TIDMCNG
CHINA NONFERROUS GOLD LIMITED
Chief Executive Officer's Statement (continued)
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulation (EU) No. 596/2014.
China Nonferrous Gold Limited
("CNG" or the "Company")
Final Results
for the twelve months ended 31 December 2022
China Nonferrous Gold Limited (AIM: CNG), the mineral
exploration and development company currently developing the Pakrut
gold project in the Republic of Tajikistan, today announces its
final results for the year ended 31 December 2022.
The results below are extracted from the Company's audited
Annual Report and Financial Statements. Copies of the Annual Report
have been dispatched to shareholders today and are now available on
the Company's website (www.cnfgold.com).
The Company also confirms that it will post a notice convening
the annual general meeting of the Company in due course. A further
announcement will be made when it is dispatched.
For further information please visit the Company's website
(www.cnfgold.com) or contact:
China Nonferrous Gold Limited
Feng Zhishuo, Managing Director
Tel: +86 10 8442 6627
WH Ireland Limited (NOMAD & Broker)
Katy Mitchell, Andrew de Andrade
Tel: 0207 220 1666
Blytheray (PR)
Tim Blythe, Camilla Horsfall
Tel: +44 (0)20 7138 3224
Project Summary
The Pakrut gold project, of which CNG has 100 per cent
ownership, is situated in Tajikistan approximately 120 km northeast
of the capital city Dushanbe. Pakrut is located within the Tien
Shan gold belt, which extends from Uzbekistan into Tajikistan,
Kyrgyzstan and Western China, and which hosts a number of
multi-million-ounce gold deposits.
CNG is currently progressing well in several important aspects,
with the Pakrut gold mine entering normal production and achieving
full operational capacity in 2022.
The Company made significant achievements in 2022 and became an
important gold-production enterprise in Tajikistan. The Pakrut gold
mine achieved its internal production targets for 2022, which
brings steady cash flows to support the sustainable development of
the company.
About Tajikistan
Tajikistan is a secular republic located in Central Asia. The
country is a member of the Commonwealth of Independent States and
the Shanghai Cooperation Organisation. Tajikistan hosts numerous
operating precious metal mines as well as the largest aluminium
smelter in Central Asia. CNG's management team has extensive
experience in the mining industry in Tajikistan.
Chief Executive Officer's Statement
As CEO of the board, it gives me pleasure to present the CEO's
statement of the annual report for the year ended 31 December 2022.
The Pakrut gold mine has maintained normal operational capacity
from financial year 2019 to date.
The Company made achievements in 2022 and in recent years has
become an important gold-production enterprise in Tajikistan. The
Pakrut gold mine achieved its own, internal production targets for
2022, which brings steady cash flows to support the sustainable
development of the Company's ongoing operations.
Operation
During the year ended 31 December 2022, a total of 688,232 tons
of ore was extracted from the Pakrut gold mine (2021: 625,078
tons), and a total of 662,421 tons of ore were processed at a grade
of 2.19 g/t (2021: 650,995 tons of ore processed at a grade of 2.29
g/t), 19,327 tons of gold concentrate were produced at a grade of
68.50 g/t (2021: 19,918 tons of gold concentrate produced at a
grade of 69.22 g/t), 1,200 kg gold bullion were poured with a
comprehensive recovery rate of 91.63% (2021: 1,249 kg gold bullion
with a recovery rate of 91.61%). In addition, a total of 86 drill
holes were completed, approximately 6,259m, with the associated
assays expected back from the laboratory in due course. A further
announcement will be made at that time.
COVID-19
As the impact of COVID-19 on the global economy has now
significantly reduced, Pakrut has also lifted its quarantine
policy. Local employees can commute to work as normal every day.
The Company still pays great attention to employees' physical
health, and has provided a new equipped clinic. Currently, there
are no COVID-19 cases in Tajikistan. The number of workers at the
mine site remains sufficient to meet the required production
targets, so the production target of 2022 was not affected by
Covid. Furthermore, the suspended flights (introduced due to Covid
restrictions) which could have restricted access to the site for
key employees during the year, have now resumed. From November
2022, flights between China and Tajikistan were officially resumed,
and the quarantine policy was also lifted, making it much easier
for Chinese employees to travel back and forth.
Financial results
The development and construction work at the Pakrut Gold Project
was finalised at the end of the 2018 financial year. The Company
has therefore generated revenue from full operational production
from the beginning of the 2019 financial year. Administration
expenditure for the year under review was US$25,109,000 (2021:
US$19,879,000). The main reason for the increase this year is due
mainly to the increase in employee compensation in 2022. It is
worth noting this year that due to indicators of impairment at the
Pakrut mine, an impairment charge of US$266m has been recorded in
the current year in respect of the Property, plant and equipment
(including Producing mines).
The overall loss incurred by the Company was US$287,043,289
(2021: US$6,247,062). Pakrut generated revenue from gold sales in
the year of US$68,524,835 (2021: US$71,991,962). The main reason
for the decrease in revenue was a decrease of 49 kilograms in gold
sales compared to last year which resulted from slightly decreased
output levels; revenue was also impacted by the decline in average
gold price from $1,800/oz during 2021 to $1,788/oz.
Financing Arrangements
In January 2022, the Company executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of up to USD $34.55
million (the" CNMC Loan"). This CNMC Loan has been used to repay
the existing China CITIC Bank Corporation Limited ("CITIC") bank
facilities of USD $34.55m (being USD$20m advanced in January 2021
("First Loan") and USD$14.55m advanced in March 2021 ("Second
Loan").
In January 2022, the Company executed a foreign currency working
capital loan agreement with CITIC for a loan facility of up to
US$20 million (the "new CITIC Loan"), with an annual interest at
3.00% over 6 month LIBOR, which was used to repay US$20m of the
CNMC Loan. In December 2022, the Company repaid a further US$1m of
the CNMC Trade loan.
The existing loan facilities from CITIC and Bank of Shanghai
("BOS") totaled US$85 million at the year end and the CNMC and
CNMIM loan facilities totaled US$294m at the year end so that,
including accrued interest, the total amount of borrowings payable
by the Company was US$379m at the year end (approximately US$318m
without interest). The existing loans in place with the Company's
major shareholder (and its associates) were due for repayment
during the 2022 financial year, although repayment has not yet been
requested. Draft loan renewals for all existing loans are currently
in circulation. If progressed these loans would be deemed to be
related party transactions pursuant to Rule 13 of the AIM Rules for
Companies, because of the size of the loans and the relationship
between the providers of the loan and the Company's major
shareholder, therefore execution of these arrangements is subject
to the relevant regulatory approvals and processes. At this stage
the renewal of these loans cannot be guaranteed. Please refer to
the 'going concern' disclosure below for further information of
loan and financing matters.
The Company has continued production throughout 2022 despite
Covid-19 in terms of ongoing travel restrictions between China and
Tajikistan, enabling it to generate sufficient working capital for
its daily operations. However, in order to ensure the repayment of
the existing loans as detailed above, a broader refinancing will be
required. The Company gradually repaid interest-bearing liabilities
to reduce the asset liability ratio. The US$85 million of loans
from external lenders (banks) in place at year end were refinanced
through additional shareholder loans in 2023 -- see Events after
the Reporting period section below for further information, as well
as going concern disclosure (see below). The Company will continue
to engage with other commercial banks as well as with its major
shareholder in order to ensure appropriate capital arrangements are
in place to enable the financing costs and principal repayments of
the loans to be satisfied.
Events after the Reporting Period
In January 2023, the Company executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of up to USD $19.50
million (the "CNMC Loan") including an annual interest rate at 0.5%
plus 3 month LIBOR. No extra fees were payable to CNMC Trade for
this arrangement, which is repayable within 3 months from the date
of drawdown. CNMC Trade has subsequently indicated it will to
extend this loan for one year from the initial repayment date,
although as set out above, this would be a related party
transaction pursuant to Rule 13 of the AIM Rules for Companies, and
is subject to relevant regulatory approvals and processes, so
cannot be guaranteed. This CNMC Loan was used to repay the existing
China CITIC Bank Corporation Limited ("CITIC") bank facilities of
USD $20m.
In June 2023, the Company executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of up to USD $65
million (the "CNMC Loan") including an annual interest rate at 0.5%
plus 3 month LIBOR, which is repayable within 3 months from the
date of drawdown. This CNMC Loan was used to repay the existing
Bank of Shanghai (Hong Kong) Limited ("BOS") loan facility of USD
$65m, which was due for repayment on 9 June 2023.
In the first quarter of 2023, the Company repaid US$1.9m of the
CNMC Trade Company Limited ("CNMC Trade") loan, which was drawn on
September 20, 2017.
As set out above, CNMC Trade Company Limited (CNMC Trade), CNMC
International Capitals Company Limited (CNNICC ) and CNMIM have
indicated they will extend certain existing loans and the extension
contracts are in circulation, subject to regulatory approval and
processes pursuant to Rule 13 of the AIM Rules for Companies, so
this cannot be guaranteed. At the date of this report, the Company
had a total of US$316.07 million of debt facilities exclusive of
interest (including banking facilities without interest).
The Company continues to explore a wider refinancing of its
loans. Refer also to Note 28.
In February 2023, the area surrounding the mine site experienced
snowfalls resulting in several avalanches and landslides. On 16
March 2023 the power supply was re-established and production has
resumed at the Pakrut mine site. On 11 April 2023, the road to the
mine site was repaired and re-opened, and the smelting plant
resumed production. Accordingly, normal operations have resumed at
site. The Directors believe that, notwithstanding this
interruption, they will be able to recover gold production to
similar levels to last year. Refer also to Note 28.
Outlook
The Company is maintaining its current production capacity.
Whilst maintaining production, the Company is also focusing on
perfecting and improving the smelting process by reducing
production costs, increasing recovery rates and improving
competitiveness.
The Company has long been dedicated to becoming a significant
gold producer in Central Asia. The Company has also established a
strong relationship with the government of Tajikistan and other
Central Asian countries, and it will consider other appropriate
acquisitions at the right time.
While we have taken big strides in the production and operation
of the Pakrut gold mine and has achieved much, there are still
challenges to overcome and targets to meet. It was disappointing to
receive the updated SRK Report (see announcement dated 24 April
2023) which updated the JORC Compliant Resource and reduced the
resource at the Company's Pakrut project and the estimated life of
mine. In addition, and as set out in the going concern statement
below, the majority of the Company's outstanding loans
(approximately GBP387m) fall to be paid before the end of the
current financial period and at this stage the Company does not
have the financial resources to repay them. The Directors believe
that its major shareholder and associated parties will continue to
support them through the extension of existing loan agreements
(subject to regulatory approval and processes) but there can be no
guarantee that this will occur. The Directors continue to explore
all financing opportunities and will update the market in due
course as these progress.
In closing, I would like to take this opportunity to thank all
our employees, management and advisers for their continued hard
work in 2022. I would also like to extend my thanks to all our
stakeholders for their continued backing over the years. I very
much look forward to updating our shareholders further on the mine
developments, production levels, new strategy and direction.
Feng Zhishuo
Chief Executive Officer
30 June 2023
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor
Auditors Opinion
We have audited the Company financial statements of China
Nonferrous Gold Limited (the 'Company') for the year ended 31
December 2022 which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Financial
Position, the Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows and Notes to the Financial
Statements, including significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
In our opinion, the Company financial statements:
-- give a true and fair view of the state of the Company's affairs as at
31 December 2022 and of its loss for the year then ended; and
-- have been properly prepared in accordance with IFRSs as adopted by the
European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Company
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Material uncertainty related to going concern
We draw attention to the Going concern section within the Report
of the Directors below, as well as the going concern accounting
policy and Note 28 to the financial statements, which indicates
that the Company's ability to continue as a going concern is
dependent on continued financial support regarding non-repayment of
its current US$387 million (including accrued interest) of
shareholder and related party loans. There are currently no formal
agreements in place in respect of any refinancing, nor has a
financial support letter been provided to the Company in the
current year, and there is no guarantee that the continued
financial support will be forthcoming.
