REG - Kropz PLC - Final Results for the Year ended 31 December 2021
30/06/2022 07:00
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RNS Number : 6978Q Kropz PLC 30 June 2022
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.
30 June 2022
Kropz Plc
("Kropz" or the "Company")
Final Results for the Year ended 31 December 2021,
Posting of Annual Report and Accounts
and
Notice of General Meeting
Kropz Plc (AIM: KRPZ), an emerging African producer and developer of plant
nutrient feed minerals, announces Final Results for the Year ended 31 December
2021 and the publication of the Company's Annual Report and Accounts.
The full financial report and Notice of General Meeting will be available
online shortly on the Company's website at www.kropz.com
(http://www.kropz.com/) and are being posted to shareholders today.
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 25 July 2022 at 1 p.m.
HIGHLIGHTS 2021
Key developments during the 2021 financial year
Corporate
· Activities during the year were focused on completion of construction
activities at Elandsfontein and finalisation of the Hinda updated feasibility
study ("Hinda Updated FS");
· Kropz Plc ("Kropz" or the "Company") secured a further convertible
loan facility of up to US$ 5 million (not exceeding a maximum of ZAR 85
million) from the ARC Fund ("ARC"), Kropz's major shareholder in February 2021
("Further Equity Facility"), used exclusively for the Hinda Updated FS and
general corporate purposes;
· The fourth drawdown on the convertible loan facility, secured from ARC
in June 2020, of up to US$ 40 million (not exceeding a maximum of ZAR 680
million) ("Original Equity Facility") occurred on 10 March 2021 for US$ 7
million;
· The first drawdown on the Further Equity Facility occurred on
10 March 2021 for US$ 2 million;
· The fifth drawdown on the Original Equity Facility occurred on
23 June 2021 for US$ 11 million;
· The second drawdown on the Further Equity Facility occurred on
23 June 2021 for US$ 2 million;
· The sixth and final drawdown on the Original Equity Facility
occurred on 10 September 2021 for US$ 3 million;
· The third drawdown on the Further Equity Facility occurred on
10 September 2021 for US$ 400,000;
· On 15 October 2021, Kropz secured a new conditional convertible
equity facility of up to ZAR 200 million (approximately US$ 13 million)
("New ZAR Equity Facility"), with ARC in order to deliver the Company's
Elandsfontein phosphate project to first revenue;
· The first drawdown on the New ZAR Equity Facility occurred on
26 October 2021 for ZAR 90 million (approximately US$ 6 million);
· The fourth drawdown on the Further Equity Facility occurred on
10 December 2021 for US$ 400,000;
· The second drawdown on the New ZAR Equity Facility occurred on 10
December 2021 for ZAR 37 million (approximately US$ 2 million);
· US$200,000 remained undrawn on the Further Equity Facility at 31
December 2021; and
· ZAR 73 million (approximately US$ 5 million) remained undrawn at 31
December 2021 on the New ZAR Equity Facility.
Elandsfontein
· Activities focussed on completion of construction and commissioning
activities at Elandsfontein;
· As announced on 9 September 2021, the appeal against the award of
the integrated Water Use Licence ("WUL") for the Elandsfontein project was
dismissed by the South African Water Tribunal. The appeal was lodged by a
small group calling themselves the West Coast Environmental Protection
Association ("WCEPA"), on 26 June 2017. The appeal was heard, over four
sittings, from October 2019 to February 2021;
· Mining activities commenced in October 2021, and significant volumes
of ore were made available to support commissioning ramp-up;
· In November 2021, earthworks, civil construction, fabrication and
erection of structural steel, platework and piping was completed and all
mechanical equipment installed;
· Pre-commissioning (C2) and cold commissioning (C3) activities
commenced in November 2021;
· Construction activities at Elandsfontein were completed in December
2021, under budget and on time;
· "First-fill" reagents, sourced in South Africa and imported from
the USA, were received on site in December 2021;
· On 23 December 2021, a major milestone was achieved when first ore
was introduced into the Elandsfontein plant; and
· As announced on 23 November 2021, Transnet provided Elandsfontein
with a draft port access agreement to support the long-term export of
Elandsfontein's phosphate rock through the port of Saldanha. Signature of the
contract is now being finalised between the parties. Exports through Cape Town
will only be required for a maximum of 350,000 tonnes of Elandsfontein's
export production of approximately 1 million tonnes per annum, and only if
capacity through Saldanha is unavailable for a limited period of time.
Hinda
· As announced on 4 February 2021, Kropz appointed Hatch Africa (Pty)
Ltd ("Hatch"), a global engineering and construction firm, to complete the
Hinda Updated FS;
· The updated Environmental and Social Impact Assessment ("ESIA") was
completed in December 2021 by WSP Global Inc ("WSP") out of Montreal, Canada;
· The updated ESIA was lodged with the Republic of Congo ("RoC")
Ministry of Environment in late December 2021; and
· Hatch completed the Hinda Updated FS and the outcomes, as detailed
below, were announced on 22 December 2021.
Aflao
· Kropz divested its 50% + 1 share interest in Aflao, as announced on
16 February 2021.
Key developments post the financial year end
Corporate
· 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
("PDMRs"). The issue of ordinary shares was due to awards vesting that had
been issued under its Long-Term Incentive Plan ("LTIP Awards") on 31 July 2020
and as announced on 4 August 2020;
· The fifth and final drawdown on the Further Equity Facility
occurred on 10 March 2022 for US$ 200,000;
· The third drawdown on the New ZAR Equity Facility occurred on 25
March 2022 for ZAR 40 million;
· The fourth drawdown on the New ZAR Equity Facility occurred on 26
April 2022 for ZAR 33 million;
· On 27 April 2022, Kropz announced that it had entered into an
agreement with ARC for a ZAR 25 million (approximately US$ 1.60 million)
bridge loan facility (the "Loan") to meet cash requirements in April 2022 and
draw down of the Loan took place on 28 April 2022;
· 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 ARC to fund Elandsfontein to
first revenues from bulk concentrate sales;
· The ZAR 177 Million Equity Facility 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
of the Loan, Kropz received an amount of ZAR 78.5 million (approximately US$ 5
million).
Elandsfontein
· The focus at Elandsfontein continues to be production ramp-up of
the mine and beneficiation plant, to reach nameplate capacity;
· To date, 5,000 tonnes of saleable concentrate have been produced
and are being stored in the Saldanha Bay storage facility;
· BNP Paribas ("BNP") released the ZAR 77 million restricted cash in
the bank account of Kropz Elandsfontein (Pty) Ltd ("Kropz Elandsfontein") on
10 January 2022, upon satisfaction of the requirement by BNP for Kropz to
bridge the funding shortfall in respect of Elandsfontein as announced on 1
September 2021. The funding shortfall was satisfied when the New ZAR Equity
Facility was secured from ARC;
· As announced on 27 April 2022, a further funding shortfall of ZAR 177
million was expected due to slower than expected progress in the ramp up of
operations at Elandsfontein;
· First bulk sales are now expected to move into Q3 2022 as a result
of early geological challenges in the mining area - higher than expected
volumes of indurated material is limiting the mining rate that can be achieved
with the current equipment on site;
· The delay was also driven by the need to re-engineer parts of the
fine flotation circuit as proposed by the vendor, but has also been affected
lack of operator expertise and experience; and
· Measures taken by management to address these issues are set out
later in the annual report.
Hinda
· Since 31 December 2021, management has been interrogating 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; and
· Development alternatives are being considered and potential funding
options investigated.
General
· The current and further potential effects of COVID-19, and the
possibility of further waves in South Africa and the RoC remain a risk to
Kropz's projects. Kropz has mitigated this risk as far as reasonably
practicable by compliance with the Kropz COVID-19 policies and procedures.
Kropz Plc
Mark Summers (CEO) +27 (0) 79 744 8708
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
R&A Strategic Communications PR (South Africa)
James Duncan +27 (0) 11 880 3924
james@rasc.co.za
About Kropz Plc
Kropz is an emerging African phosphate producer and developer with projects in
South Africa and 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,
The 31 December 2021 financial year was another challenging year, particularly
given the continued global COVID pandemic and associated impact on the global
economy.
Thankfully, the COVID pandemic had no significant impact on the conclusion of
construction activities at Elandsfontein. First ore was introduced into the
Elandsfontein plant in December 2021, on time and under budget, a significant
milestone given the challenges faced.
Hatch completed the Hinda Updated FS in late December 2021 and we are
encouraged by the outcome and conclusions. Management are interrogating the
findings and the next step would be to select the way forward for the
progression of the project and sourcing the required funding for its
development.
Thanks to the ARC Fund, Kropz's major shareholder, funding was secured to
complete the Elandsfontein project and ramp-up operations and complete the
Hinda Updated FS.
Progress continues to be made at Elandsfontein, but slower than expected
progress in the ramp-up of operations, as announced on 27 April 2022, resulted
in an additional funding requirement. Again ARC responded by agreeing to
provide the required ZAR 177 million required to see Elandsfontein through to
positive cash flow by way of a convertible equity facility.
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. 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 June 2022
Strategic Report for the year ended 31 December 2021
Market overview
Since February 2022, phosphate prices have reached new highs, largely due to
the sanctions imposed on Russia, following their invasion of the Ukraine.
Russia is a significant supplier of fertiliser feed products and associated
sanctions increased the prices of phosphate products significantly as
producers that relied on Russian sources sought to secure alternative sources
of amongst others, low cadmium phosphate rock. The cessation of exports of
phosphate products from China until mid-2022, has also inflated prices of
phosphate related fertilizers.
The phosphate rock market remains strong and has shown good interest in
Elandsfontein's low cadmium concentrate.
Significant changes in the state of affairs
Share issues
The issued share capital at 31 December 2020 was 558,627,558 ordinary shares
(2019: 283,406,307).
On 3 March 2021, Kropz announced the fourth drawdown of US$ 7 million of the
Original Equity Facility and the first drawdown of US$ 2 million under the
Further Equity Facility. These drawdowns resulted in the issue of 89,185,185
ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and
34,745,359 ordinary shares to ARC at an issue price of 4.20 pence per ordinary
share. The 123,930,544 ARC drawdown shares were admitted to trading on AIM on
10 March 2021.
On 16 June 2021, Kropz announced the fifth drawdown of US$ 11 million of the
Original Equity Facility and the second drawdown of US$2 million under the
Further Equity Facility. These drawdowns resulted in the issue of 140,148,148
ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and
34,745,359 ordinary shares to ARC at an issue price of 4.20 pence per ordinary
share. The 174,893,507 ARC drawdown shares were admitted to trading on AIM on
23 June 2021.
On 7 September 2021, Kropz announced the sixth drawdown of US$ 3 million of
the Original Equity Facility and the third drawdown of US$ 400,000 under the
Further Equity Facility. These drawdowns resulted in the issue of 38,222,222
ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and
6,949,072 ordinary shares to ARC at an issue price of 4.20 pence per ordinary
share. The 45,171,294 ARC drawdown shares were admitted to trading on AIM on
10 September 2021.
On 8 December 2021, Kropz announced the fourth drawdown of US$ 400,000 under
the Further Equity Facility. This drawdown resulted in the issue of 6,949,072
ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The
6,949,072 ARC drawdown shares were admitted to trading on AIM on 13 December
2021.
