REG - Kropz PLC - Final Audited Results
31/07/2023 07:00
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RNS Number : 6378H Kropz PLC 31 July 2023
The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulations (EU) No.
596/2014 (the "UK MAR") which is part of UK law by virtue of the European
Union (Withdrawal) Act 2018. The information is disclosed in accordance with
the Company's obligations under Article 17 of the UK MAR. Upon the publication
of this announcement, this inside information is now considered to be in the
public domain.
31 July 2023
Kropz Plc
("Kropz" or the "Company")
Final Audited Results for the Year ended 31 December 2022,
Posting of Annual Report and Accounts,
Notice of General Meeting
and
Restoration of Trading on AIM
Kropz Plc (AIM: KRPZ), an emerging African producer and developer of plant
nutrient feed minerals, announces Final Audited Results for the Year ended 31
December 2022 and the publication of the Company's Annual Report and Accounts.
The full financial report will be available online immediately on the
Company's website at www.kropz.com (http://www.kropz.com) and will be posted
to shareholders that have elected to receive printed copies today. Printed
copies will, therefore, be available to shareholders during the course of the
week.
The Company will hold a General Meeting for the purposes of approving the
Annual Report which will be held at the offices of Memery Crystal at 165 Fleet
Street, London EC4A 2DY on 1 September 2023 at 12.00 p.m.
Following the publication of the results for the year ended 31 December 2022,
the Company has requested that the suspension of trading in its shares to be
lifted with effect from 7.30 a.m. today, Monday 31 July 2023.
Highlights
Key developments during the 2022 financial year
Corporate
· Kropz plc ("Kropz" or the "Company") issued 6,700,000 ordinary shares,
at an exercise price of £0.001 an ordinary share, in the Company to key
members of the executive management team, including certain Persons
Discharging Managerial Responsibilities in January 2022. The issue of ordinary
shares was due to awards vesting that had been issued under the Company's
Long-Term Incentive Plan of 31 July 2020, announced on 4 August 2020;
· The fifth and final drawdown on the US$ 5 million equity facility
with the ARC Fund, Kropz's major shareholder ("Further Equity Facility"), as
announced on 26 February 2021, occurred on 10 March 2022 for US$ 200,000;
· The third and fourth final drawdowns on the ZAR 200 Million Equity
Facility with the ARC Fund ("ZAR 200 Million Equity Facility"), as announced
on 29 September 2021, occurred on 25 March 2022 for ZAR 40 million and on 26
April 2022 for ZAR 33 million;
· As announced on 27 April 2022, Kropz Elandsfontein entered into an
agreement with the ARC Fund for a ZAR 25 million (approximately US$ 1.60
million) bridge loan facility ("Loan 1") to meet cash requirements in respect
of Kropz Elandsfontein and the drawdown of Loan 1 took place on 28 April 2022.
Loan 1 was unsecured, repayable on demand, with no fixed repayment terms and
was repayable by Kropz Elandsfontein on no less than two business days'
notice. Interest was payable on Loan 1 at 14% nominal per annum and compounded
monthly;
· As announced on 11 May 2022, Kropz entered into a new conditional
convertible equity facility of up to ZAR 177 million (approximately US$ 11
million) ("ZAR 177 Million Equity Facility") with the ARC Fund to fund
Elandsfontein to first revenues from bulk concentrate sales - this was
approved by Kropz shareholders and became unconditional on 1 June 2022; and
· The first drawdown on the ZAR 177 Million Equity Facility occurred
on 2 June 2022 for ZAR 103.5 million (approximately US$ 7 million). After
set-off against Loan 1, Kropz received an amount of ZAR 78.5 million
(approximately US$ 5 million);
· The second drawdown on the ZAR 177 Million Equity Facility was made
on 7 July 2022 for ZAR 60 million (approximately US$ 4 million);
· On 9 August 2022, a final drawdown on the ZAR 177 Million Equity
Facility was made for ZAR 13.5 million (approximately US$ 0.9 million);
· As announced on 20 July 2022, Mark Summers expressed his intention to
leave the Company and he resigned as Chief Executive Officer ("CEO") and
Executive Director of the Company in January 2023;
· As announced on 9 August 2022, Kropz, Kropz Elandsfontein and ARC Fund
agreed to a further ZAR 121.5 million (approximately US$ 7.3 million) bridge
loan facility ("Loan 2") to meet immediate cash requirements at Kropz
Elandsfontein. A draw down of ZAR 60 million (approximately US$ 3.6 million)
on Loan 2 was made on 9 August 2022. Loan 2 was unsecured, repayable on
demand, with no fixed repayment terms and was repayable by Kropz Elandsfontein
on no less than two business days' notice. Interest was payable on Loan 2 at
the South African prime overdraft interest rate plus 6%, nominal per annum and
compounded monthly;
· The second drawdown on Loan 2 was made on 1 September 2022 for ZAR 47
million (approximately US$ 2.8 million). The third and final draw down of ZAR
14.5 million on Loan 2 was made on 29 September 2022;
· As announced on 14 September 2022, Machiel Reyneke retired as a
non-executive director of the Company and was replaced by Gerrit Duminy, as
non-executive director and representative of the ARC Fund;
· As announced on 30 September 2022, Kropz, Kropz Elandsfontein and
ARC Fund agreed to a further ZAR 126 million (approximately US$ 7 million)
bridge loan facility ("Loan 3") to meet immediate cash requirements at Kropz
Elandsfontein. A draw down of ZAR 60.5 million (approximately US$ 3.4
million) on Loan 3 was made on 6 October 2022. Loan 3 was unsecured, repayable
on demand, with no fixed repayment terms and was repayable by Kropz
Elandsfontein on no less than two business days' notice. Interest was payable
on Loan 3 at the South African prime overdraft interest rate plus 6%, nominal
per annum and compounded monthly;
· The second and final drawdown on Loan 3 was made on 28 October 2022 for
ZAR 65.5 million (approximately US$ 3.7 million);
· As announced on 14 November 2022, Kropz entered into a new
conditional convertible equity facility of up to ZAR 550 million
(approximately US$ 31.6 million) ("ZAR 550 Million Equity Facility") with
ARC Fund to progress the ramp-up of operations at Elandsfontein and provide
working capital to the Company for general corporate purposes and further
funding of early site works, at the Hinda project in the Republic of Congo -
which was approved by Kropz shareholders and became unconditional on
30 November 2022;
· The first drawdown on the ZAR 550 Million Equity Facility occurred on
1 December 2022 for ZAR 307.5 million (approximately US$ 18.1 million).
After set-off of Loan 2 and Loan 3 of ZAR 247.5 million, Kropz received an
amount of ZAR 60 million (approximately US$ 3.5 million);
· The second drawdown on the ZAR 550 Million Equity Facility of ZAR 135
million (approximately US$ 7.9 million) occurred on 22 December 2022; and
· As announced on 7 December 2022, Michelle Lawrence resigned as chief
operating officer of Kropz and as an executive director of Kropz Elandsfontein
with effect from 1 January 2023. Mark Maynard was appointed chief operating
officer with effect from 1 January 2023.
Elandsfontein
· The focus at the Elandsfontein project continued to be the
production ramp-up of the mine and beneficiation plant;
· BNP released the ZAR 77 million (approximately US$ 5 million)
restricted cash in the bank account of Elandsfontein on 10 January 2022 upon
satisfaction of BNP's requirement for Kropz to bridge the funding shortfall in
respect of Kropz Elandsfontein as announced on 1 September 2021;
· During 2022, further delays were experienced in the commissioning
ramp up of operations at Elandsfontein resulting in further funding shortfalls
due to:
· The requirement to re-engineer parts of the fine flotation circuit
as proposed by the vendor;
· The lack of operator expertise and experience; and
· Mining rates and associated delivery of ore to the plant being
compromised due to the presence of competent banks of hard material within the
orebody, that were previously unknown. Subsequently, the vendor has provided
design changes which were implemented at the plant, additional operator
training was conducted and new equipment was brought to site to facilitate
mechanical breaking which has been effective to date, but alternative methods
are being considered;
· To quantify and assess the impact of this hard material on the future
mine plan, an infill drilling programme was undertaken;
· Independent geological consultants were commissioned which provided
an updated JORC (2012) compliant Mineral Resource Estimate ("MRE"):
· Updated MRE now caters for improved geotechnical characteristics of
the ore in addition to the grade characteristics;
· Increase in total phosphate resources at Elandsfontein to 106.58
million tonnes ("Mt");
· Downgrade of much of the previously Measured resource to Indicated,
and downgrade of previously Indicated resources to Inferred. Total Measured
and Indicated resource tonnage has reduced by approximately 76%. The updated
resource considered core recovery, average drill hole spacing and sample
count;
· Grade has improved, with the refined lithological contacts and
improved estimates from the infill drilling and pit sampling programme. This
correlates well with the current pit intersections; and
· Proven reserve of 7.31 Mt at 10.71% P(2)O(5).
Hinda
· Since 31 December 2021, management has been reviewing the Hinda
Updated FS and financial model as prepared by Hatch;
· Various capital cost optimisation initiatives have been identified
for investigation ahead of detailed design;
· Development alternatives are being considered and potential funding
options investigated; and
· Potential funding solutions for the development of Hinda are being
evaluated and considered.
Key developments post the financial year end
Corporate
· As announced on 16 January 2023, Kropz appointed Louis Loubser to the
board of the Company as Chief Executive Officer ("CEO") and executive
director;
· The third drawdown on the ZAR 550 Million Equity Facility of ZAR 60
million (approximately US$ 3.5 million) occurred on 25 January 2023;
· The fourth drawdown on the ZAR 550 Million Equity Facility of ZAR
40 million (approximately US$ 2.2 million) occurred on 27 February 2023; and
· Management is in the process of refinancing the BNP facility
(outstanding amount US$ 18,750,000) and currently expects that a replacement
loan will be in place in the third quarter of 2023 before the expiry of the
facility.
Elandsfontein
· First bulk shipment and sale of 33,000 tonnes of phosphate
concentrate from Kropz Elandsfontein was announced on 23 January 2023;
· A second shipment and sale of 20,000 tonnes of phosphate concentrate
from Kropz Elandsfontein was announced on 14 March 2023;
· During April 2023 two further shipments of 33,000 tonnes and
11,000 tonnes were sold and a further 33,000 tonnes in June 2023;
· As announced on 14 March 2023, Kropz, Kropz Elandsfontein and ARC
Fund agreed to further ZAR 285 million (approximately US$ 15.5 million)
bridge loan facilities ("Loan 4") to meet immediate cash requirements at Kropz
Elandsfontein. A first draw down of ZAR 25 million (approximately US$ 1.4
million) on Loan 4 was made on 14 March 2023. Loan 4 is unsecured, repayable
on demand, with no fixed repayment terms and is repayable by Kropz
Elandsfontein on no less than two business days' notice. Interest is payable
on Loan 4 at the South African prime overdraft interest rate plus 6%, nominal
per annum and compounded monthly; and
· A second draw down on Loan 4 for an amount of ZAR 90 million was
made on 28 March 2023, a third drawdown of ZAR 30 million was made on 25
April 2023 and a fourth draw down of Loan 4 was made on 23 June 2023.
Hinda
· Potential funding solutions for the development of Hinda are being
evaluated and considered;
· Continued engagement with local government regarding project
development; and
· Reduced sized project is currently being assessed to propose a
fit-for-purpose low capex project to prove the concept of producing phosphate
concentrate in the Congo and exporting it.
For further information visit www.kropz.com (about%3Ablank) or contact:
Kropz Plc Via Tavistock
Louis Loubser (CEO) +44 (0) 207 920 3150
Grant Thornton UK LLP Nominated Adviser
Samantha Harrison +44 (0) 20 7383 5100
Harrison Clarke
George Grainger
Ciara Donnelly
Hannam & Partners Broker
Andrew Chubb +44 (0) 20 7907 8500
Ernest Bell
Tavistock Financial PR & IR (UK)
Nick Elwes +44 (0) 207 920 3150
Jos Simson kropz@tavistock.co.uk
Emily Moss
R&A Strategic Communications PR (South Africa)
Charmane Russell +27 (0) 11 880 3924
Marion Brower charmane@rasc.co.za
marion@rasc.co.za
About Kropz Plc
Kropz is an emerging African phosphate producer and developer with projects in
South Africa and in the Republic of Congo. The vision of the Group is to
become a leading independent phosphate rock producer and to develop into an
integrated, mine-to-market plant nutrient company focusing on sub-Saharan
Africa.
Chairman's Statement
Dear shareholder,
In the course of 2022, we faced significant challenges in achieving desired
production levels at Elandsfontein. Thanks to our major shareholder, African
Rainbow Capital ("ARC") additional funding was provided to meet these
challenges.
On 16 January 2023, we were delighted to announce that appointment of Louis
Loubser, a very experienced mining operations executive, as the Chief
Executive Officer of the Company. In March 2023 also ARC agreed to provide a
ZAR 285 million bridge loan facility to Kropz Elandsfontein.
Since early 2023, production has improved at Elandsfontein, though not yet to
planned levels, and we were delighted to announce the first bulk shipment of
phosphate rock was made in January as well as a further 5 shipments that have
been made in 2023 to date. The focus now is on achieving further sustainable
increases in production and grade.
The Board thanks all the members of the executive, management, the teams on
the ground, contractors, auditors and advisers for all their efforts and
assistance during the year. I would also like to thank Mark Summers, the
former CEO, for his service to the Company and wish him well for his future
endeavours. We once again want to thank our major shareholder, ARC, for their
further commitment and continued support.
Lord Robin William Renwick of Clifton
Non-executive Chairman
28 July 2023
Strategic Report for the year ended 31 December 2022
Market overview
Phosphate rock prices have dropped significantly since their peak in 2022
following the invasion of Ukraine on 24 February 2022. As of 2023, the
market for phosphate rock has remained relatively stable, with modest price
increases observed in the first few months of the year. The demand for
phosphate continues to be strong from the agricultural sector, particularly
from key markets such as the US, Brazil, China and India. There is a growing
need for increased food production in India, China and especially Africa.
However, there are still concerns around supply constraints impacted by the
war in Ukraine and other geopolitical events. Lastly, the US is expected to
become an increased importer of phosphate rock as supplies dwindle in central
Florida and North Carolina. As a result, some price volatility is expected to
continue over the near term. However, considering the macro economic drivers,
the overall market is expected to remain relatively stable with modest price
increases over the medium to long term.
Elandsfontein rock concentrate is expected to be able to enjoy a slight
premium in pricing due to its low cadmium, low calcium and P(2)O(5) ratio as
well as advantageous freight to Asia, Australia and New Zealand.
Significant changes in the state of affairs
Share issues
The issued share capital at 31 December 2021 was 909,571,975 ordinary shares
(2020: 558,627,558).
On 18 January 2022, Kropz announced the issue of 6,700,000 ordinary shares, at
an exercise price of £0.001 an ordinary share, in the Company to key members
of the executive management team, including certain Persons Discharging
Managerial Responsibilities. The issue of ordinary shares was due to awards
vesting that had been issued under the Company's Long-Term Incentive Plan of
31 July 2020 as announced on 4 August 2020.
On 7 March 2022, Kropz announced the fifth and final drawdown of US$ 200,000
on the US$ 5 million equity facility with the ARC Fund, Kropz's major
shareholder ("Further Equity Facility"), and this was settled by the issue of
3,474,536 new ordinary shares at the issue price of 4.20 pence per share to
ARC on 10 March 2022. In addition, in accordance with the Original Equity
Facility, any fees associated with the bank guarantee provided by ARC, would
be settled by the issue of new ordinary shares to ARC. ARC notified the
Company that the final guarantee fees due to ARC amounted to US$ 311,733 and
was settled by the issue of 3,971,712 new ordinary shares at the issue price
of 6.75 pence per share to ARC on 10 March 2022.
The issued share capital at 31 December 2022 was 923,718,223 ordinary shares
(2021: 909,571,975).
Projects
Elandsfontein overview
Elandsfontein hosts the second largest phosphate deposit in South Africa,
after Foskor's operation at Phalaborwa. Elandsfontein has been developed
with the capacity to produce circa one million tonnes per annum ("Mtpa") of
phosphate rock concentrate from a shallow mineral resource which is expected
to be sold on both local and international markets. The Company owns 74% of
the issued share capital of Kropz Elandsfontein, the company which owns the
Elandsfontein project.
Elandsfontein's geographic location and proximity to logistics infrastructure
are advantageous and allow for easy access to both local and international
markets.
Prior to 2022, in excess of US$ 170 million was spent at Elandsfontein on
project capital expenditure to construct the original and optimisation phases
of the processing plant and infrastructure, initial mining and capitalised
working capital. Following a suspended commissioning process in 2017, Kropz
Elandsfontein conducted further geological drilling and a metallurgical test
programme to define a robust process circuit, to cater for the increased
variability of ore present within the Elandsfontein resource. As a result of
competent banks of hard material encountered in the pit, further drilling was
conducted in 2022 and consequently a revised mineral resource estimate was
produced as further discussed below.
Activity for the year ended 31 December 2022
The 2021 construction activities at Elandsfontein had largely been completed
and mining activities which recommenced in October 2021 resulted in first ore
being introduced into the plant in December 2021 with first production of
phosphate rock concentrate ("Concentrate") being achieved in March 2022. The
focus for the 2022 financial year, which continued into 2023, was to fully
commission the plant, remove bottlenecks and establish specific operating
parameters for the production ramp up phases towards steady state capacity.
Mining and geology
Delays were experienced in the ramp-up of operations at Elandsfontein, largely
being driven by continued ore variability in the current mining area. Mining
rates and associated delivery of ore to the plant were compromised due to the
presence of competent banks of hard material within the orebody that were
previously unknown.
Following additional infill drilling, relogging of historical cores and
mapping of ore exposures as intersected within the current mining horizon, an
updated JORC (2012) compliant Mineral Resource Estimate ("MRE") was announced
on 10 January 2023.
Based on the current mining conditions, on-site learnings and revised
geological interpretations, it was considered prudent that the mineral
resource be reclassified.
The updated Elandsfontein resource is defined below, on a total (gross) and
net attributable basis.
ELANDSFONTEIN RESOURCE STATEMENT AS OF 15 DECEMBER 2022
CLASS TONNES P(2)O(5) SiO(2) Al(2)O(3) MgO Fe(2)O(3) (%) CaO CON-TAINED P(2)O(5)
(Mt) (%) (%) (%) (%) (%) (Mt)
Measured 9.40 11.21 65.58 1.13 0.16 0.90 16.10 1.05
Indicated 9.62 7.90 75.21 1.17 0.12 0.86 11.24 0.76
Total Measured & Indicated 19.02 9.54 70.45 1.15 0.14 0.88 13.64 1.81
Inferred 87.56 7.68 73.92 1.20 0.16 1.03 11.15 6.72
Total Resources 106.58 8.01 73.30 1.19 0.16 1.00 11.59 8.54
NETT ATTRIBUTABLE (74% TO THE COMPANY)
Measured 6.96 11.21 65.58 1.13 0.16 0.90 16.10 0.78
Indicated 7.12 7.90 75.21 1.17 0.12 0.86 11.24 0.56
Total Measured & Indicated 14.07 9.54 70.45 1.15 0.14 0.88 13.64 0.67
Inferred 64.79 7.68 73.92 1.20 0.16 1.03 11.15 4.98
Total Resources 78.87 8.01 73.30 1.19 0.16 1.00 11.59 6.32
Note: All numbers are reported to two significant figures. Rounding may cause
minor discrepancies to the numbers reported in this table.
The resource estimate was updated after including the geological information
contained in 30 additional sonic boreholes with recoveries above 90%. The
additional drillholes have provided significant insight in terms of the
geological interpretation, mineralised lithologies and data confidence.
Differences are further seen in the elevation with regards to the top contact
of mineralisation. The 2022 modelling further utilised implicit modelling
which created additional refined contacts between lithologies. The optimised
modelling has contributed to improved grades over the more accurately
estimated areas and will improve planning in terms of anticipating mineralised
horizons, and lithology types which are not always visibly distinguishable.
DIFFERENCE 2018 VS 2022 RESOURCE DECLARATION
CLASS TONNES P(2)O(5) SiO(2) Al(2)O(3) MgO Fe(2)O(3) CaO CON-TAINED P(2)O(5)
(Mt) (%) (%) (%) (%) (%) (%) (Mt)
Total Measured and Indicated 2022 19.02 9.54 70.45 1.15 0.14 0.88 13.64 1.81
Total Measured and Indicated 2018 77.80 8.30 74.90 1.17 0.17 0.93 11.86 3.60
Difference Measured and Indicated -58.78 1.24 -4.45 -0.02 -0.03 -0.05 1.78 -1.79
Inferred 2022 87.56 7.68 73.92 1.20 0.16 1.03 11.15 6.72
Inferred 2018 23.30 5.48 82.50 1.15 0.13 0.95 7.50 1.28
Difference Inferred 64.26 2.20 -8.58 0.05 0.03 0.08 3.65 5.44
Note: All numbers are reported to two significant figures. Rounding may cause
minor discrepancies to the numbers reported in this table.
The 2022 reserve estimate was impacted by the reclassification of the resource
estimate. Reserves are estimated at 17.42 Mt at a P(2)O(5) grade of 9.19% of
which 7.31 Mt is proven at 10.71% P(2)O(5), where previously no proven tonnes
were stated in 2018.
ELANDSFONTEIN RESERVE STATEMENT AS AT 15 DECEMBER 2022
CLASSIFICATION TONNES P(2)O(5) CONTAINED P(2)O(5)
(Mt) (%) (Mt)
Proven 7.31 10.71 0.78
Probable 10.11 8.09 0.82
Total Reserve 17.42 9.19 1.60
NETT ATTRIBUTABLE (74% TO THE COMPANY)
Proven 5.41 10.71 0.58
Probable 7.48 8.09 0.61
Total Reserve 12.89 9.19 1.18
There is a 46 Mt difference between the 2018 and 2022 estimates, which is
mainly due to the downgrade in the measured and indicated resource categories
in the 2022 resource estimate.
DIFFERENCE 2018 VS 2022 RESERVE DECLARATION
RESOURCE CLASSIFICATION TONNES P(2)O(5) CONTAINED
(Mt) (%) P(2)O(5)
(Mt)
Total Proven 2022 7.31 10.71 0.78
Total Proven 2018 - - -
Total Probable 2022 10.11 8.09 0.82
Total Probable 2018 63.63 9.60 6.11
Total Proven and Probable 2022 17.42 9.19 1.60
Total Proven and Probable 2018 63.63 9.60 6.11
Difference Proven and Probable -46.21 -0.41 -4.51
Note: All numbers are reported to two significant figures. Rounding may cause
minor discrepancies in this table
Plant and processing
Hot commissioning (C4) activities and production ramp up was undertaken during
2022. Plant stability was difficult to achieve due to the influence of varying
quantities of ultra fine material contained in the ore and poor flotation
conditioning.