As stated in the disclosures referred to above, these events or
conditions, along with the other matters as set forth in those
disclosures, indicate that a material uncertainty exists that may
cast significant doubt on the Company's ability to continue as a
going concern. Our opinion is not modified in respect of this
matter.
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting
included:
-- Obtaining an understanding of management's processes for evaluating the
appropriateness of the use of the going concern basis of accounting;
-- Obtaining management's cash flows forecasts for a period of at least 12
months from the date of expected approval of the financial statements and
comparing these forecasts to the life of mine plan to ensure
consistency;
-- Holding discussions with management surrounding their expectations with
regards to refinancing and their recent and ongoing communications with
the lenders, and assessing the likelihood of ongoing financial support of
the relevant parties in light of historic evidence;
-- Testing the mathematical accuracy of the cashflow forecast model;
-- Challenging and sensitising the key assumptions used in management's
base case model, in particular the forecast production volumes and costs
through comparison to historical actuals and the life of mine plan within
the updated Independent Technical Report, and assessing the commodity
price assumptions through comparison third party forecasts and publicly
available information; and
-- Considering whether the disclosures relating to going concern are
appropriate.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
Our application of materiality
The scope of our audit was influenced by our application of
materiality. We determined materiality for the financial statements
as a whole to be US$920,000 (2021: US$3,900,000) for the Company
financial statement using an average of 5% of adjusted loss before
tax (adjusted for impairment charge) and 1.5% of gross assets
(2021: 1% of gross assets) as a basis.
We consider gross assets to be the most relevant determinant of
the Company's financial position and performance used by
shareholders, with the key financial statement balances being
producing mines, other property, plant and equipment, inventory and
cash. The going concern of the Company is dependent on its ability
to fund operations going forward, as well as on the valuation of
its assets, which represent the underlying value of the Company. As
the mine has been in full operational production for several years
as at 31 December 2022, it is considered appropriate in the current
year to use a benchmark that includes a measure of profitability
together with gross assets. Given the significant impairment charge
during 2022 following the revised Independent Technical Report, an
adjustment to the loss before tax to exclude this charge from the
calculation is considered appropriate in order to avoid any
distortion to sampling and coverage, as this charge will be
separately audited.
Whilst materiality for the financial statement as a whole was
set a US$920,000, each significant component of the Company was
audited to an overall materiality ranging between US$644,000 and
US$820,000 with performance materiality set at 70% (2021: 70%). We
applied the concept of materiality both in planning and performing
our audit, and in evaluating the effect of misstatement.
Our approach to the audit
In designing our audit we determined materiality, as above, and
assessed the risk of material misstatement in the financial
statements. In particular, we looked at areas requiring the
directors to make subjective judgements, for example in respect of
significant accounting estimates including impairment of property,
plant and equipment (including producing mines), and considered
future events that are inherently uncertain. We also addressed the
risk of management override of internal controls, including
evaluating whether there was evidence of bias by the directors that
represents a risk of material misstatement due to fraud.
A full scope audit was performed on the complete financial
information of the Company's operating components located in
Tajikistan, with the Company's key accounting function for all
being based in Tajikistan.
The Company's Tajik operations are audited by a component
auditor. The audit team discussed significant events occurring
during the year and post year-end period with the component auditor
and performed an onsite review of the component auditor's working
papers, including review of planning and completion stage Company
reporting. The Company audit team also performed a site visit to
the Pakrut gold mine and the smelting plant in Tajikistan. The
Company audit team are responsible for the scope and direction of
the audit process. Work on other components was performed by PKF
Littlejohn LLP.
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In addition to
the matter described in the material uncertainty related to going
concern section, we have determined the matter described below to
be the key audit matter to be communicated in our report.
Key Audit Matter How our scope addressed this matter
Valuation of Property, Plant and
Equipment including Producing Mines
(Notes 2 and 13)
The Company holds Property, plant and Our work in this area included: A
equipment ('PPE') of $65m on its review of management's impairment
Consolidated statement of financial assessment, including consideration of
position. This is stated after an any net present value ('NPV')
impairment charge of $266m based upon calculation used. Providing challenge
the updated Independent Technical to the key inputs and assumptions and
Report produced by third party expert, corroborating where possible;
SRK Consulting, which stated a Undertaking sensitivity analysis on
significantly lower level of reserves the NPV calculations to assess the
compared to the original Technical impact on the headroom for reasonably
Report issued in 2014. There is a possible changes to key assumptions;
requirement to undertake an impairment Ensuring valid mining licenses are
review where indicators of impairment held as at the year-end; Considering
exist. An impairment assessment has any potential impairment indicators
been carried out using value in use through discussion with management and
calculations across the remaining the onsite visit to the mine site
estimated mine life. Such calculations during the audit fieldwork, as well as
require management to exercise a review of announcements to the market
significant level of judgement and and board minutes for evidence of
estimation. There is a risk that the impairment; Reviewing accounting
carrying value of mine assets is entries posted in respect of
overstated and not fully recoverable, impairment of PPE to ensure
taking into consideration all relevant appropriateness in accordance with IAS
factors including current and future 36; Performing a review of the updated
mined ore grades, production Independent Technical Report prepared
quantities, revenues, direct costs and by management's expert on the Pakrut
discount rates, which all feed into Gold Project. Obtaining an
the value in use calculations. understanding of, corroborating, and
providing challenge to, the key
assumptions used within this report in
arriving at a net present value for
the Pakrut Gold Project -- including
forecast gold price, annual production
volumes, grades, discount rate and
cost inputs; Holding direct
discussions with management's expert
in regard to the basis of preparation
of the updated Technical Report, the
rationale for key assumptions used,
and interpretation of results;
Assessing the independence and
competence of management's expert; and
Review of disclosures relating to PPE,
including disclosures relating to key
sources of judgement and estimation
used in management's assessment of
carrying value and impairment.
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report. Our opinion
on the Company financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion
thereon. Our responsibility is to read the other information and,
in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the statement of directors'
responsibilities, the directors are responsible for the preparation
of the Company financial statements and for being satisfied that
they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the Company financial statements, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
-- We obtained an understanding of the Company and the sector in which it
operates to identify laws and regulations that could reasonably be
expected to have a direct effect on the financial statements. We obtained
our understanding in this regard through discussions with management, and
discussions with the internal legal team in Pakrut conducted by the
component auditor. We also selected a specific audit team based on
experience with auditing entities within this industry facing similar
audit and business risks.
-- We determined the principal laws and regulations relevant to the
Company in this regard to be those arising from:
-- AIM Rules
-- Mining regulations in Tajikistan
-- Local tax and employment law in China and Tajikistan
-- We designed our audit procedures to ensure the audit team considered
whether there were any indications of non-compliance by the Company with
those laws and regulations. These procedures included, but were not
limited to:
-- Enquiries of management;
-- Review of Board minutes;
-- Review of legal ledger accounts;
-- A review of RNS announcements; and
-- A review of component auditor's work surrounding local laws and
regulations in Tajikistan, including onsite discussion with the
component auditor at their offices in Tajikistan.
-- We also identified the risks of material misstatement of the financial
statements due to fraud. We considered, in addition to the non-rebuttable
presumption of a risk of fraud arising from management override of
controls, that there is potential for management bias with regard to
assessment of the carrying value and impairment of PPE including
producing mines. The work performed in this area is detailed above.
-- We addressed the risk of fraud arising from management override of
controls by performing audit procedures which included, but were not
limited to: the testing of journals; reviewing accounting estimates for
evidence of bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of
business.
Because of the inherent limitations of an audit, there is a risk
that we will not detect all irregularities, including those leading
to a material misstatement in the financial statements or
non-compliance with regulation. This risk increases the more that
compliance with a law or regulation is removed from the events and
transactions reflected in the financial statements, as we will be
less likely to become aware of instances of non-compliance. The
risk is also greater regarding irregularities occurring due to
fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with our engagement letter dated 20 March 2023. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone, other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
[Signature]
David Thompson (Engagement Partner)
For and on behalf of PKF Littlejohn LLP
Registered Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
30 June 2023
The Directors present their annual report and the audited
Financial Statements of China Nonferrous Gold Limited for the year
ended 31 December 2022.
Principal Activity
The principal activity of the Company is that of mineral
exploitation, mine development and mining.
BUSINESS REVIEW
Introduction
China Nonferrous Gold Limited ("CNG") is a mineral exploration,
development and mining Company. The Company's project is located in
central Asia, having been discovered during the Soviet era. The
principal focus of the Company is the development and exploitation
of the Pakrut Gold Project in Tajikistan.
CNG, following the scheme of arrangement between Kryso Resources
Limited (formerly Kryso Resources Plc) and its shareholders, was
admitted to trading on AIM on 31 July 2013 in order to continue
funding the development of the Pakrut Gold Deposit and the
exploration of the Pakrut License Area, and to better position the
Company to obtain and acquire other gold and base metal deposits in
Tajikistan.
The Company's Executive Directors have a proven track record of
operating in Tajikistan and they believe CNG to be the first
foreign Company to obtain a 100% interest in a mining and
exploration project in the country.
A review of the activities of the Company during 2022 is
provided in the CEO's Statement.
Strategy
CNG's strategy is to maximize shareholder value through the
development of the Company's exploration properties, proving up
additional resources. CNG's medium term objective is to become a
mid-tier gold producer and maintain strategic strength, and strive
to achieve the production goal of Pakrut. The directors of CNG have
a track record of operating successfully in Tajikistan and believe
CNG to have been the first foreign Company to obtain 100% ownership
of a mining and exploration project in Tajikistan.
OPERATING REVIEW
During 2022 the Company has:
-- Reached production capacity of 1,886 tons per day from January 2022;
-- Processed a total of 662,421 tons of ore at a grade of raw ore of
2.19g/t;
-- The recovery rate of processing was 91.14% and the recovery rate of
smelting was 91.63%;
-- 19,327 tons of gold concentrate were produced at the grade of 68.50g/t,
1,200 kg gold bullion were poured with comprehensive recovery rate of
91.63%; and
-- Generated revenue from production of US$68,524,835.
Pakrut Gold Deposit and License Area
In April 2004, LLC Pakrut, a wholly owned subsidiary of the
Company, was granted a license and geological lease to explore and
exploit the Pakrut License Area which comprises the Pakrut gold
deposit and the surrounding 6,300 hectare exploration area located
in the metalliferous southern Tien-Shan Fold Belt. This belt is
reputed to have the second largest known gold resource after the
Witwatersrand in South Africa. The exploration license was valid
for 10 years and expired on 1 April 2014. An application has been
submitted in accordance with the required procedures to renew the
exploration license. The renewal application is being considered by
the Government of Tajikistan. Exploration and evaluation activities
can be carried out at the Pakrut Gold Deposit in the area covered
by the mining license.
In November 2011, the Government of the Republic of Tajikistan
issued the Pakrut Project mining license to LLC Pakrut. According
to the terms of the license, the amount of ore that can be mined is
variable depending upon the mine plan. The current mining license
is valid until 2 November 2030.
FINANCIAL REVIEW
The results for the year ended 31 December 2022 were as
follows:
2022 2021
US$000 US$000
Revenue 68,525 71,992
Cost of sales (40,085) (37,256)
Impairment of Property, Plant and Equipment (265,953) -
Administrative expenses (25,109) (19,879)
Foreign exchange gain/(loss) 1,075 (1,853)
Other operating expenses (213) (2,416)
Total costs (330,285) 61,404
% Administrative expenses to total costs 39.03%* 32.37%
Operating (loss)/profit (261,760) 10,587
Add: interest receivable 2 6
Less: interest payable (15,242) (10,826)
Loss on ordinary activities before taxation (277,000) (233)
Earnings per share (cents) (750.65) (1.63)
*Calculated excluding impairment charge as non recurring
The main financial Key Performance Indicator ('KPI') for the
Company is administration costs as a percentage of total costs
(excluding impairment charge) which continues to be at an
acceptable proportion. In 2022, KPI index is at 39.03% (2021:
32.37%). The increase in administration costs is due to the
scrapping of a batch of ineffective fixed assets by Pakrut last
year and the increase in employee compensation in 2022. The
impairment of producing mine is non-recurring and is excluded from
total cost used to calculate the KPI.