The issued share capital at 31 December 2021 was 909,571,975 ordinary shares
(2020: 558,627,558).
Projects
Elandsfontein
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.
Prior to 2021, in excess of US$ 135 million was spent at Elandsfontein on
project capital expenditure to construct 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 metallurgical test programme to define a robust
process circuit, to cater for all ore types present within the Elandsfontein
resource.
Elandsfontein's logistics are advantageous and allow for easy access to both
local and international markets.
Activity for the year ended 31 December 2021
The focus for the 2021 financial year was completion of the construction
activities on site. All major contracts were finalised to enable site
establishment by the mining and plant operators. Mining activities recommenced
in October 2021.
Mining and geology
The Elandsfontein resource is defined below, on a total (gross) and net
attributable basis. No further geological drilling was conducted in 2021.
Mineral Resource Statement, as declared by Snowden and SRK on 31 October 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 47.5 10.3 1.2 0.2 1.0 14.9 69.8 4.9
Indicated 30.3 5.1 1.2 0.1 0.9 7.1 82.9 1.6
Inferred 23.3 5.5 1.2 0.1 1.0 7.5 82.5 1.3
Total 101.1 7.7 1.2 0.2 0.9 10.9 75.9 7.8
Net Attributable (74% attributable to the Company)
Measured 35.2 10.3 1.2 0.2 1.0 14.9 69.8 3.6
Indicated 22.4 5.1 1.2 0.1 0.9 7.1 82.9 1.2
Inferred 17.2 5.5 1.2 0.1 1.0 7.5 82.5 0.9
Total 74.8 7.7 1.2 0.2 0.9 10.9 75.9 5.7
Plant and processing
Pre-commissioning (C2) and cold commissioning (C3) activities commenced in
November 2021 and construction activities at Elandsfontein were completed in
December 2021, under budget and on time. On 23 December 2021, a major
milestone was achieved when first ore was introduced into the Elandsfontein
plant.
Dewatering of the aquifer continues in accordance with the updated ground
water management plan.
The Department of Mineral Resources and Energy ("DMRE") issued a directive to
Kropz Elandsfontein during 2020 to upgrade its Environmental Management
Programme ("EMPr") in line with latest South African legislation. The updated
EMPr was submitted to the DMRE in September 2020. On 26 March 2021, management
received the updated EMPr for the Elandsfontein project from the DMRE. The
updated EMPr strongly emphasizes the adherence to the required rehabilitation
measures.
Offsets
In July 2020, Kropz Elandsfontein submitted a revised Offset Study to the
DMRE. Management informed the DMRE that the 2015 Offset Study for the
Elandsfontein project did not adequately consider Kropz Elandsfontein's
effective rehabilitation measures which have demonstrated successful
implementation over the past three growing seasons. Kropz Elandsfontein's
rehabilitation measures have been shown to guarantee future rehabilitation
success, if conducted in accordance with the approved mine rehabilitation plan
drafted by Kropz Elandsfontein's appointed rehabilitation specialist.
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.
Several appeals against the DMRE's decision have been lodged and are being
dealt with by the Department of Forestry, Fisheries and the Environment.
Water use licence ("WUL")
The outstanding appeal against the Elandsfontein WUL was heard from 1 to 4
February 2021. During this fourth sitting of the matter, final evidence was
presented to the Water Tribunal.
The Water Tribunal issued a directive to all parties, setting out the dates to
be met for heads of arguments, to allow a ruling in March 2021. The appellant
was subsequently granted numerous postponements for the submission of their
heads of arguments, which delayed the date of the ruling to September 2021.
As announced on 9 September 2021, the appeal was dismissed by the Water
Tribunal.
Safety, health and environment
As at 31 December 2021, the lost time injury frequency rate, per 200,000 man
hours, was 0.698 (2020 - zero). For the reporting period, three Lost Time
injuries were regrettably suffered during the construction phase. No
reportable and major environmental or safety incidents were reported during
the year.
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, the five-year closure plan was submitted
and subsequently accepted by the DMRE. Kropz Elandsfontein has commenced
with the development of the next iteration of the SLP for submission to the
DMRE in Q3 2022. 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:
· Education;
· Social wellness;
· Local economic development; and
· Urban reconstruction and infrastructure upgrades.
Through collaboration with the local community forum, various community
development projects continued during 2021 and the selection of new projects
will form part of the 2022 SLP.
Education support
During 2021 Kropz Elandsfontein continued to support the Hopefield Primary
School teacher's programme.
Metallurgical skills development
As a result of the strong drive to employ from within the local municipal
area, the commissioning of the plant necessitated skills development training
in metallurgy to ensure successful commissioning and operation of the
processing facility. This training was provided for the local employees who
were recruited as part of the plant operating team.
Small, medium, micro enterprise ("SMME") development
During 2021, the second phase of the SMME development programme was completed.
The focus during this phase was to assist the SMME's identified in the initial
phase through a digital enablement programme, boosting the digital
competencies of young start-ups in the community.
Adult matric certification
The previous two-year programme enabling individuals to complete their
secondary school qualification resumed in 2021. Nine adults obtained a pass
rate to qualify for their senior certificate at the end of 2021.
Thusong community centre upgrade
The construction of an additional classroom and meeting venues at the local
community centre was completed towards the end of 2021, with final handover in
early 2022. Opportunities are being investigated with other business
partners to review further projects at the Thusong community centre.
Kropz Elandsfontein continues to engage with the local community on a regular
basis.
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. Contract negotiations have been
finalised and final signature is expected prior to the shipment of first
product. Exports through Cape Town will potentially be required for no more
than 350,000 tonnes of Elandsfontein's production of approximately 1 million
tonnes per annum, if capacity through the port of Saldanha is unavailable for
a limited period of time.
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 RoC government. Hinda
consists of a sedimentary hosted phosphate deposit located approximately
40 km northwest 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.
Activity for the year ended 31 December 2021
In early 2020, Kropz completed a competitive tender for an updated feasibility
study for the Hinda project. Hatch was appointed in February 2021 to
complete the Hinda Updated FS, targeting a phased approach in line with the
terms of the mining investment agreement.
Hatch completed the Hinda Updated FS and the outcomes were announced on 22
December 2021.
Highlights
· 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 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 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 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;
· Estimated three-year execution schedule allows first revenue in
2025, assuming that the required funding is in place by the end of 2022; 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 phased approach was 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 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 optimise both capital and operating costs 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.
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 updated ESIA has been conducted in parallel with the
execution of the Updated FS and was submitted to the RoC Ministry of
Environment in December 2021.
Mining Investment Agreement ("MIA")
At the end of 2018, Kropz received the supervisory authority to initiate the
process of ratification of the Hinda exploitation convention or MIA, which
sets out the legal and fiscal framework under which Cominco S.A. would invest
and operate within the RoC. The MIA was signed by all parties on 10 July 2018
and ratified by the RoC Government on 8 November 2021.
Declaration d'Utilite 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 evaluates 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. This process is
undertaken in line with IFC and other relevant standards.
The main declaration of public utility (DUP) process covering an area of
33 km(2) was launched in September 2020. Public consultations were organized
by Cominco and CM2E. The initial land survey was carried out from end of
November 2020 until mid-January 2021. Following optimisation through the
Updated FS, the land footprint was reduced to 30 km(2).
The MIA states that expropriation costs and compensations are to be borne by
the government of the RoC.
General
In country, given the COVID pandemic, focus was on progressing the port
occupancy agreement and sustaining solid relations with the local communities.
Kropz maintains communications with a number of key stakeholders, including
government, and local service providers.
Mineral resources
The Hinda resource is defined below, on a total (gross) and net attributable
basis. No additional drilling was conducted in 2021.
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
Cominco S.A. continued its interactions with the local communities associated
with the Hinda project. On-going projects include the funding of teachers at
local schools, educational support for vulnerable children, and food security
projects through the establishment of nurseries.
Post reporting period events
The first phase of construction of a small office at the future construction
site near PK Mbili has been complete. Additional works are ongoing. The
routing for the 30 kV OHL has been finalised and surveyed, and the tie-in
point with the existing Mboundi power station has been confirmed.
A memorandum of understanding has been signed with Italian gas major, ENI, in
a move to secure the gas supply for the gas fired power plant and the
concentrate dryer, both located at the mine site. Discussions with the port
authority are ongoing to secure a port access agreement.
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 then to develop Hinda.
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 increasing ramp-up of
operations to achieve nameplate capacity and enable the first commercial bulk
shipment of phosphate rock concentrate while optimising process recoveries.
Full production capacity is expected in Q4 2022.
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 2021
Summary financial highlights for the year:
· Cash and cash equivalents of US$ 2 million (2020: US$ 12 million)
· Restricted cash in terms of the amended facility agreement between
Kropz Elandsfontein and BNP of US$ 5 million (2020: US$ 7 million). The
restricted cash was released by BNP on 10 January 2022;
· Various equity and debt raises as set out in "Highlights" on page
1;
· Trade and other payables of US$ 4 million (2020: US$ 5 million);
and
· Property, plant, equipment and development and exploration assets
of US$ 180 million (2020: US$ 159 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. The key performance indicators for the Company will be first bulk
production of phosphate rock from Elandsfontein, achieving steady state
production and the successful 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.
Ramp-up of Elandsfontein
The Elandsfontein project may require further funding to achieve steady state
operations in Q4 2022. 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. Further, see risk factor:
COVID outbreak.
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 Group's principal asset, the Elandsfontein project, is an early stage
mining and production project that has no operating track record upon which to
base estimates of future production rates, operating costs, capital
expenditures or financial performance. The operational targets of the Group
will be subject to the completion of planned operational goals on time and
according to budget, and are dependent on the effective support of personnel,
systems, procedures and controls. Any failure of these may result in delays in
the achievement of operational targets with a consequent material adverse
impact on the business, operations and financial performance of the Group. It
is, therefore, possible that mining and production rates might fluctuate.
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. Further, mining and production rates might fluctuate.
Excessive overburden stripping, non-economical mining of ore and the dilution
of feed grade to the processing facility could all have an adverse impact on
the processing operations. Furthermore, a 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 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.