Despite power generation issues in South Africa causing intermittent load
shedding, we were able to mitigate the adverse effects on our production by
utilizing emergency backup generators on several occasions. However, it is
important to note that this has led to increased operating costs.
Environmental Management Programme ("EMPr")
The Department of Mineral Resources and Energy ("DMRE") approved the Kropz
EMPr on 20 November 2015. Due to transitional provisions in terms of Section
12 (5) of the National Environmental Act ("NEMA"), as amended, DMRE directed
Kropz during 2016 to amend its EMPr to bring it into line with amendments in
NEMA. Since there was an appeal against the DMRE having approved the Mining
Right, this only became possible after the Minister of the DMRE dismissed the
appeal against the Mining Right on 14 December 2017.
The amendments to the EMPr were subsequently made during 2020. The updated
EMPr was submitted to the DMRE in September 2020. On 26 March 2021, management
received the approved updated EMPr for the Elandsfontein project from the
DMRE. The updated EMPr strongly emphasizes the adherence to the required
rehabilitation measures.
Offsets
In November 2019, the DMRE directed Kropz to carry out a further Offset Study
to be done by an independent specialist which was subjected to a thirty-day
public participation process ("PPP").
In July 2020, Kropz Elandsfontein submitted a revised Offset Study to the
DMRE. Herein, Management put forward its objections regarding the 2015 Offset
Study originally submitted to the DMRE and contended that the 2015 Offset
Study did not adequately consider Kropz's effective innovative rehabilitation
measures already demonstrated.
Following due consideration of all the comments and responses received during
the thirty-day public participation period, management received notification
from the DMRE on 4 March 2021 that the conditions required to cater for the
offsets of land will be removed from the Elandsfontein EMPr.
It is understood that several appeals against the DMRE's decision were lodged
with the Department of Forestry, Fisheries and the Environment, and the
outcome of this matter remains pending.
Water use licence ("WUL")
An appeal against the Elandsfontein WUL was heard from 1 to 4 February 2021.
Following four sittings on the matter, where final evidence was presented to
the Water Tribunal, it was announced on 9 September 2021, that the appeal was
dismissed.
Dewatering of the aquifer continued in accordance with the updated ground
water management plan and monitoring activities remain in line with the WUL
conditions.
Safety, health and environment
As at 31 December 2022, the Lost Time Injury Frequency Rate ("LTIFR"), per
200,000 man hours, was 1.290 (2021 - 0.698). The increase in LTIFR is related
to four Lost Time injuries as compared to three in the previous reporting
period of which one was a reportable injury. No major environmental incidents
were reported during the year. Kropz Elandsfontein held various wellness
campaigns during 2022, which included a blood donation drive, HIV and AIDS
awareness and general health (i.e., blood pressure).
Corporate social responsibility ("CSR") and sustainability
The execution of the five-year Social and Labour Plan ("SLP"), aligned with
the 2018 South African Mining Charter, and approved by the DMRE, remains on
track. During the reporting period, Kropz Elandsfontein has commenced with the
development of the next iteration of the SLP and submitted it in Q4 of 2022.
The DMRE requested minor amendments, which were submitted in March 2023 for
final approval. The plan includes progressive improvements to obtain
compliance on the employment equity and procurement objectives of the South
African Mining Charter scorecard.
The following strategic focus areas have been identified for the updated SLP:
· Education;
· Social wellness;
· Local economic development; and
· Urban reconstruction and infrastructure upgrades.
Through collaboration with the local community forum, the execution of various
community development projects continued during 2022 and the selection of new
projects formed part of the 2022 - 2026 SLP. The Saldanha Bay Municipality
("SBM") confirmed alignment with their Infrastructure Development Plan ("IDP")
and has endorsement of the various SLP projects.
SLP LED Projects
Education support
During 2022 Kropz Elandsfontein continued to support the Hopefield Primary
School teacher's programme. Infrastructure upgrades were done at two Early
Childhood Development ("ECD") centres in Hopefield. One of the upgrades was
required to enable final registration of the ECD centre. For the 2022-2026
SLP, Education will remain a key focus area.
Disabled project
During 2022, with the assistance of a local NGO, a needs analysis was carried
out for various disabled individuals in Hopefield. This identified necessary
infrastructure upgrades which included the installation of handrails,
wheelchair pathways etc. Fourteen recipients within the Hopefield community
benefited from this project.
Hopefield Thusong community centre upgrade
The infrastructure upgrade of the community centre included the addition of
two new rooms, a kitchen and bathroom facilities. The handover of the
Thusong Centre took place at an official handover ceremony with the SBM mayor
during 2022.
Ad-Hoc CSR Projects
Through engagements with various stakeholders, Kropz Elandsfontein supported
the following initiatives and organizations:
1) Schools ECO Club (Annual Science camp and ECO awards)
2) Silwerblare pensioners social club
3) Universal Rugby club (Infrastructure and annual awards)
4) Mfesane (Disabled day)
5) All saints Anglican church (Annual event)
Stakeholder Engagement
Kropz Elandsfontein continues to engage with the local community on a regular
basis and held a community meeting during 2022 to provide an update on the
state of the business and various other issues. Kropz Elandsfontein also
issued quarterly newsletters to the community to keep them updated on the
business as well as various initiatives and projects.
Post reporting period events
Transport and logistics
As announced on 23 November 2021, Transnet provided Kropz Elandsfontein with a
draft port access agreement to support the long-term export of Elandsfontein's
phosphate rock through the port of Saldanha. Final contract negotiations are
underway. An interim agreement, with tariffs and a forecast of export
quantities, is in place while the agreement is being finalised. Exports
through Cape Town will potentially be required for no more than 350,000 tonnes
of Elandsfontein's eventual production of approximately 1 million tonnes per
annum, if capacity through the port of Saldanha is unavailable for a limited
period of time.
Sales
The first bulk shipment and sale of 33,000 tonnes of phosphate concentrate
from Kropz Elandsfontein was announced on 23 January 2023 with a second
shipment and sale of 20,000 tonnes of phosphate concentrate as was announced
on 14 March 2023. During April 2023, two further shipments of 33,000 tonnes
and 11,000 tonnes were sold and a further 33,000 tonnes in June 2023. These
exports occurred through the port of Saldanha.
Hinda
The Hinda project, currently 100% owned by Cominco S.A., is believed to be one
of the world's largest undeveloped phosphate reserves. Ownership is expected
to be diluted to 90% through the participation of the Republic of Congo
("RoC") government. Hinda consists of a sedimentary hosted phosphate deposit
located approximately 40 km northeast of the city of Pointe-Noire. The
project is fully permitted.
Prior to acquisition by Kropz, more than US$ 40 million was spent on project
development, including drilling, metallurgical test work and feasibility
studies. Since its acquisition by Kropz, a further US$ 4.7 million has been
spent.
Activity for the year ended 31 December 2022
Kropz has been reviewing the Hinda Updated Feasibility Study ("Updated FS")
and the financial model as prepared by Hatch.
Highlights of the Updated FS
· The phased approach studied will initially deliver 1 Mtpa phosphate
rock concentrate through the existing Port of Pointe-Noire ("Phase 1"),
expanding to 2 Mtpa phosphate rock concentrate through a new port facility at
Pointe Indienne ("Phase 2");
· The phased approach is intended to reduce up-front execution
capital requirements by making use of existing port facilities, thus limiting
the first phase to 1 Mtpa phosphate rock concentrate;
· The Hinda Updated FS demonstrates low technical and mining risk and
attractive project economics;
· The mineral resource is unchanged from the 2018 Competent Persons
Report, with 201 million tonnes of measured mineral resource at 11.6% P(2)O(5)
and 381 million tonnes of indicated mineral resource at 9.8% P(2)O(5);
· The Hinda Updated FS delivers a minimum 28-year life of mine
("LOM"), extracting 31 million tonnes of ore in Phase 1 and 214 million tonnes
of ore in Phase 2;
· Estimated Phase 1 capital cost is US$ 355 million, Phase 2 capital
cost is US$ 310 million (in real 2021 terms), with a nominal, peak funding
requirement of US$ 392 million, as the first phase cash flows supports the
subsequent Phase 2 expansion capital expenditure;
· Phase 1 operating cost on a free-on-board ("FOB") basis is US$ 63
per tonne phosphate rock concentrate, and Phase 2 operating cost is US$ 70
per tonne phosphate rock concentrate, inclusive of mining royalties;
· Using a December 2021 price forecast received from CRU on a FOB
Pointe-Noire basis, the real LOM earnings before interest and taxation margin
is US$ 65 per tonne of phosphate rock concentrate;
· There is an estimated three-year execution schedule; and
· Base case, nominal internal rate of return ("IRR") of 19.2% and
base case, ungeared, nominal net present value ("NPV") (at 11.1% discount
rate) of US$ 397 million.
The Hinda Updated FS included detailed engineering of the open pit mine,
associated mine dewatering and surface water management, the beneficiation
plant and all associated infrastructure, tailings storage facilities and water
storage dam, a gas fired power plant and gas supply pipeline, a 30 kV
overhead line ("OHL") to support construction and early works, mine access
roads, an accommodation camp and port infrastructure. Costs and schedules
associated with procurement, construction management and commissioning are
also included.
Hatch delivered a robust execution strategy, which provides high confidence in
achieving execution success. The beneficiation plant employs standard and
proven technologies, and the design is based on extensive laboratory and
pilot-scale test work completed between 2013 and 2016.
Further Opportunities
A mine plan was run scheduling the immediate commencement of Phase 2
production, i.e. 2 Mtpa of phosphate rock concentrate to be exported through a
new port facility. This opportunity led to a conservative increase in ungeared
NPV (at 11.1% discount rate) to US$ 543 million with an IRR of 21%. The
estimated capital cost for the immediate commencement of Phase 2 is US$ 618
million, based on the study work completed. If this option is studied further,
it will be possible to further optimise both capital and operating costs.
Collaboration with other market players to share in costs of infrastructure
such as port, power and roads are also an opportunity to consider.
Further opportunities also exist to enter into a long-term power purchase
agreement with one of several companies already established in-country. The
capital cost of the gas fired power plant would therefore be removed from the
estimate, although this would be offset by an increase in power costs.
A number of other capital cost optimisation initiatives have been identified
for investigation ahead of detailed design which should further improve
project economics.
Updated ESIA
The project has an approved environmental compliance certificate issued in
April 2020, valid for 25 years. As a result of the modifications to the
project in the Hinda Updated FS, the ESIA has been updated to comply with
local regulations. The RoC Ministry of Environment has approved the Updated
ESIA and the project has a valid environmental compliance certificate.
Mining Investment Agreement ("MIA")
The MIA, which sets out the legal and fiscal framework under which Cominco
S.A. would invest and operate within the RoC was signed by all parties on 10
July 2018 and ratified by the RoC Government on 27 December 2021.
Déclaration d'Utilité Publique ("DUP")
The Ministry of Land Tenure and Public Domain is responsible for managing land
tenure and legal land rights in RoC. The land commission has evaluated the
land usage requirements of the Hinda Project and liaises with legal property
owners and traditional land users to determine, based on the legislation, a
baseline for land use to be used for compensation and relocation.
The main declaration of public utility (DUP) process has covered an area of
30 km(2). Public consultations were organized by Cominco and CM2E. Land
surveys were carried out from end of November 2020 until mid-January 2021,
followed by an optimisation session in line with the Updated FS. The final
report is still to be finalised.
The MIA states that expropriation costs and compensations are to be borne by
the government of the RoC and that Cominco can prefinance some or all of the
costs.
Mineral resources
The Hinda resource is defined below, on a total (gross) and net attributable
basis. No additional drilling was conducted in 2022.
Mineral Resource Statement, as declared by SRK on 31 August 2018
Class Quantity (Mt) Grade (%P(2)O(5)) Grade (%Al(2)O(3)) Grade (%MgO) Grade (%Fe(2)O(3)) Grade (%CaO) Grade (%SiO(2)) Contained P(2)O(5) (Mt)
Gross
Measured 200.5 11.6 3.7 3.8 1.4 21.8 42.7 23.3
Indicated 380.9 9.8 5.0 3.3 1.8 17.6 48.5 37.3
Inferred 94.4 7.5 4.8 3.6 1.7 15.8 52.2 7.1
Total 675.8 10.0 4.6 3.5 1.7 18.6 47.3 67.7
Net Attributable (90% attributable to the Company)
Measured 180.5 11.6 3.7 3.8 1.4 21.8 42.7 20.9
Indicated 342.8 9.8 5.0 3.3 1.8 17.6 48.5 33.6
Inferred 85.0 7.5 4.8 3.6 1.7 15.8 52.2 6.4
Total 608.3 10.0 4.6 3.5 1.7 18.6 47.3 60.9
Safety, health and environment
No environmental or safety incidents were reported during the year.
Sustainability
In line with the MIA and its commitments, Cominco S.A. continued its
interactions with the local communities associated with the Hinda project.
On-going projects include the usage of project site manpower, the funding of
teachers at local schools, educational support for vulnerable children,
specific projects for woman, water boreholes and food security projects
through the establishment of orchards, vegetable gardens and small-scale
agriculture projects.
Post reporting period events
Prior to commencing Phase 1, a reduced sized test project is currently being
assessed to propose a fit-for-purpose low capex project to prove the concept
of producing phosphate concentrate in the Congo and exporting it. The project
will focus on the mining and processing the section of the resource which does
not require flotation.
Strategy
The Company's long-term strategy is to build a portfolio of high-quality
phosphate mines and to be a major player within the sub-Saharan African plant
nutrient sector. Its priority is to bring Elandsfontein to steady-state
production and profitability whereafter the development of Hinda will be
prioritised.
Business model
The Company's business model is to source high-quality resources and to bring
them into production to contribute to the Company's strategic competitiveness
and profitability.
Once production has commenced at Elandsfontein and Hinda, the Company may
consider acquiring additional assets and/or adding downstream beneficiation
opportunities, where the Board believes shareholder value could be increased.
Objectives and outlook for the year ahead
Objectives
Kropz
Kropz's overriding objective is to deliver strong shareholder and stakeholder
returns over the long term.
Elandsfontein
The primary focus of the year ahead will be to further increase the ramp-up of
operations to achieve steady state while optimising process recoveries and
mining costs. Optimised production capacity is expected to be determined over
the next 12 months and will be based on the maximum profitability.
Hinda
Further to the completion of the Hinda Updated FS in December 2021, management
is working to secure funding to commence with project development in
accordance with the MIA.
Outlook
Kropz's Elandsfontein project delivered first production in early 2022. The
Company is confident in the inherent value contained within each of its core
assets. Global phosphate rock demand and pricing is robust, and the work being
carried out will provide Kropz with direction for the next phase of its
development, subject to short-term challenges being managed. The year ahead
should provide the Company with a solid foundation for its future development.
Financial review for the year ended 31 December 2022
Summary of key financial indicators for the year:
· Impairment in the value of mine property, plant and equipment and
inventory at Kropz Elandsfontein of US$ 93 million;
· Cash and cash equivalents of US$ 2 million (2021: US$ 2 million)
· Various equity and debt raises as set out in "Highlights" on page
1;
· Trade and other payables of US$ 7 million (2021: US$ 4 million);
and
· Property, plant, equipment and development and exploration assets,
after the impairment above, of US$ 111 million (2021: US$ 180 million).
Key performance indicators
The Company is a mining and development entity whose assets comprise a mine
and plant in the ramp-up phase in South Africa and an exploration asset in the
RoC. Currently, minor revenues have been generated from local sales in South
Africa during 2022 with first bulk sale in January 2023. The key performance
indicators for the Company will be achieving steady state production and the
advancement of the Hinda project.
Principal risks and uncertainties
The Company and its subsidiaries ("the Group") are subject to various risks
relating to political, economic, legal, social, industry, business and
financial conditions. The following risk factors, which are not presented in
any order of priority, do not purport to be a complete list or explanation of
all the risks involved in the Company or the Group's activities.
Access to financing
The ramp up at Elandsfontein, the capital expenditure plans of the Group and
the further development and exploration of mineral properties in which the
Group holds interests or which the Group may acquire, may depend upon the
Group's ability to obtain financing through joint ventures, debt financing,
equity financing or other means. No assurance can be given that the Group will
be successful in obtaining any required financing as and when needed on
acceptable terms or at all, which could prevent the Group from further
development and exploration or additional acquisitions.
Failure to obtain additional financing on a commercial and timely basis may
cause the Group to postpone its capital expenditure plans, forfeit its rights
in properties or reduce or terminate operations. Reduced liquidity or
difficulty in obtaining future financing could have a material adverse effect
on the Group's business, financial condition, results of operations and
prospects.
The Group's Projects may require greater investment than currently expected or
suffer delays or interruptions, which could cause cost overruns. Any such
delay, interruption or cost overruns in implementing the Group's planned
capital investments could result in the Group failing to complete the Projects
and a reduction in future production volumes, which could have a material
adverse effect on the Group's business, financial condition, results of
operations and prospects. In addition, the Projects may not prove to be
commercially viable upon completion.
The Group's ability to obtain future financing will depend in part on its
ability to achieve positive cash flows from its current operations within time
and budget, an extended commissioning ramp-up period will have an adverse
impact on the business and financial performance of the Group. Refer to note
2a to the Group financial statements which explains that the Group is reliant
on revenue from production ramp up and expect to require additional financing
and a material uncertainty exists that may that cast significant doubt on the
Group's ability as a going concern.
Dependence on maintenance of good relationship with regulatory and
governmental departments
The Group relies on the maintenance of good relationships with regulatory and
governmental departments in South Africa and the RoC. Failure to maintain
these relationships may adversely impact the Group's performance.
Ramp-up of Elandsfontein
The Elandsfontein project may require further funding to achieve steady state
operations in Q4 2023. Any delays in securing of additional funding will have
an adverse impact on the business and financial performance of the operation.
There can be no guarantee that implementation of the recently completed
modifications identified by the Company and its technical consultants will
result in a successful long-term operation of the mine. Failure to achieve
ramp-up of the Elandsfontein project, or a significant delay in the completion
of ramp-up, could result in a material adverse impact on the business, and the
financial performance and position of the Group.
Access to infrastructure
Mining, processing, development and exploration activities depend, to a
significant degree, on adequate infrastructure. In the course of developing
Hinda, the Group may need to construct and support the construction of
infrastructure, which includes permanent water supplies, tailings storage
facilities, power, logistics services and access roads.
Reliable roads, power sources and water supply are important determinants,
which affect capital and operating costs. Unusual or infrequent weather
phenomena, sabotage, government or other interference in the maintenance or
provision of such infrastructure could materially adversely affect the Group's
operations, financial condition and results of operations. Any such issues
arising in respect of the supporting infrastructure or on the Group's sites
could materially adversely affect the Group's results of operations or
financial condition.
Furthermore, any failure or unavailability of the Group's operational
infrastructure (for example, through equipment failure, disruption to its
transportation arrangements or reduced port capacity) could materially
adversely affect the production output from its mines or development of a mine
or project.
Limited or reduced port capacity at the Port of Saldanha, as well as the
associated cost increase for procuring alternative logistics could have an
adverse impact on the business and financial performance of the Group.
Operational targets
The financial performance of the Group is subject to its ability to achieve a
target concentrate specification and production efficiency at its
Elandsfontein project, according to its pre-determined budget. Failure to do
this may result in failure to achieve operational targets with a consequent
material adverse impact on the business, operations and financial performance
of the Group.
Excessive overburden stripping, non-economical mining of ore, ore losses and
the dilution of feed grade to the processing facility could all have an
adverse impact on the processing operations. Furthermore, high variability in
the daily feed grades could also have an adverse impact on operations and
financial performance of the Group.
Any further unscheduled interruptions in the Group's operations due to
mechanical, electrical or other failures or industrial relations related
issues or problems or issues with the supply of goods or services could have a
serious impact on the financial performance of those operations. Furthermore,
any interruption or disruption in the supply chain of key production chemicals
sourced from international suppliers could materially adversely affect the
production output from the mine.
New entrant risk
Kropz Elandsfontein will, once production has been achieved of a commercial
saleable grade product, be a new entrant in the global phosphate rock market,
selling its products into a globally competitive and established market.
There can be no guarantee that the sales estimates set by Kropz Elandsfontein
will be achieved until a successful track record has been achieved. Not
achieving appropriate selling prices for its commercial grade products, would
have a material adverse effect on the business, operations and financial
performance of the Group.
Mining and mineral processing risks
The business of mining and mineral processing involves a number of risks and
hazards, including industrial accidents, labour disputes, community conflicts,
activist campaigns, unusual or unexpected geological conditions, geotechnical
risks, ore variability, equipment failure, changes in the regulatory
environment, environmental hazards, ground water and weather and other natural
phenomena such as earthquakes and floods. The Group may experience material
mine or plant shutdowns or periods of reduced production as a result of any of
the above factors. Such occurrences could result in material damage to, or the
destruction of, mineral properties or production facilities, human exposure to
pollution, personal injury or death, environmental and natural resource
damage, delays in mining, monetary losses and possible legal liability, and
may result in actual production differing, potentially materially, from
estimates of production, whether expressly or by implication. There can be no
assurance that the realisation of operating risks and the costs associated
with them will not materially adversely affect the results of operations or
financial conditions of the Group.
Geotechnical, ore variability, geological and hydrogeological risks could have
a material adverse impact on the safety, business and financial performance of
the Group's operation.
Failure to successfully dewater the mining area and maintain water levels in
the mining area at the Elandsfontein project could have a material adverse
impact on the operational performance, financial performance and financial
condition of the Group.
Enforcement of contractual rights in the RoC
The legal system in the RoC is based on the French civil law system (the Civil
Code of the former French Equatorial Africa), which has enacted the Uniform
Act to harmonise business law in Africa in order to guarantee legal and
judicial security for investors and companies in its member states, as well as
a Uniform Act on Arbitration Law, allowing recourse to a standard arbitration
mechanism for the settlement of contractual disputes arising from civil or
commercial contracts concluded in the RoC as an alternative to RoC courts for
legal proceedings relating to contracts.
Under Congolese law, parties may enter into private contracts in the language
of their choice, however, a French translation is always required for them to
be used before any constituted authority in the RoC. In addition, enforcement
of contracts concluded outside of Congo before an RoC court, administrations
and other constituted authorities, requires their prior registration with the
Office for Registration and Stamp Duties and, in the absence of a specific
exemption, payment of the applicable registration fees and stamp duties.
