)
Balance at 31 December 2022 83 13 3 99
Carrying amounts
At 1 January 2021 - 21 - 21
At 31 December 2021 - 21 - 21
At 31 December 2022 - 19 - 19
During 2022 and 2021 the amortisation of intangible assets was charged to
administrative expenses.
15 Deferred tax assets and liabilities
Unrecognised deferred tax assets
2022 2021
$000
$000
Temporary deductible differences 292 119
Tax losses carried forward 14,470 11,590
Unrecognised tax deferred tax assets (14,762) (11,709)
- -
Deferred tax assets have not been recognised in respect of these items given
the taxable loss in the year and because the Kazakhstan processing operations
benefit from a tax incentive agreement which reduces the tax payable to nil
and it is, therefore, uncertain that future taxable profit will be available
against which the Group can utilise the benefits therefrom. The tax incentive
agreement is effective for ten years starting from 2018.
The increase in carried forward tax losses comprises the tax loss for the period and the effect of resubmissions of previous tax filings which contributed to an increase in tax losses.
Temporary deductible differences mostly relate to property, plant and equipment. Unutilised tax losses expire after 10 years from the year of origination.
Expiry dates of unrecognised deferred tax assets in respect of tax losses carried forward at 31 December 2022 are presented below:
Expiry year $000
2023 928
2024 474
2025 228
2026 801
2027 480
2028 514
2029 2,148
2030 3,385
2031 1,564
2032 3,948
14,470
Unrecognised deferred tax assets above are calculated based on the Kazakh tax rate of 20%.
16 Inventories
2022 2021
$000
$000
Raw materials and consumables 1,379 1,805
Finished goods 216 287
Work in progress 33 7
Goods in transit - 1
1,628 2,100
During 2022 inventories expensed to profit and loss amounted to US$5.9m (2021:
US$3.7m).
17 Trade and other receivables
Current 2022 2021
$000 $000
Trade receivables from third parties 65 62
Due from employees 50 22
VAT receivable 1,062 58
Other receivables 10 9
1,187 151
Expected credit loss provision for receivables (36) (35)
1,151 116
The expected credit loss provision for receivables relates to credit impaired
receivables which are in default and the Group considers the probability of
collection to be remote given the age of the receivable and default status.
18 Prepayments
2022 2021
$000
$000
Non-current
Prepayment for E&EA 697 531
Other prepayments 576 399
1,273 930
Current
Prepayments for goods and services 911 670
911 670
The prepayments for E&EA are related mainly to the Stage 1 feasibility
study.
19 Cash and cash equivalents
2022 2021
$000
$000
Cash at current bank accounts 1,010 2,795
Cash at bank deposits 3,321 14
Petty cash - 1
Cash and cash equivalents 4,331 2,810
20 Equity
(a) Share capital
Number of shares unless otherwise
stated
Ordinary shares
31 December 2022 31 December 2021
Par value - -
Outstanding at beginning of year 377,676,799 330,589,052
Shares issued 72,025,351 47,087,747
Outstanding at end of year 449,702,150 377,676,799
Ordinary shares
All shares rank equally. The holders of ordinary shares are entitled to
receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company.
During 2022, the Company undertook an equity fundraise and issued 72,025,351
ordinary shares of no-par value by way of a placing and direct subscriptions
for cash at a price of 12 pence per share, raising a total of £8,643,042
(US$10,000,000).
Convertible loan notes
Convertible loan notes are considered as equity as the conditions that are set
out in the Convertible Loan Note agreement provide for conversion into equity
in all circumstances except in certain conditions that the Directors do not
consider probable. In particular, the conditions required to be fulfilled
before conversion takes place include an obligation on the Company to receive
certain consents from the regulatory authorities and avoidance of the
possibility of triggering a requirement for the issue of a prospectus.
During the year, the Convertible Loan Note agreement between the Company and
Vision Blue was amended as part of the equity fundraise note above. The
amendments have not had an impact on the Company's current or future financial
position and were administrative in nature.
Reserves
Share capital: Value of shares issued less costs of issuance.
Convertible loan notes: Further investment rights at issue price.
Additional paid in capital: Amounts due to shareholders which were waived.
Share-based payment: Share options issued during the year.
Foreign currency translation reserve: Foreign currency differences on
retranslation of results from functional to presentational currency and
foreign exchange movements on intercompany balances considered to represent
net investments which are considered as permanent equity.