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 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.
COVID outbreak
The outbreak of COVID has had an impact on the Group's businesses and
operations and will continue to do so. The timescale attached to this risk is
not currently known. There is a risk that the outbreak, and subsequent waves
of infections in different countries, has a material adverse impact on the
Group's operations and financial results.
Directives are issued and measures implemented, from time to time, by the
South African and RoC Governments to contain the spread of COVID involving
lockdowns, curfews, quarantine requirements and travel restrictions
("Directives"). Kropz continuously monitors the situation closely, both in
South Africa and the RoC, and codes of practice are in place to deal with
outbreaks on site.
Kropz is currently unable to quantify the impact of the Directives going
forward, but the Group will continue to progress all its workstreams as
previously outlined.
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, RoC and other governments. 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 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 necessities 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 55.
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 39 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 page 39.
Board of 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 11 and the execution · The other existing substantial shareholders have regular meetings
project in South Africa. 26% is owned by ARC. thereof. and 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 2021, the Company completed the Further Equity Facility for US$ 5
ARC. strategic objectives. · ARC have representatives on the Kropz Elandsfontein and ELH Boards million and the New ZAR Equity Facility for ZAR 200 million, both with ARC.
of Directors in terms of the respective shareholder's agreements; and
· Regular Board meetings are held.
Kropz Elandsfontein may require further funding to complete the ramp up at During the course of 2021, the percentage of shares held in public hands
In terms of the additional facilities and capital injection prior to 31
Elandsfontein and Cominco Resources requires further funding to develop Hinda. decreased and the overall daily volume of shares traded increased. December 2021, ARC will potentially acquire a total further 3.2% interest in
the Company, eventually taking its 83.7% interest at December 2021, to 86.9%.
Prospective and existing investors
As such, existing equity investors and potential investment partners are · The AGM and Annual and Interim Reports;
important stakeholders.
At the Company's AGM held on 30 June 2021 all resolutions were duly passed
· Investor roadshows and presentations; with at least 96% votes in favour demonstrating broad shareholder support.
· One on one investor meetings with the Chairman and/or CEO;
· Access to the Company's broker and advisers; At the Company's general meeting held on 23 July 2021 all resolutions were
duly passed with 100% of the votes cast in favour of resolutions proposed.
· Regular news and project updates; and
· Social media accounts e.g. Twitter @Kropzplc;
At the Company's general meeting held on 15 October 2021 all resolutions were
· Site visits for potential cornerstone investors. 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.
BNP that commenced in September 2016.
· 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
ongoing progress. management 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 non-executive Director and executive team remuneration in 2018 at the time of
South African resident Directors. and 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. The CEO allocates
Board reporting has been optimised to include sections on engagement with
35% of his time to matters relating to the Company in the UK. · 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 of 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 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 Stakeholder identification has enabled the Company to ensure that
government and 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
The local community in Hopefield and the greater Saldanha Bay municipal area government 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
Similarly, the communities surrounding Hinda will provide employees to the and 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, See page 8 of the strategic report for an update on the potential transport
consultants 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 Smaller local vendors were engaged at a broader level to better align with
to meet requirements; company objectives.
Using quality suppliers ensures that as a
· Contact with procurement department and accounts payable; and
The Company also relies on a number of supply and maintenance contracts to business, the high
ensure ongoing operations.
· Assist local suppliers to address liquidity challenges.
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 2021
Divestment by the Company of its equity interest in Aflao, Ghana, entered into
on 16 February 2021
During 2020, the Board agreed to divest from its 50% plus 1 share interest in
First Gear Exploration Limited ("FGE"), the owner of the Aflao prospecting
right. During February 2021, Kropz disposed of its interest in FGE to
Consortium Minerals Ltd ("Consortium"), for a consideration of US$ 327,529,
made up as follows:
· US$ 5,000 in cash ("Share Consideration"); and
· US$ 322,529 ("Loan Consideration") deferred cash consideration in
respect of the shareholder loan from Kropz to FGE, which is being novated to
Consortium.
The Share Consideration was payable by Consortium within seven days of
completion. The Loan Consideration will be payable by Consortium to Kropz
upon, the earlier of,
(i) the sign-off by a competent person of a definitive feasibility
study on the Aflao deposit, as defined in the JORC Code 2012 edition; or
(ii) Consortium disposing or transferring the Shares prior to the event
described in (i) being achieved; or
(iii) Consortium disposing or transferring the prospecting right prior to
the event described in (i) being achieved.
Consortium is a subsidiary of Russell Brooks Ltd, who is a minority
shareholder in FGE, with a 15% shareholding prior to the acquisition from
Kropz.
The decision is aligned with the business model set out in the Company
strategy, which was to invest in high quality assets in the phosphate rock
market.
In making the above principal decisions, the Directors believe that they have
considered all relevant stakeholders, potential impact and conflicts, the
Company's business model and its long-term strategic objectives, and have
acted accordingly to promote the success of the Company for the benefit of its
members as a whole.
Convertible loan facility for US$ 5 million from ARC, entered into on 15
February 2021
Kropz secured the Further Equity Facility of up to US$ 5 million (not
exceeding a maximum of ZAR 85 million) from ARC in February 2021, to be used
exclusively for the Hinda Updated FS and general corporate purposes for Kropz.
Quarterly drawdowns under the Equity Facility are at the sole discretion of
Kropz. The first draw down of US$ 2 million on the Further Equity Facility
occurred on 10 March 2021, the second draw down of US$ 2 million occurred on
23 June 2021, the third drawdown of US$ 400,000 occurred on 10 September 2021
and the fourth drawdown of US$ 400,000 occurred on 10 December 2021. The fifth
and final drawdown of the Further Equity Facility occurred on 10 March 2022.
No specific shareholder approval was required for the Further Equity Facility
as the Company received the necessary authority at the AGM in August 2020 to
allot shares for cash, without first offering them to existing shareholders in
proportion to their existing shareholdings, of approximately 20% of the
Company's issued share capital at that time, representing 88,792,180 new
ordinary shares. Ordinary shares to be issued to ARC in terms of the Further
Equity Facility will be a maximum of 86,863,398 ordinary shares.
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, 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.
The key stakeholder groups that could be materially impacted are existing
shareholders and potential investors.
Existing shareholders may have conflicting interests with the Further 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 Hinda Update FS and for general working
capital for the Group. 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 funding required for the Hinda
Updated FS and Kropz's working capital requirements.
Due to the fact that Machiel Reyneke, the ARC representative 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 US$ 5 million Further Equity Facility by the Board. The independent,
non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle,
and the CEO, Mark Summers, considered the transaction to be fair and
reasonable.
As a result of the Further Equity Facility, ARC could increase its interest in
the Company by a further approximate 2%, taking its eventual interest in the
Company to approximately 84%.
The conclusion was that the Further Equity Facility was fair and reasonable,
and the transaction was approved by the independent Directors, in consultation
with the nominated adviser, and announced on RNS on 26 February 2021.
Convertible loan facility for ZAR 200 million from ARC, entered into on 29
September 2021
Kropz secured the New ZAR Equity Facility of up to ZAR 200 million from ARC in
September 2021, to be used exclusively for the delivery of the Company's
Elandsfontein project to first revenue.
The New ZAR Equity Facility comprised a total commitment of up to ZAR 200
million provided by ARC, which can be drawn down at the discretion of Kropz,
as follows:
· ZAR 127 million from 15 October 2021 and up to 30 April 2022; and
· ZAR 73 million from the date as determined by ARC, and at its
discretion, but no earlier than 15 October 2021 and until a further date as
determined by ARC.
At any time during the term of the New ZAR Equity Facility, repayment of the
New ZAR 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 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 New
ZAR Equity Facility.
The New ZAR Equity Facility would bear interest at 14% per annum and would
be compounded monthly ("Interest"). Interest would be payable in cash to ARC
by the Company. The term of the New ZAR Equity Facility would be from 15
October 2021, to the earlier of 5 years from 15 October 2021, or one year
after the term loan facility provided by BNP Paribas to Kropz Elandsfontein
(Pty) Ltd (in the amount not exceeding US$ 30 million), had been repaid.
The New ZAR Equity Facility was secured by the shares which Kropz holds in
Cominco Resources Ltd ("Share Charge").
The first draw down of ZAR 90 million on the New Equity Facility occurred on
26 October 2021 and the second draw down of ZAR 37 million occurred on 10
December 2021.
Post 31 December 2021, the third drawdown of ZAR 40 million occurred on 16
March 2022 and the fourth drawdown of ZAR 33 million occurred on 26 April
2022. The New ZAR Equity Facility is fully drawn at the date of this annual
report.
Specific shareholder approval was required for the New ZAR Equity Facility,
which shareholder approval was obtained on 15 October 2021. Ordinary shares to
be issued to ARC in terms of the New ZAR Equity Facility, if so elected by
ARC, would be a maximum of 219,304,517 ordinary shares.
The key stakeholder groups that could be materially impacted are existing
shareholders and potential investors.
Existing shareholders may have conflicting interests with the New ZAR 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, the ARC representative 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 New ZAR Equity Facility by the Board. The independent, non-executive
Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO,
Mark Summers, considered the transaction to be fair and reasonable.
As a result of the New Equity Facility, ARC could increase its interest in the
Company by a further approximate 3%, taking its eventual interest in the
Company to approximately 87%.
The conclusion was that the New ZAR Equity Facility was fair and reasonable
and the transaction was approved by the independent Directors, in consultation
with the nominated adviser, and announced on RNS on 29 September 2021.
Post 31 December 2021
As announced on 18 January 2022, Kropz 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 PDMRs. The issue of ordinary
shares are due to awards vesting and issued under its LTIP Awards, issued on
31 July 2020 as announced on 4 August 2020. Of the total above, 2,350,000
ordinary shares were issued to Mark Summers, 2,350,000 ordinary shares to
Michelle Lawrence and 1,000,000 to Patrick Stevenaert.
BNP Paribas released the ZAR 77 million restricted cash in the bank account of
Kropz Elandsfontein (Pty) Ltd on 10 January 2022, upon satisfaction of the
requirement by BNP Paribas for the Group to bridge the funding shortfall in
respect of Elandsfontein as announced on 1 September 2021. The funding
shortfall was satisfied when the New ZAR Equity Facility was secured from ARC.
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 New ZAR 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") to
meet immediate cash requirements at Elandsfontein at the end of April 2022,
expected to be ZAR 58 million. When the ZAR 177 Million Equity Facility
becomes unconditional, the Loan will be 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 can be drawn down at the discretion of ARC.
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.
The first drawdown of ZAR 103.5 million was made on 2 June 2022. Following a
Further Conversion, the Company would apply for the newly issued Ordinary
Shares in the capital of the Company to be admitted to trading on AIM.