Certain contracts concluded in the RoC (such as leases) must also be presented
for registration with the Office for Registration and Stamp Duties, due to
their nature and listing in the General Tax Code, Volume 2. Moreover, certain
contracts (such as commercial leases) must also be notarised or authenticated
by a notary if concluded as private deeds, prior being registered as described
above.
If any of these processes are not strictly followed, the RoC courts and
administrations may disregard the concerned contract and, as regards the
requirement to register certain contracts with the Office for Registration and
Stamp Duties, the tax administration may apply fines of 100% of the amount of
registration fees due. Further, the tax administration tends to disregard any
payment convention exemption for the purpose of applying these fines.
If any of the Group's contracts are deemed unenforceable, this could have a
material adverse effect on the operations and financial results of the Group.
Commodity pricing
The future profitability and viability of the Group's operations will be
dependent upon the market price of phosphate rock to be sold by the Group.
Mineral prices fluctuate widely and are affected by numerous factors beyond
the control of the Company. The level of interest rates, the rate of
inflation, the world supply of mineral commodities, the global level of demand
from consumers and the stability of exchange rates can all cause significant
fluctuations in prices. Such external economic factors are in turn influenced
by changes in international investment patterns, monetary systems and
political developments. Commodity prices have fluctuated widely in recent
years, and future price declines could cause commercial production to be
impracticable, thereby having a material adverse effect on the Company's
business, financial condition and results of operations. A significant or
sustained downturn in commodity prices would adversely affect the Group's
available cash and liquidity and could have a material adverse effect on the
business, results of operations and financial condition of the Group in the
longer term.
In addition to adversely affecting the Group's reserve estimates and its
financial condition, declining commodity prices can impact operations by
requiring a reassessment of the feasibility of a particular project. Such a
reassessment may be the result of a management decision or may be required
under financing arrangements related to a particular project. Even if the
Elandsfontein project and the Hinda project are ultimately determined to be
economically viable, the need to conduct such a reassessment may cause
substantial delays or may interrupt operations until the reassessment can be
completed.
Environmental regulation and environmental compliance
Mining operations have inherent risks and liabilities associated with damage
to the environment and the disposal of waste products occurring as a result of
mineral exploration and production. Environmental and safety legislation and
regulation (e.g. in relation to reclamation, disposal of waste products,
pollution and protection of the environment, protection of wildlife and
otherwise relating to environmental protection) is frequently changing and is
generally becoming more restrictive with a heightened degree of responsibility
for companies and their Directors and employees and more stringent enforcement
of existing laws and regulations. Future changes could impose significant
costs and burdens on the Group (the extent of which cannot be predicted) both
in terms of compliance and potential penalties, liabilities and remediation.
Breach of any environmental obligations could result in penalties and civil
liabilities and/or suspension of operations, any of which could adversely
affect the Group. Further, approval may be required for any material plant
modifications or additional land clearing and for ground disturbing
activities. Delays in obtaining such approvals could result in the delay to
anticipated exploration programmes or mining activities.
There may also be unforeseen environmental liabilities resulting from mining
activities, which may be costly to remedy. If the Group is unable to fully
remedy an environmental problem, it may be required to stop or suspend
operations or enter into interim compliance measures pending completion of the
required remedy. The potential exposure may be significant and could have a
material adverse effect on the Group. The Group has not purchased insurance
for environmental risks (including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from
exploration and production) as it is not generally available at a price which
the Group regards as reasonable.
In South Africa, the Regulations Pertaining to the Financial Provision for
Prospecting, Exploration, Mining or Production Operations 2015 (R1147 of 20
Nov 2015) provides that the holder of a mining right must provide for
rehabilitation and remediation costs, with particular reference to when the
mine is decommissioned at the end of mining, or production operations. It is
expected that mining operations at Elandsfontein will cease in year 2032. The
under-provision of such a rehabilitation liability could result in future
liabilities being payable, which could have a material adverse impact on the
financial condition of the Group.
Government regulation and political risk
The Group's operating activities are subject to laws and regulations governing
expropriation of property, health and worker safety, employment standards,
waste disposal, protection of the environment, mine development, land and
water use, prospecting, mineral production, exports, taxes, labour standards,
occupational health standards, toxic wastes, the protection of endangered and
protected species and other matters. While the Directors believe that the
Group is in compliance with all material current laws and regulations
affecting its activities, future changes in applicable laws, regulations,
agreements or changes in their enforcement or regulatory interpretation could
result in changes in legal requirements or in the terms of existing permits
and agreements applicable to the Group or its properties, which could have a
material adverse impact on the Group's current operations or planned
development projects. Where required, obtaining necessary permits and licences
can be a complex, time-consuming process and the Group cannot assure whether
any necessary permits will be obtainable on acceptable terms, in a timely
manner or at all.
The costs and delays associated with obtaining necessary permits and complying
with these permits and applicable laws and regulations could stop or
materially delay or restrict the Group from proceeding with any future
exploration or development of its properties. Any failure to comply with
applicable laws and regulations or permits, even if inadvertent, could result
in interruption or closure of exploration, development or mining operations or
material fines, penalties or other liabilities.
The Group has operations located in South Africa and the RoC and the Group's
activities may be affected in varying degrees by political stability and
governmental regulations. Any changes in regulations or shifts in political
attitudes in South Africa and the RoC are beyond the control of the Group and
may adversely affect its operations.
Adverse sovereign action
The Group is exposed to the risk of adverse sovereign action by the
governments of South Africa and RoC. The mining industry is important to the
economies of these countries and thus can be expected to be the focus of
continuing attention and debate. In similar circumstances in other developing
countries, mining companies have faced the risks of expropriation and/or
renationalisation, breach or abrogation of project agreements, application to
such companies of laws and regulations from which they were intended to be
exempt, denials of required permits and approvals, increases in royalty rates
and taxes that were intended to be stable, application of exchange or capital
controls, and other risks.
Environmental, social and governance ("ESG") and climate change
As the focus on ESG increases, there are increasing environmental, social and
governance risks that may affect the Group's ability to raise capital; obtain
permits; work with communities, regulators and Non-Governmental Organisations
("NGOs") and/or protect its assets from impairments.
At Kropz, we acknowledge that our business activities affect the society and
environment around us, and that we have an opportunity and an implicit duty to
ensure this impact is positive. We also believe that efficient and sustainable
operations are a necessity for long-term value creation.
We are committed to taking responsibility when conducting our business by
integrating ESG factors into our investment decisions and operational
processes. Given the stage of development of Kropz, social initiatives have
been limited to those outlined above at Elandsfontein.
Climate change could potentially affect the demand for fertilisers by
impacting global agricultural activity. This in turn could affect the demand
for fertiliser feed materials, and could cause events such as prolonged
droughts that could reduce the availability of water at the different project
sites.
As the Kropz operations develop, more initiatives will be undertaken on the
ESG front and progress on these will be reported on in the next annual report.
Governance
The Board considers sound governance as a critical component of the Group's
success and the highest priority. The Company has an effective and engaged
Board, with a strong non-executive presence from diverse backgrounds, and
well-functioning governance committees. Through the Group's compensation
policies and variable components of employee remuneration, the Remuneration
and Nomination Committee ("Remuneration Committee") of the Board seeks to
ensure that the Company's values are reinforced in employee behaviour and that
effective risk management is promoted.
More information on our corporate governance can be found in the Corporate
Governance Report on pages 43 to 54.
Directors' section 172 statement
The following disclosure describes how the Directors have had regard to the
matters set out in section 172 and forms the Directors' statement required
under section 414CZA of The Companies Act 2006. This reporting requirement is
made in accordance with the corporate governance requirements identified in
The Companies (Miscellaneous Reporting) Regulations 2018, which apply to
company reporting on financial years starting on or after 1 January 2019.
The matters set out in section 172(1) (a) to (f) are that a Director must act
in the way they consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its members as a whole, and in doing
so have regard (amongst other matters) to:
a. the likely consequences of any decision in the long term;
b. the interests of the Company's employees;
c. the need to foster the Company's business relationships with suppliers,
customers and others;
d. the impact of the Company's operations on the community and the
environment;
e. the desirability of the Company maintaining a reputation for high
standards of business conduct; and
f. the need to act fairly between members of the Company.
The analysis is divided into two sections, the first to address stakeholder
engagement, which provides information on stakeholders, issues and methods of
engagement. The second section addresses principal decisions made by the Board
and focuses on how the regard for stakeholders influenced decision-making.
Section 1: Stakeholder mapping and engagement activities within the reporting
period
The Company continuously interacts with a variety of stakeholders important to
its success, such as equity investors, joint venture partners, debt providers,
employees, government bodies, local community and vendor partners. The Company
works within the limitations of what can be disclosed to the various
stakeholders with regards to maintaining confidentiality of market and/or
commercially sensitive information.
Who are the key stakeholder groups Why is it important to engage this group of stakeholders How did Kropz engage with the stakeholder group What resulted from the engagement
Equity investors and equity partners Access to capital is of vital importance to the long-term success of the The key mechanisms of engagement included: The Company engaged with investors on topics of strategy, governance, project
business to enable the development of Hinda. Equity partner involvement is
updates and performance.
vital to the success of the development of these projects, without which the
Company cannot create value for its shareholders by producing phosphate rock
All substantial shareholders that own more than 3% of the Company's shares are concentrate and therefore a return on the investment. Substantial shareholders
listed on page 37 of the Directors' Report.
Please see "Dialogue with shareholders" section of the Directors' report on
· Both ARC and Kropz International have appointed Directors to the Board of page 37.
Kropz; and
Through selected engagement activities, the Company strives to obtain investor
The Company owns 74% of Kropz Elandsfontein, the owner of the Elandsfontein buy-in into its strategic objectives detailed on page 13 and the execution · The other existing substantial shareholders have regular meetings and
project in South Africa. 26% is owned by ARC. thereof. interactions with the Chairman and/or CEO. The CEO presented at a number of investor roadshows, conferences and one on
one meetings.
The Company owns 70% of Elandsfontein Land Holdings (Pty) Ltd ("ELH"), the The Company seeks to promote an investor base that is interested in a Investment and equity partners
owner of the Elandsfontein mining property in South Africa. 30% is owned by long-term holding in the Company and will support the Company in achieving its
During 2022, the Company secured the ZAR 177 Million Equity Facility, ZAR
ARC. strategic objectives. · ARC have representatives on the Kropz Elandsfontein and ELH Boards of 121.5 million and ZAR 126 million bridge loans as well as a further ZAR 550
Directors in terms of the respective shareholder's agreements; and million Equity Facility with ARC.
· Regular Board meetings are held.
Kropz Elandsfontein may require further funding to complete the ramp up at During the course of 2022, the percentage of shares held in public hands
Elandsfontein. Cominco Resources requires further funding to develop Hinda. decreased and the overall daily volume of shares traded increased. In terms of the ZAR 200 Million Equity Facility and the additional equity
facilities, ARC will potentially be able to acquire a total further 8.3%
Prospective and existing investors interest in the Company, eventually taking its 83.2% interest at December
2022, to 91.5%.
As such, existing equity investors and potential investment partners are · The AGM and Annual and Interim Reports;
important stakeholders.
· Investor roadshows and presentations;
At the Company's general meeting held on 30 May 2022 all resolutions were duly
· One on one investor meetings with the Chairman and/or CEO; passed with 100% of the votes cast in favour of resolutions proposed.
· Access to the Company's broker and advisers;
· Regular news and project updates; and At the Company's AGM held on 30 June 2022 all resolutions were duly passed.
· Social media accounts e.g. Twitter @Kropzplc;
· Site visits for potential cornerstone investors. At the Company's general meeting held on 30 November 2022 all resolutions were
duly passed with at least 98% votes in favour of resolutions proposed.
Funding providers Access to funding is of vital importance to the long-term success of the · One on one meetings with the CEO and/or COO; In May 2020, the amended facility agreement was signed between Kropz
business to be able to complete the Elandsfontein project. The debt facility
Elandsfontein and BNP, thereby moving the first principal debt repayment to 31
Kropz Elandsfontein has a US$30 million, fully utilised, debt facility with was utilised in the construction of Elandsfontein. · Regular reporting on project progress; December 2022. The first quarterly instalment of US$ 3.75 million was made
BNP that commenced in September 2016.
during December 2022.
· Ad hoc discussions with management, as required; and
Various contractual conditions of the debt finance require regular updates on · Tripartite discussions between Kropz Elandsfontein, ARC and management
ongoing progress. to ensure there are no compliance matters outstanding in relation to the
facility.
Ongoing support from potential new debt providers is required to achieve the
construction of Hinda.
Employees The majority of its employees going forward will be based in South Africa and General employees Employees
the Directors consider workforce issues holistically for the Group as a whole.
The Company has 14 South African, 2 UK and 5 RoC employees, including its
· The Company maintains an open line of communication between its The Board met with management to discuss the long-term remuneration strategy.
Directors. employees, senior management and the Board.
The Company's long-term success is predicated on the commitment of its • The CEO reports regularly to the Board;
workforce to its vision and the demonstration of its values on a daily basis.
Advisors were appointed to do the independent party review to examine
Two of the Directors are UK residents, 1 Monegasque, 1 American and 2 are
· Key members of the executive team are invited to some of the audit and non-executive Director and executive team remuneration in 2018 at the time of
South African resident Directors. risk committee meetings; the AIM IPO.
The Board have identified that reliance on key personnel is a known risk. · There is a formalised employee induction into the Company's corporate
governance policies and procedures; and
The CEO during the year under review was South Africa-based.
Board reporting has been optimised to include sections on engagement with
· There is an HR function in the UK. employees.
South African employees South African and Congo employees
· There is an HR function in South Africa; The team were trained in aspects of corporate policies and procedures to
engender positive corporate culture aligned with the Company code of conduct.
· Senior management regularly visit the operations in South Africa and
engage with its employees through one on one and staff meetings, employee
events, project updates, etc; and
Meetings were held with staff to provide project updates and ongoing business
· Staff safety committees continue to operate. objectives.
Congo employees
· Senior management regularly visit the operations in RoC and engage with
its employees through one on one and staff meetings, employee events, project
updates, etc.
Governmental bodies Regular engagement with organs of state at national, regional and local levels The Company provides general corporate presentations regarding the Meetings have been held with various representatives of the national, regional
is required to keep stakeholders informed and supportive of project Elandsfontein project development as part of ongoing stakeholder engagement and local government bodies, to discuss ongoing compliance and other
The Company is impacted by national, regional and local governmental developments. with the South African government, Western Cape provincial government and regulatory matters relating to mining.
organisations in South Africa and the RoC. local municipal government. The Company maintained its good relations with the
respective government bodies and frequently communicated progress.
The Company has received its South African requisite environmental and land
use permits.
The Company engages with the relevant departments of the RoC government in
order to progress the development of Hinda.
In addition, the Company has received the required permits to develop Hinda,
subject to securing funding for these activities.
Community The Company engages with the local community to obtain acceptance for future · The Company has community liaison officers in South Africa and RoC; The Company has ongoing engagements with the local community as part of its
development plans.
sustainability initiatives.
The local communities adjacent to Elandsfontein in South Africa and Hinda in
· The Company has identified all key stakeholders within the local
the RoC. community in the reporting period;
Community engagement will inform better understanding and decision making. · Elandsfontein management has open dialogue with the local government and Stakeholder identification has enabled the Company to ensure that
community leaders regarding the project development; representatives of all stakeholder groups may participate in the community
engagement programme.
· Similarly, Hinda management are actively engaging with local government
The local community in Hopefield and the greater Saldanha Bay municipal area and communities directly impacted by the Hinda project; and
provides employees for Elandsfontein and its contractors for operations.
· The Company has existing Corporate Social Responsibility policies and
Similarly, the communities surrounding Hinda will provide employees to the management structure at corporate level. The Company will expand on these
project and contractors during construction and operation. policies and structures at a local project level as the Company moves into
production.
The Company will have a social and economic impact on the local communities.
The Company is committed to ensuring sustainable growth, minimising adverse
impacts. The Company will engage these stakeholders as is appropriate.
Suppliers Kropz's contractors and suppliers are fundamental · Management continue to work closely with appointed contractors, consultants See page 10 of the strategic report for an update on the potential transport
and suppliers to manage and optimise deliverables; and and logistics uncertainties facing the Group.
During the Elandsfontein operations phase, the Company will be using key to ensuring that the Company can meet the ramp-up and steady state operating
suppliers under commercial contracts for the operations of mine, plant, road objectives. · One on one meetings between management and suppliers;
and port logistic operators and laboratory service providers, all of whom are
reputable and established service providers. · Vendor site visits and facility audits to ensure supplier is able to meet Smaller local vendors were engaged at a broader level to better align with
requirements; and company objectives.
Using quality suppliers ensures that as a
· Contact with procurement department and accounts payable.
The Company also relies on a number of supply and maintenance contracts to business, the high
ensure ongoing operations.
performance targets can be met.
At a community level, the Company has also partnered with a number of SMME
companies.
Section 2: Principal decisions by the Board
Principal decisions are defined as both those that have long-term strategic
impact and are material to the Group, but also those that are significant to
key stakeholder groups. In making the following principal decisions, the Board
considered the outcome from its stakeholder engagement, the need to maintain a
reputation for high standards of business conduct and the need to act fairly
between the members of the Company.
During the financial year ending 31 December 2022
A third drawdown of ZAR 40 million occurred on 16 March 2022 and the fourth
drawdown of ZAR 33 million occurred on 26 April 2022 of the ZAR 200 Million
Equity Facility. The ZAR 200 Million Equity Facility is fully drawn at the
date of this annual report.
Convertible loan facility for ZAR 177 million from ARC, entered into on 11 May
2022
As announced on 27 April 2022, a funding shortfall of approximately US$ 11
million (approximately ZAR 177 million) was expected due to slower than
expected progress in the ramp up of operations at Kropz Elandsfontein,
production of sufficient phosphate rock concentrate for the first bulk sale
would move to later than originally expected.
The ZAR 177 Million Equity Facility was in addition to the ZAR 200 Million
Equity Facility, which ARC and the Company entered into in February 2021.
As announced on 27 April 2022, Kropz and ARC entered into a further ZAR 25
million (approximately US$ 1.60 million) bridge loan facility (the "Loan 1")
to meet immediate cash requirements at Elandsfontein at the end of April 2022.
When the ZAR 177 Million Equity Facility became unconditional, Loan 1 was
offset against it leaving ZAR 152 million available for future drawdown.
The ZAR 177 Million Equity Facility comprises a total commitment of up to ZAR
177 million provided by ARC, which was to be drawn down subject to ARC's
discretion.
At any time during the term of the ZAR 177 Million Equity Facility, repayment
of the ZAR 177 Million Equity Facility capital amount would, at the election
of ARC, either be:
· In the form of the conversion into ordinary shares of 0.1 pence
each in the Company and issued to ARC, at a conversion price of 9.256 pence
per ordinary share each, representing the 30-day VWAP on 4 May 2022, and at a
fixed exchange rate of ZAR 1 = GBP 0.0504 ("Further Conversion"); or
· Payable in cash by the Company at the end of the term of the ZAR
177 Million Equity Facility.
Following a Conversion, the Company will apply for the newly issued Ordinary
Shares in the capital of the Company to be admitted to trading on AIM, a
market operated by London Stock Exchange plc ("AIM").
The first drawdown of ZAR 103.5 million was made on 2 June 2022.
The ZAR 177 Million Equity Facility will bear interest at 14% per annum and
will be compounded monthly and will be payable in cash to ARC by the Company.
The term of the ZAR 177 Million Equity Facility is from 2 June 2022 to the
earlier of:
· Five years from 2 June 2022; or
· One year after the term loan facility provided by BNP Paribas to
Kropz Elandsfontein (in the amount not exceeding US$ 30 million), has been
repaid;
The ZAR 177 Million Equity Facility is secured by the shares that Kropz holds
in Cominco Resources Ltd.
The ZAR 177 million Equity Facility was above the authorisation limits given
at the Annual General Meeting in June 2021. Specific shareholder approval was
required for the ZAR 177 Million Equity Facility, which shareholder approval
was obtained on 30 May 2022. Ordinary shares to be issued to ARC in terms of
the ZAR 177 Million Equity Facility, if so elected by ARC, would be a maximum
of 96,378,566 ordinary shares.
Convertible loan facility for ZAR 550 million from ARC, entered into on 14
November 2022
As announced on 14 November 2022, Kropz entered into a new convertible equity
facility of up to ZAR 550 million ("ZAR 550 Million Equity Facility")
(approximately US$ 31.6 million), with ARC in order to progress the ramp-up of
operations at the Elandsfontein project. In addition, the funding would also
provide working capital to the Company for general corporate purposes and
further funding, of approximately US$ 1 million for working capital and early
site works, at the Hinda project in the Republic of the Congo.
The ZAR 550 Million Equity Facility comprises a total commitment of up to ZAR
550 million provided by ARC, which can be drawn down at the discretion of
Kropz, as follows:
· Loan 2 and Loan 3 were settled by way of a first advance under the
New ZAR 550 Million Equity Facility, once approved and unconditional, leaving
ZAR 302.5 million available for further drawdown over the facility term; and
· The remaining ZAR 302.5 million of the ZAR 550 Million Equity
Facility was available from the date that all the conditions were met (the
"Effective Date") and up to 15 December 2023. Each drawdown, however, remains
subject to ARC's sole discretion.
At any time during the term of the ZAR 550 Million Equity Facility, the
repayment of the ZAR 550 Million Equity Facility capital amount will, at the
election of ARC, either be:
· In the form of the conversion into ordinary shares of 0.1 pence
each ("Ordinary Shares") in the Company and issued to ARC, at a conversion
price of 4.579 pence per Ordinary Share each, representing the 30-day VWAP on
21 October 2022, and at fixed exchange rate of ZAR 1 = GBP 0.048824
("Conversion"); or
· Payable in cash by the Company at the end of the term of the ZAR
550 Million Equity Facility.
Following a Conversion, the Company will apply for the newly issued Ordinary
Shares in the capital of the Company to be admitted to trading on AIM, a
market operated by London Stock Exchange plc ("AIM").
The New ZAR 550 Million Equity Facility will bear interest at the South
African prime overdraft interest rate plus 6 per cent., nominal per annum and
compounded monthly ("Interest"). Interest will be payable in cash to ARC by
the Company.