Accumulated losses: Cumulative net losses.
(b) Share Options
Summary
All share options are issued under the Company's share option plan that was
implemented during the year. The share option plan is a scheme that entitles
key management personnel to purchase shares in the Company at the market price
of the shares at the date of grant.
The following table summarise the activities and status of the Company's share
option plan during the year and at the year end.
2022 share options 2022 Weighted average exercise price (US$)
Outstanding at the beginning of the year - -
Granted during the year 500,000 0.0157
Exercised during the year - -
Expired / cancelled during the year - -
Outstanding at the year end 500,000 0.0157
Share options granted during the year and in force at the year end were as
follows:
Grant date Number of options Exercise date Exercise price per share (US$) Expiry date Remaining contractual life (years)
29 June 2022 250,000 29 June 2025 0.0162 29 June 2027 4.5
22 September 2022 250,000 22 September 2025 0.0151 22 September 2027 4.8
500,000
Share-based payment reserve
The following table summarises the changes in the Company's share-based
payment reserve during the year:
Share-based payment reserve (US$)
At 1 January 2022 -
Exercise of share options -
Issue of options 5,000
At 31 December 2022 5,000
Share-based payment expense
During the year, the Company recognised US$5,000 (2021: nil) of share-based
payment expense. The fair value of the share-based compensation was estimated
on the dates of grant using the Black-Scholes option pricing model with the
following assumptions:
Grant date 29 June 2022 22 September 2022
Share price at grant date (US$) 0.0162 0.0151
Exercise price (US$) 0.0162 0.0151
Expected volatility* 68% 72.85%
Expected life (years) 4 4
Expected dividend yield (US$) - -
Risk-free interest rate** 1.78% 2.25%
Fair value per option (US$) 0.00695 0.00769
*expected volatility is derived from the Company's historical share price
volatility
**the risk-free rate of return is based on UK government gilts for a term
consistent with the option life
All share options granted during the year have non-market vesting conditions
that were not considered in measuring fair value.
(c) Dividends
No dividends were declared for the year ended 31 December 2022 (2021: US$
nil).
(d) Loss per share (basic and diluted)
The calculation of the basic and diluted loss per share has been based on the
loss attributable to ordinary shareholders and weighted-average number of
ordinary shares outstanding. There are no convertible bonds and convertible
preferred stock, so basic and diluted losses are equal.
(i) Loss attributable to ordinary shareholders (basic and
diluted)
2022 2021
$000
$000
Loss for the year, attributable to owners of the Company (4,286) (2,827)
Loss attributable to ordinary shareholders (4,286) (2,827)
(ii) Weighted-average number of ordinary shares (basic and
diluted)
Shares 2022 2021
Issued ordinary shares at 1 January (after subdivision) 377,676,799 330,589,052
Effect of shares issued (weighted) 21,410,276 4,531,663
Weighted-average number of ordinary shares at 399,087,075 335,120,715
31 December
Loss per share of common stock attributable to the Company (basic and diluted) (0.011) (0.008)
(US$)
21 Loans and borrowings
In 2021 the Company issued unsecured corporate bonds with effective interest
rates of 7.0%. Investors have subscribed for a total of 242 of the Company's
bonds with a nominal value of US$2,000 each but are issued at a premium to
achieve the effective interest rates agreed. The bonds are unsecured, have a
three-year term and bear the coupon rate of 5.8%, paid twice-yearly. The bonds
have been listed on AIX with identifier FAR.0323 and ISIN number KZX000000336.
The investors in certain bonds have the right to receive early repayment after
a minimum period of 12 months.
2022 2021
$000
$000
Non-current liabilities - 901
Bonds payable
- 901
Current liabilities 1,108 465
Bonds payable (early repayment rights)
Interest payable 18 24
1,126 489
Refer to Note 29 with respect to the repayment of the outstanding bonds after
the year end.
Terms and conditions of outstanding bonds at 31 December 2022 were as follows:
USD Currency Effective interest rate Nominal amount Actual Coupon rate Coupon Interest
amount
paid
Bonds payable USD 7.5% 506 503 5.8% 29 29
Bonds payable USD 7.0% 586 576 5.8% 52 52
Bonds payable USD 5.8% 20 21 5.8% 1 1
1,112 1,100 82 82
In September 2022, the Company repaid bonds to a subscriber in the amount of
US$300,000 (2021: US$ nil).