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 conditional on:
· approval from the SARB. The SARB application was lodged on 17 May
2022 and the approval received on 1 June 2022; and
· shareholder approval of the Company which was received on 30 May
2022.
The ZAR 177 million Equity Facility was above the authorisation limits given
at the last 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 New ZAR 177 Million Equity Facility, if so elected by ARC, would
be a maximum of 96,378,566 ordinary shares.
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 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, the ARC representative 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 US$ 5 million Further Equity Facility by the Board. The independent,
non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle,
and the CEO, Mark Summers, considered the transaction to be fair and
reasonable.
As a result of the New ZAR Equity Facility and the ZAR 177 Million Equity
Facility, ARC could increase its interest in the Company by a further
approximate 4.3%, taking its eventual interest in the Company to approximately
87.5%.
The conclusion was that the ZAR 177 Million Equity Facility was fair and
reasonable and the transaction was approved by the independent Directors, in
consultation with the nominated adviser, and announced on RNS on 11 May 2022.
This Strategic Report was approved by the Board of Directors.
Mark Summers
Chief Executive Officer
28 June 2022
Consolidated Statement of Financial Position
As at 31 December 2021
31 December 31 December 31 December
2021 2020 2019
Notes US$'000 US$'000 US$'000
(Restated - Note 2) (Restated - Note 2)
Non-current assets 135,099 114,473 105,224
Property, plant, equipment and mine development
4
Exploration assets 5 44,631 44,348 40,192
Right-of-use asset 6 7 45 37
Other financial assets 7 1,357 1,477 1,534
181,094 160,343 146,987
Current assets
Inventories 8 1,025 821 875
Trade and other receivables 9 1,511 1,611 329
Derivative asset 10 - 8,586 -
Restricted cash 11 4,858 7,355 -
Cash and cash equivalents 12 2,461 11,572 15,530
9,855 29,945 16,734
190,949 163,721
TOTAL ASSETS 190,288
Current liabilities
Trade and other payables 19 3,543 4,780 1,536
Lease liabilities 16 7 42 19
Other financial liabilities 17 4,295 2,500 29,982
Current taxation 27 - - 174
Other tax liabilities - - 451
7,845 7,322 32,162
Non-current liabilities
Shareholder loans and derivative 15 25,043 15,703 14,701
Lease liabilities 16 - 6 21
Other financial liabilities 17 26,291 28,113 -
Provisions 18 4,033 4,311 3,702
55,367 48,133 18,424
63,212 50,586
TOTAL LIABILITIES 55,455
NET ASSETS 127,737 134,833 113,135
Consolidated Statement of Financial Position
As at 31 December 2021 (continued)
31 December 31 December 31 December
2021 2020 2019
Notes US$'000 US$'000 US$'000
(Restated - Note 2) (Restated - Note 2)
Shareholders' equity
Share capital 13 1,194 706 363
Share premium 13 / 14 193,524 168,212 147,339
Merger reserve 13 / 14 (20,523) (20,523) (20,523)
Foreign exchange translation reserve 14 (7,807) 2,334 53
Share-based payment reserve 14 1,197 385 167
Accumulated losses (45,626) (22,010) (18,655)
Total equity attributable to the owners of the Company 121,959 129,104 108,744
Non-controlling interests 34 5,778 5,729 4,391
127,737 134,833 113,135
The notes 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:
Mark Summers
Chief Executive Officer
28 June 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes US$'000 US$'000
Revenue - -
Other income 172 29
Operating expenses 23 (6,503) (5,912)
Operating loss (6,331) (5,883)
Finance income 22 480 1,244
Finance expense 25 (7,391) (5,914)
Fair value (loss) / gains from derivative asset / liability 31 (4,792) 8,586
Loss on disposal of subsidiary 26 (224) -
Loss before taxation (18,258) (1,967)
Taxation 27 - 36
Loss after taxation (18,258) (1,931)
(Loss) / profit attributable to:
Owners of the Company (13,787) 1,531
Non-controlling interests (4,471) (3,462)
(18,258) (1,931)
Loss for the year (18,258) (1,931)
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
· Exchange differences on translation of parent company financial (643) 1,922
statements from functional to presentation currency
· Exchange differences on translating foreign operations (10,541) 273
Total comprehensive (loss) / income (29,442) 264
Attributable to:
Owners of the Company (23,928) 3,812
Non-controlling interests (5,514) (3,548)
(29,442) 264
(Loss) / profit per share attributable to owners of the Company:
Basic (US cents) 28 (1.80) 0.40
Diluted (US cents) 28 (1.80) 0.39
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
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$'000
Balance at 1 January 2020, as previously reported 363 147,339 (20,523) 53 (12,536) (1,728) 113,135
167 114,863
Prior year adjustment - - - - - (6,119) (6,119) 6,119 -
As restated 363 147,339 (20,523) 53 167 (18,655) 108,744 4,391 113,135
Total comprehensive profit / - - - 2,281 1,531 3,812 (3,548) 264
(loss) for the year -
Issue of shares 343 21,173 - - - - 21,516 - 21,516
Cost of issuing shares - (320) - - - - (320) - (320)
Issue of warrants - (10) - - 10 - - - -
Lapsed warrants - 30 - - (30) - - - -
Investment in non-redeemable preference shares of Kropz Elandsfontein - - - - - (4,886) (4,886) 4,886 -
Share based payment charges - - - - 238 - 238 - 238
Transactions with owners 343 20,873 - - 218 (4,886) 16,548 4,886 21,434
Balance at 31 December 2020 as restated 706 168,212 (20,523) 2,334 385 (22,010) 129,104 5,729 134,833
Total comprehensive loss - - - (10,141) - (13,787) (23,928) (5,514) (29,442)
for the year
Issue of shares 488 25,312 - - - - 25,800 - 25,800
Disposal of subsidiary - - - - - - - 181 181
Extinguishment of derivative asset upon equity draw down - - - - - (4,447) (4,447) - (4,447)
Investment in non-redeemable preference shares of Kropz Elandsfontein - - - - - (5,382) (5,382) 5,382 -
Share based payment charges - - - - 812 - 812 - 812
Transactions with owners 488 25,312 - - 812 (9,829) 16,783 5,563 22,346
Balance at 31 December 2021 1,194 193,524 (20,523) (7,807) 1,197 (45,626) 121,959 5,778 127,737
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
Year ended Year ended
31 December 2021 31 December 2020
Notes
US$'000 US$'000
(Restated - Note 2)
Cash flows from operating activities
Loss before taxation (18,258) (1,967)
Adjustments for:
Depreciation of property, plant and equipment 4 904 780
Amortisation of right-of-use assets 6 39 51
Share-based payment charge 13 812 238
Finance income 22 (480) (1,244)
Finance costs 25 3,267 2,948
Fair value (loss) / gain on derivative asset / liability 31 4,792 (8,586)
Debt modification loss 17 - 1,109
Debt modification present value adjustment 25 (258) (119)
Foreign currency exchange differences 4,382 1,858
Fair value loss on game animals 4 (51) 18
Operating cash flows before working capital changes (4,851) (4,914)
Decrease / (increase) in trade and other receivables 29 256 (1,278)
(Increase) / decrease in inventories 29 (291) 17
Increase in trade and other payables 29 3,178 28
Decrease in other tax liabilities - (388)
(1,708) (6,535)
Income taxes paid - (128)
Net cash flows used in operating activities (1,708) (6,663)
Cash flows used in investing activities
Purchase of property, plant and equipment 4 (38,553) (10,927)
Exploration and evaluation expenditure 5 (3,931) (257)
Disposal of subsidiary 26 5 -
Finance income received 22 480 1,244
Transfer from / (to) restricted cash 11 2,497 (7,355)
Net cash flows used in investing activities (39,502) (17,295)
Cash flows from financing activities
Finance costs paid 25 (2,028) (2,079)
Shareholder loan received 15 8,037 411
Repayment of lease liabilities 16 (39) (53)
Other financial liabilities 29 54 (464)
Issue of ordinary share capital 13 25,800 21,516
Costs of share issues 13 - (320)
Net cash flows from financing activities 31,824 19,011
(9,386) (4,947)
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year 11,572 15,530
Foreign currency exchange gains / (losses) on cash 275 989
Cash and cash equivalents at end of the year 2,461 11,572
Notes to the Consolidated Financial Statements for the year ended 31 December
2021
(1) General information
Kropz is an emerging plant nutrient producer with an advanced stage phosphate
mining project in South Africa and a 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.
The Group holds interests in two projects - in South Africa and the RoC.
(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 2021, the Group incurred a loss of US$ 18.3
million (2020: US$ 1.9 million) and experienced net cash outflows from
operating activities. Cash and cash equivalents totalled US$ 2.5 million as at
31 December 2021 (2020: US$ 11.6 million) and US$ 4.9 million (2020: US$ 7.4
million) was restricted in terms of the amended facility agreement between
Kropz Elandsfontein and BNP. ZAR 77 million (approximately US$ 4.9 million)
was locked up by BNP in the accounts of Kropz Elandsfontein in terms of the
BNP amended facility agreement at 31 December 2021. On 10 January 2022, BNP
released the restricted funding of ZAR 77 million.
Apart from forecast first revenue from Elandsfontein, the Group has no current
source of operating revenue and is therefore dependent on both existing cash
resources and facilities and future fund raisings to meet overheads and future
exploration requirements as they fall due.
In September 2021, Kropz secured the New ZAR Equity Facility of up to ZAR 200
million from ARC, to be used exclusively for the purposes of bringing the
Elandsfontein project to first revenues. On 26 October 2021, Kropz received a
draw down on the New ZAR Equity Facility of ZAR 90 million and a further ZAR
37 million on 10 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
New ZAR Equity Facility is fully drawn at the date of this report.
In April 2022, ARC agreed to provide a ZAR 25 million (approximately US$ 1.6
million) bridge loan facility (the "Loan") to Kropz Elandsfontein (Pty) Ltd to
meet its immediate cash requirements. The Loan was unsecured, repayable on
demand, and there were no fixed repayment terms. It is repayable by Kropz on
no less than two business days' notice. Interest is payable on the Loan at 14%
nominal, compounded monthly. The Loan was drawn down on 28 April 2022.