The term of the ZAR 550 Million Equity Facility will be from the Effective
Date, to the earlier of:
· 5 years from the Effective Date; or
· 2 years after the term loan facility provided by BNP Paribas to
Elandsfontein (in the amount not exceeding US$ 30 million), has been repaid
in full, or such later date as ARC may agree in writing;
The ZAR 550 Million Equity Facility will be available for drawdown until 15
December 2023.
The ZAR 550 Million Equity Facility is secured by the shares which Kropz holds
in Cominco Resources Ltd ("Share Charge").
Approval from the South African Reserve Bank for the ZAR 550 Million Equity
Facility was obtained on 17 November 2022 and shareholder approval on 30
November 2022.
The key stakeholder groups that could be materially impacted are existing
shareholders and potential investors.
Existing shareholders may have conflicting interests with the ZAR 177 Million
Equity Facility and ZAR 550 Million Equity Facility due to potential dilution
of their shareholding. The Directors considered the impact of this and
concluded that obtaining the convertible facility from ARC was the only
funding opportunity available to the Company in order to secure funding for
the delivery of the Elandsfontein project to first revenue. Various funding
alternatives had been investigated by the Directors, in conjunction with its
brokers and advisers, over the last year, both from an equity raise
perspective and through possible project finance facilities. Equity markets
were subdued and no new or existing equity investors were prepared to provide
the required funding.
Due to the fact that Machiel Reyneke and Gerrit Duminy, the ARC
representatives on the Board, and Mike Nunn, representing Kropz International
are considered to be concert parties, they were not permitted to consider or
vote on the approval of the proposed ZAR 177 Million Equity Facility and ZAR
550 Million Equity Facility by the Board. The independent, non-executive
Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO,
Mark Summers, in consultation with the nominated adviser, considered the
transaction to be fair and reasonable.
As a result of the ZAR 200 Million Equity Facility, ZAR 177 Million Equity
Facility and the ZAR 550 Million Equity Facility, ARC could increase its
interest in the Company by a further approximate 8.3%, taking its eventual
interest in the Company to approximately 91.5%.
First drawdown of the ZAR 550 Million Equity Facility for ZAR 307.5 million
(approximately US$ 18.1 million) was made on 1 December 2022 which comprised:
· Set-off of Loan 2 and Loan 3 of ZAR 247.5 million;
· ZAR 10 million for the Company's general corporate purposes and
funding of ongoing running costs of the Hinda Project; and
· ZAR 50 million in respect of working capital for Elandsfontein.
A second drawdown of ZAR 135 million (approximately US$ 7.9 million) of the
ZAR 550 Million Equity Facility was made on 22 December 2022.
Post 31 December 2022
A third drawdown of ZAR 60 million (approximately US$ 3.5 million) of the ZAR
550 Million Equity Facility was made on 25 January 2023 and a fourth drawdown
of ZAR 40 million (approximately US$ 2.2 million) on 27 February 2023.
As announced on 14 March 2023, Kropz, Kropz Elandsfontein and ARC Fund agreed
to further ZAR 285 million (approximately US$ 15.5 million) bridge loan
facilities ("Loan 4") to meet immediate cash requirements at Kropz
Elandsfontein. A first draw down of ZAR 25 million (approximately US$ 1.4
million) on Loan 4 was made on 14 March 2023.
Loan 4 is unsecured, repayable on demand, with no fixed repayment terms and is
repayable by Kropz Elandsfontein on no less than two business days' notice.
Interest is payable on Loan 4 at the South African prime overdraft interest
rate plus 6%, nominal per annum and compounded monthly.
A second draw down on Loan 4 for an amount of ZAR 90 million was made on 28
March 2023, a third drawdown of ZAR 30 million was made on 25 April 2023 and a
fourth drawdown of ZAR 80 million was made on 23 June 2023.
This Strategic Report was approved by the Board of Directors.
Louis Loubser
Chief Executive Officer
28 July 2023
Consolidated Statement of Financial Position
As at 31 December 2022
31 December 31 December
2022 2021
Notes US$'000 US$'000
Non-current assets 68,965 135,099
Property, plant, equipment and mine development 4
Exploration assets 5 42,415 44,631
Right-of-use asset 6 - 7
Other financial assets 7 860 1,357
112,240 181,094
Current assets
Inventories 8 3,273 1,025
Trade and other receivables 9 1,857 1,511
Restricted cash 10 - 4,858
Cash and cash equivalents 11 2,120 2,461
7,250 9,855
119,490 190,949
TOTAL ASSETS
Current liabilities
Trade and other payables 18 7,284 3,543
Lease liabilities 15 - 7
Other financial liabilities 16 26,808 4,295
Current taxation 26 597 -
34,689 7,845
Non-current liabilities
Shareholder loans and derivative 14 55,102 25,043
Other financial liabilities 16 - 26,291
Provisions 17 2,697 4,033
57,799 55,367
92,488 63,212
TOTAL LIABILITIES
NET ASSETS 27,002 127,737
31 December 31 December
2022 2021
Notes US$'000 US$'000
Shareholders' equity
Share capital 12 1,212 1,194
Share premium 12 / 13 194,063 193,524
Merger reserve 12 / 13 (20,523) (20,523)
Foreign exchange translation reserve 13 (11,195) (7,807)
Share-based payment reserve 13 271 1,197
Accumulated losses (116,972) (45,626)
Total equity attributable to the owners of the Company 46,856 121,959
Non-controlling interests 33 (19,854) 5,778
27,002 127,737
The notes below form an integral part of these Consolidated Financial
Statements. The Financial Statements were approved and authorised for issue by
the Board of Directors and signed on its behalf by:
Louis Loubser
Chief Executive Officer
28 July 2023
Consolidated Statement of Comprehensive Income Year ended Year ended
For the year ended 31 December 2022 31 December 31 December
2022 2021
Notes US$'000 US$'000
Revenue - -
Other income 116 172
Operating expenses 22 (5,808) (6,503)
Operating loss (5,692) (6,331)
Finance income 21 136 480
Finance expense 24 (9,812) (7,391)
Fair value gain / (loss) from derivative liability 30 10,807 (4,792)
Impairment losses 25 (92,661) -
Loss on disposal of subsidiary - (224)
Loss before taxation (97,222) (18,258)
Taxation 26 (602) -
Loss after taxation (97,824) (18,258)
Loss profit attributable to:
Owners of the Company (66,639) (13,787)
Non-controlling interests (31,185) (4,471)
(97,824) (18,258)
Loss for the year (97,824) (18,258)
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
· Exchange differences on translating foreign operations (3,246) (11,184)
Total comprehensive loss (101,070) (29,442)
Attributable to:
Owners of the Company (70,027) (23,928)
Non-controlling interests (31,043) (5,514)
(101,070) (29,442)
Loss per share attributable to owners of the Company:
Basic and diluted (US cents) 27 (7.23) (1.80)
Consolidated Statement of Changes in Equity For the year ended 31 December
2022
Share capital Share premium Merger reserve Foreign currency translation reserve Share-based payment reserve Retained earnings Total Non-controlling interest Total
equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2021 706 168,212 (20,523) 2,334 385 (22,010) 129,104 5,729 134,833
Total comprehensive loss - - - (10,141) - (13,787) (23,928) (5,514) (29,442)
for the year
Issue of shares 488 25,312 - - - - 25,800 - 25,800
Disposal of subsidiary - - - - - - - 181 181
Extinguishment of derivative asset upon equity draw down - - - - - (4,447) (4,447) - (4,447)
Investment in non-redeemable preference shares of Kropz Elandsfontein - - - - - (5,382) (5,382) 5,382 -
Share based payment charges - - - - 812 - 812 - 812
Transactions with owners 488 25,312 - - 812 (9,829) 16,783 5,563 22,346
Balance at 31 December 2021 1,194 193,524 (20,523) (7,807) 1,197 (45,626) 121,959 5,778 127,737
Total comprehensive loss - - - (3,388) - (66,639) (70,027) (31,043) (101,070)
for the year
Issue of shares 18 539 - - - - 557 - 557
Share options exercised - - - - (694) 694 - - -
Share based payment credit - - - - (222) - (222) - (222)
Lapsed warrants (10) 10 - - -
Investment in non-redeemable preference shares of Kropz Elandsfontein - - - - - (5,411) (5,411) 5,411 -
Transactions with owners 18 539 - (926) (4,707) (5,076) 5,411 335
Balance at 31 December 2022 1,212 194,063 (20,523) (11,195) 271 (116,972) 46,856 (19,854) 27,002
Consolidated Statement of Cash Flows Year ended Year ended
For the year ended 31 December 2022 31 December 2022 31 December 2021
Notes
US$'000 US$'000
Cash flows from operating activities
Loss before taxation (97,222) (18,258)
Adjustments for:
Depreciation of property, plant and equipment 4 821 904
Amortisation of right-of-use assets 6 5 39
Impairment losses 25 92,661 -
Share-based payment (credit) / charge 12 (222) 812
Finance income 21 (136) (480)
Finance costs 24 6,496 3,267
Fair value (gain) / loss on derivative liability 30 (10,807) 4,792
Debt modification present value adjustment 24 (233) (258)
Foreign currency exchange differences 3,550 4,382
Fair value loss / (gain) on game animals 4 21 (51)
Operating cash flows before working capital changes (5,066) (4,851)
(Increase) / decrease in trade and other receivables 28 (471) 256
(Increase) / decrease in inventories 28 (3,453) (291)
(Decrease) / increase in trade and other payables 28 (172) 3,178
Net cash flows used in operating activities (9,162) (1,708)
Cash flows used in investing activities
Purchase of property, plant and equipment 4 (29,215) (38,553)
Exploration and evaluation expenditure 5 (346) (3,931)
Disposal of subsidiary - 5
Other financial asset 28 427 -
Finance income received 21 136 480
Transfer from restricted cash 10 4,727 2,497
Net cash flows used in investing activities (24,271) (39,502)
Cash flows from financing activities
Finance costs paid 24 (2,586) (2,028)
Shareholder loan received 14 38,727 8,037
Repayment of lease liabilities 15 (6) (39)
Other financial liabilities 28 (3,712) 54
Issue of ordinary share capital 12 557 25,800
Net cash flows from financing activities 32,980 31,824
(453) (9,386)
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year 2,461 11,572
Foreign currency exchange gains / (losses) on cash 112 275
Cash and cash equivalents at end of the year 2,120 2,461
Notes to the Consolidated Financial Statements for the year ended 31 December
2022
(1) General information
Kropz is an emerging plant nutrient producer and developer with an advanced
stage phosphate mining project in South Africa and an exploration phosphate
project in the Republic of Congo ("RoC"). The principal activity of the
Company is that of a holding company for the Group, as well as performing all
administrative, corporate finance, strategic and governance functions of the
Group.
The Company was incorporated on 10 January 2018 and is a public limited
company, with its ordinary shares admitted to the AIM Market of the London
Stock Exchange on 30 November 2018 trading under the symbol, "KRPZ". The
Company is domiciled in England and incorporated and registered in England and
Wales. The address of its registered office is 35 Verulam Road, Hitchin, SG5
1QE. The registered number of the Company is 11143400.
(2) Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
Consolidated Financial Statements are set out below. These policies have been
consistently applied unless otherwise stated.
(a) Basis of preparation
The Consolidated Financial Statements of the Company have been prepared in
prepared in accordance with UK adopted international accounting standards and
the Companies Act 2006 applicable to companies reporting under IFRS. The
Consolidated Financial Statements have been prepared under the historical cost
convention, as modified for any financial assets, financial liabilities and
game animals which are stated at fair value through profit or loss. The
Consolidated Financial Statements are presented in United States Dollars, the
presentation currency of the Company and figures have been rounded to the
nearest thousand.
Going concern
During the year ended 31 December 2022, the Group incurred a loss of US$ 97.8
million (2021: US$ 18.3 million) after impairment losses and experienced net
cash outflows from operating activities. Cash and cash equivalents totalled
US$ 2.1 million as at 31 December 2022 (2021: US$ 2.5 million).
Elandsfontein is currently the Group's only source of operating revenue. As
Elandsfontein is still busy ramping up its operations an operating loss is
therefore also expected in the year following the date of these accounts. The
Group is consequently dependent on future fundraisings to meet any production
costs, overheads, future development and exploration requirements and
quarterly repayments on the BNP loan that cannot be met from existing cash
resources and sales revenue.
The Company did not reach project completion as stipulated in the BNP facility
agreement by 31 December 2022. Considering the delay in achieving sales, the
Company also failed to fund the debt service reserve account as required. BNP
have, to date, waived these requirements, preventing the Company from falling
in default of its loan terms, by means of several waivers since December 2022
to 30 September 2023.
At the end of the waiver period, the bank has the contractual right to request
the immediate repayment of the outstanding loan amount of US$ 18,750,000.
Management is in the process of refinancing the loan and expects that a
replacement loan will be in place in the third quarter of 2023.
Operational cash flows and impairment loss
An impairment loss of US$ 92.7 million has been recognised as at 31 December
2022 in relation to the Elandsfontein mine based on the 5-year forecast and
the latest life of mine (LOM) plans following the downgrade of the resource
per an updated MRE as announced on 10 January 2023 and set out in the
Strategic report. Please refer to Note 25 for some key assumptions and
sensitivity analysis. The recoverable amount of the Elandsfontein mine was
estimated based on discounted cashflows expected to be generated from the
continued use of the cash generating unit (CGU) using market-based commodity
prices and exchange rate assumptions, estimated quantities of recoverable
minerals, production levels, operating costs and capital requirements and its
eventual disposal based on the CGU's 5 year and latest LOM plans. These
calculations include a number of estimates which if the actual outcome were
different could have a significant impact on the financial outcome of the
Elandsfontein mine operations and the Group's funding needs.
The going concern assessment was performed using the Group's 18-month
forecast. The Group's going concern and forecast cash flows are largely driven
by Elandsfontein, as the Group's only operating asset. Elandsfontein's
forecast cashflows are based on its updated mine plan, considering the
downgrade of the resource per an updated MRE as announced on 10 January 2023
and set out in the Strategic report and utilises the model which was used for
impairment purposes. Please refer to Note 25 for some key assumptions and
sensitivity analysis.
Elandsfontein's forecast cashflows were estimated using market-based commodity
prices, exchange rate assumptions, estimated quantities of recoverable
minerals, production levels, operating costs and capital requirements over an
18-month period. As with the impairment assessment, the going concern
assessment only considered Elandsfontein's resources defined as "measured" and
"indicated" per the updated MRE. The resource classified as "inferred" was not
considered part of the mine plan for purposes of the going concern and
impairment assessments.
The forecast cashflows include a number of estimates which if the actual
outcome were different could have a significant impact on the financial
outcome of the Elandsfontein mine operations and the Group's funding needs.
The 18-month forecast assumes the refinancing of the BNP loan facility in
September 2023.
The critical estimates in the LOM plan and forecast cashflows expected to be
generated are as follows:
· Phosphate rock prices and grade;
· Phosphate recoveries;
· Operating costs;
· Foreign exchange rates; and
· Discount rates.
The going concern assessment and forecast cashflows are highly sensitive to
these estimates.
Phosphate rock prices and grade: Forecast phosphate rock prices are based on
management's estimates of quality of production and selling price and are
derived from forward price curves and long-term views of global supply and
demand in a changing environment, particularly with respect to climate risk,
building on past experience of the industry and consistent with external
sources.
The first bulk shipment and sale of 33,000 tonnes of phosphate concentrate
from Kropz Elandsfontein occurred in January 2023. A second shipment and sale
of 20,000 tonnes of phosphate concentrate from Kropz Elandsfontein was
recorded 14 March 2023. During April 2023 two bulk sales were achieved of
33,000 tonnes and 11,000 tonnes respectively. A further sale of 33,000 tonnes
was recorded in June 2023.
Kropz is a new entrant to the phosphate market and has to date sold its
shipments at a discount to market prices as it firstly establishes itself in
the market and secondly works to improve its product grade.
In relation to pricing the most significant judgement in the LOM plan and
cashflow forecast is that Kropz will be able to obtain the market price for
its 31% P(2)O(5) phosphate concentrate for all shipments from beginning of
2024. The cashflow model assumes a discount to the prevailing market price
for 31% P(2)O(5) phosphate concentrate for the period up to April 2023 largely
due to variability in the grade of Elandsfontein's product being produced
during its ramp-up phase and considering that Elandsfontein is a new market
entrant. The ability to achieve market rates on sales is largely dependent
on Elandsfontein's ability to consistently produce 31% P(2)O(5) concentrate.
Failing this, the Group may continue to suffer a discount to market rates.
Estimated phosphate rock prices that have been used to estimate future
revenues in the LOM are as follows:
Long term (2025+)
Assumptions 2023 2024
Phosphate rock per tonne $140 $159 $164
Phosphate recoveries: The production volumes incorporated into the LOM model
were 2.8 million tonnes of phosphate rock. Estimated production volumes are
based on detailed LOM plans of the measured and indicated resource as defined
in the MRE, and take into account development plans for the mine agreed by
management as part of the long-term planning process. Production volumes are
dependent on a number of variables, such as: the recoverable quantities; the
production profile; the cost of the development of the infrastructure
necessary to extract the reserves; the production costs; the contractual
duration of mining rights; and the selling price of the commodities extracted.
Estimated production volumes have been used to estimate future revenues. Such
estimates made within the impairment assessment are subject to significant
uncertainty given the ongoing ramp up, and production volumes achieved
subsequent to the year end have been lower than expected.
There was a delay in ramp-up largely driven by the need to re-engineer parts
of the fine flotation circuit proposed by the vendor, but it has also been
affected by early unpredicted ore variability and lack of operator experience.
Mining rates and associated delivery of ore to the plant were also compromised
due to the presence of competent banks of hard material within the orebody,
that were previously unknown. This hardbank material could, at the time, not
be mined with the available equipment on site, resulting in mining delays
while the required equipment for mechanical breaking could be brought to site.
Subsequently the vendor has provided design changes which were implemented at
the plant, additional operator training was conducted and a mobile crusher
implemented in the interim to facilitate the crushing of the affected ore to
an appropriate size fraction until further test work has been conducted for a
permanent solution. Several alternatives to deal with the indurated material
in the pit were investigated, and new equipment has arrived on site to improve
the mining efficiency and facilitate adequate feed to the plant.
Post year-end, Elandsfontein has produced 100,000 tonnes from January 2023 to
June 2023. Given the slower actual ramp-up compared to the LOM plan, the
forecast cashflow assumes that production will ramp up to an average of 34,000
tonnes per month in 2H 2023. With the ramp-up of the Elandsfontein mine
still underway and the challenges experienced to date, it is uncertain whether
these production volumes will be achieved.
Reserves and resources: The LOM plan includes only the measured and indicated
resources as defined in the MRE which represents only around 4 years of
forecast production. There was a significant reduction in the measured and
indicated resource in the MRE issued in December 2022 as set out in the
Strategic report. The Directors believe that the inferred resources in the
MRE are capable of being accessed giving a mine life of around 15 years, but
this has not been taken into account in the discounted cashflows.
Exchange rates: Foreign exchange rates are estimated with reference to
external market forecasts. The assumed long-term US dollar/ZAR exchange rate
over LOM is estimated to be ZAR19/USD and for the forecast cashflows to be
ZAR18.50/USD.
Operating cost: Operating costs are estimated with reference to contractual
and actual current costs adjusted for inflation. Key operating cost
estimates are mine and plant operating costs and transportation and port
costs.
Mine and plant operating costs: The forecast mine and plant costs were based
on the contracted rates with the current mine and plant operators.
Port costs: The Group has a draft port access agreement with Transnet for
Saldanha port but this has not yet been signed. The Group has paid guest port
charges for Saldanha for the shipments in 2023 to date, which are higher than
the assumed port cost in the LOM model but in line with the draft agreement
with Transnet.
Transportation costs: Transnet has informed the Group that it may have to
export some shipments through Cape Town in 2023 and 2024 which would lead of
higher transportation cost to Cape Town. The transportation costs in the
discounted cashflows assume that 10% of 2023 and 2024 shipments are through
Cape Town at the higher logistic cost.
As production is still ramping up and the port access agreement with Transnet
has not yet been signed, the actual operating costs may be higher than the
estimates in the discounted cash flows.
Discount rates: A discount rate of 12.59% was applied to the discounted cash
flows used in the LOM plan. This discount rate is derived from the Group's
post-tax weighted average cost of capital (WACC), with appropriate adjustments
made to reflect the risks specific to the CGU and to determine the pre-tax
rate. The WACC takes into account both debt and equity. The cost of equity is
derived from the expected return on investment by the Group's investors. The
cost of debt is based on its interest-bearing borrowings the Group is obliged
to service. Specific risk is incorporated by applying beta factors. The beta
factors are evaluated annually based on publicly available market data.
There is a risk that revenue is lower and operating costs are higher than the
estimates included in the discounted cashflows with the result that the
recoverable amount from the Elandsfontein mine is lower than the discounted
cashflows. Please also see Note 25 Impairment losses for sensitivity
analysis.
Funding
The Group is consequently dependent on future fundraisings to meet any
production costs, overheads, future development and exploration requirements
and quarterly repayments on the BNP loan that cannot be met from existing cash
resources and sales revenue.
ARC Fund, on various occasions in the past provided funding to support the
Group's operations. In May 2022, Kropz secured a further ZAR equity facility
of up to ZAR 177 million from ARC Fund to be used exclusively for the purposes
of bringing the Elandsfontein project to first revenues, given a slower
ramp-up in operations than originally envisaged. More recently, as announced
on 14 March 2023, Kropz, Kropz Elandsfontein and the ARC Fund agreed to
further ZAR 285 million (approximately US$ 15.5 million) bridge loan
facilities to meet immediate cash requirements at Kropz Elandsfontein. A first
draw down of ZAR 25 million (approximately US$ 1.4 million) on this was made
on 14 March 2023. The loan is unsecured, repayable on demand, with no fixed
repayment terms and is repayable by Kropz Elandsfontein on no less than two
business days' notice. Interest is payable at the South African prime
overdraft interest rate plus 6%, nominal per annum and compounded monthly. A
second draw down for an amount of ZAR 90 million was made on 28 March 2023 and
a third drawdown of ZAR 30 million was made on 25 April 2023. A fourth
drawdown of ZAR 80 million was made on 23 June 2023 for Kropz Elandsfontein to
be able to service its quarterly payment of interest and capital to BNP
Paribas. ZAR 60 million remains undrawn at the date of this report. Given
that BNP Paribas is exiting South Africa, the Group was unable to refinance
the existing loan with them. Considering their position, BNP has been
supportive of the refinancing strategy and has waived the requirement on the
Company to reach project completion at Elandsfontein as well as to fund the
debt service reserve account consecutively since December 2022 to 30 September
2023. Kropz Elandsfontein has made all the capital and interest payments to
BNP as required to the date of this report.