Revenue is also considered to be a KPI and will be increasingly
important to monitor now that the Company has entered full
production. Revenue for the year was US$68.53 million (2021:
US$71.99 million). Considering the decline in average gold price
from $1,800/oz during 2021 to $1,788/oz during 2022, as well as
slightly decreased output levels, this decrease is in line with
expectations.
Corporate Responsibility
The Company seeks to build a sustainable and profitable business
to maximize the return to its shareholders and in doing so will not
knowingly overlook its Corporate Responsibilities.
Certain Directors also serve as Directors of other companies
involved in natural resource exploration, development and mining
and consequently there exists the possibility for such Directors to
be in a position of conflict. Any decision made by such Directors
involving the Company will be made in accordance with their duties
and obligations to deal fairly and in good faith with the Company
and such other companies. In addition, such Directors will declare,
and refrain from voting on, any matter in which such Directors may
have a conflict of interest.
People
The Company recognises that the success of its ventures is based
on the well-being and health of its employees. All employees have
to pass through an induction process where they are briefed on the
Company's health and safety policies. The safety of the Company's
employees is of the utmost importance and is therefore taken
seriously in all areas in which the Company's employees
operate.
The Company is also committed to the development of its
employees and encourages them to attend courses and programs to
further develop their own skills. The Company also aims to provide
a favorable working environment which will continue to draw, retain
and motivate its employees so that they can reach their true
potential and share in the Company's success.
Employees are kept well informed of the performance and
objectives of the Company through established methods of personal
briefings and regular meetings. Employees are given the opportunity
to develop and progress according to their ability. The Company has
an employee share option scheme to encourage employees'
participation in the Company's performance.
The Company has continued its policy of giving disabled full and
fair consideration for all job vacancies for which they offer
themselves as suitable applicants, having regard to their
particular aptitudes and abilities. With regard to existing
disabled employees and those who may become disabled during the
year, the Company examines ways and means of providing continuing
employment under normal terms and conditions and provides training,
career development and promotion, where appropriate.
Social
The Company continues to have a strong relationship with the
local communities in the areas in which it operates, respecting
their laws and customs. The Company employs local people in all
levels within the organization; this ensures a transparent and fair
transfer of benefits and support to their communities where
appropriate. The Company engages the local communities in all
aspects of the projects it is actively involved in, from
exploration through to feasibility and production, ensuring that
concerns are addressed, and that support is maintained throughout
the entire process.
Environment
The Company has a strict environmental code with which all its
employees are well-versed during the induction process; this not
only satisfies the local environmental code, but also the
international code. The Company has contracted the services of a
local environmental consultant who monitors its operations to
ensure that any lapses are immediately brought to the attention of
management.
Risk Factors
There are several principal risk factors outlined below that may
affect the Company's businesses and which may not all be within the
Company's control.
PRINCIPAL RISKS AND UNCERTAINTIES
Environmental Risk
The Company's core operations are located in Pakrut, a
mountainous area of Tajikistan. The area is remote and can be
subject to adverse weather conditions which, as evidenced in the
first half of 2017, can impact the ability of the Company to
perform its core operations and may lead to substantial damage of
the Company's properties. The Company seeks to manage this risk by
taking out appropriate insurance and carefully monitoring weather
reports during the seasons when adverse conditions are most likely
and ensuring that appropriate action is taken to minimise risk to
life and property damage.
Production Risk
The Pakrut Gold Project is now operating at full production
capacity. The Company's existing production equipment is considered
to be sufficient to meet the requirements of the budgeted gold
production targets. The right choice of production equipment has a
major impact on productivity and costings.
The production process of the gold should be based on the
specific performance requirements of the product. This requires an
increase in production skills and requires training of Company
technicians. Technology is changing rapidly and existing production
technology may have fallen behind, therefore technicians must
continue to develop their knowledge and skillset to keep up with
this pace.
Production risks are related to the possibility that gold
production or output levels are lower than expected. The main
sources of production risk are bad weather conditions and limited
production capacity, such as hail, snow disasters, and limited
Chinese technical staff. Despite the control measures taken, the
production risk may also be due to the harsh winter weather and the
breakdown of production equipment and machinery. At present, Pakrut
is adopting risk prevention measures and control strategies for the
above risks, including purchase of equipment spare parts and
materials in advance to ensure the sufficiency of raw materials and
the normal operation of the machinery at the mine site; vigorously
training Tajik technical personnel, exerting local talent policies,
and rationally using manpower resources; reasonably estimating the
impact of severe weather to ensure the achievement of the annual
output target.
COVID-19 risk
As the COVID-19 pandemic has largely drawn to a close, the
impact of the epidemic on the operations of enterprises has
significantly weakened, and the Tajik market has gradually begun to
open to the outside world. Direct flights between China and
Tajikistan have also begun to operate, two shifts per week, and
there is no need for isolation, greatly shortening the journey
time. Currently, market vitality has accelerated and corporate
confidence has significantly increased, but at the same time, it is
necessary to pay attention to the risks caused by the epidemic, and
staff should wear masks in daily life to prevent viruses.
Exploration and Development Risk
The exploration for, and the development of, mineral deposits
involves significant risks, which even a combination of careful
evaluation, experience and knowledge may not eliminate. While the
discovery of an ore body may result in substantial rewards, few
properties which are explored ultimately develop into producing
mines. Major resources are required to establish ore reserves, to
develop metallurgical processes and to construct mining and
processing facilities at the Pakrut site.
There is no certainty that the exploration and development
expenditures made by the Company as described in these financial
statements will result in a commercially feasible mining operation.
There is aggressive competition within the mining industry for the
discovery and acquisition of properties considered to have
commercial potential. The Company will compete with other
companies, many of which have greater financial resources, for the
opportunity to participate in promising projects. Significant
capital investment is required to achieve commercial production
from successful exploration efforts.
The commercial viability of a deposit is dependent on a number
of factors. These include deposit attributes such as size, grade
and proximity to infrastructure; current and future market prices
which can be cyclical; government regulations including those
relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals and environmental protection.
The effect of these factors, either alone or in combination, cannot
be entirely predicted, and their impact may result in the Company
not receiving an adequate return on invested capital.
There is no assurance the Company will be able to adhere to the
current development and production schedule or that the required
capital and operating expenditure will be accurate. The Company's
development plans may be adversely affected by delays and the
failure to obtain the necessary approvals, licenses or permits to
commence production or technical or construction difficulties which
are beyond the Company's control. Operational risks and hazards
include: unexpected maintenance, technical problems or delays in
obtaining machinery and equipment, interruptions from adverse
weather conditions, industrial accidents, power or fuel supply
interruptions and unexpected variations in geological
conditions.
Mineral geological exploration and mining is a time-consuming,
profitable, and highly challenging task. Therefore, it is expected
that it will take a number of years from commencement to reach full
operational capacity and to realise production efficiencies. In the
early stages of geological exploration, there are uncertainties
inherent in the process, as a result of incomplete equipment and
facilities (under construction), less advanced technical
capabilities, and limited experience in the early stages of
development and extraction. This lack of experience can lead to
imperfect work plans.
SRK has produced a JORC compliant, independent technical report
(see announcement dated 23 April 2023 for further details). The
estimated Mineral Resource reported (Measured and Indicated) (as at
31 December 2022) are as follows: based on the cut-off grade of
1.0g/t, the ore tonnage is 6.7 million tonnes, the average grade is
2.1g/t, and the contained gold is about 14 tonnes. The estimated
ore reserves reported (Proved and Probable) are as follows: based
on the cut-off grade of 1.5g/t, the ore tonnage is 4.2 million
tonnes, the average grade is 1.9g/t, and the contained gold is
about 8.1 tonnes. Based on a production scale of 700,000
tonnes/year this production capacity is estimated based on the
actual resources and mining capacity of Pakrut, and SRK has also
recognized this level of production capacity based on on-site
inspections), the remaining production service life of the Pakrut
Gold Project is 6.3 years (calculated from 1 January 2023).
The risks inherent in developing the Company's projects are
mitigated to some extent by the strategic alliance with China
Nonferrous Metals Int'l Mining Co. Ltd, which is a member of a
Company with a number of active mining operations.
Regulatory and Legal Risk
Substantially all of the Company's business and operations are
governed by the laws, rules and regulations in Tajikistan which can
contain inherent ambiguities, uncertainty, inconsistency and
contradictions with regards to their application, interpretation,
implementation and enforcement. In particular, the laws, rules and
regulations which the Company is subject to, including, but not
limited to, those relating to foreign investments, subsoil use,
land use, licensing, customs, foreign currency, environmental
protection and taxation are still evolving and remain uncertain in
many respects.
In addition, the judicial system in Tajikistan may not be
independent and immune from the economic, political and
nationalistic influences in Tajikistan and the decisions of the
courts are often not transparent and available to the public. In
many circumstances there are no prior court decisions for reference
and the interpretations of the laws, rules and regulations by the
courts in Tajikistan remain ambiguous and it is difficult to
predict or to seek effective legal redress. The regulatory
authorities in Tajikistan are entrusted with a high degree of
discretion and authority in the application, interpretation,
implementation and enforcement of the laws, rules and regulations
potentially resulting in ambiguous and inconsistent actions.
There is no assurance that the Company will be able to comply
with all new laws, rules and regulations applicable to its mining
operations or any changes in laws, rules and regulations.
Furthermore, the legal protections available to the Company may be
limited and could have a material impact on the results of the
Company and the imposition of penalties and/or regulatory action.
In addition, the process of obtaining, retaining or renewing
licenses and permits could be time-consuming and costly and could
give rise to unexpected delays and expenses. The Company seeks and
obtains sufficient and appropriate legal advice where considered
necessary.
The Company's existing licenses and permits could be revoked,
terminated or not extended in accordance with expectations by the
Tajikistan Government, the local government or the Tajikistan
courts under certain circumstances, including failure to comply
with the conditions imposed by the licenses and permits, which may
include the provision of regular reports to the relevant regulatory
authority, obtaining sufficient insurance coverage, adherence to
the permitted extraction of mineral resources or complying with the
obligations relating to sustainable management, subsoil,
environmental protection and health and safety regulations. Failure
to obtain, retain or renew the relevant licenses and permits
required at all or on a timely basis could have a material adverse
effect on the Company's financial condition. The Company works
closely with the Government and local government departments on the
mine project in order to ensure all parties are kept up to date on
progress and closely monitors compliance with the conditions
imposed under its existing licenses and permits.
Economic Risk
The profitability of the Company's future operations may be
significantly affected by changes in the market prices for the
materials it may produce and is affected by numerous macroeconomic
factors beyond the Company's control. The level of interest rates,
the rate of inflation, world supply, and the stability of exchange
rates can all cause fluctuations in the price. Such external
factors are in turn influenced by changes in international
investment patterns and monetary systems and also political
developments. Metal prices have fluctuated in recent years,
particularly gold, and future significant price declines could
cause future commercial production to be uneconomic and have a
material adverse effect on the Company's financial condition.
Economic risk is continually evaluated by the Company, including
expectations of future events, and action undertaken as
necessary.
Certain payments, in order to earn or maintain property
interests, are to be made in local currency in the jurisdiction
where the applicable property is located. As a result, fluctuations
in the Chinese Renminbi and the Tajik Somoni could have a material
adverse effect on the Company's financial results which are
denominated and reported in US dollars. Where possible the Company
maintains bank and cash balances in the same denomination as its
expected liabilities. The Company does not currently hedge its
exposure to foreign currencies.