Non-cash transactions from financing activities are shown in the
reconciliation of liabilities from financing transactions.
Loans and borrowings 2022 2021
$000 $000
At 1 January 1,427 936
Cash flows:
-Interest paid (82) (80)
-(Repayment) / proceeds from loans and borrowings (300) 476
Total 1,045 1,332
Non-cash flows
- Interest accruing in period 82 95
- Bond discount/premium - -
At 31 December 1,127 1,427
22 Provisions
2022 2021
$000
$000
Balance at 1 January 42 47
Unwinding of discount - -
Change in estimate (7) (4)
Foreign currency translation difference (2) (1)
Balance at 31 December 33 42
Non-current 33 42
33 42
Site restoration
A provision was recognised in respect of the Group's obligation to rectify
environmental issues at the Balasausqandiq deposit in the Kyzylorda region.
In accordance with Kazakhstan environmental legislation, any land contaminated
by the Group in the Kyzylorda region must be restored before the end of 2043.
The provision was estimated by considering the risks related to the amount and
timing of restoration costs based on the known level of damage. Because of the
long-term nature of the liability, the main uncertainty in estimating the
provision is the costs that will be incurred. In particular, the Group has
assumed that the site will be restored using technology and materials that are
available currently. A fund to cover this liability will be collected via
annual statutory contributions to the special liquidation fund at the rate of
1% of mining expenses as stipulated in the Subsoil Use Agreement. Based on the
working program which forms part of the Subsoil Use Agreement the total amount
is expected to reach KZT 675m or c. US$1,838,000. The present value of
restoration costs was determined by discounting the estimated restoration cost
using a Kazakh risk-free rate for the respective period, and average inflation
for the last 10 years of 8.8%. The estimated period for discounting was 21
years (2021: 22 years). Environmental legislation in Kazakhstan continues to
evolve and it is difficult to determine the exact standards required by the
current legislation in restoring sites such as this. Generally, the standard
of restoration is determined based on discussions with the Kazakh government
at the time that restoration commences.
23 Trade and other payables
2022 2021
$000
$000
Trade payables 1,889 625
Debt to directors/key management (Note 28) 214 7
Debt to employees 99 68
Other taxes 171 117
Advances received 10 11
2,383 828
24 Financial instruments and risk management
(a) Overview
The Group has exposure to the following risks from its use of financial
instruments:
· credit risk;
· liquidity risk; and
· market risk.
This note presents information about the Group's exposure to each of the above
risks, the Group's objectives, policies and processes for measuring and
managing risk, and the Group's management of capital. Further quantitative
disclosures are included throughout these consolidated financial statements.
Risk management framework
The Chief Executive has overall responsibility for the establishment and
oversight of the Group's risk management framework.
The Group's risk management policies are established to identify and analyse
the risks faced by the Group, to set appropriate risk limits and controls, and
to monitor risks and adherence to limits. Risk management policies and systems
are reviewed to reflect changes in market conditions and the Group's
activities. The Group aims to develop a disciplined and constructive control
environment in which all employees understand their roles and obligations.
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from
customers.
(i) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit
exposure. The maximum exposure to credit risk at the reporting date was:
Carrying amount
2022 2021
$000
$000
Trade and other receivables, excluding amounts due from employees and VAT 75 71
receivable
Cash and cash equivalents 4,331 2,809
4,406 2,880
The maximum exposure to credit risk for trade and other receivables at the
reporting date by geographic region was:
Carrying amount
2022 2021
$000
$000
Kazakhstan 75 71
75 71
The maximum exposure to credit risk for trade and other receivables at the
reporting date by type of customer was:
Carrying amount
2022 2021
$000
$000
Trade receivables:
Wholesale customers 65 62
Other receivables
Other 10 9
1 75 71
The ageing of trade and other receivables at the reporting date was:
Gross Impairment Net Gross Impairment Net
2022 2022 2022 2021 2021 2021
$000
$000
$000
$000
$000
$000
Not past due 75 - 75 71 - 71
Past due more than 180 days 36 (36) - 35 (35) -
111 (36) 75 106 (35) 71
The movement in the allowance for expected credit losses in respect of other
receivables during the year was as follows:
2022 2021
$000
$000
Balance at beginning of the year 35 36
Expected gain change / credit (loss) 1 (1)
Balance at end of the year 36 35
Amounts due from customers at the year end have been subsequently collected in
2023, except for credit impaired amounts. No additional expected credit loss
provision has been applied.