A further funding shortfall is expected in the year subsequent to the date of
these accounts and as a result the Group will need to raise funding to provide
additional working capital to finance its ongoing activities.
Management has successfully raised money in the past from its supportive major
shareholder, but there is no guarantee that adequate funds will be available
if needed in the future. Management has confirmed with ARC and have sufficient
comfort that they have no intention to call any outstanding loans over the
next 12-months for cash repayment. Management engages frequently with BNP
regarding the capital repayment and refinancing of the BNP debt facility.
Significant progress has been made with the refinancing of the BNP loan
facility and Management, at the date of this report, are in advance
discussions with several investors to provide the required funding to repay
the BNP debt facility.
Going concern basis
Based on the Group's current available reserves, recent operational
performance, forecast production and sales coupled with Management's track
record to successfully raise additional funds as and when required, to meet
its working capital and capital expenditure requirements, the Board have
concluded that they have a reasonable expectation that the Group will continue
in operational existence for the foreseeable future and at least to December
2024.
For these reasons, the financial statements have been prepared on the going
concern basis, which contemplates the continuity of normal business activities
and the realisation of assets and discharge of liabilities in the normal
course of business.
As there can be no guarantee that the required future funding can be raised in
the necessary timeframe, a material uncertainty exists that may cast
significant doubt on the Group's ability to continue as a going concern and
therefore it may be unable to realise its assets and discharge its liabilities
in the normal course of business.
The financial report does not include adjustments relating to the
recoverability and classification of recorded asset amounts or to the amounts
and classification of liabilities that might be necessary should the Group not
continue as a going concern.
Functional and presentational currencies
The Consolidated Financial Statements are presented in US Dollars.
The functional currency of Kropz plc is Pounds Sterling and its presentation
currency is US Dollars, due to the fact that US Dollars is the recognised
reporting currency for most listed mining resource companies on AIM.
The functional currency of Kropz SA and its subsidiaries (as shown below) is
South African Rand, being the currency in which the majority of the companies'
transactions are denominated.
The functional currencies of Cominco Resources and its subsidiaries are Euros,
Pounds Sterling and Central African Francs being the currency in which the
majority of the companies' transactions are denominated. Its presentation
currency is US Dollars.
The functional and presentation currency of First Gear was US Dollars.
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency are recorded at the
rate of exchange prevailing on the date of the transaction.
At the end of each financial year, monetary items denominated in foreign
currencies are retranslated at the rates prevailing as of the end of the
financial year. Non-monetary items carried at fair value that are denominated
in foreign currencies are retranslated at the rates prevailing on the date
when the fair value was determined. Non-monetary items that are measured in
terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on
retranslation of monetary items are included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items
carried at fair value are included in profit or loss for the period except for
differences arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity. For such
non-monetary items, any exchange component of that gain or loss is also
recognised directly in equity.
In order to satisfy the requirements of IAS 21 with respect to presentation
currency, the consolidated financial statements have been translated into US
Dollars using the procedures outlined below:
· Assets and liabilities where the functional currency is other than
US Dollars were translated into US Dollars at the relevant closing rates of
exchange;
· Non-US Dollar trading results were translated into US Dollars at
the relevant average rates of exchange;
· Differences arising from the retranslation of the opening net
assets and the results for the period have been taken to the foreign currency
translation reserve; and
· Share capital has been translated at the historical rates
prevailing at the dates of transactions; and
· Exchange differences arising on the net investment in subsidiaries
are recognised in other comprehensive income.
Changes in accounting policies
(i) New standards, interpretations and amendments adopted from 1
January 2022
The following amendments are effective for the period beginning 1 January
2022:
· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37);
· Property, Plant and Equipment; Proceeds before Intended use
(Amendments to IAS 16);
· Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS
1, IFRS 9, IFRS 16 and IAS 41); and
· References to Conceptual Framework (Amendments to IFRS 3).
The Group has considered the above new standards and amendments and has
concluded that, with the exception of IAS 16 which is relevant to the Group as
it generated sales, they are either not relevant to the Group or they do not
have a significant impact on the Group's consolidated financial statements.
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS
16)
The amendment to IAS 16 prohibits an entity from deducting from the cost of an
item of PP&E any proceeds received from selling items produced while the
entity is preparing the asset for its intended use (for example, the proceeds
from selling samples produced during the testing phase of a plant after it is
being constructed but before start of commercial production). The proceeds
from selling such samples, together with the costs of producing them, were
recognised in profit or loss as other income in accordance with the amended
standard.
(ii) New standards, interpretations and amendments not yet
effective
At the date of authorisation of these consolidated Group financial statements,
the following standards and interpretations, which have not been applied in
these financial statements, were in issue but not yet effective. Management
are currently assessing the impact of these new standards on the Group. With
the exception of IAS 1 presentation of financial statements (amendment -
classification of liabilities as current or non-current), the Group does not
believe that the amendments will have a significant impact.
The following amendments are effective for the period beginning 1 January
2023:
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2);
· Definition of Accounting Estimates (Amendments to IAS 8); and
· Deferred Tax Related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The following amendments are effective for the period beginning 1 January
2024:
· IFRS 16 Leases (Amendment - Liability in a Sale and Leaseback);
· IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-current); and
· IAS 1 Presentation of Financial Statements (Amendment - Non-current
Liabilities with Covenants).
On implementation of IAS 1 presentation of financial statements (amendment -
classification of liabilities as current or non-current), the Group will
present its convertible loan liabilities as current liabilities as opposed to
non-current liabilities which is the presentation in these financial
statements.
(b) Basis of consolidation
The Consolidated Financial Statements comprise the financial statements of the
subsidiaries listed in Note 3.
A subsidiary is defined as an entity over which the Group has control. The
Group controls an entity when the Group 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. Specifically, the
Group controls an investee if, and only if, the Group has all of the
following:
a) Power over the investee (i.e. existing rights that give it the current
ability to direct the relevant activities of the investee);
b) Exposure, or rights, to variable returns from its involvement with the
investee; and
c) The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights results in
control. When the Group has less than a majority of the voting, or similar,
rights of an investee, it considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
· The contractual arrangements with the other vote holders of the
investee;
· Rights arising from other contractual arrangements; and
· The Group's voting rights and potential voting rights.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases.
Intra-group transactions, balances and unrealised gains on transactions are
eliminated; unrealised losses are also eliminated unless cost cannot be
recovered. Where necessary, adjustments are made to the financial statements
of subsidiaries to ensure consistency of accounting policies with those of the
Group.
The total comprehensive income of non-wholly owned subsidiaries is attributed
to owners of the parent and to the non-controlling interests in proportion to
their relative ownership interests.
Accounting for asset acquisition within a corporate structure
Acquisitions of mineral assets through acquisition of non-operational
corporate structures that do not represent a business, and therefore do not
meet the definition of a business combination, are accounted for as the
acquisition of an asset and recognised at the fair value of the consideration.
Non-controlling interests
The Group initially recognised any non-controlling interest in the acquiree at
the non-controlling interest's proportionate share of the acquiree's net
assets. The total comprehensive income of non-wholly owned subsidiaries is
attributed to owners of the parent and to the non-controlling interests in
proportion to their relative ownership interests. The benefit accruing to the
non-controlling interests arising from their proportionate share of the
portion of the non-redeemable and non-participating preference share
investment by Kropz plc into Kropz Elandsfontein is attributed to the
non-controlling interests in proportion to their relative ownership interests.
Merger relief
The issue of shares by the Company is accounted for at the fair value of the
consideration received. Any excess over the nominal value of the shares issued
is credited to the share premium account other than in a business combination
where the consideration for shares in another company includes the issue of
shares, and on completion of the transaction, the Company has secured at least
a 90% equity holding in the other company. In such circumstances the credit is
applied to the merger relief reserve. In the case of the Company's acquisition
of Cominco Resources, where shares were acquired on a share for share basis,
then merger relief has been applied to those shares issued in exchange for
shares in Cominco Resources.
(c) Property, plant, equipment and mine development
Property, plant, equipment and mine development includes buildings and
infrastructure, machinery, plant and equipment, site preparation and
development and essential spare parts that are held to minimise delays arising
from plant breakdowns, that are expected to be used during more than one
period.
Assets that are in the process of being constructed are measured at cost less
accumulated impairment and are not depreciated. All other classes of property,
plant and equipment are stated at historical cost less accumulated
depreciation and accumulated impairment. Land is depreciated over the life of
the mine.
Historical cost includes expenditure that is directly attributable to the
acquisition of the items, including:
· The estimated costs of decommissioning the assets and site
rehabilitation costs to the extent that they related to the asset;
· Capitalised borrowing costs;
· Capitalised pre-production expenditure; and
· Topsoil and overburden stripping costs.
The cost of items of property, plant and equipment are capitalised into its
various components where the useful life of the components differs from the
main item of property, plant and equipment to which the component can be
logically assigned. Expenditure incurred to replace a significant component
of property, plant and equipment is capitalised and any remaining carrying
value of the component replaced is written off as an expense in the income
statement.
Direct costs incurred on major projects during the period of development or
construction are capitalised. Subsequent expenditure on property, plant and
equipment is capitalised only when the expenditure enhances the value or
output of the asset beyond original expectations, it is probable that future
economic benefits associated with the item will flow to the entity and the
cost of the item can be measured reliably. Costs incurred on repairing and
maintaining assets are recognised in the income statement in the period in
which they are incurred.
Gains and losses on disposals are determined by comparing proceeds with
carrying amount. These are included in profit or loss.
Depreciation
All items of property, plant and equipment are depreciated on either a
straight-line method or unit of production method at cost less estimated
residual values over their useful lives as follows:
Item Depreciation method Average useful life
Buildings and infrastructure
Buildings Units of production Life of mine*
Roads Straight-line 15 years
Electrical sub-station Straight-line 15 years
Machinery, Plant and Equipment
Fixed plant and equipment Units of production Life of mine*
Water treatment plant Units of production Life of mine*
Critical spare parts Straight-line 2-15 years
Furniture and fittings Straight-line 6 years
Motor vehicles Straight-line 5 years
Computer equipment Straight-line 3 years
Mineral exploration site preparation Units of production Life of mine*
Stripping activity Units of production Life of mine*
* Depreciation of mining assets is computed principally by the
units-of-production method over life-of-identified ore based on estimated
quantities of economically recoverable proved and probable reserves, which can
be recovered in future from known mineral deposits.
Useful lives and residual values
The asset's useful lives and residual values are reviewed and adjusted if
appropriate, at each reporting date.
Stripping activity asset
The costs of stripping activity which provides a benefit in the form of
improved access to ore is capitalised as a non-current asset until ore is
exposed where the following criteria are met:
· it is probable that future economic benefit in the form of
improved access to the ore body will flow to the entity;
· the component of the ore body for which access has been improved
can be identified; and
· the cost of the stripping activity can be reliably measured.
The stripping activity is initially measured at cost and subsequently carried
at cost less depreciation and impairment losses.
(d) Mineral exploration and evaluation costs
All costs incurred prior to obtaining the legal right to undertake exploration
and evaluation activities on a project are written off as incurred. Following
the granting of a prospecting right, general administration and overhead costs
directly attributable to exploration and evaluation activities are expensed
and all other costs are capitalised and recorded at cost on initial
recognition.
The following expenditures are included in the initial and subsequent
measurement of the exploration and evaluation assets:
· Acquisition of rights to explore;
· Topographical, geological, geochemical or geographical studies;
· Exploratory drilling;
· Trenching;
· Sampling;
· Activities in relation to the evaluation of both the technical
feasibility and the commercial viability of extracting minerals;
· Exploration staff related costs; and
· Equipment and infrastructure.
Exploration and evaluation costs that have been capitalised are classified as
either tangible or intangible according to the nature of the assets acquired
and this classification is consistently applied.
If commercial reserves are developed, the related deferred exploration and
evaluation costs are then reclassified as development and production assets
within property, plant and equipment.
All capitalised exploration and evaluation expenditure is monitored for
indications of impairment in accordance with IFRS 6.
(e) Leases
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for:
· Leases of low value assets; and
· Leases with a duration of 12 months or less.
Identifying Leases
The Group accounts for a contract, or a portion of a contract, as a lease when
it conveys the right to use an asset for a period of time in exchange for
consideration. Leases are those contracts that satisfy the following criteria:
(a) There is an identified asset;
(b) The Group obtains substantially all the economic benefits from use of the
asset; and
(c) The Group has the right to direct use of the asset.
The Group considers whether the supplier has substantive substitution rights.
If the supplier does have those rights, the contract is not identified as
giving rise to a lease.
In determining whether the Group obtains substantially all the economic
benefits from use of the asset, the Group considers only the economic benefits
that arise from use of the asset, not those incidental to legal ownership or
other potential benefits.
In determining whether the Group has the right to direct use of the asset, the
Group considers whether it directs how and for what purpose the asset is used
throughout the period of use. If there are no significant decisions to be made
because they are pre-determined due to the nature of the asset, the Group
considers whether it was involved in the design of the asset in a way that
predetermines how and for what purpose the asset will be used throughout the
period of use. If the contract or portion of a contract does not satisfy these
criteria, the Group applies other applicable IFRSs rather than IFRS 16.
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless (as is
typically the case) this is not readily determinable, in which case the
Group's incremental borrowing rate on commencement of the lease is used.
The discount rate is the rate implicit in the lease, if readily determinable.
If not, the Company's incremental borrowing rate is used which the Company has
assessed to be 7.22%, being an average SOFR plus 3%, being an appropriate
level of risk to the risk-free rate of borrowing.
Variable lease payments are only included in the measurement of the lease
liability if they depend on an index or rate. In such cases, the initial
measurement of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments are
expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also
includes:
· amounts expected to be payable under any residual value guarantee;
· the exercise price of any purchase option granted in favour of the
Group if it is reasonably certain to assess that option; and
· any penalties payable for terminating the lease, if the term of the
lease has been estimated on the basis of termination option being exercised.
Right of use assets are initially measured at the amount of the lease
liability, reduced for any lease incentives received, and increased for:
· lease payments made at or before commencement of the lease;
· initial direct costs incurred; and
· the amount of any provision recognised where the Group is
contractually required to dismantle, remove or restore the leased asset
(typically leasehold dilapidations).
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortised on a
straight-line basis over the remaining term of the lease or over the remaining
economic life of the asset if, rarely, this is judged to be shorter than the
lease term.
When the Group revises its estimate of the term of any lease (because, for
example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability
to reflect the payments to make over the revised term, which are discounted at
the same discount rate that applied on lease commencement. The carrying
value of lease liabilities is similarly revised when the variable element of
future lease payments dependent on a rate or index is revised. In both cases
an equivalent adjustment is made to the carrying value of the right-of-use
asset, with the revised carrying amount being amortised over the remaining
(revised) lease term.
(f) Game animals
Game animals are wild animals that occur on the farm properties owned by the
Group. The animals are owned by Elandsfontein Land Holdings and held within
the approximately 5,000 hectares of farmland owned by Elandsfontein Land
Holdings. The property is appropriately fenced with game specific fencing.
These animals are managed in terms of a game management plan and excess
animals are either sold as live animals or harvested as and when required
based on estimated stocking levels and vegetation conditions. Law in South
Africa specifies that wild animals are the property of the owner of the land
that they occupy.
Game animals are measured at their fair value less estimated point-of-sale
costs, fair value being determined upon the age and size of the animals and
relevant market prices. Market price is determined on the basis that the
animal is either to be sold to be slaughtered or realised through sale to
customers at fair market value.
Fair market value of game animals is determined by using average live game
animal selling prices achieved at live game animal auctions during the
relevant year and published from time to time on game animal auctioneering
websites.
(g) Financial instruments
Classification and measurement
The Group classifies its financial instruments into the following
categories:
· Financial assets measured at amortised cost;
· Financial assets measured at fair value through profit and loss;
· Financial liabilities measured at amortised cost; and
· Derivative financial instruments accounted for at fair value
through profit and loss.
Classification of financial assets depends on the business model for
managing the financial assets and the contractual terms of the cash flows.
Management determines the classification of financial assets at initial
recognition. Generally, the Group does not acquire financial assets for the
purpose of selling in the short term. The Group's business model is primarily
that of "hold to collect" (where assets are held in order to collect
contractual cash flows).
Financial assets held at amortised cost
This classification applies to debt instruments which are held under a hold
to collect business model and which have cash flows that meet the "solely
payments of principal and interest" ("SPPI") criteria.
At initial recognition, trade and other receivables that do not have a
significant financing component are recognised at their transaction price.
Other financial assets are initially recognised at fair value plus related
transaction costs. They are subsequently measured at amortised cost using the
effective interest method. Any gain or loss on de-recognition or modification
of a financial asset held at amortised cost is recognised in the income
statement.
Financial assets and liabilities held at fair value through profit or loss
Financial assets and liabilities at fair value through profit or loss are
carried in the statement of financial position at fair value with net changes
in fair value recognised in the statement of profit or loss. Assets and
liabilities in this category are classified as current if they are expected to
be settled within twelve months, otherwise they are classified as non-current.
Call options in the Company's own equity are recorded at fair value and change
in fair value recorded through income statement.
Undrawn facilities with a conversion option, for which the terms give rise to
a derivative, are revalued for changes in the share price prior to draw down
with a resulting loss for revaluation booked to Profit and Loss and the
remaining receivable extinguished through equity based on the relative draw
down percentage of undrawn facilities at each reporting period.
Impairment of financial assets
A forward-looking expected credit loss ("ECL") review is required for debt
instruments measured at amortised cost or held at fair value through other
comprehensive income, financial guarantees not measured at fair value through
profit or loss and other receivables that give rise to an unconditional right
to consideration.
As permitted by IFRS 9, the Group applies the "simplified approach" to trade
receivables, contract assets and lease receivables and the "general approach"
to all other financial assets. The general approach incorporates a review for
any significant increase in counterparty credit risk since inception. The ECL
reviews include assumptions about the risk of default and expected loss rates.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
These are classified as financial assets at amortised cost.
Trade and other payables
Trade and other payables are classified as financial liabilities at
amortised cost.
Interest bearing borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption
value is recognised in the income statement over the period of the borrowings
using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as
transaction costs of the loan to the extent that it is probable that some or
all of the facility will be drawn down. In this case, the fee is deferred
until the draw down occurs. To the extent there is no evidence that it is
probable that some or all of the facility will be drawn down, the fee is
capitalised as a pre-payment for liquidity services and amortised over the
period of the facility to which it relates.
Modification of debt instruments
When the contractual terms of a financial liability are substantially
modified, it is accounted for as an extinguishment of the original debt
instrument and the recognition of a new financial liability. The new debt
instrument is recorded at fair value and any difference from the carrying
amount of the extinguished liability, including any non-cash consideration
transferred, is recorded in profit or loss. Any costs or fees incurred are
generally included in profit or loss, too.
If a modification to the terms of a financial liability is not substantial,
then the amortised cost of the liability is recalculated as the present value
of the estimated future contractual cash flows, discounted at the original
effective interest rate. The resulting gains or losses are recognised in
profit or loss. Any costs or fees incurred adjust the carrying amount of the
modified financial liability and are amortised over its term. The periodic
re-estimation of cash flows to reflect movements in market rates of interest
will change the effective interest rate of a floating-rate financial
liability.
To determine whether a modification of terms is substantial, the Company
performs a quantitative assessment. If the difference in the present values of
the cash flows is less than 10 percent, then the Company performs a
qualitative assessment to identify substantial differences in terms that by
their nature are not captured by the quantitative assessment. Performing a
qualitative assessment may require a high degree of judgement based on the
facts and circumstances.
(h) Taxation
Current tax assets and liabilities
Current tax for current and prior periods is, to the extent unpaid, recognised
as a liability. If the amount already paid in respect of current and prior
periods exceeds the amount due for those periods, the excess is recognised as
an asset.
Deferred tax assets and liabilities
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date.
A deferred tax liability is recognised for all taxable temporary differences,
except to the extent that the deferred tax liability arises from the initial
recognition of an asset or liability in a transaction which at the time of the
transaction, affects neither accounting profit nor taxable profit and
differences relating to investments in subsidiaries to the extent they are
controlled and probably will not reverse in the foreseeable future.
A deferred tax asset is recognised for all deductible temporary differences to
the extent that it is probable that taxable profit will be available against
which the deductible temporary difference can be utilised. A deferred tax
asset is not recognised when it arises from the initial recognition of an
asset or liability in a transaction at the time of the transaction, affects
neither accounting profit nor taxable profit.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if a legally
enforceable right exists to set off current tax assets against current income
tax liabilities and the deferred taxes relate to the same taxable entity and
the same taxation authority.
Tax expense
Tax expense is recognised in the same component of total comprehensive income
(i.e. continuing operations, discontinued operations, or other comprehensive
income) or equity as the transaction or other event that resulted in the tax
expense.
(s) Impairment of non-financial assets
The Group assesses at each reporting date whether there is any indication that
an asset may be impaired. If any such indication exists, the Group estimates
the recoverable amount of the asset.
If there is any indication that an asset may be impaired, the recoverable
amount is estimated for the individual asset. If it is not possible to
estimate the recoverable amount of the individual asset, the recoverable
amount of the cash-generating unit to which the asset belongs is determined.
The recoverable amount of an asset or a cash-generating unit ('CGU') is the
higher of its fair value less costs to of disposal ('FVLCD') and its value in
use ('VIU').
If the recoverable amount of an asset is less than its carrying amount, the
carrying amount of the asset is reduced to its recoverable amount. That
reduction is an impairment loss.
An impairment loss, of assets carried at cost less any accumulated
depreciation or amortisation, is recognised immediately in profit or loss.
The increased carrying amount of an asset other than goodwill attributable to
a reversal of an impairment loss does not exceed the carrying amount that
would have been determined had no impairment loss been recognised for the
asset in prior periods.
A reversal of an impairment loss of assets carried at cost less accumulated
depreciation or amortisation other than goodwill is recognised immediately in
profit or loss. Any reversal of an impairment loss of a revalued asset is
treated as a revaluation increase.
(j) Inventories
Inventories are measured at the lower of cost and net realisable value.
Plant spares and consumables stores are capitalised to the balance sheet and
expensed to the income statement as they are utilised.
Spares and consumables are valued at the lower of cost and net realisable
value. Cost is determined using the weighted average method.
Obsolete, redundant and slow-moving items of spares and consumables are
identified on a regular basis and written down to their net realisable value.
Inventories are included in current assets, unless the inventory will not be
used within 12 months after the end of the reporting period.