The Company currently has a comprehensive program of insurance
but does not carry insurance to protect against certain risks and
nor can it guarantee that its level of insurance is sufficient to
cover all outcomes and eventualities. As a result, the Company may
become subject to liability to include environmental pollution,
political risk and other hazards against which the Company cannot
insure or which it may elect not to insure. The payment of such
liabilities may have a material adverse effect on the Company's
financial condition.
Pakrut is located in Tajikistan, an overseas country, and the
tax pressure is not insignificant. Due to the regional poverty and
developing status of the host country, the Directors understand
that government funds are tight, and tax has become the main source
of national revenue. In 2020, Pakrut further strengthened its
internal control and basic management, and has formulated tax
management measures that meet the Company's management needs, that
enables the team to promptly assess tax-related risks and related
countermeasures in the Company's business and management processes,
and is responsible for establishing and maintaining good
relationships with the relevant tax authorities in order to make
representations in regard to potential changes to tax law, tax
planning, and tax incentives in order to safeguard the Company's
overall interests.
At present, it can be seen that there are many loans and a high
asset liability ratio of CNG. At present, CNG aims to reduce its
asset liability ratio by gradually repaying interest bearing
liabilities when it has the financial ability to do so. Pakrut will
continue to take measures such as improving quality and efficiency,
reducing costs where possible, and paying attention to changes in
the gold price, striving to ensure that the delivery price of gold
is higher than the market average, actively monitoring exchange
rate changes, managing its foreign exchange risk, and other
measures to improve cash flows, whilst actively exploring new paths
to repay the ultimate parent company's (and related entities')
loans, and continuously and effectively reducing the asset
liability ratio. See the going concern section for further
explanation.
Financial Risk
The Company's operations expose it to a number of financial
risks. These are discussed under 'Financial Risk Management' within
Note 1 of the Financial Statements.
Political and Country Risk
Substantially all of the Company's business and operations are
conducted in Tajikistan. The political, economic, legal and social
situation in Tajikistan introduces a certain degree of risk with
respect to the Company's activities. The Government of Tajikistan
exercises control over such matters as exploration and mining
licenses, permitting, exporting and taxation, which may adversely
impact the Company's ability to carry out exploration, development
and mining activities.
Government activity, which could include non-renewal of
licenses, may result in any income receivable by the Company being
adversely affected. In particular, changes in the application or
interpretation of mining and exploration laws and/or taxation
provisions in Tajikistan could adversely affect the value of the
Company's interests.
No assurance can be given that the Company will be able to
maintain or obtain effective security or insurance for any of its
assets or personnel at its operations in Tajikistan; this may
affect the Company's operations or plans in the future. A moderate
degree of security is also currently required to mitigate the risk
of loss by theft, either by the Company's employees or by third
parties, and controls are implemented where possible to minimize
this risk. No assurance can be given that such factors will not
have a material adverse effect on the Company's ability to
undertake exploration, development and mining activities in respect
to present and future properties in Tajikistan.
Tax risk
In 2022, compared with 2021, the corporate income tax increased
significantly by $4,030,795. The main reason is that the
calculation criteria of income tax changed, and therefore the
company has provided for additional income tax according to the tax
accounting standards of Tajikistan.
The Company will further strengthen communication with the tax
department in Tajikistan and actively respond to tax requirements
and enquiries in order to protect the legitimate rights and
interests of the enterprise.
Funding
The Company may need to secure further funding for loan
repayment purposes. There is the risk that this may not be
forthcoming which would impact the Company operations. The Company
has numerous funding options available and remains in close contact
with its controlling shareholder who have, up to now, provided
economic support as required.
Since 2016, CNMC has been continuously providing financial
support letters either through the provision of additional loans or
not pursuing non-repayment of existing loans. Currently, due to the
regulatory environment, it is difficult for CNMC to continue to
issue financial support letters to the Company. The Directors do
not have any reason to believe that CNMC will take any action or
legal enforcement against CNG in the event of default on existing
borrowings, and we draw attention to the historic (including as
recently as June 2023) willingness of CNMC to provide ongoing
financial support to the Company. See going concern section below
for further discussion with regard to current and ongoing funding
needs.
Performance of Key Personnel and Employees
The Company seeks to mitigate this risk by actively engaging
with its employees and seeking to offer a secure work environment
with appropriate pay levels to maintain both motivation and loyalty
to the Company.
Results and Dividends
The results for the year and the Company's financial position at
the end of the year are shown in the following Financial
Statements. The Directors do not recommend the payment of a
dividend (2021: US$Nil).
Future Developments
Future prospects are set out in the CEO's Statement on page 9
under 'Outlook'.
Directors and their Interests
The Directors who served the Company during the year do not hold
any beneficial interests in the shares of the Company (2021:
None).
No Director who served during the period held any share options
in the Company.
Remuneration of the Directors is disclosed in Note 5.
Substantial shareholdings
As at the date of these financial statements, the Directors were
aware of the following shareholdings in excess of 3% of the
Company's issued share capital.
Number of ordinary Percentage of issued
shares share capital
China Nonferrous Metals
Int'l Mining Co Ltd 146,666,667 38.36
Zhao Bin 50,090,304 13.10
Golden Max Company 33,823,113 8.85
Huang Lihou 33,068,430 8.65
BOCOM International 16,500,000 4.31
Rainbow Bridge
Investment Fund 12,335,489 3.23
Going Concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the CEO's Statement on pages 6 to 9. Note 1 to the
financial statements includes the Company's objectives, policies
and processes for managing its capital; its financial risk
management objectives; and its exposures to credit risk and
liquidity risk.
The Company financial statements are prepared on a going concern
basis and the Company's current and forecast cash position and
working capital shows that for the period up to 31 December 2025
the Company will have sufficient funds on hand to realise its
assets and meet its obligations as they fall due, excluding loan
financing costs and repayment of loans, for a minimum of 12 months
following the date of approval of these financial statements.
In making their assessment, the Directors also have considered
the level of production and operations at the mine site, in
conjunction with the updated resource and reserve estimates as per
the revised Independent Technical Report produced by SRK Consulting
(see Note 2), and how the Company will be able to use the cash
inflows from these operations to support its working capital
position and repay loans when they fall due. As all shareholder
loan extensions are provided on a one-year basis, the cCmpany
applies to its ultimate controlling party, CNMC, each year in
advance of the loan repayment date falling due, following the
application process that has been in place for a number of years.
As at the current date, following post year end refinancing of the
two external bank loans with Bank of Shanghai and China CITIC Bank
(See Note 28), the Company has the following loans payable:
Amount
Amount (interest
(principal) at accrued) at
the date of the date of
Lender this report this report Total Repayment date
CNMC Trade
Company Ltd 123,600,000.00 39,707,401.87 282,357,401.87 20/12/2022
CNMC Trade
Company Ltd 20,000,000.00 26/11/2022
CNMC Trade
Company Ltd 14,550,000.00 31/12/2022
CNMC Trade
Company Ltd 19,500,000.00 19/04/2023
CNMC Trade
Company Ltd 65,000,000.00 06/09/2023
CNMICC 60,744,168.83 21,260,359.47 82,004,528.30 08/12/2022
CNMIM 12,683,598.78 10,075,085.73 22,758,684.51 31/05/2022
Total
shareholder
loans
repayable in
year to 30
June 2024 316,077,767.61 71,042,847.07 387,120,614.67
The Company is currently in the process of finalizing extension
agreements for all of the above loans -- the agreements are as yet
unsigned by both parties and also remain subject to regulatory
approvals and processes as detailed in the CEO's statement. Other
than the $19.5 million of CNMC loans, that will expire on 19 April
2024, and $12,683,599 of CNMIM loan, that will expire on 31 May
2024, other loans are all to be due within 12 months from 31
December 2022 as per the draft loan renewal agreements. In previous
financial years, the Company's ultimate controlling party, CNMC,
has provided a letter of financial support to the Company
confirming its intentions to continue to support the Company as and
when required. In the current year, this letter of support could
not be obtained. In relation to the provision of financial support,
it is difficult for the ultimate controlling party, and related
entities, to continue issuing a support letter in advance of the
loan repayment date.
So far, the Company has not received any information in written
form or otherwise to indicate changes to the intentions of the
Company's ultimate major shareholder, CNMC Company, which is
currently the Company's key creditor. The Company's management has
continued to maintain open communication with its ultimate major
shareholder.
CNMC has historically renewed the shareholder loans on an annual
basis with no issues, and the Directors are not aware of any reason
why these renewals would not continue to be forthcoming upon
application by the Company. Most recently, in June 2023, CNMC
issued a new shareholder loan of $65m to enable the company to
repay its outstanding loan to Bank of Shanghai.
In terms of security against the loans, the following is in
place per the loan agreements:
-- CNG has pledged 100% of its equity interest in Kryso Resources (BVI)
Limited, which owns 100% of the Pakrut Gold Project, as security for
repayment of the $120m CNMC Trade loan disclosed in the above table; and
-- CNG has pledged 100% of its equity interest in Pakrut LLC to major
shareholder, CNMIM, in respect of the $12.7m CNMIM loan disclosed in the
above table.
Other than the above, the remaining loans are unsecured and
there is not any legal action or contractual recourse that can be
taken against the Company in the event of default or late repayment
of these loans. Management do not have reason to believe that any
action will be taken in respect of the securities noted above based
on communications with these parties and historic evidence of
financial support as noted above. Other than the two external bank
loans which were refinanced through shareholder loans post year
end, the remaining shareholder loans are past due at the year end.
The lenders, CNMIM and CNMC, have indicated they will extend the
loans by 1 year from the repayment dates shown in the table above
in all cases other than the $65m short term loan due to CNMC, as
this is not yet due for repayment and therefore the application
will be made at that time. The extension agreements are due to be
signed soon although they remain subject to regulatory processes
and procedures pursuant to Rule 13 of the AIM Rules for Companies
as detailed in the CEO's statement. The expectation is that the
CNMIM Loan will be extended to 31 May 2024. Meanwhile the Company
will continue to hold open communication with these parties, as
well as external lenders, in seeking further refinancing options
ahead of these renewal dates falling due. There is no expectation
that this will not be possible. However, as at the date of this
report there are no binding agreements in place and there is no
guarantee that the facilities will be renewed, and therefore a
material uncertainty exists with regard to going concern.
The Directors have also considered the Company's daily working
capital requirements in order to continue its operations and remain
in business. This assessment includes a detailed cash flow forecast
for the financial years 2023-2025, based on the following key
assumptions:
- Gold price of US$/oz 1,750 in 2023, falling to US$/oz 1,430
after 2025
- Life of mine is 6.3 years, with production expected to cease
in 2029
- Gold recovery rate of 81.9% from processing and metallurgy
- The latest resource evaluation data of SRK based on on-site
surveys and current metallurgical recovery rates (as per updated
Technical Report)
From this assessment, it can be concluded that the current level
of working capital, as well as the cash inflows over the next 12
months to 30 June 2024 from the activities at the mine site, will
be sufficient to meet these working capital requirements and any
committed and contractual expenditure over this period, excluding
loan financing costs and repayment of loans as discussed above. The
daily operating conditions and the basic conditions of cash flows
of the Pakrut Gold mine have not undergone any fundamental change
at the end of 2022 compared with previous years. After making due
enquiries the Directors have a reasonable expectation that the
Company and Company have access to adequate resources to continue
in operational existence for the foreseeable future which is
considered to be at least 12 months from the date of the signing of
these financial statements. Based on the facts above, a material
uncertainty exists in relation to obtaining formal loan refinancing
both now and in the future, and the auditor has made reference to
this in their audit opinion. The Company continues to adopt the
going concern basis in preparing the annual report and financial
statements.
Events after the Reporting Period
Details of events after the reporting period are set out in the
Chief Executive Officer's Statement and in Note 28 to the Financial
Statements.
Relevant Audit Information
The Directors who held office at the date of approval of this
Report of the Directors confirm that, so far as they are
individually aware, there is no relevant audit information of which
the Company's auditor is unaware; and each Director has taken all
the steps that they ought reasonably to have taken as a Director to
make themselves aware of any relevant audit information and to
establish that the auditor is aware of that information.