In May 2022, Kropz secured a Further ZAR Equity Facility of up to ZAR 177
million from ARC. The ZAR 177 Million Equity Facility can be drawn down
following a written request from Kropz plc and at the discretion of ARC. The
principal drawn amount may, at the discretion of ARC, at any time be converted
to ordinary shares, or alternatively be repaid in cash at the end of the term
of the ZAR 177 Million Equity Facility which is 27 October 2026. The ZAR 177
Million Equity Facility is 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. The delay in ramp-up was largely
driven by the need to re-engineer parts of the fine flotation circuit proposed
by the vendor, but has also been affected by early unpredicted ore variability
and lack of operator experience. Since the announcement, the vendor has
provided design changes which were implemented at the plant, additional
operator training was conducted and is ongoing and a mobile crusher ordered 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
are being investigated, and new equipment has arrived on site to improve the
mining efficiency and facilitate adequate feed to the plant.
First drawdown of the ZAR 177 Million Equity Facility of ZAR 103.5 million
was made on 2 June 2022. The Loan of ZAR 25 million was set off against the
first draw down and the net amount of ZAR 78.5 million received by the
Company.
During 2021, due to second/third waves of the COVID-19 pandemic and cases
diagnosed with new variants of the virus, some jurisdictions reimposed
lockdowns and movement restrictions. Further waves are expected in 2022. The
Company has developed a policy and is evolving procedures to address the
health and wellbeing of its employees, consultants and contractors, and their
families, in the face of the COVID outbreak. The timing and extent of the
impact and recovery from COVID is unknown but it may affect planned
activities.
On 24 February 2022, Russian troops started invading Ukraine. The war in
Ukraine and related events take place at a time of significant global economic
uncertainty and volatility, and the effects are likely to interact with and
exacerbate the effects of current market conditions. Phosphate markets are
currently in turmoil, largely due to the sanctions imposed on Russia. Russia
is a significant supplier of fertiliser feed products and associated sanctions
increased the prices of phosphate products significantly as producers that
relied on Russian sources scrambled to secure alternative sources of amongst
others, low cadmium phosphate rock. Kropz does not have Russian entities in
its supply chain nor customers and will benefit from higher phosphate prices.
Current budgeted estimates are based on first bulk concentrate sales from
Kropz Elandsfontein of approximately ZAR 50 million in July 2022, at an
average of ZAR 159 million per month for the 18-month period ended 31
December 2023. Should first bulk concentrate sales not occur in July 2022, a
funding shortfall would arise in Kropz Elandsfontein at the end of July 2022
of approximately ZAR 50 million.
Failure to produce adequate quantities of phosphate rock concentrate to fulfil
these first bulk sales in the projected time frame, could negatively impact
production ramp-up and cash generation and create an additional funding
requirement. The average operating costs over the 18-month forecast period for
Kropz Elandsfontein is estimated at approximately ZAR 130 million per month.
This will have a further knock-on effect on Kropz Plc as its cashflows are
dependent on concentrate revenues being achieved by Kropz Elandsfontein.
Additionally, at the date of these financial statements, the potential future
impact of COVID is uncertain, and any delays or interruptions could cause
delays that would require additional funding through the raising of debt or
equity.
The Directors have reviewed the Group's overall cash position, debt repayments
and outlook, for a period of eighteen months following the date of signature
of this Annual Report and have considered sensitivities around pricing, volume
and timing of production and stress tested various scenarios, in respect of
the matters identified above and are of the opinion that it is appropriate to
adopt the going concern basis of accounting in preparing these financial
statements. Key contracts associated with operational readiness and
commencement of production activities at Elandsfontein are finalised, except
for Transnet. Negotiations with Transnet were finalised in December 2021 and
final signature of the Transnet contract is expected prior to the shipment of
first concentrate sales.
Management has successfully raised money in the past from its supportive
shareholder base, but there is no guarantee that adequate funds will be
available if needed in the future. These circumstances indicate the existence
of a material uncertainty which may cast significant doubt about 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 2021
Two new standards impacting the Group that have been adopted in the annual
financial statements for the year ended 31 December 2021:
· COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendments
to IFRS 16); and
· Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS4 and IFRS 16).
The Group has considered the above new standards and amendments and has
concluded that,
they are either not relevant to the Group or they do not have a significant
impact on the Group's
consolidated financial statements.
(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. The
Group does not believe that the amendments will have a significant impact,
with the exception of IAS 16 which will be relevant once the Group generates
sales in 2022, which impact is currently being analysed by management.
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 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).
Prior year adjustments
(i) Restatement of prior year statement of cash flows
The Group has restated certain prior year comparatives to correctly present
amounts in the Group financial statements for the year ended 31 December 2021.
The prior year cash flow incorrectly included non-cash movements related to
interest accrued, non-cash movements in provisions and the non-cash debt
modification loss, together with misclassification of trade payables directly
associated with capitalised cost to property, plant and equipment in
calculating the actual cash flow for certain line items.
Accordingly the prior year statement of cash flows and note 29 have been
restated to correct these errors. The restatement had no impact on the
statement of comprehensive income, the statement of financial position or the
statement of changes in equity.
Impact on adjustment on the consolidated statement of cash flows
Year ended Prior year adjustment Year ended
31 December 2020 31 December 2020
US$'000 US$'000 US$'000
(As previously stated) (As re-
stated)
Cash flows from operating activities
Foreign currency exchange differences 261 1,597 1,858
Increase / (decrease) in provisions 765 (765) -
Increase in trade and other payables 3,356 (3,328) 28
Cash flows used in investing activities
Purchase of property, plant and equipment (14,589) 3,662 (10,927)
Cash flows from financing activities
Finance costs paid (2,948) 869 (2,079)
Shareholder loan received 1,624 (1,213) 411
Other financial liabilities 1,935 (2,399) (464)
Foreign currency exchange (losses) / gains on cash (588) 1,577 989
(ii) Restatement of prior year non-controlling interest
Previously the preference share investment by Kropz plc in Kropz Elandsfontein
was incorrectly recorded as inter-company liability measured at the total
amount paid for the investment and eliminated on consolidation with no
resulting impact on non-controlling interest. The group has identified that
the instrument should have been measured at fair value with a residual equity
element in Kropz Elandsfontein for the amounts paid in excess of their value.
Accordingly the restatement reflects the benefit accruing to the
non-controlling interests arising from their proportionate share of the
portion of the preference share investment treated as equity. This increases
the net assets of Kropz Elandsfontein and therefore gives rise to a
consequential impact on non-controlling interest.
Impact on adjustment on the consolidated statement of changes in equity
Year ended Year ended Year ended
31 December 2020 31 December 2019 31 December 2018
US$'000 US$'000 US$'000
Increase in non-controlling interest 4,886 1,370 4,749
Decrease in retained earnings (4,886) (1,370) (4,749)
Effect on total equity - - -
(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 identified ore*
* 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 5.22%, being an average LIBOR 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 are 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.
(i) 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 is the higher of
its fair value less costs to sell and its value in use.
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 13 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) Control over the activities of First Gear
The acquisition of First Gear by the Company was accounted for on the basis of
the Company having control with effect from acquisition and holding 50% plus
one share. Management considered that it controlled First Gear as this holding
gave the Company control over its strategic, operational and financing
decisions.
(ii) 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, estimates of recoverable amount must be determined
as the higher of the estimated value in use or the estimated fair value less
costs to sell.
(iii) 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 32 for sensitivity
analysis of foreign exchange risk.
(iv) Decommissioning and rehabilitation provisions (Note 18)
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
Department of Mineral Resources, have been used to estimate future
rehabilitation costs.
(v) 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.
(vi) 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.
(vii) 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 10, 15 and 31 to the
Consolidated Financial Statements.
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 2021 an impairment indicator
assessment was performed and no impairment indicators were considered to
exist. 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.
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 10, 15 and 31 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.
Subsidiaries of the Group
The subsidiaries of the Group, all of which are private companies limited by
shares, as at 31 December 2021, 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 2021 31 Dec 31 Dec 31 Dec 2020 31 Dec 31 Dec
2021 2021 2020 2020
Cost Accumulated Carrying value Cost Accumulated Carrying value
Depreciation Depreciation
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Buildings and infrastructure
Land 1,515 - 1,515 2,067 - 2,067
Buildings 10,514 (56) 10,458 11,003 (12) 10,991
Capitalised road costs 8,121 (2,978) 5,143 8,824 (2,647) 6,177
Capitalised electrical sub-station costs 3,523 (1,213) 2,310
3,828 (1,063) 2,765
Machinery, plant and equipment
Critical spare parts 1,713 - 1,713 1,285 - 1,285
Plant and machinery 86,243 (63) 86,180 66,683 (74) 66,609
Water treatment plant 2,435 - 2,435 1,129 - 1,129
Furniture and fittings 49 (40) 9 44 (41) 3
Geological equipment 65 (45) 20 47 (47) -
Office equipment 32 (21) 11 35 (17) 18
Other fixed assets 1 (1) - 1 (1) -
Motor vehicles 100 (100) - 128 (128) -
Computer equipment 65 (41) 24 47 (42) 5
Mine development 18,938 - 18,938 20,046 - 20,046
Stripping activity costs 6,126 - 6,126 3,193 - 3,193
Game animals 217 - 217 185 - 185
Total 139,657 (4,558) 135,099 118,545 (4,072) 114,473
Reconciliation of property, plant, equipment and mine development - Year ended
31 December 2021
Opening Additions Fair value gain Depreciation charge Foreign exchange gain/loss Closing balance
Balance US$'000 US$'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
Reconciliation of property, plant, equipment and mine development - Year ended
31 December 2020
Opening Additions Depreciation charge Foreign exchange gain/loss Closing balance
Balance US$'000 Fair value loss US$'000 US$'000 US$'000
US$'000 US$'000
Buildings and infrastructure
Land 2,159 - - - (92) 2,067
Buildings 11,480 - - (2) (487) 10,991
Capitalised road costs 7,064 - (529) (358) 6,177
-
Capitalised electrical sub-station costs 3,154 - (230) (159) 2,765
-
Machinery, plant and equipment
Critical spare parts 1,213 123 - - (51) 1,285
Plant and machinery 56,284 12,712 - (5) (2,382) 66,609
Water treatment plant - 1,129 - - - 1,129
Furniture and fittings 3 1 - (1) - 3
Geological equipment - - - - -
-
Office equipment 24 1 - (5) (2) 18
Other fixed assets - - - - - -
Motor vehicles 6 - - (5) (1) -
Computer equipment 5 4 - (3) (1) 5
Mine development 20,354 553 - - (861) 20,046
Stripping activity costs 3,265 66 - (138) 3,193
-
Game animals 213 - (18) - (10) 185
Total 105,224 14,589 (18) (780) (4,542) 114,473
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.
Impairment
The Elandsfontein mine is currently under development. The Directors have
therefore carried out a review of impairment indicators. As part of the
impairment indicator assessment, the net present value of the life of mine
plan is considered. The life of the mine is most sensitive to the following
key estimates and assumptions:
· Discount rate;
· Phosphate rock prices;
· Phosphate recoveries;
· Foreign exchange rates; and
· Operating costs.