(k) Provisions and contingencies
Environmental rehabilitation
The provision for environmental rehabilitation is recognised as and when an
obligation to incur rehabilitation and mine closure costs arises from
environmental disturbance caused by the development or ongoing production of a
mining property. Estimated long-term environmental rehabilitation provisions
are measured based on the Group's environmental policy taking into account
current technological, environmental and regulatory requirements. Any
subsequent changes to the carrying amount of the provision resulting from
changes to the assumptions as to the timing of the rehabilitation applied in
estimating the obligation are recognised in property, plant and equipment.
The provisions are based on the net present value of the estimated cost of
restoring the environmental disturbance that has occurred up to the reporting
date, using the risk-free rate and the risk adjusted cash flows that reflect
current market assessments and the risks specific to the provisions.
Increases due to the additional environmental disturbances are capitalised and
amortised over the remaining life of the mine.
Decommissioning provision
The estimated present value of costs relating to the future decommissioning of
plant or other site preparation work, taking into account current
environmental and regulatory requirements, is capitalised as part of property,
plant and equipment, to the extent that it relates to the construction of an
asset, and the related provisions are raised in the statement of financial
position, as soon as the obligation to incur such costs arises.
These estimates are reviewed at least annually and changes in the measurement
of the provision that result from the subsequent changes in the timing of
costs and the risk-free rate, are added to, or deducted from, the cost of the
related asset in the current period. Other changes are charged to profit or
loss. If a decrease in the liability exceeds the carrying amount of the asset,
the excess is recognised immediately in the income statement. If the asset
value is increased and there is an indication that the revised carrying value
is not recoverable, an impairment test is performed in accordance with the
accounting policy on impairment of non-financial assets above.
(l) Share capital and equity
Ordinary shares are classified as equity and are recorded at the proceeds
received net of issue costs.
(m) Convertible debt
The proceeds received on issue of the Group's convertible debt which fail the
fixed-for-fixed criterion under IFRS are allocated into their liability and
derivative liability components. The derivative liability is measured at fair
value with subsequent changes recognised in profit or loss The debt component
is accounted for as a financial liability measured at amortised cost until
extinguished on conversion or maturity of the debt.
(n) Borrowing costs
Interest on borrowings directly related to the financing of qualifying
capital projects under development is added to the capitalised cost of those
projects during the development phase, until such time as the assets are
substantially ready for their intended use or sale which, in the case of
mining properties, is when they are capable of commercial production. Where
funds have been borrowed specifically to finance the project, the amount
capitalised represents the actual borrowing costs incurred. Where the funds
used to finance a project forming part of general borrowings, the amount
capitalised is calculated using a weighted average of rates applicable to
relevant general borrowings of the Group during the period.
Qualifying assets are assets that necessarily take a substantial period of
time (more than 12 months) to get ready for their intended use or sale.
Borrowing costs are added to the cost of these assets, until the assets are
substantially ready for their intended use or sale.
Capitalisation is suspended during extended periods in which active
development is interrupted.
Capitalisation ceases when substantially all the activities necessary to
prepare the qualifying asset for its intended use or sale are complete.
All other borrowing costs are recognised in the income statement in the period
in which they are incurred.
(o) Employee benefits
The cost of short-term employee benefits, such as leave pay and sick leave,
bonuses, and non-monetary benefits such as medical care, are recognised in
the period in which the service is rendered and are not discounted.
(p) Intangible assets
All intangible assets are stated at cost less accumulated amortisation and any
accumulated impairment losses.
(q) Finance income
Interest income is recognised as other income on an accruals basis based on
the effective yield on the investment.
(r) Share-based payment arrangements
Equity-settled share-based payments to employees are measured at the fair
value of the equity instruments at the grant date. Equity-settled share based
payments to non-employees are measured at the fair value of services received,
or if this cannot be measured, at the fair value of the equity instruments
granted at the date that the Group obtains the goods or counterparty renders
the service.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based
on the Group's estimate of equity instruments that will eventually vest, with
a corresponding increase in equity.
Where there are no vesting conditions, the expense and equity reserve arising
from share-based payment transactions is recognised in full immediately on
grant.
At the end of each reporting period, the Group revises its estimate of the
number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to other reserves.
Details regarding the determination of the fair value of equity-settled
share-based transactions are set out in the Directors' Report and Note 12 to
the Consolidated Financial Statements.
(s) Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS requires
management, from time to time, to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets,
liabilities, income and expenses. These estimates and associated assumptions
are based on experience and various other factors that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in which
the estimates are revised and in any future periods affected.
The critical judgements made by management in applying accounting policies,
apart from those involving estimations, that have the most significant effect
on the amounts recognised in the financial statements, are outlined as
follows:
(i) Exploration and evaluation assets (Note 5)
The application of the Group's accounting policy for exploration and
evaluation assets requires judgement in determining whether it is likely that
costs incurred will be recovered through successful development or sale of the
asset under review when assessing impairment. Estimates and assumptions made
may change if new information becomes available. If, after expenditures are
capitalised, information becomes available suggesting that the recovery of
expenditures is unlikely, the amount capitalised is written off in the net
profit or loss in the period when the new information becomes available. In
situations where indicators of impairment are present for the Group's
exploration and evaluation assets, estimates of recoverable amount must be
determined as the higher of the estimated VIU or the estimated FVLCD.
(ii) Functional currency
The Group transacts in multiple currencies. The assessment of the functional
currency of each entity within the consolidated Group involves the use of
judgement in determining the primary economic environment each entity operates
in. The Group first considers the currency that mainly influences sales prices
for goods and services, and the currency that mainly influences labour,
material and other costs of providing goods or services. In determining
functional currency, the Group also considers the currency from which funds
from financing activities are generated, and the currency in which receipts
from operating activities are usually retained. See Note 31 for sensitivity
analysis of foreign exchange risk.
(iii) Decommissioning and rehabilitation provisions (Note 17)
Quantifying the future costs of these obligations is complex and requires
various estimates and judgements to be made, as well as interpretations of and
decisions regarding regulatory requirements, particularly with respect to the
degree of rehabilitation required, with reference to the sensitivity of the
environmental area surrounding the sites. Consequently, the guidelines issued
for quantifying the future rehabilitation cost of a site, as issued by the
South African Department of Mineral Resources, have been used to estimate
future rehabilitation costs. The Group appointed Braaf Environmental
Practitioners to conduct an independent specialist update of the
decommissioning and rehabilitation provision.
(iv) Other financial assets
The Group has given guarantees to a number of third parties as described in
Note 7 and lodged funds as security.
The amounts are recoverable subject to satisfactory performance of certain
conditions which requires judgement as to the likelihood of the return of such
guarantees. At the balance sheet date the Directors make judgements on the
amounts expected to be returned and consider that all amounts are recoverable.
(v) Taxation
Judgement is required in determining the provision for income taxes due to the
complexity of legislation. There are many transactions and calculations for
which the ultimate tax determination is uncertain during the ordinary course
of business.
The Group recognises the net future tax benefit related to deferred income
tax assets to the extent that it is probable that the deductible temporary
differences will reverse in the foreseeable future. Assessing the
recoverability of deferred income tax assets requires the Group to make
significant estimates related to expectations of future taxable income.
Estimates of future taxable income are based on forecast cash flows from
operations and the application of existing tax laws in each jurisdiction. To
the extent that future cash flows and taxable income differ significantly
from estimates, the ability of the Group to realise the net deferred tax
assets recorded at the end of the reporting period could be impacted.
Management's judgement is that due to the mine not being at steady state
production it is premature to recognise a deferred tax asset for the
accumulated tax losses.
(vi) Fair value of financial instruments
The judgements and estimates made by the Group in determining the fair values
of the financial instruments are described in Note 14 and 30 to the
Consolidated Financial Statements.
(vii) Impairment indicator assessment
The Group reviews and tests the carrying value of assets when events or
changes in circumstances ("impairment indicators") suggest that the carrying
amount may not be recoverable. At 31 December 2022 an impairment indicator
assessment was performed and impairment charge of US$ 93 million recorded
(refer to Note 25). As part of the impairment indicator assessment,
management evaluate the life of mine plan discounted cash flow model. These
calculations require the use of estimates and assumptions. The key estimates
made include discount rates, being the Group's weighted average cost of
capital, future prices of phosphate rock, mine production levels and foreign
currency exchange rates.
(t) Key sources of estimation uncertainty
Property, plant and equipment
The depreciable amount of property, plant and equipment is allocated on a
systematic basis over its useful life. In determining the depreciable amount
management makes certain assumptions with regard to the residual value of
assets based on the expected estimated amount that the Group would currently
obtain from disposal of the asset, after deducting the estimated cost of
disposal, if the asset were already of the age and in the condition expected
at the end of its useful life. If an asset is expected to be abandoned the
residual value is estimated at zero.
In determining the useful lives of property, plant and equipment that is
depreciated, management considers the expected usage of assets, expected
physical wear and tear, legal or similar limits of assets such as mineral
rights as well as obsolescence.
This estimate is further impacted by management's best estimation of proved
and probable phosphate ore reserves and the expected future life of each of
the mines within the Group. The forecast production could be different from
the actual phosphate mined. This would generally result from significant
changes in the factors or assumptions used in estimating phosphate reserves.
These factors include:
· changes in proved and probable ore reserves;
· differences between achieved ore prices and assumptions;
· adverse movements in foreign exchange;
· unforeseen operational issues at mine sites; and
· changes in capital, operating, mining, processing, reclamation and
logistics costs, discount rates and foreign exchange rates.
Any change in management's estimate of the useful lives and residual values of
assets would impact the depreciation charge. Any change in management's
estimate of the total expected future life of each of the mines would impact
the depreciation charge as well as the estimated rehabilitation and
decommissioning provisions.
In determining the FVLCD for purposes of the impairment consideration, the
value is most sensitive to the following assumptions:
· Phosphate rock prices;
· Phosphate recoveries;
· Foreign exchange rates;
· Operating costs.
Refer to Note 25 for further details.
Life of mine
Life of mine is defined as the remaining years of production, based on
proposed production rates and ore reserves and will be assessed as soon as
additional exploration drilling has been performed and further reserves proven
based on additional test results.
Fair value of derivative instruments
Information about the specific techniques, assumptions and inputs is disclosed
in Note 14 and 30 to the Consolidated Financial Statements. The key estimates
associated with the fair value of the derivative liability include volatility
and the assumptions regarding conversion timing.
(3) Subsidiaries of the Group
The subsidiaries of the Group, all of which are private companies limited by
shares, as at 31 December 2022, are as follows:
Company Country of Registration or Incorporation Registered Office Principal Activity Percentage of ordinary shares held by Company
Kropz SA (Pty) Limited South Africa Unit 213, The Hills Intermediate holding company
Buchanan Square 100%
160 Sir Lowry Road
Woodstock
Cape Town 8001
South Africa
Elandsfontein Land Holdings (Pty) Ltd South Africa Property owner 70% *
Kropz Elandsfontein (Pty) Ltd South Africa Phosphate exploration and mining 74% **
West Coast Fertilisers (Pty) Ltd Phosphoric acid production 70%
South Africa
Xsando (Pty) Ltd South Africa Sand sales 70%
Cominco Resources Limited Woodbourne Hall, Intermediate holding company
BVI PO Box 3162, Road Town, 100%
Tortola, British Virgin Islands
Cominco S.A. RoC Development 100% ***
Cominco Resources (UK) Ltd England and Wales Service company
100% ***
* 46.67% held indirectly
** 38.18% held indirectly
*** held indirectly
The accounting reference date of each of the subsidiaries is coterminous with
that of the Company.
(4) Tangible assets - Property, plant, equipment and mine development
31 Dec 2022 31 Dec 31 Dec 31 Dec 2021 31 Dec 31 Dec
2022 2022 2021 2021
Cost Accumulated Carrying value Cost Accumulated Carrying value
Depreciation and Impairment Depreciation
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Buildings and infrastructure
Land 1,418 (795) 623 1,515 - 1,515
Buildings 9,840 (5,597) 4,243 10,514 (56) 10,458
Capitalised road costs 7,600 (5,709) 1,891 8,121 (2,978) 5,143
Capitalised electrical sub-station costs 3,297 (2,445) 852 3,523 (1,213) 2,310
Machinery, plant and equipment
Critical spare parts 1,786 (1,002) 784 1,713 - 1,713
Plant and machinery 95,061 (53,486) 41,575 86,243 (63) 86,180
Water treatment plant 2,333 (1,308) 1,025 2,435 - 2,435
Furniture and fittings 56 (41) 15 49 (40) 9
Geological equipment 79 (48) 31 65 (45) 20
Office equipment 30 (28) 2 32 (21) 11
Other fixed assets 1 (1) - 1 (1) -
Motor vehicles 93 (93) - 100 (100) -
Computer equipment 79 (45) 34 65 (41) 24
Mine development 17,724 (9,788) 7,936 18,938 - 18,938
Stripping activity costs 22,257 (12,485) 9,772 6,126 - 6,126
Game animals 182 - 182 217 - 217
Total 161,836 (92,871) 68,965 139,657 (4,558) 135,099
Reconciliation of property, plant, equipment and mine development - Year ended
31 December 2022
Opening Additions Fair value loss Impair- Depreciation charge Foreign exchange loss Closing balance
Balance US$'000 US$'000 ment* US$'000 US$'000 US$'000
US$'000 US$'000
Buildings and infrastructure
Land 1,515 - - (795) - (97) 623
Buildings 10,458 - - (5,747) (33) (435) 4,243
Capitalised road costs 5,143 - - (2,522) (527) (203) 1,891
Capitalised electrical sub-station costs 2,310 - - (1,137) (229) (92) 852
Machinery, plant and equipment
Critical spare parts 1,713 190 - (1,046) - (73) 784
Plant and machinery 86,180 14,911 - (55,775) (1) (3,740) 41,575
Water treatment plant 2,435 56 - (1,366) - (100) 1,025
Furniture and fittings 9 10 - - (4) - 15
Geological equipment 20 18 - - (6) (1) 31
Office equipment 11 - - - (9) - 2
Other fixed assets - - - - - - -
Motor vehicles - - - - - - -
Computer equipment 24 24 - - (12) (2) 34
Mine development 18,938 - - (10,227) - (775) 7,936
Stripping activity costs 6,126 17,178 - (13,035) - (497) 9,772
Game animals 217 - (21) - - (14) 182
Total 135,099 32,387 (21) (91,650) (821) (6,029) 68,965
* Refer to Note 25.
Reconciliation of property, plant, equipment and mine development - Year ended
31 December 2021
Opening Additions Depreciation charge Foreign exchange loss Closing balance
Balance US$'000 Fair value gain US$'000 US$'000 US$'000
US$'000 US$'000
Buildings and infrastructure
Land 2,067 - - - (552) 1,515
Buildings 10,991 - - (49) (484) 10,458
Capitalised road costs 6,177 - - (583) (451) 5,143
Capitalised electrical sub-station costs 2,765 - - (253) (202) 2,310
Machinery, plant and equipment
Critical spare parts 1,285 571 - - (143) 1,713
Plant and machinery 66,609 29,578 - (4) (10,003) 86,180
Water treatment plant 1,129 1,503 - - (197) 2,435
Furniture and fittings 3 10 - (2) (2) 9
Geological equipment - 24 - (2) (2) 20
Office equipment 18 - - (6) (1) 11
Other fixed assets - - - - - -
Motor vehicles - - - - - -
Computer equipment 5 24 - (5) - 24
Mine development 20,046 528 - - (1,636) 18,938
Stripping activity costs 3,193 3,433 - - (500) 6,126
Game animals 185 - 51 - (19) 217
Total 114,473 35,671 51 (904) (14,192) 135,099
Game animals
Game animal assets are carried at fair value. The different levels are
defined as follows:
· Level 1: Quoted unadjusted prices in active markets for identical
assets or liabilities that the Group can access as measurement date.
· Level 2: Inputs other than quoted prices included in level 1 that
are observable for the asset or liability either directly or indirectly.
· Level 3: Unobservable inputs for the asset or liability.
Levels of fair value measurements - Level 3.
Kropz Elandsfontein has a fully drawn down project financing facility with BNP
Paribas for US$ 30 million (see Note 16). BNP has an extensive security
package over all the assets of Kropz Elandsfontein and Elandsfontein Land
Holdings (Pty) Ltd ("Elandsfontein Land Holdings") as well as the share
investments in those respective companies owned by Kropz SA (Pty) Ltd ("Kropz
SA").
(5) Intangible assets - Exploration and evaluation costs
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2022 2022 2022 2021 2021 2021
Amort- Carrying value Amort- Carrying value
Cost isation Cost isation
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
42,415 - 42,415 44,631 - 44,631
Capitalised costs
The costs of mineral resources acquired and associated exploration and
evaluation costs are not subject to amortisation until they are included in
the life-of-the-mine plan and production has commenced.
Where assets are dedicated to a mine, the useful lives are subject to the
lesser of the asset category's useful life and the life of the mine, unless
those assets are readily transferable to another productive mine. In
accordance with the requirements of IFRS 6, the Directors assessed whether
there were any indicators of impairment. No indicators were identified.
Reconciliation of exploration assets
Opening Additions Disposals Foreign exchange loss Closing balance
Balance US$'000 US$'000 US$'000 US$'000
US$'000
Year ended 31 December 2022
Capitalised exploration costs 44,631 346 - (2,562) 42,415
Opening Additions Disposals Foreign exchange loss Closing balance
Balance US$'000 US$'000 US$'000 US$'000
US$'000
Year ended 31 December 2021
Capitalised exploration costs 44,348 3,931 (62) (3,586) 44,631
(6) Right-of-use assets
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Cost
Brought forward 110 117
Foreign exchange differences (7) (7)
As at 31 December 103 110
Amortisation
Brought forward 103 72
Charge for the year 5 39
Foreign exchange differences (5) (8)
As at 31 December 103 103
Net book value - 7
(7) Other financial assets
31 December 31 December
2022 2021
US$'000 US$'000
DMR guarantee (1) - 630
Eskom guarantee (2) 309 330
Eskom guarantee (3) 313 334
Heritage Western Cape Trust (4) - 63
Centriq insurance DMR guarantee (5) 238 -
Total 860 1,357
(1) DMR guarantee
Guarantee in favour of the Department of Mineral Resources for ZAR 10 million
in respect of a "financial guarantee for the rehabilitation of land disturbed
by prospecting/mining". The guarantee was replaced by Centriq insurance during
the year.
(2) Eskom guarantee
Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 5,235,712
in respect of "supply agreement (early termination) guarantee".
(3) Eskom guarantee
Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 5,305,333
in respect of an "electricity accounts guarantee".
(4) Heritage Western Cape Trust
ZAR 1 million settlement agreement trust fund held in trust by attorneys on
behalf of the Heritage Western Cape Trust until Kropz Elandsfontein lodged a
heritage impact assessment. The heritage impact assessment was lodged in 2018
and the guarantee funds returned to the Group during the year.
(5) Centriq insurance DMR guarantee
Guarantee in favour of Department of Mineral Resources of ZAR 50 million in
respect of a "financial guarantee for the rehabilitation of land disturbed by
prospecting/mining" under an insurance policy. Two additional annual premiums
of ZAR 4.5 million are due on 1 November 2023 and 1 November 2024
respectively.
Fair value of other financial assets
The carrying value of other financial assets approximate their fair value.
(8) Inventories
31 December 31 December
2022 2021
US$'000 US$'000
Concentrate* 790 -
Consumables 2,483 1,025
Total 3,273 1,025
* Phosphate rock produced by Kropz Elandsfontein.
(9) Trade and other receivables
31 December 31 December
2022 2021
US$'000 US$'000
Prepayments and accrued income 209 238
Deposits 41 46
VAT 1,294 1,112
Other receivables 313 115
Total 1,857 1,511
Credit quality of trade and other receivables
The credit quality of trade and other receivables are considered recoverable
due to management's assessment of debtors' ability to repay the outstanding
amount.
Credit risk
The maximum exposure to credit risk at the reporting date is the fair value of
each class of receivable mentioned above.
Trade and other receivables past due but not impaired
None of the trade and other receivables were past due at the end of the
reporting dates.
Trade and other receivables impaired
None of the trade and other receivables were considered impaired. Trade and
other receivables have not been discounted as the impact of discounting is
considered to be insignificant.
Fair value of trade and other receivables
The carrying value of trade and other receivables approximate their fair
value.
Expected credit losses
There are no current receivable balances lifetime expected credit losses in
the current year.
(10) Restricted cash
31 December 31 December
2022 2021
US$'000 US$'000
Short-term deposits - 4,858
In May 2020, Kropz Elandsfontein and BNP agreed to amend and restate the term
loan facility agreement entered into on or about 13 September 2016 (as amended
from time to time). The BNP facility amendment agreement extends inter alia
the final capital repayment date to Q3 2024, with eight equal capital
repayments commencing in Q4 2022 and an interest rate of 6.5% plus US LIBOR,
up to project completion and 4.5% plus US LIBOR thereafter. In addition, the
amended BNP facility agreement locked up ZAR 200 million of cash held in the
bank account of Kropz Elandsfontein at that time, to be released by BNP to
Kropz Elandsfontein pro rata with drawdowns from ARC in terms of the Original
Equity Facility. The locked-up funds would be released by BNP in the ratio of
1:3, representing a release of locked-up cash of ZAR1 for every ZAR3 drawn
down from ARC in terms of the Original Equity Facility. At 31 December 2021,
ZAR 77 million remained locked up and invested with BNP as short-term
deposits. BNP released the remaining ZAR 77 million restricted cash in the
bank account of Kropz Elandsfontein on 10 January 2022.
Fair value of short-term deposits
Due to the short-term nature of restricted cash the carrying amount is deemed
to approximate the fair value.
(11) Cash and cash equivalents
31 December 31 December
2022 2021
US$'000 US$'000
Bank balances 2,120 2,460
Cash on hand - 1
Total 2,120 2,461
Credit quality of cash at bank and short-term deposits, excluding cash on hand
The Group only deposits cash and cash equivalents with reputable banks with
good credit ratings.
Fair value of cash at bank
Due to the short-term nature of cash and cash equivalents the carrying amount
is deemed to approximate the fair value.