Auditor
PKF Littlejohn LLP has signified its willingness to continue in
office as auditor.
Signed by order of the Director
Mr Feng Zhishuo
30 June 2023
2022 2021
US$000 US$000
Revenue 3 68,525 71,992
Cost of sales (40,085) (37,256)
Gross Profit 28,440 34,736
Impairment of Property, plant and equipment 13 (265,953) -
Administrative expenses 6 (25,109) (19,879)
Gain/(Loss) on foreign exchange 1,075 (1,855)
Other operating expenses 7 (213) (2,416)
Operating (Loss)/Profit (261,760) 10,585
Finance income 9 2 6
Finance costs 9 (15,242) (10,826)
Loss before Income Tax (277,000) (235)
Income tax 8 (10,043) (6,012)
Loss for the year attributable to owners of the
parent (287,043) (6,247)
Total comprehensive income attributable to owners of
the parent for the year (287,043) (6,247)
Basic and Diluted Earnings per share attributable to
owners of the parent (expressed in cents per share) 10 (750.65) (1.63)
All of the activities of the Company are classed as
continuing.
The accounting policies and notes on pages 48 to 110 form part
of these Financial Statements.
CHINA NONFERROUS GOLD LIMITED
Consolidation statement of Financial Position
As at As at
31 December 2022 31 December 2021
Note US$000 US$000
Non-Current Assets
Property, plant and equipment 13 65,074 364,337
Total Non-Current Assets 65,074 364,337
Current Assets
Inventories 16 16,709 17,334
Trade and other receivables 17 2,514 4,202
Cash and cash equivalents 4,544 7,472
Total Current Assets 23,767 29,008
Non-Current Liabilities
Other payables 19 (1,235) -
Borrowings 18 - (65,000)
Provisions for other liabilities
and charges 20 (2,658) (1,084)
Total Non-Current Liabilities (3,893) (66,084)
Current Liabilities
Borrowings 18 (379,368) (303,953)
Trade and other payables 19 (19,011) (49,696)
Total Current Liabilities (398,379) (353,649)
Net Current Liabilities (374,612) (324,841)
Net Liabilities (313,431) (26,388)
Equity attributable to the owners of the parent
Share capital 22 38 38
Share premium 65,901 65,901
Other reserve 10,175 10,175
Retained earnings (389,545) (102,502)
Total Equity (313,431) (26,388)
These Financial Statements were approved and authorised for
issue by the Directors on 30 June 2023 and are signed on their
behalf by:
Mr Zhishuo Feng
Managing Director
The accounting policies and notes on pages 48 to 110 form part
of these Financial Statements.
Attributable
to owners of
the parent
Share Share Other Retained
capital premium reserve earnings Total
US$000 US$000 US$000 US$000 US$000
Balance at 1
January 2021 38 65,901 10,175 (96,255) (20,141)
Loss for the
year - - - (6,247) (6,247)
Total
comprehensive
income for
the year - - - (6,247) (6,247)
Total
transactions
with owners of
the parent,
recognised
directly in
equity - - - - -
Balance at 31
December
2021 38 65,901 10,175 (102,502) (26,388)
Balance at 1
January 2022 38 65,901 10,175 (102,502) (26,388)
Loss for the
year - - - (287,043) (287,043)
Total
comprehensive
income for
the year - - - (287,043) (287,043)
Total
transactions
with owners of
the parent,
recognised
directly in
equity - - - - -
Balance at 31
December
2022 38 65,901 10,175 (389,545) (313,431)
Description and purpose of reserves:
1. Share capital: share capital consists of amounts subscribed for share
capital at nominal value.
2. Share premium: share premium consists of amounts subscribed for share
capital in excess of nominal value.
3. Other reserve: other reserve comprises the capital re-organisation
reserve under the scheme of arrangement.
4. Retained earnings: cumulative net gains and losses recognised in the
consolidated statement of comprehensive income. Also included in this
figure is the share options and warrants reserve established in 2013 as
part of the capital restructuring program. This reserve holds a $Nil
balance and has been recycled in full through retained earnings as all
options and warrants have expired (see Note 23).
The accounting policies and notes on pages 48 to 110 form part
of these Financial Statements.
31 December 31 December
2022 2021
US$000 US$000
Cash flows from Operating Activities (Note 24) 8,865 13,904
Net cash generated from Operating Activities 8,865 13,904
Cash flows from Investing Activities
Purchase of property, plant and equipment (7,625) (994)
Interest received 2 6
Net cash used in Investing Activities (7,623) (988)
Cash flows from Financing Activities
Proceeds from borrowings (net of capitalised issue
costs) 54,550 99,550
Repayment of borrowings (55,550) (128,806)
Interest paid (3,170) (3,384)
Net cash generated from Financing Activities (4,170) (32,640)
Net decrease in Cash and cash equivalents (2,928) (19,724)
Cash and cash equivalents at beginning of the year 7,472 27,196
Cash and cash equivalents at end of the year 4,544 7,472
The accounting policies and notes on pages 48 to 110 form part
of these Financial Statements.
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
Notes to the Financial Statements
1. Financial Risk Management
The Company's operations expose it to a number of financial
risks; principally the availability of adequate funding, movements
in interest rates and fluctuations in foreign currency exchange
rates. Continuous monitoring of these risks ensures that the
Company is protected against any adverse effects of such risks so
far as it is possible and foreseeable.
Market Risk
a. Cash Flow and Interest Rate Risk
The continued operation of the Company is dependent on the
ability to raise sufficient working capital until the mine produces
sufficient quantities of gold to be self-sufficient. The Company
currently finances itself through the issue of equity share capital
and the secured loan facilities from CNMIM and CNMC. Management
monitors its cash and future funding requirements through the use
of cash flow forecasts. All cash not immediately required for
working capital purposes is held on short term deposit. The
Company's exposure to interest rate fluctuations on cash balances
is restricted to the rate earned on these short-term deposits. The
potential impact of such fluctuations is not considered material to
the financial statements.
The Company' s interest rate risk arises from long-term
borrowings. The Company has both variable and fixed rate
borrowings. Borrowings issued at variable rates expose the Company
to cash flow interest rate risk which is partially offset by cash
invested at variable rates. The annual fixed interest rate for the
CNMIM loan is 9% for all USD and RMB denominated tranches. All
payments of principal and interest in respect of the RMB
denominated tranche are repayable at a fixed RMB: USD exchange
rate. The interest rate on the BOS loan of US$65 million is 1.50%
per annum over the quarterly LIBOR rate and the loan is repayable
in US$. The interest rate on the CITIC loan of US$20 million is
3.00% per annum over the 6 month LIBOR rate and the loan is
repayable in US$. The interest rate on the CNMC loan of
US$206.24million is 3.25% per annum over the quarterly LIBOR rate,
and of US$14.55million is 3%.
1. Financial Risk Management (continued)
At 31 December 2022, the potential impact of fluctuations in
interest rates is considered material to the financial
statements.
b. Foreign Currency Risk
The Company operates internationally and is exposed to foreign
exchange risk arising from currency exposures. Currency risk is the
risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange
rates. The Company has cash assets denominated in UK Sterling,
United States Dollars, Tajik Somoni and PRC Renminbi and incurs
liabilities for its working capital expenditure in all of these
denominations. Payments are made in all of these denominations at
the pre-agreed price and converted (if necessary) as soon as
payment needs to occur. Currency conversions and provisions for
expenditure are only made as soon as debts are due and payable. The
Company is therefore exposed to currency risk in so far as its
liabilities are incurred in UK Sterling, PRC Renminbi and Tajik
Somoni, and fluctuations occur due to changes in the exchange rates
against the functional and presentational currency of US Dollar.
The table below details the split of the cash held as at 31
December 2022 between the various currencies.
Somoni GBP Sterling US Dollar Renminbi Total US$000
1,763 5 2,363 413 4,544
Due to the different nature of assets and liabilities, changes
in asset value caused by exchange rate changes have different ways
of affecting a Company's free cash flow. Therefore, it must be
considered separately when evaluating the value of an enterprise.
The first is the monetary items in the corporate balance sheet.
Typical monetary items include monetary funds, loans, accounts
receivable and accounts payable. When the exchange rate changes,
the above-mentioned assets or liabilities of the enterprise
accounted in foreign currencies will increase or depreciate
accordingly. For example, in the context of the depreciation of the
Renminbi, the foreign currency deposits (Somoni/USD) held by
enterprises will appreciate, which in itself has a substantial
impact on the present value of cash. The foreign currency-settled
bonds or other debts issued by companies can be repaid at a lower
RMB cost, which can save companies more funds that can be used for
free distribution, thereby promoting the enhancement of corporate
value.
1. Financial Risk Management (continued)
During 2022, the Company's principal revenue, costs, assets and
liabilities, including intercompany loans were denominated in USD.
The Company manages foreign currency risk by matching receipts and
payments and monitoring movements in exchange rates. The Company
does not currently hedge its exposure to foreign currencies and
recognises the profits and losses resulting from currency
fluctuations as and when they arise. At the year end the Company
did not have material exposure to foreign exchange risk relating to
its non-US$ denominated bank deposits and as such this not
disclosed. The year-end exchange rates used in the preparation of
the financial statements for 2022 and 2021 were as follows:
Somoni to USD GBP to USD Renminbi to USD
31 December 2022 10.2024 1.2053 6.9646
31 December 2021 11.3000 1.3499 6.3757
Liquidity Risk and Credit Risk
The continued operation of the Company is dependent on the
ability to raise sufficient working capital. As noted above, the
Company currently finances itself through the issue of equity and
borrowings from CNMIM, CNMC, CITIC and Bank of Shanghai. Management
monitors its cash and future funding requirements through the use
of cash flow forecasts. The Company enters into capital commitments
to fund operations, and any surplus cash not immediately required
for working capital purposes is held on short term deposit.
1. Financial Risk Management (continued)
The table below summarises the maturity profile of the Company's
financial liabilities based on contractual undiscounted
payments.
Between
Between 2
Less than 1 and 2 and 5 Over Carrying
1 Year Years Years 5 Years Total amount
US$000 US$000 US$000 US$000 US$000 US$000
Year ended
31 December 2022
Interest-bearing
borrowings 379,368 - - - 379,368 379,368
Trade and other
payables 19,011 - 1,235 - 20,246 20,246
Provisions for
other
liabilities - - - 5,180 5,180 5,180
398,379 - 1,235 5,180 404,794 404,794
1. Financial Risk Management (continued)
Year ended
31 December 2021
Interest-bearing borrowings 303,953 65,000 -- 368,953 368,953
Trade and other payables 49,696 - -- 49,696 49,696
Provisions for other liabilities - - -4,988 4,988 4,988
353,649 65,000 -4,988 423,637 423,637
The Company holds bank accounts with banks in the UK, PRC and
Tajikistan with the following credit ratings:
2022 2021
Credit rating US$000 US$000
A 1,964 3,229
No independent credit rating available 2,580 4,243
4,544 7,472
If a bank has no credit rating, the Company assesses the credit
quality through local knowledge and past experience in the
particular jurisdiction.
1. Financial Risk Management (continued)
Capital Risk Management
The Company consider equity to be their capital. The Company's
objective when managing their capital is to safeguard the Company's
ability to continue as a going concern in order to provide returns
for shareholders and to enable the Company to continue its
exploration, evaluation and mine construction. The Company holds
debt in the form of both shareholder and external loans and defines
capital based on the total equity of the Company. Except for the
secured loan facilities from CNMIM, CNMC, the Company's current
policy for raising capital is through equity issues and debt
financing. The Company is not currently required to monitor its
gearing ratio and is not exposed to any externally imposed capital
requirements.
2. Critical Accounting Estimates, Assumptions and Judgments
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amount of assets and
liabilities are set out below. Estimates and assumptions are
continually evaluated and are based on management's experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Uncertainty
about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of assets and
liabilities affected in future periods.