Economical recoverable resources represent management's expectations at the
time of completing the assessment of the carrying value of property, plant,
equipment and mine development and are based on the resource statements and
exploration and evaluation work undertaken by appropriately qualified persons,
forecast phosphate prices which are obtained from independent external
commissioned experts and a forecast South African rand exchange rate with is
aligned with forward market rates. Based on the assumptions the recoverable
amount of assets significantly exceeds its carrying amount and no impairment
indicators were identified.
Sensitivity Analysis
The following table summarises the potential impact of changes in the key
estimates and assumptions (assessed independently of each other):
Headroom (%)
Impact if discount rate Breakeven point at 19% 0
Increased by 4% 59.1
Impact if selling prices increased by 10% 167.9
reduced by 10% 57.9
Impact if production tonnes increased by 10% 164.1
reduced by 10% 56.1
Impact if foreign exchange rates increased by 10% 143.6
reduced by 10% 75.4
Impact if operating costs: increased by 10% 81.0
reduced by 10% 144.8
(5) Intangible assets - Exploration and evaluation costs
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2021 2021 2021 2020 2020 2020
Amort- Carrying value Amort- Carrying value
Cost isation Cost isation
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
44,631 - 44,631
Capitalised costs 44,348 - 44,348
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 gain/(loss) Closing balance
Balance US$'000 US$'000 US$'000 US$'000
US$'000
Year ended 31 December 2021
Capitalised exploration costs 44,348 3,931 (62) (3,586) 44,631
Opening Additions Disposals Foreign exchange gain/(loss) Closing balance
Balance US$'000 US$'000 US$'000 US$'000
US$'000
Year ended 31 December 2020
Capitalised exploration costs 40,192 257 - 3,899 44,348
(6) Right-of-use assets
Year ended Year ended
31 December 31 December
2021 2020
US$'000 US$'000
Cost
Brought forward 117 55
Additions - 61
Foreign exchange differences (7) 1
As at 31 December 110 117
Amortisation
Brought forward 72 18
Charge for the year 39 51
Foreign exchange differences (8) 3
As at 31 December 103 72
Net book value 7 45
(7) Other financial assets
31 December 31 December
2021 2020
US$'000 US$'000
DMR guarantee (1) 630 687
Eskom guarantee (2) 330 359
Eskom guarantee (3) 334 363
Heritage Western Cape Trust (4) 63 68
Total 1,357 1,477
(1) DMR guarantee
Guarantee in favour of the Department of Mineral Resources for ZAR 10,000,000
in respect of a "financial guarantee for the rehabilitation of land disturbed
by prospecting/mining".
(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 1,000,000 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 Group is waiting for the release and return of the guarantee.
Fair value of other financial assets
The carrying value of other financial assets approximate their fair value.
(8) Inventories
31 December 31 December
2021 2020
US$'000 US$'000
Consumables 600 798
Spare parts 425 23
Total 1,025 821
(9) Trade and other receivables
31 December 31 December
2021 2020
US$'000 US$'000
Prepayments and accrued income 238 124
Deposits 46 47
VAT 1,112 1,326
Other receivables 115 114
Total 1,511 1,611
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) Derivative asset
31 December 31 December
2021 2020
US$'000 US$'000
Convertible loan facility - 8,586
The Group secured a convertible loan facility from ARC, Kropz's major
shareholder, in June 2020 ("Original Equity Facility") for the development of
Elandsfontein. Under the terms of the convertible equity facility, ARC
committed to provide up to a ZAR equivalent of US$ 40 million (up to a
maximum of ZAR 680 million) to the Company which will be converted into new
ordinary shares. The cap of ZAR 680 million was put in place as ARC secured
this facility from Rand Merchant Bank in South Africa in order to fulfil its
commitments to the Company. The Company, via Kropz Elandsfontein, receives the
ZAR equivalent of the draw down based on the actual exchange rate prevailing
at the time of the drawdown, subject to a maximum exchange rate of ZAR 17 to
the US$.
The convertible loan facility was used exclusively for Kropz Elandsfontein's
purposes. Immediately upon draw down, new ordinary shares in the Company are
issued to ARC at a fixed share price (6.75 pence per share) and fixed GBP /
US$ exchange rate (0.86). Drawdowns are at the sole discretion of the Company
and no interest is payable on the drawdown unless equity shares are not issued
to ARC in terms of a drawdown. At 31 December 2020, US$ 21 million of the
facility remained undrawn which equated to 267,555,556 new ordinary shares to
be issued in the Company pursuant to the terms of the agreement. A
Monte-Carlo simulation was applied to simulate the expected share price at a
60% volatility and the expected share price was deemed to be 4.37 pence per
share. As at 31 December 2021, the Original Equity Facility was fully drawn.
(11) Restricted cash
31 December 31 December
2021 2020
US$'000 US$'000
Short-term deposits 4,858 7,355
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 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. 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 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 drawdown 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.
(12) Cash and cash equivalents
31 December 31 December
2021 2020
US$'000 US$'000
Bank balances 2,460 11,571
Cash on hand 1 1
Total 2,461 11,572
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.
(13) 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 283,406,307 363 147,339 (20,523) 127,179
Placing of shares 4,505,060 5 349 - 354
Convertible loan - issue of shares 244,866,271 306 18,694 - 19,000
Open offer - issue of shares 25,849,920 32 2,130 - 2,162
Cost of issuing shares - - (320) - (320)
Lapsed warrants - - 30 - 30
Issue of warrants - - (10) - (10)
As at 31 December 2020 558,627,558 706 168,212 (20,523) 148,395
Convertible loan - issue of shares 350,944,417 488 25,312 - 25,800
At 31 December 2021 909,571,975 1,194 193,524 (20,523) 174,195
Issue of shares in the year ended 31 December 2021:
The changes to the issued share capital of the Company which occurred between
1 January 2021 and 31 December 2021 were as follows:
Convertible loan facility
Kropz secured a convertible loan facility from ARC, Kropz's major shareholder,
in June 2020 for the development of Elandsfontein. Under the terms of the
convertible equity facility, ARC committed to provide up to a ZAR equivalent
of US$ 40 million (ZAR 680 million) to the Company which will be converted
into new ordinary shares ("Original Equity Facility"). The cap of ZAR 680
million was put in place as ARC secured this facility from Rand Merchant Bank
in South Africa in order to fulfil its commitments to the Company. The
Company, via Kropz Elandsfontein, receives the ZAR equivalent of the draw down
based on the actual exchange rate prevailing at the time of the draw down,
subject to a maximum exchange rate of ZAR 17 to the US$. The convertible loan
facility will be used exclusively for Kropz Elandsfontein's purposes.
Immediately upon draw down, new ordinary shares in the Company are issued to
ARC at a fixed share price (6.75 pence per share) and fixed GBP / US$ exchange
rate (0.86) and pursuant to the amended preference share subscription
agreement ("PSSA"), Kropz plc shall subscribe for further non-redeemable
preference shares in Kropz Elandsfontein. Drawdowns are at the sole discretion
of the Company and no interest is payable on the drawdown unless equity shares
are not issued to ARC in terms of a draw down. The Original Equity Facility
was fully drawn during 2021.
Kropz secured a further convertible loan facility of up to US$ 5 million (not
exceeding a maximum of ZAR 85 million) from ARC ("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. Immediately upon draw down,
new ordinary shares in the Company are issued to ARC at a fixed share price
(4.202 pence per share) and fixed GBP / US$ exchange rate (0.73).
The first drawdown on the Further Equity Facility was for US$ 2 million which
was paid by way of issue of 34,745,359 new ordinary shares at the issue price
of 4.202 pence per ordinary share to the ARC Fund on 10 March 2021.
The fourth drawdown on the Original Equity Facility was for US$ 7 million
which was paid by way of issue of 89,185,185 new ordinary shares at the issue
price of 6.75 pence per ordinary share to the ARC Fund on 10 March 2021.
The fifth drawdown on the Original Equity Facility was for US$ 11 million
which was paid by way of issue of 140,148,148 new ordinary shares at the issue
price of 6.75 pence per ordinary share to the ARC Fund on 23 June 2021.
The second drawdown on the Further Equity Facility was for US$ 2 million which
was paid by way of issue of 34,745,359 new ordinary shares at the issue price
of 4.202 pence per ordinary share to the ARC Fund on 23 June 2021.
The sixth and final drawdown on the Original Equity Facility was for US$ 3
million which was paid by way of issue of 38,222,222 new ordinary shares at
the issue price of 6.75 pence per ordinary share to the ARC Fund on
10 September 2021.
The third drawdown on the Further Equity Facility was for US$ 400,000 which
was paid by way of issue of 6,949,072 new ordinary shares at the issue price
of 4.202 pence per ordinary share to the ARC Fund on 10 September 2021.
The fourth drawdown on the Further Equity Facility was for US$ 400,000 which
was paid by way of issue of 6,949,072 new ordinary shares at the issue price
of 4.202 pence per ordinary share to the ARC Fund on 10 December 2021. At
year end, US$ 200,000 of the Further Equity Facility remained undrawn.
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.
Ian Harebottle resigned on 29 February 2020 and the 3,362,609 ESOP options
awarded to him lapsed and expired on that date.
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 Chief
Operating Officer ("COO") Michelle Lawrence, under its LTIP Awards.
The LTIP Awards are nil 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.
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 Chief
Operating Officer ("COO") Michelle Lawrence, under its LTIP Awards.
The LTIP Awards are nil 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
The charge to profit and loss for share options was US$ 812,000 (31 December
2020: US$ 238,000).
The LTIP Awards are nil priced options over a total of 14,500,000 ordinary
shares representing 1.6% of the Company's issued share capital at 31 December
2021. Following the grant of the LTIP Awards, together with the existing
4,827,746 ESOP Awards, the ESOP Awards and LTIP Awards represent 2.1% of the
Company's issued share capital at 31 December 2021.
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.
The warrants were issued to brokers in relation to their involvement in
issuance of equity instruments of the Company. The services provided relate to
share issuance and share issuance expenses are included within equity. The
warrants were valued at the year end using a Black-Scholes valuation model.
The charge to share premium account in respect of warrants issued during the
year was US$ nil (2020: US$ 10,000).
121,837 equity warrants remained in place at 31 December 2021 (2020: 121,837
equity warrants).
(14) 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$ 10,141,000 (2020: addition US$ 2,281,000) 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 13).
(15) Shareholder loans and derivative
31 December 31 December
2021 2020
US$'000 US$'000
ARC 16,196 15,703
Convertible debt - ARC 6,191 -
Derivative liability 2,656 -
25,043 15,703
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 ("New ZAR Equity Facility") with ARC, the Company's
major shareholder. The Company made a drawdown of ZAR 90 million of the New
ZAR Equity Facility on 26 October 2021 and a further ZAR 37 million on 9
December 2021 and ZAR 73 million remained undrawn at 31 December 2021.