(12) Share capital
Each shareholder has the right to one vote per ordinary share in general
meeting. Any distributable profit remaining after payment of distributions is
available for distribution to the shareholders of the Company in equal amounts
per share. Shares were issued as set out below:
Share capital Share premium Merger reserve
Number of Total
shares US$'000 US$'000 US$'000 US$'000
At 1 January 2020 558,627,558 706 168,212 (20,523) 148,395
Convertible loan - issue of shares 350,944,417 488 25,312 - 25,800
As at 31 December 2021 909,571,975 1,194 193,524 (20,523) 174,195
Share options exercised 6,700,000 9 - - 9
Shares issued in settlement of guarantee fees 3,971,712 4 307 - 311
Convertible loan - issue of shares 3,474,536 5 232 - 237
At 31 December 2022 923,718,223 1,212 194,063 (20,523) 174,752
Issue of shares in the year ended 31 December 2022:
The changes to the issued share capital of the Company which occurred between
1 January 2022 and 31 December 2022 were as follows:
Convertible loan facility
Kropz secured a convertible loan facility of up to US$ 5 million (not
exceeding a maximum of ZAR 85 million) from ARC Fund ("Further Equity
Facility") in February 2021, to be used exclusively for the Hinda Updated FS
and general corporate purposes for Kropz. Quarterly drawdowns under the
Further Equity Facility are at the sole discretion of Kropz. Repayment of the
Further Equity Facility and any interest thereon will be in the form of
immediate conversion into ordinary shares in Kropz and issued to ARC Fund, at
a conversion price of 4.202 pence per ordinary share each quarter, and any US$
amount will be converted to GBP at an agreed rate of US$ 1 = 0.73 GBP.
Ordinary shares to be issued to ARC Fund in terms of the Further Equity
Facility will be a maximum of 86,863,398 ordinary shares.
The fifth and final drawdown on the Further Equity Facility occurred on 10
March 2022 for US$ 200,000 which was settled by way of the issue of 3,474,536
new ordinary shares at the issue price of 4.202 pence per ordinary share to
the ARC Fund.
As announced on 13 May 2020, and pursuant to the terms of the original US$ 40
million equity facility, any fees associated with the bank guarantee provided
by ARC Fund, would be settled by the issue of new ordinary shares to ARC Fund.
The final guarantee fee due to ARC Fund, amounting to US$ 311,733 was settled
by the issue of 3,971,712 new ordinary shares on 10 March 2022.
Share based payment arrangements
Employee Share Option Plan and Long-Term Incentive Plan
As more fully described in the Directors' Report, the Company operates an
ownership-based scheme for executives and senior employees of the Group. In
accordance with the provisions of the plans, executives and senior employees
may be granted options to purchase parcels of ordinary shares at an exercise
price determined by the Board based on a recommendation by the Remuneration
Committee.
The following plans have been adopted by the Company:
· an executive share option plan used to grant awards on Admission of
the Company to AIM and following Admission (the "ESOP Awards") - a performance
and service-related plan pursuant to which nominal-cost options can be
granted; and
· an executive long-term incentive plan (the "LTIP Awards") - a
performance and service-related plan pursuant to which conditional share
awards, nominal-cost options and market value options can be granted,
(together, the ''Incentive Plans'').
An option-holder has no voting or dividend rights in the Company before the
exercise of a share option.
ESOP Awards
ESOP Awards were issued at the time of the Admission of the Company's shares
to the AIM market of the London Stock Exchange in November 2018.
The ESOP Awards will vest as to performance as follows:
· 20% of the award shall vest for growth in share price of 100% from
the Admission placing price (40 pence);
· a further 20% of the award shall vest for growth in share price of
250% from the Admission placing price;
· a further 30% of the award shall vest for growth in share price of
350% from the Admission placing price; and
· a further 30% of the award shall vest for growth in share price of
500% from the Admission placing price.
The value of the options was calculated by way of a Monte Carlo Simulation
using the following assumptions.
ESOP Award assumptions at issue date
Share price GBP 0.40
Exercise price GBP 0.40
Expected volatility 40%
Expected dividends 0%
Risk-free interest rate 2.1%
Option life 10 years
The expected volatility is based on the historic volatility. Options are
stated in UK Pound Sterling as the Company is listed on the AIM market of the
London Stock Exchange.
As announced on 20 July 2022, Mark Summers expressed his intention to leave
the Company and he resigned as Chief Executive Officer ("CEO") and Executive
Director of the Company in January 2023 and the 3,362,609 ESOP options awarded
to him lapsed and expired. Michelle Lawrence resigned on 31 December 2022 and
the 1,465,137 ESOP options awarded to her lapsed and expired on that date.
There are therefore nil ESOP options remaining at 31 December 2022.
LTIP Awards
During 2020, the Company granted conditional share awards over ordinary shares
in the Company to key members of the executive management team under its LTIP
Awards plan. These LTIP Awards have performance conditions aligned to the
implementing the Company's strategic plans, including appropriate weightings
on the successful commissioning of the Elandsfontein mine and completion of an
updated feasibility study on the Hinda project.
As announced on 4 August 2020, the Company granted LTIP Awards to key members
of the executive management team, including certain Persons Discharging
Managerial Responsibilities ("PDMRs"), including Mark Summers and Michelle
Lawrence, under its LTIP Awards.
The LTIP Awards are £0.001 priced options over a total of 6,700,000 ordinary
shares. Of this total, 2,350,000 LTIP Awards were granted to each of Mark
Summers and Michelle Lawrence and 1,000,000 to Patrick Stevenaert. The LTIP
Awards vested on 31 December 2021 and were exercised in January 2022, pursuant
to the terms of the LTIP Plan Rules (as set out in the Company's Admission
Document), including financial and non-financial performance conditions and,
in respect of Mark Summers and Michelle Lawrence, continued employment by the
Company. Consequently, 6,700,000 ordinary shares were issued on 24 January
2022, at an exercise price of £0.001 an ordinary share, in the Company.
The value of the options was calculated by using the Black-Scholes model,
using the following assumptions.
LTIP Award assumptions at issue date
Share price GBP 0.085
Exercise price GBP 0.001
Expected volatility 26%
Expected dividends 0%
Risk-free interest rate 1.1%
Option life 3 years
As announced on 2 July 2021, the Company granted LTIP Awards to key members of
the executive management team, including certain Persons Discharging
Managerial Responsibilities ("PDMRs"), including Mark Summers and Michelle
Lawrence, under its LTIP Awards.
The LTIP Awards are £0.001 priced options over a total of 7,800,000 ordinary
shares. Of this total, 2,400,000 LTIP Awards were granted to each of Mark
Summers and Michelle Lawrence and 900,000 to Patrick Stevenaert. The LTIP
Awards will vest on various dates from 30 June 2022 to 31 December 2024,
subject to the terms of the LTIP Plan Rules (as set out in the Company's
Admission Document), including financial and non-financial performance
conditions and, in respect of Mark Summers and Michelle Lawrence, continued
employment by the Company.
The value of the options was calculated by using the Black-Scholes model,
using the following assumptions.
LTIP Award assumptions at issue date
Share price GBP 0.055
Exercise price GBP 0.001
Expected volatility 30%
Expected dividends 0%
Risk-free interest rate 1.3%
Option life 7 years
As announced on 20 July 2022, Mark Summers expressed his intention to leave
the Company and he resigned in January 2023 and the 2,400,000 LTIP options
awarded to him lapsed and expired. Michelle Lawrence resigned on 31 December
2022 and the 2,400,000 LTIP options awarded to her lapsed and expired on that
date. The lapsed and expired options were reversed through profit and loss.
A net credit to expense of US$ 222,000 was recognised in profit and loss
related to the employee share options (31 December 2021: charge of
US$ 812,000).
The LTIP Awards remaining at 31 December 2022 are £0.001 priced options over
a total of 3,000,000 ordinary shares representing 0.3% of the Company's issued
share capital.
Equity warrants
As part of the equity facility and fundraising, on 4 August 2020 the Company
granted 121,837 warrants over the ordinary shares of 0.1 pence each in the
Company, exercisable at 6.75 pence per Ordinary Share for a period of two
years from issue. As they had not been exercised, these options lapsed
during the 2022 financial year and nil equity warrants remained in place at 31
December 2022 (2021: 121,837 equity warrants).
(13) Reserves
Nature and purpose of reserves
Foreign exchange translation reserve
The foreign exchange translation reserve comprises all foreign currency
differences arising from the translation of the assets, liabilities and equity
of the entities included in these consolidated financial statements from
their functional currencies to the presentational currency. A decrease in the
reserve of US$ 3,388,000 (2021: US$ 10,141,000) was recorded due to changes
in the foreign currencies used to translate assets, liabilities and equity at
consolidation.
Share premium
The share premium account represents the amount received on the issue of
ordinary shares by the Company, other than those recognised in the merger
reserve described below, in excess of their nominal value and is
non-distributable.
Merger reserve
The merger reserve represents the amount received on the issue of ordinary
shares by the Company in excess of their nominal value on acquisition of
subsidiaries where merger relief under section 612 of the Companies Act 2006
applies. The merger reserve consists of the merger relief on the issue of
shares to acquire Kropz SA on 27 November 2018 and Cominco Resources on 30
November 2018. The merger reserve also includes differences between the book
value of assets and liabilities acquired and the consideration for the
business acquired under common control.
Share-based payment reserve
The share-based payment reserve arises from the requirement to value share
options and warrants in existence at fair value (see Note 12).
(14) Shareholder loans and derivative
31 December 31 December
2022 2021
US$'000 US$'000
Shareholder loans - ARC 17,010 16,196
Convertible debt - ARC 15,055 6,191
Derivative liability (refer to Note 30) 23,037 2,656
55,102 25,043
Shareholders loan - ARC
The loans are: (i) US$ denominated, but any repayments will be made in ZAR at
the then prevailing ZAR/US$ exchange rate; (ii) carry interest at monthly US
LIBOR plus 3%; and (iii) are repayable by no later than 1 January 2035 (or
such earlier date as agreed between the parties to the shareholder
agreements).
Convertible debt - ARC
On 20 October 2021, the Company entered into a new convertible equity facility
of up to ZAR 200 million ("ZAR 200 Million Equity Facility") with ARC, the
Company's major shareholder. Interest is payable at 14% nominal, compounded
monthly. At any time during the term of the ZAR 200 Million Equity Facility,
repayment of the ZAR 200 Million Equity Facility capital amount will, at the
election of ARC, either be in the form of the conversion into ordinary shares
of 0.1 pence each ("Ordinary Shares") in the Company and issued to ARC, at a
conversion price of 4.5058 pence per Ordinary Share each, representing the
30-day Volume Weighted Average Price ("VWAP") on 21 September 2021, and at
fixed exchange rate of GBP 1 = ZAR 20.24 ("Conversion"), or payable in cash by
the Company at the end of the term of the ZAR 200 Million Equity Facility
which is 27 October 2026. The Company made a drawdown of ZAR 90 million of
the ZAR 200 Million Equity Facility on 26 October 2021 and a further ZAR 37
million on 9 December 2021. Two further draw downs were made in 2022, one on
25 March 2022 for ZAR 40 million and ZAR 33 million on 26 April 2022. The ZAR
200 Million Equity Facility is fully drawn at the date of this report.
As announced on 11 May 2022, the Company entered into a new conditional
convertible equity facility of up to ZAR 177 million ("ZAR 177 Million Equity
Facility") with ARC. Interest is payable at 14% nominal, compounded monthly.
At any time during the term of the ZAR 177 Million Equity Facility, repayment
of the ZAR 177 Million Equity Facility capital amount will, at the election of
ARC, either be in the form of the conversion into Ordinary Shares in the
Company and issued to ARC, at a conversion price of 9.256 pence per Ordinary
Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on
4 May 2022, and at fixed exchange rate of ZAR 1 = GBP 0.0504 ("Conversion"),
or payable in cash by the Company at the end of the term of the ZAR 177
Million Equity Facility which is 2 June 2027. The first drawdown on the ZAR
177 Million Equity Facility occurred on 2 June 2022 for ZAR 103.5 million. The
second drawdown on the ZAR 177 Million Equity Facility was made on 7 July 2022
for ZAR 60 million. On 9 August 2022, a final drawdown on the ZAR 177 Million
Equity Facility was made for ZAR 13.5 million. The ZAR 177 Million Equity
Facility is fully drawn at the date of this report.
As announced on 14 November 2022, the Company entered into a new conditional
convertible equity facility of up to ZAR 550 million ("ZAR 550 Million Equity
Facility") with ARC. Interest is payable at the South African prime overdraft
interest rate plus 6%, nominal per annum and compounded monthly. At any time
during the term of the ZAR 550 Million Equity Facility, repayment of the ZAR
550 Million Equity Facility capital amount will, at the election of ARC,
either be in the form of the conversion into Ordinary Shares in the Company
and issued to ARC, at a conversion price of 4.579 pence per Ordinary Share
each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21
October 2022 and at fixed exchange rate of ZAR 1 = GBP 0.48824 ("Conversion"),
or payable in cash by the Company at the end of the term of the ZAR 550
Million Equity Facility which is 30 November 2027. The first drawdown on the
ZAR 550 Million Equity Facility occurred on 1 December 2022 for ZAR 307.5
million. The second drawdown on the ZAR 550 Million Equity Facility of ZAR 135
million occurred on 22 December 2022. The third drawdown on the ZAR 550
Million Equity Facility of ZAR 60 million occurred on 25 January 2023 and the
fourth drawdown of ZAR 40 million occurred on 27 February 2023. ZAR 7.5
million remains undrawn on the ZAR 550 Million Equity Facility.
Convertible liability
It was determined that the conversion option embedded in the convertible debt
equity facility be accounted for separately as a derivative liability.
Although the amount to be settled is fixed in ZAR, when converted back to
Kropz's functional currency will result in a variable amount of cash based on
the exchange rate at the date of conversion. The value of the liability
component and the derivative conversion component were determined at the date
of draw down using a Monte Carlo simulation. The debt host liability was
bifurcated based on the determined value of the option. Subsequently, the
embedded derivative liability is adjusted to reflect fair value at each period
end with changes in fair value recorded in profit and loss (refer to Note
30).
Fair value of shareholder loans
The carrying value of the loans approximates their fair value.
(15) Finance lease liabilities
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
In respect of right-of-use assets
Balance brought forward 7 48
Repayments during the year (6) (39)
Foreign exchange differences (1) (2)
Lease liabilities at end of year - 7
Maturity
Current - 7
Non-current - -
Total lease liabilities - 7
(16) Other financial liabilities
31 December 31 December
2022 2021
US$'000 US$'000
BNP 26,298 30,041
Greenheart Foundation 510 545
Total 26,808 30,586
Maturity
Non-current - 26,291
Current 26,808 4,295
Total 26,808 30,586
BNP
A US$ 30,000,000 facility was made available by BNP Paribas to Kropz
Elandsfontein in September 2016.
In May 2020, Kropz Elandsfontein and BNP Paribas agreed to amend and restate
the term loan facility agreement entered into on or about 13 September 2016
(as amended from time to time). The BNP Paribas facility amendment agreement
extends inter alia the final capital repayment date to Q3 2024, with eight
equal capital repayments to commence in Q4 2022 and an interest rate of 6.5%
plus US LIBOR, up to project completion and 4.5% plus US LIBOR thereafter.
BNP Paribas has an extensive security package over all the assets of Kropz
Elandsfontein and Elandsfontein Land Holdings as well as the share investments
in those respective companies owned by Kropz SA.
The BNP loan is subject to covenant clauses. Kropz Elandsfontein did not reach
project completion as stipulated in the agreement to be 31 December 2022 and
failed to fund the Debt Service Reserve Account, however BNP Paribas has
provided, post balance sheet date, a waiver to 30 September 2023. The
outstanding balance is therefore presented as a current liability as at 31
December 2022.
Greenheart Foundation
A loan has been made to the Group by Greenheart Foundation which is
interest-free and repayable on demand. Louis Loubser, a Director of the Kropz
plc, is a Director of Greenheart Foundation.
Fair value of other financial liabilities
The carrying value of the loans approximate their fair value.
(17) Provisions
Reconciliation of provisions - Year ended 31 December 2022
Opening Additions/ Foreign exchange gains Closing balance
Balance Adjustments US$'000 US$'000
US$'000 US$'000
Provision for dismantling costs 2,241 (1,367) 99 973
Provisions for rehabilitation 1,792 (185) 117 1,724
Total 4,033 (1,552) 216 2,697
Reconciliation of provisions - Year ended 31 December 2021
Opening Additions/ Foreign exchange gain Closing balance
Balance Adjustments US$'000 US$'000
US$'000 US$'000
Provision for dismantling costs 2,477 (42) (194) 2,241
Provisions for rehabilitation 1,834 112 (154) 1,792
Total 4,311 70 (348) 4,033
Dismantling and rehabilitation provisions
Prior to 2015, financial provisioning and rehabilitation were governed by the
Mineral and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002)
("MPRDA") and the National Environmental Management Act, 1998 (Act No. 107 of
1998) ("NEMA"). As such the previous financial provisioning was based on the
quantum of the financial provision under regulations 53 and 54 of the MPRDA
and the guideline document published by the Department of Mineral Resources
(now "Department of Mineral Resources and Energy") (DMR 2005 Guideline
Document for the Evaluation of the Quantum of Closure-Related Financial
Provision Provided by a Mine) and assessed according to the guideline.
The Kropz Elandsfontein Mine was placed on Care and Maintenance Phase from
August 2017 to September 2020 due to flaws in the design of the production
process. This was followed by an Optimisation Phase from September 2020 to
September 2021 which related to plant modifications to meet optimal
operational requirements to allow the mine to go into production. At this
time, Kropz Elandsfontein updated their EMPr to include the optimisation
phase. As such the DMRE issued updated conditions, which stated that the
holder of the EMPr must annually assess the environmental liabilities of the
operation by using the master rates in line with the applicable Consumer Price
Index ("CPI") at the time and address the shortfall on the financial provision
submitted in terms of section 24P of NEMA. To comply with the requirements,
Kropz Elandsfontein commissioned Braaf Environmental Practitioners SA (Pty)
Ltd to update the provision in 2021, which was done under the 2015 Regulations
(GNR 1147) and approved by the DMRE.
Prior to the 2022 financial provision update, the DMRE was consulted to
determine which regulations must be adhered to, Regulation 54 of the MPRDA
Regulations (i.e., the DMR 2005 Guideline Document for the Evaluation of the
Quantum of Closure-Related Financial Provision Provided by a Mine) or the 2015
regulations (GNR 1147), as amended. The DMRE confirmed that since the
publication of GNR No. 45058 by the Minister of her intention to repeal the
2015 Financial Provisioning Regulations and to make new Regulations for
Financial Provisioning on 27 August 2021, the updated 2022 Kropz Elandsfontein
financial provisions should be determined under regulations 53 and 54 of the
MPRDA and the DMR 2005 Guideline Document for the Evaluation of the Quantum of
Closure-Related Financial Provision Provided by a Mine and DMRE's 2005
escalated master rates. In terms of the current transitional provisions (GNR
No. 46378 of 19 May 2022) of the proposed Regulations mining companies have
until, 19 September 2023 to comply with the 2015 Regulations, as amended.
However, on 19 May 2023, the Minister published a further extension to the due
date for mining companies to comply with the proposed Regulations, being 19
February 2024.
As such the 2022 provision was based on the DMRE master rates for
rehabilitation and instruction from the DMRE which is the prescribed
requirements in terms of the approvals and regulations. This has resulted in
reduction in the quantum of the provision.
The expected timing of any outflows of these provisions will be on the closure
of the respective mines. Estimates are based on costs that are reviewed
regularly and adjusted as appropriate for new circumstances. Future cash flows
are appropriately discounted. A discount rate of 5.52% (2021: 7.46%) was used.
(18) Trade and other payables
31 December 31 December
2022 2021
US$'000 US$'000
Trade payables 6,605 2,527
Other payables 10 -
Accruals 669 1,016
Total 7,284 3,543
Fair value of trade and other payables
Trade and other payables are carried at amortised cost, with their carrying
value approximating their fair value.
(19) Commitments
31 December 31 December
2022 2021
US$'000 US$'000
Authorised capital commitments - 1,871
The committed expenditure at 31 December 2021 relates to plant construction.
(20) Directors' remuneration, interests and transactions
The Directors of the Company and the two executives of Kropz Elandsfontein and
Cominco Resources are considered to be the Key Management Personnel of the
Group. Details of the Directors' remuneration, Key Management Personnel
remuneration which totalled US$ 747,329 (2021: US$ 1,882,116) (including
notional option cost and social security contributions) and Directors'
interests in the share capital of the Company are disclosed in the Directors'
Report. Amounts reflected relate to short-term employee benefits and were
converted to US$ at the 31 December 2022 GBP exchange rate of 0.812 and ZAR
exchange rate of ZAR 16.373.
The highest paid Director in the year received remuneration, excluding
notional gains on share options, of US$ 330,340 (2021: US$ 542,739). Refer
to page 33 to 34 for further details.
(21) Finance income
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Interest income 136 480
Total 136 480
(22) Operating expenses
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Fair value loss / (gain) on game animals 22 (51)
Amortisation of right of use asset 5 39
Depreciation of property, plant and machinery 821 904
Employee costs (excluding share option cost) 1,133 1,392
Share option (credit) / cost (222) 812
Electricity and water - mine operations 928 1,067
Inventory expense - 183
Mining costs 54 9
Plant operating costs and recoveries 216 217
Professional and other services 667 821
Auditor's remuneration in respect of audit of the Group and parent 136 86
Auditor's remuneration in respect of audit of the Cominco Group 52 42
Component auditor's remuneration in respect of audit of South African 71 68
controlled entities
Other expenses 1,925 914
Total 5,808 6,503
(23) Staff costs
Year ended Year ended 31 December
31 December
2022 2021
No. No.
The average monthly number of employees was:
Operations 10 11
Finance and administration 6 6
Management 3 3
19 20
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Aggregate remuneration (including Directors):
Wages and salaries (including bonuses) 1,003 1,274
Social security costs 127 115
Share-based payments (credit) / cost (222) 812
Pension costs 3 3
911 2,204
(24) Finance expense
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Shareholder loans 3,407 670
Foreign exchange losses 3,550 4,382
Bank debt 2,576 2,024
BNP - debt modification present value adjustment amortisation (233) (258)
BNP amendment fee amortisation 205 227
Finance leases - 1
Other 307 345
Total 9,812 7,391
(25) Impairment losses
As a result of the recoverable amount analysis performed during the year, the
following impairment loss was recognised:
31 December 31 December
2022 2021
US$'000 US$'000
Mine property 91,650 -
Inventory 1,011 -
92,661 -
The impairment loss was recognised in relation to the Elandsfontein mine.