The Company has identified the following areas where significant
estimates, assumptions and judgments are required. The most
significant judgment for the Company is the assumption that
exploration and development at its sites will ultimately lead to a
commercial mining operation. Failure to do so could lead to further
impairment of the mine.
Estimated impairment of Property, Plant and Equipment including
Producing Mines (Note 13)
The Company tests annually whether exploration, evaluation and
licensing assets and producing mines have suffered any impairment.
The recoverable amounts of the cash generating units ("CGUs") have
been determined based on value in use calculations which require
the use of estimates and assumptions such as long-term commodity
prices, gold recovery rates, discount rates, operating costs and
therefore expected margins, future capital requirements and mineral
resource estimates (see below). These estimates and assumptions are
subject to risk and uncertainty and therefore there is a
possibility that changes in circumstances will impact the
recoverable amount. Management has assessed its CGUs as being
individual exploration and mine sites, which is the lowest level
for which cash inflows are independent of those of other assets or
CGUs.
Whilst gold production at Pakrut initially commenced in the
second half of 2015, the ramp-up of mining and processing was
achieved from late 2018 onwards, with production capacity of 2,000
tonnes per day reached in early 2020. The Company has reported an
operating profit from mining activities since 2020.
The value in use calculations up to the year ended 31 December
2021 were based on the following key assumptions:
-- SRK's previous technical report in 2014, together with the feasibility
study undertaken by Beijing General Research Institute of Mining and
Metallurgy ("BGRIMM") in 2015;
-- Total expected JORC compliant resources of 4,383,000 ounces, of which
904,000 ounces was covered by the mining license issued in November 2011.
The higher JORC resource figure at Pakrut, including the Eastern Pakrut
ore zone, but excluding the Rufigar and Sulfidnoye ore zones, includes
the results of all exploration and evaluation activities to 2013 and
therefore to a date subsequent to the mining license application and
award. The exploration license expired on 1 April 2014;
-- The intention was to seek approval from the Tajik authorities of the
enlarged JORC resource, and ultimately seek an extension to the mining
license which expires on 2 November 2030.
Based on the above assumptions, the value in use exceeded the
carrying value of the Producing Mine Asset, and no impairment was
recognised in the financial statements as at 31 December 2021.
Key assumptions in the Updated Technical Report prepared by SRK
Consulting as at 31 December 2022
SRK was engaged to complete an updated Mineral Resources and Ore
Reserves estimate, as well as a technical review of production
operations of the Pakrut Project as at 31 December 2022, taking
into consideration the "reasonable prospect of eventual economic
extraction".
A comparison of the SRK results as at 2022 compared to 2013 at
the resources and reserves level highlights the key differences in
the results between the two dates. Only the Pakrut and Eastern
Pakrut ore zones are included in the tables below. The revised ore
reserve estimates reported by SRK as at 31 December 2022 reflect
actual production data collated since 2018 and the change in
strategy to continue with the existing capacity of 2,000 tpd rather
than ramp up capacity to 4,000 tpd.
Resources -- Pakrut @ 1g/t cut-off:
2013 Category Mt Au (g/t) Au (koz) Au (kg)
Measured 18.06 3.23 1,874 58,280
Indicated 7.91 2.39 608 18,915
M&I 25.97 5.62 2,482 77,195
Inferred 24.96 1.98 1,586 49,322
2022 Category Mt Au (g/t) Au (koz) Au (kg)
Measured 2.08 2.02 135 4,193
Indicated 4.64 2.07 308 9,590
M&I 6.71 4.09 443 13,873
Inferred 7.82 2.21 556 17,289
Reserves -- Pakrut @ 1.5&1.6g/t cut-off (Zone 1):
2013 Category Mt Au (g/t) Au (koz) Au (kg)
Proved 11.81 3.60 1,370 42,623
Probable 2.16 2.80 196 6,106
Total 13.97 6.40 1,567 48,729
2022 Category Mt Au (g/t) Au (koz) Au (kg)
Proved 1.33 2.01 86 2,676
Probable 2.91 1.87 175 5,443
Total 4.24 3.88 261 8,119
The above tables show significant differences in resources and
reserves between the two reports, the key reasons being:
-- the new Mineral Resource Estimate, is exclusive of all mined-out
materials since the Company commenced operations in 2015, whereas at the
time of the previous resource estimated the materials were in-situ
without depletion (mining at site had not commenced). 172,200 oz of gold
have been extracted to date.
-- a total of five gold mineralization zones ("GMZs") are delineated at
Pakrut. Namely GMZ 1, 3, 5, 6 and 7. The Measured and Indicated Mineral
Resources are situated in GMZ 1 and GMZ 3. Previous resource estimates
have included GMZ 3 (Eastern Pakrut), but operating practices indicate
that the gold grade in this GMZ 3 is less than 1.5g/t and therefore not
currently economic. Accordingly, this Mineral Resource Estimate only
incorporates GMZ 1 (Pakrut) and LLC Pakrut intends to exploit just GMZ 1
in the future.
-- the Cut-off grade of gold has increased from 0.5 g/t used in previous
Mineral Resource Estimates to 1.0 g/t for this Mineral Resource Statement,
reducing the amount of material that is included in the Mineral Resource
Estimate because operational performance shows that mining dilution is
higher than previously estimated.
-- A considerable amount of data from new boreholes and channels has been
added to the database originally used in previous Mineral Resource
Estimates, following actual operational and further exploration
activities, which has increased the awareness and knowledge of the
geometry of the Pakrut Deposit.
-- The Pakrut gold mineralisation is associated with structural alteration
and is of vein type deposit, which can make the geological interpretation
of the ore body more complicated when compared to other deposit types.
This can be particularly challenging for the resource estimation at the
exploration stage (the previous Mineral Resource Estimates were prepared
at an exploration stage). However, the use of underground drilling and
channeling activities during the construction and production stage has
enabled a more comprehensive understanding and interpretation of local
geology of the deposit.
The revised value in use (discounted cash flow) as at 31
December 2022 of $62.4millon was calculated by SRK using the data
per the above tables and the following assumptions, and the Board,
in considering the impairment to the mine asset, have also
carefully considered and are in agreement with these
assumptions:
- 10% discount rate (the discount rate is selected by SRK
according to industry experience and benchmarking)
- Gold price of US$/oz 1,750 in 2023, falling to US$/oz 1,430
after 2025 (SRK uses the CMF--China Macroeconomy forum prediction
method to search for the highest, lowest, and middle prices in the
economic database from 2023 to 2036)
- Life of mine is 6.3 years, with production expected to cease
in 2029 (SRK has obtained the latest resource evaluation data based
on on-site surveys and current metallurgical recovery rates;
2023-2027:700,000t/year 2028:526,572.60t/y 2029:210,588.97t/y)
- Gold recovery rate of 81.9% from processing and metallurgy
Sensitivity analysis was conducted based on the base scenario
against the changes of capital expenditure ("CAPEX"), operating
expenditure ("OPEX"), and production income. The analysis shows
that changes in metal prices have the most significant effect on
the NPV. A 0.5% change in the gold price used in the base case
model would result in a change in the NPV of approximately $900k. A
1% change in the discount rate used would result in an increase /
decrease of $1.6m / $1.5m respectively.
Production volumes are dependent on a number of variables, such
as: the recoverable quantities; the production profile; the cost of
the development of the infrastructure necessary to extract the
reserves; the production costs; the contractual duration of mining
rights; and the selling price of the commodities extracted.
Estimated remaining life of mine for the project based on current
Ore Reserve estimates is now 6.3 years, producing on average 43,000
ounces from 700,000 tonnes of ores per annum until 2029.
All the ore mined is assumed to be fed to the processing plant.
The Operating expenses forecasts which were estimated based on last
three years (2020 - 2022) actual Operating expenses. Depreciation
and amortization have been excluded in the operating cost
estimates. Royalty tax is approximately 6% of sale revenues. The
corporate income tax is the maximum of 18% of taxable revenues and
1% of sales revenues. Other taxes are minor.
2. Critical Accounting Estimates, Assumptions and Judgments
(continued)
As there is no significant expansion for the Pakrut project
planned, the additional capital expenditure relates only to mine
closure costs estimated by SRK to be approximately USD 5,180,000
(2.5% of total Operating expenses) -- these amounts are excluded
from the NPV calculated by SRK and have therefore been added to the
carrying value of mine assets at present value of $2.7m. These
costs are not expected to be incurred before financial year 2029,
which is the revised end of mine life per the revised technical
report. There is a need to consider also any potential residual
value of assets including plants and smelters which may be realized
at the time of mine closure through sale of these assets -- in
order to be prudent, however, management have not reduced the
estimated closure costs by any potential value in these assets as
this is uncertain at the current time. The net present value
("NPV") calculated by SRK based upon the above is US$62.4m, which
gives rise to an impairment charge in the 2022 financial statements
of approximately US$266m.
Based on the latest SRK evaluation report and net present value
calculation, management have considered it appropriate to record
this impairment charge in the 2022 financial statements in order to
fairly present the carrying value of the mine asset. This NPV does
not however include the present value of the revised rehabilitation
provision estimates, totalling $2.7m at the year end, as detailed
below.
Rehabilitation provision (Note 20)
An enterprise shall, in accordance with the provisions of IAS 37
Provisions, Contingent Liabilities and Contingent Assets, calculate
and determine the amount of costs expected to be incurred at the
end of the mine life in respect of reclamation and rehabilitation
of the mine site and surrounding areas, in accordance with the
provisions of the license agreement and relevant mining legislation
in Tajikistan. It is the Company's understanding that the
reclamation and greening work of tailings ponds and waste disposal
sites in mining enterprises is to be funded by the company during
the closure of the mine, and to be inspected and accepted by
government departments.
2. Critical Accounting Estimates, Assumptions and Judgments
(continued)
In the 2022 Technical Report, SRK Consulting estimated a total
undiscounted rehabilitation provision of $5.18 million (2.5% of the
operating cost of $207.21 million from 2023 to 2029), discounted at
year end using a 10% discount rate to $2.7 million, as an
additional cost to be incurred relating to the closure of the mine
site, including the tailings dam and smelting facilities. This is a
revised estimate compared with the Company's previous estimates
(2021:undiscounted rehabilitation provision of $4.99 million) and
this results from the much more advanced current stage of
operations when compared with the previous technical report from
2013. Additional knowledge is now available to the company, as well
as additional construction and development work having been carried
out since that time meaning that additional costs will need to be
incurred at the time of mine closure, hence the increase in
provision which can be seen in Note 20.
Management believes that this is a reasonable basis for
estimating future liabilities and will conduct regular reviews to
consider any significant changes in assumptions. The actual costs
will ultimately depend on the future market price of the necessary
rehabilitation and closure works, changes in future regulatory
requirements, and other uncertainties at the time of ceasing
commercial operation.
Approval of Pakrut reserves by Tajik Department of Geology
In November 2011, the Government of the Republic of Tajikistan
issued the Pakrut Gold Project mining license to LLC Pakrut.
According to the terms of the license, the amount of ore that can
be mined is variable depending upon the mine plan. The mining
license issued in November 2011 currently entitles the Company to
mine JORC compliant resources (measured, indicated and inferred) of
904,000 ounces out of total JORC compliant resources of 4,383,000
ounces at Pakrut, excluding the Eastern Pakrut, Rufigar and
Sulfidnoye ore zones. The JORC compliant resources include the
results from the Company's exploration and evaluation work
subsequent to the mining license issue date.
At present, LLC Pakrut does not intend to seek the approval from
the Tajik government for the updated resources and reserves.
2. Critical Accounting Estimates, Assumptions and Judgments
(continued)
Mineral resource and reserve estimates
Reserves are estimates of the amount of resources that can be
economically and legally extracted from the Company's mining
properties. The Company estimates its mineral resources based on
information compiled by appropriately qualified persons relating to
the geological and technical data on the size, depth, shape and
grade of the ore body and suitable production techniques and
recovery rates. This analysis requires complex geological judgments
to interpret the data. The estimation of the recoverable amount is
based upon factors such as estimates of commodity prices, future
capital expenditure and production costs along with geological
assumptions made in estimating the size and grade of the resources.