(ii) Cash and cash equivalents
As at 31 December 2022 the Group held cash of US$4.33m (2021: US$2.81m), of
which bank balances of US$4.31m (2021: US$2.80m) represent its maximum credit
exposure on these assets, which excludes petty cash. 92% (2021: 99%) is held
in banks with credit ratings of A+ to AA and 8% in banks with credit ratings
of B to BB (2021: 1%). Credit ratings are provided by the rating agency
FitchRatings.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting
the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset. The Group's approach to managing
liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage
to the Group's reputation.
The following are the contractual maturities of financial liabilities. It is
not expected that the cash flows included in the maturity analysis could occur
significantly earlier, or at significantly different amounts.
2022
Carrying Contractual cash flows On demand 0-6 mths 6 months - 1 year 1-3 years
amount
$000
$000
$000
$000
$000
$000
Financial liabilities
Trade and other payables 1,889 1,889 - 1,889 - -
Loans and borrowings 1,126 1,126 - 1,126 - -
3,015 3,015 - 3,015 - -
2021
Carrying Contractual cash flows On demand 0-6 mths 6 months - 1 year 1-3 years
amount
$000
$000
$000
$000
$000
$000
Financial liabilities
Trade and other payables 601 601 9 592 - -
Loans and borrowings 1,390 1,477 - - 957 520
1,991 2,078 9 592 957 520
(d) Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices will affect the Group's
income or the value of its holdings of financial instruments. The objective of
market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising the return.
In order to ascertain market risk the Group has analysed the impact of
different levels of vanadium pentoxide prices on profitability as well as
closely monitoring the market conditions for other leading international
organisations operating in the vanadium industry. The sensitivity analysis
shows that a price of US$4/lb for vanadium pentoxide is the minimum price that
must be achieved by the Group in order to maintain operations.
The current level of vanadium pentoxide prices is sufficient to keep the Group
at a stable future profitable level.
(i) Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that
are denominated in a currency other than the respective functional currency of
Group entities.
In respect of monetary assets and liabilities denominated in foreign
currencies, the Group ensures that its net exposure is kept to an acceptable
level by buying or selling foreign currencies at spot rates when necessary to
address short term imbalances.
Exposure to currency risk
The Group's exposure to foreign currency risk was as follows based on notional
amounts:
2022 US$-denominated GBP- EUR- RUB- KZT-
denominated
denominated
denominated
denominated
2022 2022 2022 2022 2022
$000
$000
$000
$000
$000
Cash and cash equivalents 22 3 940 - 5 3,672
Trade and other payables (654) (111) (108) (55) (1,455)
Loans and borrowings (1,126) - - - -
Net exposure (1,758) 3 829 (108) (50) 2,217
2021 US$-denominated GBP- EUR- RUB- KZT-
denominated
denominated
denominated
denominated
2021 2021 2021 2021 2021
$000
$000
$000
$000
$000
Cash and cash equivalents 2,725 42 - - 42
Trade and other payables (206) (24) (31) (33) (534)
Loans and borrowings (1,390) - - - -
Net exposure 1,129 18 (31) (33) (492)
The following significant exchange rates applied during the year:
in US$ Average rate Reporting date spot rate
2022 2021 2022 2021
KZT 1 0.0022 0.0023 0.0022 0.0023
GBP 1 1.2363 1.3756 1.2030 1.3855
RUB 1 0.0150 0.0136 0.0139 0.0138
EUR 1 1.0530 1.1831 1.0653 1.1907
(ii) Interest rate risk
Changes in interest rates do not significantly impact the Group's position as
at 31 December 2022. Management does not have a formal policy of determining
how much of the Group's exposure should be to fixed or variable rates.
However, at the time of raising new loans or borrowings management uses its
judgment to decide whether it believes that a fixed or variable rate would be
more favourable to the Group over the expected period until maturity.
The bonds interest rates are fixed by agreement.
Changes in interest rates at the reporting date would not significantly affect
profit or loss.