The triggers for the impairment test were primarily due to the hard bank
encountered in the pit which necessitated further drilling and the effect of
changes to the mine plan resulting from the updated MRE and downgrading of the
measured and indicated resource. The recoverable amount of the Elandsfontein
mine was based on management's estimate of FVLCD and is estimated based on
discounted future cash flows expected to be generated from the continued use
of the CGU using market-based commodity prices and exchange assumptions,
estimated quantities of recoverable minerals, production levels, operating
costs and capital requirements, and its eventual disposal, based on the CGU's
5 year plans and latest life of mine (LOM) plans following the downgrade of
the resource per an updated MRE as announced on 10 January 2023. The
impairment test only considered the section of the mineral resource classified
as measured and indicated. The inferred resource classification was
disregarded for impairment testing purposes.
Key assumptions
The determination of FVLCD is most sensitive to the following assumptions:
· Phosphate rock prices;
· Phosphate recoveries;
· Foreign exchange rates;
· Operating costs.
Phosphate rock prices: Forecast phosphate rock prices are based on
management's estimates and are derived from forward price curves and long-term
views of global supply and demand in a changing environment, particularly with
respect to climate risk, building on past experience of the industry and
consistent with external sources. These prices are reviewed semi-annually.
Estimated long-term phosphate rock prices for the current period that have
been used to estimate future revenues, are as follows:
Long term (2025+)
Assumptions 2023 2024
Phosphate rock per tonne $140 $159 $164
Phosphate recoveries: The production volumes incorporated into the cash flow
model were 2.8 million tonnes of phosphate rock. Estimated production volumes
are based on detailed life-of-mine plans, of the measured and indicated
resourced as defined in the MRE, and take into account development plans for
the mine agreed by management as part of the long-term planning process.
Production volumes are dependent on a number of variables, such as: the
recoverable quantities; the production profile; the cost of the development of
the infrastructure necessary to extract the reserves; the production costs;
the contractual duration of mining rights; and the selling price of the
commodities extracted.
Exchange rates: Foreign exchange rates are estimated with reference to
external market forecasts and updated semi-annually. The assumed long-term US
dollar/ZAR exchange rate is estimated to be ZAR19/USD.
Operating cost: Operating costs are estimated with reference to contractual
and actual current cost and adjusted for inflation.
Discount rates: A discount rate of 12.59% was applied to the cash flows. This
discount rate is derived from the Group's post-tax weighted average cost of
capital (WACC), with appropriate adjustments made to reflect the risks
specific to the CGU and to determine the pre-tax rate. The WACC takes into
account both debt and equity. The cost of equity is derived from the expected
return on investment by the Group's investors. The cost of debt is based on
its interest-bearing borrowings the Group is obliged to service. Specific risk
is incorporated by applying beta factors. The beta factors are evaluated
annually based on publicly available market data.
Sensitivity analysis
The following table summarises the potential impact of changes in the key
estimates and assumptions on the quantum of impairment (assessed independently
of each other):
Reversal of / (increase in) impairment
US$ million
Impact if discount rate Increased by 2% (3.0)
reduced by 2% 3.2
Impact if selling prices increased by 10% 26.2
reduced by 10% (27.6)
Impact if production tonnes increased by 10% 12.5
reduced by 10% (13.0)
Impact if foreign exchange rates increased by 10% 27.1
reduced by 10% (28.5)
Impact if operating costs: increased by 10% (21.5)
reduced by 10% 20.7
(26) Taxation
Major components of tax charge Year ended Period ended
31 December 31 December
2022 2021
US$'000 US$'000
Deferred
Originating and reversing temporary differences - -
Current tax
Local income tax (602) -
Total (602) -
The tax charge arose predominantly due to the devaluation of GBP against US$
and the recorded unrealised foreign exchange gains being taxable in the UK.
Reconciliation of tax charge
Year ended 31 December Year ended 31 December
2022 2021
US$'000 US$'000
Loss before tax (97,222) (18,258)
Applicable UK tax rate 19% 19%
Tax at applicable tax rate (18,472) (3,469)
Adjustments for different tax rates in the Group (12,031) (2,177)
Disallowable expenditure 23,744 1,545
Losses carried forward not recognised 7,361 4,101
Tax (credit) / charge 602 -
The movement in tax liabilities is summarised below:
Year ended 31 December Year ended 31 December
2022 2021
US$'000 US$'000
Balance brought forward - -
Current year charge 602 -
Interest 6 -
Tax paid - -
Foreign exchange differences (11) -
Balance carried forward 597 -
The Group had losses for tax purposes of approximately US$ 57.5 million as at
31 December 2022 (2021: US$ 52.1 million) which, subject to agreement with
taxation authorities, are available to carry forward against future profits.
They can be carried forward indefinitely.
A net deferred tax asset of approximately US$ 16.1 million (2021: US$ 14.6
million), after set off of accelerated depreciation allowances in respect of
fixed assets of US$ 41.1 million (2021: US$ 34.7 million), arises in respect
of these losses. It has not been recognised as steady state production has not
been reached. The deferred tax asset and deferred tax liability relate to
income tax in the same jurisdiction and the law permits set off.
(27) Earnings per share
The calculations of basic and diluted loss per share have been based on the
following loss attributable to ordinary shareholders and weighted average
number of ordinary shares outstanding:
Year ended Year ended
31 December 31 December
2022 2021
US$'000 US$'000
Loss attributable to ordinary shareholders (66,639) (13,787)
921,908,785 765,871,834
Weighted average number of ordinary shares used in basic loss per share
Share options and warrants - -
Weighted average number of ordinary shares used in diluted loss per share 921,908,785 765,871,834
Basic and diluted loss per share (US$ cents) (7.23) (1.80)
Because the Group was in a net loss position attributable to ordinary
shareholders, diluted loss per share excludes the effects of ordinary share
equivalents consisting of share options and warrants, which are anti-dilutive.
(28) Notes to the statement of cash flows
Issue of shares
Year ended 31 December 2022
Non-cash consideration Cash consideration Total
US$'000 US$'000 US$'000
Share options exercised - 9 9
Shares issued in settlement of guarantee fees - 311 311
Equity facility - issue of shares - 237 237
As at 31 December 2022 - 557 557
Year ended 31 December 2021
Non-cash consideration Cash consideration Total
US$'000 US$'000 US$'000
Equity facility - issue of shares - 25,800 25,800
As at 31 December 2021 - 25,800 25,800
Net debt reconciliation
Year ended 31 December 2022
Opening Accrued Fair value movements Cash Foreign exchange gain/(loss) Closing balance
Balance interest US$'000 movements US$'000 US$'000
US$'000 US$'000 US$'000
Other financial assets 1,357 - - (427) (70) 860
Shareholder loan payable and derivative (25,043) (3,791) 8,671 (38,727) 1,135 (57,755)
Other financial liabilities (30,586) 28 - 3,712 (38) (26,808)
Finance leases (7) - - 6 1 -
Total (54,279) (3,763) 8,671 (35,436) 1,028 (83,703)
Year ended 31 December 2021
Opening Accrued Fair value movements Cash Foreign exchange gain/(loss) Closing balance
Balance interest US$'000 movements US$'000 US$'000
US$'000 US$'000 US$'000
Other financial assets 1,477 - - - (120) 1,357
Shareholder loan payable and derivative (15,703) (670) (653) (8,037) 20 (25,043)
Other financial liabilities (30,613) 31 - (54) 50 (30,586)
Finance leases (48) - - 39 2 (7)
Total (44,887) (639) (653) (8,052) (48) (54,279)
Reconciliation of working capital items:
Year ended 31 December 2022
Opening Cash Capital allocated Foreign exchange gain/(loss) Closing balance
Balance movements US$'000 US$'000 US$'000
US$'000 US$'000
Trade and other receivables 1,511 471 - (125) 1,857
Inventories 1,025 3,453 - (197) 4,281
Trade and other payables (3,543) 172 (4,588) 675 (7,284)
Total (1,007) 4,096 (4,588) 353 (1,146)
Year ended 31 December 2021
Opening Cash Capital allocated Foreign exchange gain/(loss) Closing balance
Balance movements US$'000 US$'000 US$'000
US$'000 US$'000
Trade and other receivables 1,611 (256) - 156 1,511
Inventories 821 291 - (87) 1,025
Trade and other payables (4,780) (3,178) 2,599 1,816 (3,543)
Total (2,348) (3,143) 2,599 1,885 (1,007)
(29) Related parties
Kropz plc and its subsidiaries
The following parties are related to Kropz plc:
Name Relationship
Mark Summers Director
Louis Loubser Director
Mike Nunn Director
Linda Beal Director
Mike Daigle Director
Lord Robin William Renwick Director
Gerrit Jacobus Duminy Director
Machiel Johannes Reyneke Director
Kropz SA Subsidiary
Elandsfontein Land Holdings (Pty) Ltd ("ELH") Subsidiary
Kropz Elandsfontein Subsidiary
West Coast Fertilisers (Pty) Ltd Subsidiary
Xsando (Pty) Ltd Subsidiary
Cominco Resources Limited Subsidiary
Cominco S.A. Subsidiary
Cominco Resources (UK) Ltd Subsidiary
Kropz International Shareholder
The ARC Fund ("ARC") Shareholder
Details of remuneration to KMP are contained in Note 20 to the Consolidated
Financial Statements.
In addition to share issues to related parties set out in Note 12 to the
Consolidated Financial Statements, the following transactions were carried out
with related parties:
Related party balances
Loan accounts - owed to related parties
31 December 31 December
2022 2021
US$'000 US$'000
Shareholder loans - ARC 17,010 16,196
Convertible debt - ARC 15,055 6,191
Derivative liability (refer Note 14) 23,037 2,656
Greenheart Foundation (refer Note 16) 510 545
Total 55,612 25,588
Related party balances
Interest accrued to related parties
Year ended 31 December Year ended 31 December
2022 2021
US$'000 US$'000
ARC 3,407 670
Total 3,407 670
Convertible loan facilities
As described in Note 12 and 14, the Company made drawdowns totalling US$ 39.2
million (2021: US$ 25.8 million) under its convertible loan facilities from
ARC.
(30) Categories of financial instrument
Financial assets and liabilities by category
The accounting policies for financial instruments have been applied to the
line items below:
31 December 31 December
2022 2021
US$'000 US$'000
Financial assets at amortised cost
Trade and other receivables 563 399
Other financial assets 860 1,357
Restricted cash - 4,858
Cash and cash equivalents 2,120 2,461
Total 3,543 9,075
Financial liabilities at amortised cost
Trade and other payables 7,284 3,543
Finance leases - 7
Shareholder loans 32,065 22,387
Other financial liabilities 26,808 30,586
Total 66,157 56,523
Financial liabilities at fair value
Derivative liability 23,037 2,656
Recognised fair value measurements
The net fair value and carrying amounts of financial assets and financial
liabilities are disclosed in the Consolidated Statement of Financial Position
and in the notes to the Consolidated Statement of Financial Position.
This note provides an update on the judgements and estimates made by the Group
in determining the fair values of the financial instruments.
(i) Financial instruments Measured at Fair Value
The financial instruments recognised at fair value in the Statement of
Financial Position have been analysed and classified using a fair value
hierarchy reflecting the significance of the inputs used in making the
measurements. At the reporting date, the Group had a convertible facility
with ARC. The US$ amount of the facility is convertible into ordinary shares
of the parent entity (Note 14).
(ii) Fair value hierarchy
The fair value hierarchy consists of the following levels
· Quoted prices in active markets for identical assets and
liabilities (Level 1);
· Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (as prices) or
indirectly (derived from prices) (Level 2); and
· Inputs for the asset and liability that are not based on observable
market date (unobservable inputs) (Level 3).
Level 1 Level 2 Level 3 Total
US$'000 US$'000 US$'000 US$'000
2022
Derivative liability - - 23,037 23,037
2021
Derivative liability - - 2,656 2,656
There were no transfers between levels for recurring fair value measurements
during the year. The Group's policy is to recognise transfers into and
transfers out of fair value hierarchy levels as at the end of the reporting
period.
(iii) Reconciliation: Level 3 fair value measurement
Year Year
ended ended
31 December 2022 31 December 2021
US$'000 US$'000
Derivative asset
Opening balance - 8,586
Fair value (loss) / gain recognised in profit and loss - (4,139)
Extinguished on issuance of equity - (4,447)
Closing balance - -
Derivative liability
Opening balance (2,656) -
Fair value at initial recognition (31,852) (2,015)
Fair value gain/(loss) recognised in profit and loss 10,807 (653)
Foreign exchange 664 12
Closing balance (23,037) (2,656)
(iv) Valuation technique used to determine fair value
Derivative liability:
The fair value is calculated with reference to market rates using industry
valuation techniques and appropriate models from a third-party provider. The
Monte-Carlo model utilised includes a high level of complexity and the main
inputs are share price volatility, risk margin, foreign exchange volatility
and UK risk-free rate. A number of factors are considered in determining these
inputs, including assessing historical experience but also considering future
expectations. The determined fair value of the option is multiplied by the
number of shares available for issue pursuant to the ZAR 200 Million Equity
Facility, ZAR 177 Million Equity Facility and the ZAR 550 Million Equity
Facility (refer to Note 14).
Valuation results (as at 31 December 2022)
Total loan amount Value per Number of Total Value
Facility (ZAR) share (p) Shares (GBP)
ZAR200m facility 200,000,000 2.30 219,272,939 5,043,278
ZAR177m facility 177,000,000 1.21 96,378,567 1,166,181
ZAR550m facility 442,500,000 2.72 471,819,613 12,833,493
Total 787,471,119 19,042,952
Sensitivity Valuation results (as at 31 December 2022) - Volatility
Total Value
(GBP) - 100% Total Value
historical (GBP) - 50%
Base volatility volatility historical
Facility assumption (75%) volatility (38%)
ZAR200m facility 57% 7,979,681 2,668,731
ZAR177m facility 57% 2,453,442 312,645
ZAR550m facility 57% 20,327,348 6,682,147
Total 30,760,471 9,663,523
Sensitivity Valuation results (as at 31 December 2022) - Risk Margin
Total Value Total Value
Base risk margin (GBP) - 7% (GBP) - 3%
Facility assumption risk margin risk margin
ZAR200m facility 5% 5,082,230 5,013,961
ZAR177m facility 5% 1,175,389 1,158,446
ZAR550m facility 5% 12,915,580 12,698,104
Total 19,173,199 18,870,511
Sensitivity Valuation results (as at 31 December 2022) - FX volatility
Total Value Total Value
(GBP) - 20% (GBP) - 10%
Facility Base FX volatility FX volatility FX volatility
ZAR200m facility 14% 4,680,397 5,322,515
ZAR177m facility 14% 1,017,667 1,285,233
ZAR550m facility 14% 11,855,707 13,508,493
Total 17,553,771 20,116,241
Sensitivity Valuation results (as at 31 December 2022) - UK risk-free rate
Total Value Total Value
(GBP) - UK rf (GBP) - UK rf
Facility Base UK risk-free rate + 2% -2%
ZAR200m facility 3.6% 4,716,201 5,405,789
ZAR177m facility 3.6% 1,074,410 1,267,672
zAR550m facility 3.6% 11,779,774 13,933,510
Total 17,570,385 20,606,971
(31) Financial risk management objectives
Capital risk management:
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
The capital structure of the Group consists of shareholder and external debt,
which includes loans and borrowings (excluding derivative financial
liabilities) disclosed in Notes 14 and 16 and equity as disclosed in the
Statement of Financial Position.
Shareholder and external third-party loans from foreign entities to South
African companies are subject to the foreign exchange controls as imposed by
the South African Reserve Bank ("SARB"). All inward loans into South Africa
require approval by the SARB and all loans in the current capital structure
have been approved by the SARB and all entities in the Group are compliant
with the SARB approvals relevant to the entity concerned and the approvals
granted by the SARB.
Liquidity risk:
Prudent liquidity risk management implies maintaining sufficient cash and
marketable securities, the availability of funding through an adequate amount
of committed credit facilities and the ability to close out market positions.
Due to the dynamic nature of the underlying businesses, Group treasury
maintains flexibility in funding by maintaining availability under committed
credit lines.
The Group's risk to liquidity is a result of obligations associated with
financial liabilities of the Group and the availability of funds to meet
those obligations. The Group manages liquidity risk through an ongoing review
of future commitments and credit facilities.
The table below analyses the Group's financial liabilities into relevant
maturity groupings based on the remaining period at the statement of
financial position to the contractual maturity date. The amounts disclosed in
the table are the contractual undiscounted cash flows. Balances due within 12
months equal their carrying balances as the impact of discounting is not
significant.
Less than Between Between Over five
one year one two and years
US$'000 and five years US$'000
two years US$'000
US$'000
At 31 December 2022
Shareholder loans payable - - 152,099 -
Trade and other payables 7,283 - - -
Finance leases - - - -
Other financial liabilities 17,233 11,747 - -
Total 24,516 11,747 152,099 -
Less than one year Between one and two years Between two and five years Over five years
US$'000 US$'000 US$'000 US$'000
At 31 December 2021
Shareholder loans payable - - 13,711 24,246
Trade and other payables 3,543 - - -
Finance leases 7 - - -
Other financial liabilities 5,676 15,950 11,509 -
Total 9,226 15,950 25,220 24,246
Credit risk:
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. The Group's
financial assets include trade and other receivables, loans receivable, other
financial assets and cash and cash equivalents.
Ongoing credit evaluation is performed on the financial conditions of the
counterparties to the trade and other receivables, loans receivable and other
financial assets. The Group only deposits cash with major banks with high
quality credit standing and limits exposure to any one counter-party. No
credit limits were exceeded during the reporting period, and management does
not expect any losses from non-performance by these counterparties.
Interest rate risk:
As the Group has significant interest-bearing assets, the Group's income and
operating cash flows are substantially dependent on changes in market
interest rates. At 31 December 2022, if interest rates on the shareholder and
BNP loans (denominated in US$) had been 1% higher/lower with all other
variables held constant, post-tax losses and equity for the year would have
been approximately US$ 769,000 (2021: US$ 541,000) higher/lower
respectively.
Foreign currency risk:
Foreign currency risk is the risk that the fair value of future cash flows of
an exposure will fluctuate because of changes in foreign exchange rates. The
Group's exposure to the risk of changes in foreign exchange rates relates
primarily to the Group's financing activities (when financial liabilities and
cash are denominated other than in a company's functional currency).
Most of the Group's transactions are carried out in South African Rand.
Foreign currency risk is monitored closely on an ongoing basis to ensure that
the net exposure is at an acceptable level.
The Group maintains a natural hedge whenever possible, by matching the cash
inflows (revenue stream) and cash outflows used for purposes such as capital
and operational expenditure in the respective currencies.
The Group's net exposure to foreign exchange risk was as follows:
Functional currency
South African Rand British Pound Total
As at 31 December 2022 US$'000 US$'000 US$'000
Financial assets denominated in US$ - 28 28
Financial liabilities denominated in US$ (43,260) - (43,260)
Net foreign currency exposure (43,260) 28 (43,232)
Functional currency
South African Rand British Pound Total
As at 31 December 2021 US$'000 US$'000 US$'000
Financial assets denominated in US$ - 313 313
Financial liabilities denominated in US$ (46,196) - (46,196)
Net foreign currency exposure (46,196) 313 (45,883)
Foreign currency sensitivity analysis:
The following tables demonstrate the sensitivity to a reasonably possible
change in South African Rand and GBP exchange rates, with all other variables
held constant.
The impact on the Group's profit before tax is due to changes in the fair
value of monetary assets and liabilities. The Group's exposure to foreign
currency changes for all other currencies is not material.
A 10% movement in the Rand and Pound against the US Dollar would
increase/(decrease) net assets by the amounts shown below. This analysis
assumes that all other variables, in particular interest rates, remain
constant.
As at As at
31 December 2022 31 December 2021
Increase/ Increase/
(Decrease) (Decrease)
US$'000 US$'000
Effects on net assets
Rand:
- strengthened by 10% (5,832) (4,620)
- weakened by 10% 5,832 4,620
Effects on net assets
GBP:
- strengthened by 10% (1,296) 31
- weakened by 10% 1,296 (31)
(32) Segment information
Operating segments
The Board of Directors consider that the Group has one operating segment,
being that of phosphate mining and exploration. Accordingly, all revenues,
operating results, assets and liabilities are allocated to this activity.
Geographical segments
The Group operates in two principal geographical areas - South Africa and the
RoC.
The Group's non-current assets by location of assets are detailed below.
South Group
Africa Congo US$'000
US$'000 US$'000
As at 31 December 2022
Total non-current assets 69,795 42,445 112,240
South Africa Group
US$'000 Congo US$'000
US$'000
As at 31 December 2021
Total non-current assets 136,431 44,663 181,094
(33) Non-controlling interests
31 December 31 December
2022 2021
US$'000 US$'000
As at beginning of year 5,778 5,729
Share of losses for the year (31,185) (4,471)
Share of other comprehensive income 142 (1,043)
Disposal of subsidiary - 181
Kropz plc's investment in non-redeemable preference shares of Kropz 5,411 5,382
Elandsfontein attributable to non-controlling interest
As at end of the year (19,854) 5,778
(34) Material subsequent events
The third drawdown on the ZAR 550 Million Equity Facility of ZAR 60 million
(approximately US$ 3.5 million) occurred on 25 January 2023.
The fourth drawdown on the ZAR 550 Million Equity Facility of ZAR 40 million
(approximately US$ 2.2 million) occurred on 27 February 2023.
First bulk shipment and sale of 33,000 tonnes of phosphate concentrate from
Kropz Elandsfontein was announced on 23 January 2023.
A second shipment and sale of 20,000 tonnes of phosphate concentrate from
Kropz Elandsfontein was announced on 14 March 2023.
During April 2023 two further shipments of 33,000 tonnes and 11,000 tonnes
were sold. A further 33,000 tonnes were sold in June 2023.
As announced on 14 March 2023, Kropz, Kropz Elandsfontein and ARC Fund agreed
to further ZAR 285 million (approximately US$ 15.5 million) bridge loan
facilities ("Loan 4") to meet immediate cash requirements at Kropz
Elandsfontein. A first draw down of ZAR 25 million (approximately US$ 1.4
million) on Loan 4 was made on 14 March 2023. Loan 4 is unsecured, repayable
on demand, with no fixed repayment terms and is repayable by Kropz
Elandsfontein on no less than two business days' notice. Interest is payable
on Loan 4 at the South African prime overdraft interest rate plus 6%, nominal
per annum and compounded monthly.
A second draw down on Loan 4 for an amount of ZAR 90 million was made on 28
March 2023 and a third drawdown of ZAR 30 million was made on 25 April 2023
and a fourth drawdown of ZAR 80 million was made on 23 June 2023.
(35) Ultimate controlling party
The Directors consider Ubuntu-Botho Commercial Enterprises Proprietary Limited
to be the ultimate controlling party of the Company.
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. END FR UKSOROWUBUARRecent news on Kropz
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