Details of the mineral resources and reserve estimates can be found
on www.cnfgold.com.
The Company estimates and reports mineral resource estimates in
line with the principles contained in the Australasian Code for
Reporting Exploration Results, Mineral Resources and Ore Reserves
(December 2012), which is prepared by the Joint Ore Reserves
Committee (JORC) of the Australasian Institute of Mining and
Metallurgy, Australian Institute of Geoscientists and Minerals
Council of Australia, known as the "JORC Code". The determination
of a JORC resource is itself an estimation process that involves
varying degrees of uncertainty depending on how the resources are
classified (i.e. measured, indicated or inferred).
As additional geological information is produced during the
operation of a mine and through additional exploration activity,
mineral resource estimates may change. Such changes may impact on
the Company's reported financial position which includes the
carrying value of property, plant and equipment and
inventories.
SRK was engaged to complete an updated Mineral Resource and Ore
Reserve estimate as of 31 December 2022.
A comparison of the SRK results as at 2022 compared to 2013 at
the resources and reserves level highlights the key differences in
the results between the two dates. The revised ore reserve
estimates reported by SRK as at 31 December 2022 reflect actual
production data collated since 2018 and the change in strategy to
continue with the existing capacity of 2,000 tpd rather than ramp
up capacity to 4,000 tpd. The significant differences between the
2013 and 2022 reports are disclosed in the Impairment section
above.
2. Critical Accounting Estimates, Assumptions and Judgments
(continued)
Estimated economically recoverable reserves are used in
determining the depreciation and/or amortisation of mine-specific
assets. This results in a depreciation/amortisation charge
proportional to the depletion of the anticipated remaining
life-of-mine production. The life of each item, which is assessed
at least annually, has regard to both its physical life limitations
and present assessments of economically recoverable reserves of the
mine property at which the asset is located. These calculations
require the use of estimates and assumptions, including the amount
of recoverable reserves and estimates of future capital
expenditure. The calculation of the UOP rate of
depreciation/amortisation could be impacted to the extent that
actual production in the future is different from current forecast
production based on economically recoverable reserves, or if future
capital expenditure estimates change. Changes to economically
recoverable reserves could arise due to changes in the factors or
assumptions used in estimating reserves, including:
-- The effect on economically recoverable reserves of differences between
actual commodity prices and commodity price assumptions;
-- Unforeseen operational issues.
Depreciation/Amortisation (Note 13)
As the mine entered full production during the period, 2019 was
the first period for which depreciation / amortisation was charged
in respect of the producing mine assets. As mentioned in the
judgement above judgement is required in the calculation of this
amount with the key estimates considered to be surrounding the
amount of economically recoverable resources and the lifespan of
the asset. The economically recoverable reserves are considered to
be those detailed out on the website (see above for link) and the
lifespan of the mine is considered to be 6.3 years.
3. Segment Information
The following segments are based on the management reports
received by the Executive Directors, who are the chief operating
decision makers. The Company operates principally in three
geographical areas, UK, PRC and Tajikistan, with operations managed
on a project by project basis within Tajikistan. For segment
reporting purposes, the operations of the Cayman Islands registered
parent Company are included in the UK and PRC segment as these
segments are jointly managed.
UK and PRC Tajikistan Pakrut Total
2022 US$000 US$000 US$000
Revenue - 68,525 68,525
Cost of sales - (40,085) (40,085)
Impairment of producing mine (265,953) (265,953)
Administrative expenses (1,785) (23,324) (25,109)
Foreign exchange 1,075 1,075
Other operating expenses - (213) (213)
Operating loss (1,785) (259,975) (261,760)
Finance costs (15,243) - (15,243)
Finance income 2 - 2
Income tax - (10,043) (10,043)
Loss for the year (17,026) (270,018) (287,044)
Total assets - 88,841 88,841
Total liabilities - 402,272 402,272
Additions to property, plant and
equipment - 7,625 7,625
3. Segment Information (continued)
The Company's mining activities are located in Tajikistan,
principally within the Pakrut Gold Project. Support and
administration services are provided from the UK and PRC.
Inter-segment revenue is eliminated on consolidation and is
conducted on mutually agreed terms between Company companies.
All revenue generated in the period was from the government of
Tajikistan.
UK and PRC Tajikistan Pakrut Total
2021 US$000 US$000 US$000
Revenue - 71,992 71,992
Cost of sales - (37,256) (37,256)
Administrative expenses (including
foreign exchange) (9,454) (12,280) (21,734)
Other operating expenses 2,117 (4,534) (2,416)
Operating profit/(loss) (9,454) 20,039 10,585
Finance costs (10,825) - (10,825)
Finance income 6 - 6
Income tax - (6,012) (6,012)
(Loss)/profit for the year (20,273) 14,027 (6,247)
Total assets 3,101 390,246 393,347
Total liabilities 383,777 35,957 419,734
Additions to property, plant and
equipment - 994 994
4. Particulars of Employees
The average number of staff employed by the Company during the
financial year amounted to:
2022 2021
No. No.
Administrative and management 113 116
Operational staff 588 590
701 706
The aggregate costs of the above were:
2022 2021
US$000 US$000
Wages and salaries 5,277 4,575
Basic pension cost 989 1,036
6,266 5,611
5. Directors' Emoluments
The Directors' emoluments in respect of qualifying services
were:
Salary and fees Total
2022 US$ US$
Mr Wang Xiaohua 187,082 187,082
Mr Yong Li 22,685 22,685
Mr Lixian Yu 99,787 99,787
Mr Xiuzhi Shi 22,566 22,566
Mr Hui Zhang 224,516 224,516
556,636 556,636
Salary and fees Total
2021 US$ US$
Mr Wang Xiaohua* 50,850 50,850
Mr Yong Li 24,905 24,905
Mr Lixian Yu 109,475 109,475
Mr Delin Feng** 124,946 124,946
Mr Xiuzhi Shi 24,971 24,971
Mr Hui Zhang 246,324 246,324
581,471 581,471
*Mr Xiaohua Wang was appointed in November 2021
**Mr Delin Feng resigned in November 2021
Key management comprises Executive and Non-Executive Directors
and all emoluments are short term in nature.
6. Expenses by nature
2022 2021
US$000 US$000
Employee benefit expenses 7,147 6,758
Operating lease expenses 3 50
Depreciation 2,732 3,023
Legal, professional and regulatory costs 398 515
Travel and entertaining 650 521
Social & other taxes 10,674 6,609
Other expenses 2,505 1,067
Commission/bank fees 1,000 1,336
Total administrative expenses 25,109 19,879
6. Expenses by nature (continued)
2022 2021
US$000 US$000
Fees payable to the Company's auditor for the audit of the
consolidated financial statements 133 119
Fees payable to the Company's auditor for other services:
Tax compliance services - -
133 119
7. Other operating expenses
2022 2021
US$000 US$000
Loss on disposal of fixed assets - 2,307
Public welfare donation expenditure 213 2,227
Gain on dissolution of subsidiaries - (2,118)
213 2,416
Total other expenses in 2022 were US$213,013 (2021:
US$2,416,000), which comprises of Pakrut's local donation
expenditure. According to local regulations of the Tajik
government, Chinese enterprises make donations to the local area
every year. The main reason for the significant decrease in
donation expenditure in 2022 is that the Tajik government requested
to fulfill the investment agreement last year, resulting in a
significant amount of donation expenditure.
Kryso Resources Limited (UK) and International Mining Supplies
& Services Limited were struck off and dissolved in October
2021. Kryso Resources Limited (BVI) Beijing Representative Office
was dissolved in August 2021. All the assets and liabilities of
these three companies have been transferred to Kryso Resources
Limited (BVI), another subsidiary company within the Company which
resulted in the loss of CNG on dissolution of subsidiaries.
8. Income Tax
a. Analysis of Charge in the Year
2022 2021
US$000 US$000
Current tax:
Current tax 10,043 6,012
Deferred tax - -
Total 10,043 6,012
No provision for income taxes arose in the Cayman Islands, the
UK, British Virgin Islands. A current income tax expense arose in
Tajikistan during the year as LLC Pakrut sold gold in the amount of
TJS 755,867,248 -- equivalent to US$ 68,524,835 (2021: TJS
814,171,620 -- equivalent to US$ 71,991,962). Thereby, the Company
paid the amount of advance payments of income tax according to the
Tax Code of the Republic of Tajikistan, being 1.00% of revenue.
The main reasons for the substantial increase in income tax
compared with last year are as follows: The calculation criteria of
income tax was amended during 2022 which resulted in additional
income tax payable of $4.03million in respect of income tax.
The company has continued to strengthen the study and research
on the tax law of Tajikistan to reduce tax losses; secondly,
strengthen the visit and communication with the tax bureau and the
Tax Committee, maintain good relations, and continue to reduce the
prepaid tax.
8. Income Tax (continued)
Factors Affecting Current Tax Charge
The tax assessed on the loss for the year is higher than the
weighted average standard rate of corporation tax of 18% (2021 --
20%).
2022 2021
US$000 US$000
Loss before income tax (278,085) (235)
Loss on ordinary activities by weighted average rate of
tax at 18% (2021: 20%) (50,055)) (47)
Expenses not deductible for tax purposes 544 630
Tax losses for which no deferred income tax asset was
recognized/(Utilisation of tax losses) 49,511 (611)
Pakrut income tax 10,043 6,012
Current tax payable 10,043 6,012
The Company did not recognise deferred tax assets of
approximately US$Nil (2021:$Nil). Unused Tajik tax losses amounting
to approx Nill at 31 December 2022 can be carried forward for three
years from the year incurred and used against future taxable income
at 15%
9. Finance Income and Costs
2022 2021
US$000 US$000
Finance Income
Interest income on short term bank deposits 2 6
Finance Costs
Interest expense on shareholder's loans wholly repayable
within five years 12,340 7,315
Interest expense on bank borrowings wholly repayable within
five years 2,902 3,510
Finance costs 15,242 10,825
10. Earnings per Share
2022 2021
US$ US$
Basic and diluted earnings per share (cents) (757.60) (1.63)
The basic earnings per share is calculated by dividing the loss
attributable to equity holders after tax of US$289,701,494 (2021:
US$6,245,000) by the weighted average number of shares in issue and
carrying the right to receive dividend. For the year ended 31
December 2022 this was 382,392,292 (2021: 382,392,292) shares.
As the Company has incurred a loss for the year, no option or
warrant is potentially dilutive, and hence the basic and diluted
earnings per share are the same. At the year end, there were nil
(2021: nil) share options outstanding that are potentially dilutive
in the future.
11. Intangible Assets
The exploration and evaluation assets represent internally
generated costs in connection with the Company's exploration and
evaluation activities. Expenditure is transferred from exploration
and evaluation assets to mines under construction once the work
completed to date supports the future development of the property
and such development receives appropriate approvals.
The rights of LLC Pakrut to carry out exploration and evaluation
activity at the Pakrut deposit expired on 1 April 2014. The renewal
application by the Company to extend the exploration license is
being considered by the Government of Tajikistan. Although the
Directors are not aware of any legal or other impediments which
would ultimately prevent approval of the license extension, the
Directors fully impaired the carrying value of the exploration and
evaluation assets during 2014 due to non-renewal of the Exploration
License. Exploration and evaluation activities can continue at the
Pakrut Gold Deposit in the area covered by the mining license.
Currently staff members of Pakrut are coordinating with the local
government for exploration licenses.
12. Mines under Construction
Mining rights comprised of exploration and evaluation assets up
to the date the Pakrut Gold Project was determined to be
technically feasible and commercially viable. All subsequent
exploration and evaluation expenditure at this site was capitalised
within mining rights. Mining rights also included the subsoil
contract signature bonus and payments to obtain land use
rights.