(iii) Other risks
IAS 1 requires the disclosure of the risks and measures to meet the risks
related to external capital requirements.
The Group manages its capital to ensure that entities in the Group will be
able to continue as going concerns while maximising returns to shareholders
through the optimisation of the debt and equity balance. The Group's overall
strategy remains unchanged from 2021.
The capital structure of the Group consists of net debt (see Note 21) and the
equity of the Group (see Note 20).
The Group is not subject to any externally imposed capital requirements.
The Group reviews the capital structure on a regular basis giving
consideration to the cost of capital and the risks associated with each class
of capital.
Debt is defined as long- and short-term borrowings as detailed in Note 21.
Equity includes all capital and reserves of the Group that are managed as
capital.
(e) Fair values versus carrying amounts
Management believes that the fair value of the Group's financial assets and
liabilities approximates their carrying amounts.
Categories of financial instruments
2022 2021
$000 $000
Financial assets (includes cash)
Trade and other receivables at FVTPL 75 71
Cash at amortised cost 4,331 2,809
4,406 2,880
Financial liabilities - measured at amortised cost
Trade and other payables at amortised cost 1,889 601
Loans and borrowings at amortised cost 1,126 1,390
3,015 1,991
The basis for determining fair values is disclosed below.
Trade receivables and payables at FVTPL are recorded at fair value through
profit and loss as they fail the criteria for amortised cost owing to the
variability as a result of final pricing adjustments.
Financial instruments measured at fair value are presented by level within
which the fair value measurement is categorised. The levels of fair value
measurement are determined as following:
· Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities.
· Level 2: inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
· Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The Group's contract receivables and liabilities at the year end are recorded
at fair value through profit and loss and fair valued based on the estimated
forward prices that will apply under the terms of the sales contracts upon the
product reaching the port of destination. The trade receivable fair value
reflects amounts receivable from the customer adjusted for forward prices
expected to be realised.
In the absence of observable forward prices the forward price is estimated
using a valuation methodology which is based on vanadium spot prices at 31
December 2022 adjusted for the discount for AMV, time value of money and carry
costs. Given the short period to final pricing the time value of money and
carry costs are not significant and the forward price materially approximates
the spot price at year end with the adjustment to reflect the difference
between vanadium pentoxide prices and AMV. Any fair value of trade receivables
and payables at FVTPL are categorised at Level 3. During the year there were
no transfers between levels of fair value hierarchy.
25 Commitments
Under the conditions of the Subsoil Use Agreement under which the Group has
the right to develop and exploit the Balasausqandiq deposit, the Group is
obliged to undertake a minimum level of mining and to make certain levels of
expenditure on the training of Kazakh employees, research and development and
the development of the Shieli region. There is also an obligation to set aside
funds to provide for the eventual costs of mine closure and or site
reclamation.
· Minimum quantity of ore to be mined:
Year Tonnes
2018 15,000
2019 15,000
2020 15,000
2021 15,000
2022 15,000
2023 545,000
2024 763,000
2025 onwards Increase to 1,000,000 per year starting from 2025
· Training costs should be equal to 1% of the Group's capital
expenditures on subsoil activities. Costs in 2022: US$7,000 (2021: US$4,000)
· Research and development should be equal to 1% of the Group's income
from subsoil activities. Costs in 2022: US$46 272 (2021: US$11,100)
· The addition to the liquidation fund should be equal to 1% of the
Group's costs of mining ore. Costs in 2022: US$12,000 (2021: US$12,000)
· Expenditure on social development of the Shieli region should be equal
to 1.5% of the Group's costs of mining ore. Costs in 2022: US$330 (2021:
US$750).
All obligations of the Subsoil Use Agreement have been complied with except
for certain exploration work programme requirements, specifically the volume
of ore to be mined. As a result, the Group has applied for amendments to the
Subsoil Use Agreement given the unique situation created by the Covid-19
pandemic during 2020 and 2021. The amendments that the Group have requested
relate to the transfer of 30,000 tons of ore to be mined between 2020 and 2021
to 2023 and 2024. As a result, and if the amendments are granted, the
obligation for mining in 2020 and 2021 will be equal to zero tons, 2022 to
2024 will be equal to 590,000 tons and starting from 2025 1,000,000 tons of
ore, per year (mining of 15,000 tonnes for 2022 has been completed). The
request is in the process of review with the relevant authorities of the
Kazakh government.