Interest is payable at 14% nominal, compounded monthly. At any time during the
term of the New ZAR Equity Facility, repayment of the New ZAR 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 New ZAR Equity Facility which is 27 October 2026. 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 New ZAR Equity Facility is fully drawn at the date of
this report.
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
31).
Fair value of shareholder loans
The carrying value of the loans approximates their fair value.
(16) Finance lease liabilities
Year ended Year ended
31 December 31 December
2021 2020
US$'000 US$'000
In respect of right-of-use assets
Balance brought forward 48 40
Additions during the year - 60
Repayments during the year (39) (53)
Foreign exchange differences (2) 1
Lease liabilities at end of year 7 48
Maturity
Current 7 42
Non-current - 6
Total lease liabilities 7 48
(17) Other financial liabilities
31 December 31 December
2021 2020
US$'000 US$'000
BNP 30,041 30,118
Greenheart Foundation 545 495
Total 30,586 30,613
Maturity
Non-current 26,291 28,113
Current 4,295 2,500
Total 30,586 30,613
BNP
A US$ 30,000,000 facility was made available by BNP to Kropz Elandsfontein in
September 2016. Interest was charged at three months US LIBOR plus 4.5% and
was initially repayable quarterly over 2 years. The first capital repayment
was due on 31 March 2018.
The Group was unable to fund the instalment payments on the loan as they fell
due in early 2018 and consequently, under the terms of the facility agreement,
was in default from 1 April 2018. On 20 September 2018 the Group and BNP
conditionally agreed a waiver of the breach and restructure of the facility
under which the first capital repayment was deferred to 30 September 2020. In
addition, BNP provided the necessary consents required to facilitate all the
contemplated transactions leading up to the admission of Kropz plc to AIM. The
waiver and restructured facility were only contingent on the admission of
Kropz plc's shares to trading on AIM by 30 November 2018, which did occur on
that date. The facility has been fully drawn down.
During January 2020, given the delays in the recommissioning of Elandsfontein,
Kropz Elandsfontein was once again placed into default by BNP. 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 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. 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 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 drawdown of ZAR 1 for every ZAR 3 drawn down from ARC in
terms of the Original Equity Facility. Financial closure occurred on 25 June
2020.
In accordance with IFRS 9, the Group recognised a loss in 2020 of US$
1,109,000 in profit and loss arising from the modification of the loan.
Greenheart Foundation
A loan has been made to the Group by Greenheart Foundation which is
interest-free and repayable on demand. Mark Summers, 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.
(18) Provisions
Reconciliation of provisions - Year ended 31 December 2021
Opening Additions/ Foreign exchange gains 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
Reconciliation of provisions - Year ended 31 December 2020
Opening Additions/ Foreign exchange gain Closing balance
Balance Adjustments US$'000 US$'000
US$'000 US$'000
Provision for dismantling costs 650 1,854 (27) 2,477
Provisions for rehabilitation 3,052 (1,089) (129) 1,834
Total 3,702 765 (156) 4,311
Dismantling and rehabilitation provisions
All environmental rehabilitation and dismantling provisions at year-end have
been reviewed by management and adjusted as appropriate for changes in
legislation, technological and other circumstances. The expected timing of any
outflows of these provisions will be on the closure of the mine. Estimates
are based on costs that are reviewed regularly and adjusted as appropriate for
new circumstances. In determining the environmental rehabilitation
liability, an inflation rate of 4.5% (2020: 5%) was assumed to increase the
rehabilitation liability for the next 11 years (2020: 10 years), and a rate of
7.46% (2020: 7.71%) to discount that amount to present value.
(19) Trade and other payables
31 December 31 December
2021 2020
US$'000 US$'000
Trade payables 2,527 4,471
Other payables - 17
Accruals 1,016 292
Total 3,543 4,780
Fair value of trade and other payables
Trade and other payables are carried at amortised cost, with their carrying
value approximating their fair value.
(20) Commitments
31 December 31 December
2021 2020
US$'000 US$'000
Authorised capital commitments 1,871 14,815
The committed expenditure relates to plant construction.
(21) 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$ 1,942,127 (2020: US$ 1,413,184) (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 2021 GBP exchange rate of 0.727 and ZAR
exchange rate of ZAR 14.789.
The highest paid Director in the year received remuneration, excluding
notional gains on share options, of US$ 542,739 (2020: US$ 295,516).
(22) Finance income
Year ended Year ended
31 December 31 December
2021 2020
US$'000 US$'000
Foreign currency gains - 109
Interest income received 480 1,135
Total 480 1,244
(23) Operating expenses
Year ended Year ended
31 December 31 December
2021 2020
US$'000 US$'000
Fair value (gain) / loss on game animals (51) 18
Amortisation of right of use asset 39 51
Depreciation of property, plant and machinery 904 780
Employee costs (excluding share option cost) 1,392 933
Share option cost 812 238
Electricity and water - mine operations 1,067 807
Inventory expense 183 16
Mining costs 9 167
Plant operating costs and recoveries 217 833
Professional and other services 821 951
Auditor's remuneration in respect of audit of the Group and parent 86 89
Auditor's remuneration in respect of audit of the Cominco Group 42 32
Component auditor's remuneration in respect of audit of South African 68 56
controlled entities
Other expenses 914 941
Total 6,503 5,912
(24) Staff costs
Year ended Year ended 31 December
31 December
2021 2020
No. No.
The average monthly number of employees was:
Operations 11 9
Finance and administration 6 6
Management 3 3
20 18
Year ended Year ended
31 December 31 December
2021 2020
US$'000 US$'000
Aggregate remuneration (including Directors):
Wages and salaries (including bonuses) 1,274 823
Social security costs 115 109
Share-based payments 812 238
Pension costs 3 1
2,204 1,171
(25) Finance expense
Year ended Year ended
31 December 31 December
2021 2020
US$'000 US$'000
Shareholder loans 670 611
Foreign exchange losses 4,382 1,857
Bank debt 2,024 2,061
BNP - debt modification loss (Note 17) - 1,109
BNP - debt modification present value adjustment amortisation (258) (119)
BNP amendment fee amortisation 227 104
Finance leases 1 2
Other 345 289
Total 7,391 5,914
(26) Loss on disposal of subsidiary
On 15 February 2021, the Group divested of its interests in Aflao, the
phosphate project located in Ghana by selling its shareholding in First Gear
Exploration Ltd ("First Gear Exploration"), a 50% owned subsidiary of the
Company, to Consortium Minerals Ltd ("Consortium") (the "Disposal"). As a
result of the sale, Kropz has no further interest in Aflao.
Consortium is a subsidiary of Russell Brooks Ltd, who was a minority
shareholder in First Gear Exploration, with a 15% shareholding prior to the
Disposal.
The consideration for the sale of the Kropz interest in First Gear Exploration
was:
· US$ 5,000 cash ("Share Consideration"); and
· US$ 322,529 ("Loan Consideration") deferred cash consideration in
respect of the shareholder loan from Kropz to First Gear Exploration, which is
being novated to Consortium.
The Share Consideration was payable by Consortium within seven days of
completion. The Loan Consideration will be payable by Consortium to Kropz
upon, the earlier of,
(i) the sign-off by a competent person of a definitive feasibility study
on the Aflao deposit, as defined in the JORC Code 2012 edition; or
(ii) Consortium disposing or transferring the Shares prior to the event
described in (i) being achieved; or
(iii) Consortium disposing or transferring the prospecting right prior to
the event described in (i) being achieved.
As at the date of this report, the Loan Consideration remains outstanding and
the amount has not been accounted for as recoverability is not certain.
This disposal allows the Company to focus on its strategy of developing the
Elandsfontein phosphate project in South Africa and progressing the Hinda
phosphate project in the RoC.
The loss on disposal was calculated as follows:
US$'000
Consideration 5
Net liabilities on disposal (348)
Non-controlling interest on disposal 181
Derecognition of exploration and evaluation assets (62)
Loss on disposal (224)
(27) Taxation
Major components of tax charge Year ended Period ended
31 December 31 December
2021 2020
US$'000 US$'000
Deferred
Originating and reversing temporary differences - -
Current tax
Local income tax recognised in respect of prior year - (36)
Total - (36)
Reconciliation of tax charge
Year ended 31 December Year ended 31 December
2021 2020
US$'000 US$'000
Loss before tax (18,258) (1,967)
Applicable UK tax rate 19% 19%
Tax at applicable tax rate (3,469) (374)
Adjustments for different tax rates in the Group (2,177) (1,219)
Non-taxable losses / (gains) 786 (1,631)
Disallowable expenditure 759 648
Prior year tax charge - (36)
Losses carried forward not recognised 4,101 2,576
Tax (credit) / charge - (36)
The movement in tax liabilities is summarised below:
Year ended 31 December Year ended 31 December
2021 2020
US$'000 US$'000
Balance brought forward - 174
Current year charge - (36)
Tax paid - (128)
Foreign exchange differences - (10)
Balance carried forward - -
The Group had losses for tax purposes of approximately US$ 52.1 million as at
31 December 2021 (2020: US$ 43.8 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$ 14.6 million (2020: US$ 12.3
million), after set off of accelerated depreciation allowances in respect of
fixed assets of US$ 34.7 million (2020: US$ 29.9 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.
(28) 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
2021 2020
US$'000 US$'000
(Loss) / Profit attributable to ordinary shareholders (13,787) 1,531
765,871,834
Weighted average number of ordinary shares used in basic (loss) / earnings per 383,896,428
share
Share options and warrants - 11,649,583
Weighted average number of ordinary shares used in diluted (loss) / earnings 765,871,834 395,546,011
per share
Basic (loss) / earnings per share (US$ cents) (1.80) 0.40
Diluted (loss) / earnings per share (US$ cents) (1.80) 0.39
Because the Group was in a net loss position attributable to ordinary
shareholders in 2021, diluted loss per share excludes the effects of ordinary
share equivalents consisting of share options and warrants, which are
anti-dilutive.