26 Contingencies
(a) Insurance
The insurance industry in the Kazakhstan is in a developing state and many
forms of insurance protection common in other parts of the world are not yet
generally or economically available. The Group does not have full coverage for
its plant facilities, business interruption or third party liability in
respect of property or environmental damage arising from accidents on Group
property or relating to Group operations. There is a risk that the loss or
destruction of certain assets could have a material adverse effect on the
Group's operations and financial position.
(b) Taxation
The taxation system in Kazakhstan is relatively new and is characterised by
frequent changes in legislation, official pronouncements and court decisions
which are often unclear, contradictory and subject to varying interpretations
by different tax authorities. Taxes are subject to review and investigation by
various levels of authorities which have the authority to impose severe fines,
penalties and interest charges. A tax year generally remains open for review
by the tax authorities for five subsequent calendar years but under certain
circumstances a tax year may remain open longer.
These circumstances may create tax risks in Kazakhstan that are more
significant than in other countries. Management believes that it has provided
adequately for tax liabilities based on its interpretations of applicable tax
legislation, official pronouncements and court decisions. However, the
interpretations of the relevant authorities could differ and the effect on
these consolidated financial statements, if the authorities were successful in
enforcing their interpretations, could be significant.
There are no tax claims or disputes at present.
27 Segment reporting
The Group's operations are split into three segments based on the nature of
operations: processing, subsoil operations (being operations related to
exploration and mining) and corporate segment for the purposes of IFRS 8:
Operating Segments. The Group's assets are primarily concentrated in the
Republic of Kazakhstan and the Group's revenues are derived from operations
in, and connected with, the Republic of Kazakhstan.
2022
Processing Subsoil Corporate Total
$000
$000
$000
$000
Revenue 6,271 - - 6,271
Cost of sales (7,516) - - (7,516)
Other income 73 - 4 77
Administrative expenses (763) (24) (1,758) (2,545)
Other expenses (426) - - (426)
Distribution expenses (265) - - (265)
Finance costs 531 - (413) 118
Loss before tax (2,095) (24) (2,167) (4,286)
2021
Processing Subsoil Corporate Total
$000
$000
$000
$000
Revenue 4,731 - - 4,731
Cost of sales (4,893) - - (4,893)
Other income 28 - - 28
Administrative expenses (1,131) (31) (1,309) (2,471)
Other expenses - - (11) (11)
Distribution expenses (94) - - (94)
Finance costs 97 - (214) (117)
Loss before tax (1,262) (31) (1,534) (2,827)
Included in revenue arising from processing are revenues of US$6,100,000
(2021: US$4,600,000) which arose from sales to three of the Group's largest
customers. No other single customer contributes 10 per cent or more to the
Group's revenue.
All of the Group's assets are attributable to the Group's processing
operations.
Sales to the Group's largest customers in 2022 were as follows:
London Chemicals and Resources Limited (UK) US$3.2m
(50%) (2021: US$2.3m (47%))
MTALX Ltd (UK)
US$1.6m (25%) (2021:
US$1.3m (27%))
TK MetImpex TOO (Russian Federation)
US$1.3m (20%) (2021: US$0.1m (5%))
28 Related party transactions
Transactions with management and close family members
Management remuneration
Key management personnel received the following remuneration during the year,
which is included in personnel costs (see Note 9):
2022 2021
$000
$000
Wages, salaries and related taxes 986 400
Refer to Note 23 for details of payables to key management and the Directors'
Report for shares issued to key management. The amount of wages and salaries
outstanding at 31 December 2022 is equal to US$214,000 (2021: US$70,000).
Other
On 1 February 2022, the Company entered into a sub-let agreement between
Turian Sports Horses Limited as head lessee and NH Limited as landlord for the
rental of office space in Guernsey. Turian Sports Horses Limited is wholly
owned by James Turian, one of the Company's directors and NH Limited is owned
by James Turian and Sharon Turian, equally. Sums paid to NH Limited during the
year under the terms of the sub-let agreement were US$17,339 (2021: US$ nil ).
29 Subsequent events
On 24 March 2023, the Company repaid all bondholders following the maturity of
all outstanding bonds previously issued by the Company. The total payment made
to bond holders was US$1,144,248 representing US$1,112,000 of principal and
US$32,248 of accrued interest.
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