(29) Notes to the statement of cash flows
Issue of shares
Year ended 31 December 2021
Non-cash consideration Cash consideration Total
US$'000 US$'000 US$'000
Equity facility - issue of shares - 25,800 25,800
- 25,800 25,800
Year ended 31 December 2020
Non-cash consideration Cash consideration Total
US$'000 US$'000 US$'000
Placing of shares - 354 354
Equity facility - issue of shares - 19,000 19,000
Open offer - issue of shares - 2,162 2,162
Cost of issuing shares - (320) (320)
As at 31 December 2020 - 21,196 21,196
Net debt reconciliation
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)
Year ended 31 December 2020 (restated - refer to Note 2)
Opening Accrued New agreements Modifi-cation loss Cash Foreign exchange gain/(loss) Closing balance
Balance interest US$'000 US$'000 movements US$'000 US$'000
US$'000 US$'000 US$'000
Other financial assets 1,534 - - - (57) 1,477
Shareholder loan payable and derivative (14,701) (611) - (411) 20 (15,703)
Other financial liabilities (29,982) - - (1,109) 464 14 (30,613)
Finance leases (40) - (60) 53 (1) (48)
Total (43,189) (611) (60) (1,109) 106 (24) (44,887)
Reconciliation of working capital items:
Year ended 31 December 2021
Opening Cash Capital allocated Foreign exchange gain/(loss) Closing balance
Balance movements US$'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)
Year ended 31 December 2020 (restated - refer Note 2)
Opening Cash Capital allocated Foreign exchange gain/(loss) Closing balance
Balance movements US$'000 US$'000 US$'000
US$'000 US$'000
Trade and other receivables 329 1,278 - 4 1,611
Inventories 875 (17) - (37) 821
Trade and other payables (1,536) (28) (3,328) 112 (4,780)
Total (332) 1,233 (3,328) 79 (2,348)
(30) Related parties
Kropz plc and its subsidiaries
The following parties are related to Kropz plc:
Name Relationship
Mark Summers Director
Mike Nunn Director
Linda Beal Director
Mike Daigle Director
Lord Robin William Renwick Director
Machiel Johannes Reyneke Director
Kropz SA Subsidiary
Elandsfontein Land Holdings (Pty) Ltd ("ELH") Subsidiary
Kropz Elandsfontein Subsidiary
West Coast Fertilisers (Pty) Ltd Subsidiary
Xsando (Pty) Ltd Subsidiary
Cominco Resources Limited Subsidiary
Cominco S.A. Subsidiary
Cominco Resources (UK) Ltd Subsidiary
Kropz International Shareholder
The ARC Fund ("ARC") Shareholder
Details of remuneration to KMP are contained in Note 21 to the Consolidated
Financial Statements.
In addition to share issues to related parties set out in Note 13 to the
Consolidated Financial Statements, the following transactions were carried out
with related parties:
Related party balances
Loan accounts - owed to related parties
31 December 31 December
2021 2020
US$'000 US$'000
ARC 16,196 15,703
Convertible debt - ARC 6,191 -
Derivative liability (refer Note 15) 2,656 -
Greenheart Foundation (refer Note 17) 545 495
Total 25,588 16,198
Related party balances
Interest accrued to related parties
Year ended 31 December Year ended 31 December
2021 2020
US$'000 US$'000
ARC 670 611
Total 670 611
Convertible loan facilities
As described in Note 13, the Company made drawdowns totalling US$ 25.8 million
(2020: US$ 19 million) under its convertible loan facilities from ARC.
(31) 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
2021 2020
US$'000 US$'000
Financial assets at amortised cost
Trade and other receivables 399 285
Other financial assets 1,357 1,477
Restricted cash 4,858 7,355
Cash and cash equivalents 2,461 11,572
Total 9,075 20,689
Financial assets at fair value
Derivative asset - 8,586
Financial liabilities at amortised cost
Trade and other payables 3,543 4,780
Finance leases 7 48
Shareholder loans 22,387 15,703
Other financial liabilities 30,586 30,613
Total 56,523 51,144
Financial liabilities at fair value
Derivative liability 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 15).
(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
2021
Derivative asset - - - -
2020
Derivative asset - - 8,586 8,586
Level 1 Level 2 Level 3 Total
US$'000 US$'000 US$'000 US$'000
2021
Derivative liability - - 2,656 2,656
2020
Derivative liability - - - -
There were no transfers between levels for recurring fair value measurements
during the year. The Group's policy is to recognise transfers into and
transfer 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 2021 31 December 2020
US$'000 US$'000
Derivative asset
Opening balance 8,586 -
Fair value (loss) / gain recognised in profit and loss (4,139) 8,586
Extinguished on issuance of equity (4,447) -
Closing balance - 8,586
Derivative liability
Opening balance - -
Fair value at initial recognition (2,015) -
Fair value loss recognised in profit and loss (653) -
Foreign exchange 12 -
Closing balance (2,656) -
(iv) Valuation technique used to determine fair value
Derivative asset:
A Monte-Carlo simulation was applied to simulate the expected share price at a
60% volatility multiplied by the number of shares to be issued pursuant to the
Original and Further Equity Facility compared to the quoted market share
price.
Derivative liability:
A Monte-Carlo simulation was applied to value the option component of the
convertible debt at a 30% volatility in share price, 14% volatility in the
GBP:ZAR exchange rate and risk free rate of 0.76% multiplied by the number of
shares to be issued pursuant to the drawn amounts under the New ZAR Equity
Facility. A change of US$ 1.8 million in value would be observed should
share price volatility increase over 60%, risk free rate above 10% and foreign
exchange starting rate above R34/GBP.
(32) 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 15 and 17 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 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
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 2020
Shareholder loans payable - - - 15,703
Trade and other payables 4,780 - - -
Finance leases 42 6 - -
Other financial liabilities 2,500 5,155 27,479 -
Total 7,322 5,161 27,479 15,703
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 2021, if interest rates on the shareholder and
BNP loans (denominated in US$) had been 1% higher/lower with all other
variables held constant, post-tax losses and equity for the year would have
been approximately US$ 541,000 (2020: US$ 450,000) higher/lower
respectively.
Foreign currency risk:
Foreign currency risk is the risk that the fair value or 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 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)
Functional currency
South African Rand British Pound Total
As at 31 December 2020 US$'000 US$'000 US$'000
Financial assets denominated in US$ - 971 971
Financial liabilities denominated in US$ (44,238) - (44,238)
Net foreign currency exposure (44,238) 971 (43,267)
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 2021 31 December 2020
Increase/ Increase/
(Decrease) (Decrease)
US$'000 US$'000
Effects on net assets
Rand:
- strengthened by 10% (4,620) (4,424)
- weakened by 10% 4,620 4,424
Effects on net assets
GBP:
- strengthened by 10% 31 97
- weakened by 10% (31) (97)
(33) 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$'000
As at 31 December 2021
Total non-current assets 136,431 44,663 181,094
South Africa Group
US$'000 Congo US$'000
US$'000
As at 31 December 2020
Total non-current assets 116,027 44,316 160,343
(34) Non-controlling interests
31 December 31 December
2021 2020
US$'000 US$'000
(Restated - Note 2)
As at beginning of year 5,729 4,391
Share of losses for the year (4,471) (3,462)
Share of other comprehensive income (1,043) (86)
Disposal of subsidiary 181 -
Kropz plc's investment in non-redeemable preference shares of Kropz 5,382 4,886
Elandsfontein attributable to non-controlling interest
As at end of the year 5,778 5,729
(35) Material subsequent events
As announced on 18 January 2022, Kropz 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 ("PDMRs"), The issue of ordinary shares are due to
awards vesting and issued under its Long Term Incentive Plan ("LTIP Awards"),
issued on 31 July 2020 as announced on 4 August 2020. Of the total above,
2,350,000 ordinary shares were issued to Mark Summers, 2,350,000 ordinary
shares to Michelle Lawrence and 1,000,000 to Patrick Stevenaert.
On 23 February 2022, the South African Minister of Finance announced that the
corporate tax rate would be reduced from 28% to 27% for the years of
assessment beginning on or after 1 April 2022. This is a non-adjusting post
balance sheet event.
The fifth and final drawdown on the Further Equity Facility occurred on 10
March 2022 for US$ 200,000 which was paid by way of issue of 7,446,248 new
ordinary shares at the issue price of 4.202 pence per ordinary share to the
ARC Fund.
The third drawdown on the New ZAR Equity Facility occurred on 25 March 2022
for ZAR 40 million and the fourth drawdown on the New ZAR Equity Facility
occurred on 26 April 2022 for ZAR 33 million.
BNP Paribas released the ZAR 77 million restricted cash in the bank account of
Kropz Elandsfontein (Pty) Ltd on 10 January 2022, upon satisfaction of the
requirement by BNP Paribas for the Group to bridge the funding shortfall in
respect of Elandsfontein as announced on 1 September 2021. The funding
shortfall was satisfied when the New ZAR Equity Facility was secured from ARC.
As announced on 27 April 2022, a further funding shortfall of ZAR 177 million
is expected due to slower than expected progress in the ramp up of operations
at Elandsfontein. The delay was largely driven by the need to re-engineer
parts of the fine flotation circuit proposed by the vendor, but further
exacerbated by early unpredicted ore variability and lack of operator
experience. As a result, production of sufficient phosphate rock concentrate
for the first bulk sale will move to later than originally expected.
Kropz and ARC entered into a ZAR 25 million (approximately US$ 1.60 million)
bridge loan facility (the "Loan") on 27 April 2022 to meet cash requirements
in April 2022 and draw down of the Loan took place on 28 April 2022. The
Loan is repayable on demand, and there are no fixed repayment terms. It is
repayable by Kropz on no less than two business days' notice. Interest is
payable on the Loan at 14% nominal, compounded monthly.
On 11 May 2022, Kropz entered into a new conditional convertible equity
facility of up to ZAR 177 million ("ZAR 177 Million Equity Facility"), with
ARC to fund the Company's Elandsfontein phosphate project to first revenues
from bulk concentrate sales:
· The ZAR 177 Million Equity Facility comprises a total commitment
of up to ZAR 177 million provided by ARC, which can be drawn down following a
written request from Kropz and at the discretion of ARC;
· 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 of 0.1 pence
each ("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 a 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 New
ZAR Equity Facility;
· The first drawdown was made on 2 June 2022 and the Loan was
set-off against the first drawdown 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;
· The ZAR 177 Million Equity Facility bears interest at 14% per
annum compounded monthly ("Interest"). Interest will be payable in cash to ARC
by the Company;
· The term of the ZAR 177 Million Equity Facility will be from the
Effective Date to the earlier of:
· Five years from the Effective Date; 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 ("Share Charge"); and
· The ZAR 177 Million Equity Facility was conditional on:
· approval from the South African Reserve Bank ("SARB"). The SARB
application was lodged on 16 May 2022 and the approval received on 1 June
2022; and
· shareholder approval which was received on 30 May 2022.
First drawdown of the ZAR 177 Million Equity Facility of ZAR 103.5 million was
made on 2 June 2022. The Loan of ZAR 25 million was set off against the first
draw down and the net amount of ZAR 78.5 million received by the Company.
(36) 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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