Construction in progress comprised the mine, smelting plant,
tailings pond, power lines and road construction work carried out
at the Pakrut Gold Project by contractors and directly by the
Company. It also included the borrowing costs associated with the
loan to finance the mine, construction from China Nonferrous Metals
Intl Mining Co. Limited ("CNMIM"), together with associated legal,
professional and consultancy costs.
Mines under construction are not depreciated until construction
is completed and the assets are available for their intended use
and signified by the formal commissioning of the mine for
production. Construction was completed at the end of the 2018
financial year with the mine being deemed to be fully operational
at the start of the 2019 financial year and all accumulated
capitalised costs were transferred into Property, Plant and
Equipment at 1 January 2019.
Construction in progress during the year ended 31 December 2022
comprises the commencement of construction of an additional
tailings facility at the Pakrut mine site.
13. Property, Plant and Equipment
Office
furniture
and Motor Plant and Producing Assets under
Land equipment vehicles machinery mines construction Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
Cost
At 1 January
2021 32 693 8,698 23,277 378,425 - 411,125
Additions - - 190 805 - - 994
Disposals - (90) (3,465) (2,639) - - (6,193)
Settlement of
amount of
historic
liabilities
to
contractors - - - - 4,307 - 4,307
At 31
December
2021 32 602 5,423 21,443 382,732 - 410,233
Additions - 36 92 1,475 - 6,022 7,625
Transfer from
Assets under
Construction 812 (812)
Settlement of
amount of
historic
liabilities
to
contractors - - - - (29,904) - (29,904)
Impairment - - - - (265,953) - (265,953)
At 31
December
2022 32 638 5,515 22,918 87,687 5,210 122,000
13. Property, Plant and Equipment (continued)
Accumulated Depreciation
At 1 January 2021 - 354 6,641 14,056 16,873 - 37,924
Charge for the year - - 319 2,521 9,026 - 11,866
Disposals - (90) (2,112) (1,690) - - (3,892)
At 31 December 2021 - 264 4,847 14,888 25,899 - 45,898
Charge for the year - 35 157 2,341 8,496 - 11,028
At 31 December 2022 - 299 5,005 17,228 34,395 - 59,926
Net Book Value
At 31 December 2022 32 339 510 5,690 53,292 5,210 65,074
At 31 December 2021 32 341 575 6,555 356,833 - 364,377
In 2019 as the mine entered full production, mines under
construction were transferred into Property, Plant & Equipment
under the sub-category of Producing mines as presented above, and
depreciation/depletion charged as per the accounting policies.
The carrying value of the PPE, most notably producing mines, and
the depreciation/depletion methodology used, are both considered to
be key accounting judgements. Detail of these are disclosed in Note
2 along with the related key estimate
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
14. Subsidiary Undertakings
The Company had the following subsidiary undertakings as at 31
December 2022:
Name of Company Holding Country of Proportion Nature of Registered
Incorporation of Voting Business addresses
Rights held
Directly held
Kryso Resources Ordinary shares British Virgin 100% Holding 190 Elgin
(BVI) Limited (CNG) Islands Company Avenue, Grand
Cayman,
KY1-9005,
Cayman
Islands
Indirectly held
LLC Pakrut (BVI Ordinary shares Tajikistan 100% Mineral Bahor
holds 100% (BVI) exploitation, district,
share) development and Vahdat,
mining Tajikistan
15. Financial Instruments by category
Financial assets at amortised cost
US$000
31 December 2022 Assets per Statement of
Financial Position
Trade and other receivables, excluding
prepayments 1,291
Cash and cash equivalents 4,544
Total 5,835
Financial liabilities at
amortised
cost
US$000
31 December 2022 Liabilities per Statement
of Financial Position
Borrowings 379,368
Provisions for other liabilities and
charges 2,658
Long term liabilities 1,235
Trade and other payables, excluding
non-financial liabilities 19,011
Total 402,272
15. Financial Instruments by category (continued)
Financial assets at amortised cost
US$000
31 December 2021 Assets per Statement
of Financial Position
Trade and other receivables, excluding
prepayments 3,565
Cash and cash equivalents 7,472
Total 11,037
Financial liabilities at amortised
cost
US$000
31 December 2021 Liabilities per
Statement of Financial Position
Borrowings 368,953
Provisions for other liabilities and
charges 1,084
Trade and other payables, excluding
non-financial liabilities 49,696
Total 419,733
16. Inventories
2022 2021
US$000 US$000
Construction materials and processing equipment 16,709 17,334
16,709 17,334
Construction materials and processing equipment relates to raw
materials and semi-finished products used in gold production.
17. Trade and Other Receivables
Company Company
2022 2021
US$000 US$000
Other receivables 1,291 3,565
Prepayments and deposits 1,223 638
Total 2,514 4,203
None of the receivables are past due. The fair values are equal
to the carrying amounts.
18. Borrowings
2022 2021
US$000 US$000
Bank borrowings 85,000 99,550
Other loans 294,368 269,403
Total 379,368 368,953
Non-current portion - 65,000
Current portion 379,368 303,953
The fair value of borrowings equals their carrying amounts, as
the impact of discounting is not significant.
CNMIM loan
The USD tranche of the loan has been settled in full and US$Nil
was outstanding as at 31 December 2022 (2021: US$Nil). The amount
outstanding on the RMB tranche of the loan as at 31 December 2022
was US$12,683,599 (2021: US$12,683,599).
CNMC loans
The loan agreement between CNMC International Capitals Company
Limited and CNG was signed on 20 September 2017. Under this
agreement, CNMC International Capitals Company Limited provided a
loan facility of US$6,500,000 to CNG. This loan was used to improve
the daily business operations of China Nonferrous Gold Limited.
The full amount of the loan was drawn down on 20 September 2017.
The loan contains annual fixed interest at 4%, however where the
loan is used for a purpose other than that stated in the contract
(see comments above), the proportion of the loan used will incur
interest at a fixed rate of 8% per annum. Payment of interest is
made quarterly.
During 2019, the loan was transferred from CNMC International
Capitals Company Limited to another member of the Company, CNMC
Trade. On 15 July 2020, a loan extension agreement was signed,
extending the repayment date until 20 December 2020. The extension
agreement incurs interest at a rate of 6 months LIBOR + 3.7%.
On 26 March 2021, a loan extension agreement was signed,
extending the repayment date until 20 December 2022. The extension
agreement incurs interest at a rate of 3 months LIBOR + 3.25%.
A loan agreement between CNMC International Capitals Company
Limited and CNG was signed on 27 April 2016. Under this agreement,
CNMC International Capitals Company Limited provided a loan
facility of US$120,000,000 to CNG. This loan was used to refinance
the previous ICBC loan of the same amount, and the purpose of these
funds was for development, operations and management of the Pakrut
Gold Project, including operating and related expenses.
The full amount of the loan was drawn down on the 27 April 2016.
The loan contains annual fixed interest at 4%, however where the
loan is used for a purpose other than that stated in the contract
(Pakrut Mine -- see comments above), the proportion of the loan
used will incur interest at a fixed rate of 8% per annum. Payment
of interest will be made biannually in June and December.
During 2019, the loan was transferred from CNMC International
Capitals Company Limited to another member of the Company, CNMC
Trade. On 26 March 2021, a loan extension agreement was signed
extending the repayment date until 20 December 2022. The extension
agreement incurs interest at a rate of 3 months LIBOR + 3.25%.
The Company has pledged its 100% equity interest in China
Nonferrous Gold Limited to CNMC as security for repayment of the
loan.
A loan agreement between CNMC and CNG was signed on 27 May 2016
for a total amount of US$20,000,000, which was drawn down in full
on 27 June 2016. The loan period per the contract was 6 months,
from 27 May 2016 to 26 November 2016.The loan contains a fixed
interest rate of 4% per annum, which is calculated on a monthly
basis from the 21st of the month to the 20 of the following
month.
During 2018, the loan was transferred from CNMC to another
member of the Company, CNMC Trade. A further extension has been
signed extending the repayment date until 26 November 2020. On 26
March 2021, a loan extension agreement was signed extending the
repayment date until 2022. The extension agreement incurs interest
at a rate of 3 months LIBOR + 3.25%.
In January 2022, the Company executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of US $34.55
million (the "CNMC Loan"). This CNMC Loan has been used to repay
the existing China CITIC Bank Corporation Limited ("CITIC") bank
facilities of US $34.55m.
In January 2022, the Company executed a foreign currency working
capital loan agreement with China CITIC Bank Corporation Limited
(Zhuhai Branch) ("CITIC") for a loan facility of US$20 million ,
with an annual interest at 3.00% over 6 month LIBOR, which was used
to repay US$20m of the CNMC Loan.
In January 2023, the Company executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of US $19.50
million (the"CNMC Loan") including an annual interest rate at 0.5%
plus 3 month LIBOR. This CNMC Loan has been used to repay the
existing China CITIC Bank Corporation Limited ("CITIC") bank
facilities of USD $20m.
In June 2023, the Company executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of USD$65 million
(the "CNMC Loan") including an annual interest rate at 0.5% plus 3
month LIBOR.
In December 2022 ,the Company repaid US$1m of the CNMC Trade.
And In the first quarter of 2023 ,the Company repaid US$1.9m of the
CNMC Trade.
A loan agreement between CNMC International Capitals Company
Limited (CNMC International) and CNG was signed on 8 February 2018
for a total amount of US$90,000,000, which was drawn down in full
on 9 February 2018. The loan was provided for the purposes of the
construction, operations and management of the Pakrut Gold Project,
including operating and related expenses. This use is in line with
the terms of the agreement. The loan period per the contract was
from 9 February 2018 to 8 December 2020.
The loan contains a fixed interest rate of 5.8% per annum, which
is calculated on a half yearly basis from the 21st of December to
the 20th June, and from the 21st June to 20th December. Payment of
interest will be made annually in June and December of each year.
Where the loan is used for a purpose other than that stated in the
contract (see comments above), the proportion of the loan used will
incur interest at a fixed rate of 11.6% per annum. At the repayment
date, interest will be charged at 8.7% on any unpaid balance. On 8
February 2021 US$20,000,000 was repaid, and on 26 March 2021, a
loan extension agreement was signed extending the repayment date of
US$70,000,000 until 8 December 2022,and the extension agreement
incurs interest at a rate of 3 months LIBOR + 3.25%.In June 2021,
the Company repaid US$9.26m Yen60million of its outstanding
loan.
CITIC loans
In 2022, the Company executed a loan agreement with CNMC Trade
Company Limited ("CNMC Trade") for a loan of up to USD $34.55
million (the"CNMC Loan"). This CNMC Loan has been used to repay the
existing China CITIC Bank Corporation Limited ("CITIC") bank
facilities of USD $34.55m (being USD20m advanced in January 2021
("First Loan") and USD $14.55m advanced in March 2021 ("Second
Loan").
In January 2021, the Company executed an agreement with China
CITIC Bank Corporation Limited (Zhuhai Branch) ("CITIC") for a loan
facility of up to CNY300million which is equivalent to US$46.37m.
The CITIC Loan facility is for a maximum of 12 months and is
repayable 12 months from first drawdown. US$20m of the CITIC Loan
was drawn down in January 2021 including an annual interest rate at
2.7% plus 6 month LIBOR. It had been repaid on 20 January 2022.
Another US$14.55m of the CITIC Loan was drawn down in March 2021
including an annual interest rate at 2.71% plus 12 month LIBOR. It
had been repaid on 26 January 2022.
In January 2022, the Company executed a foreign currency working
capital loan agreement with China CITIC Bank Corporation Limited
(Zhuhai Branch) ("CITIC") for a loan facility of up to US$20
million , with an annual interest at 3.00% over 6 month LIBOR,
which was used to repay US$20m of the CNMC Loan. It has been repaid
on 24 January 2023.
Bank of Shanghai loan
The Company executed an agreement with Bank of Shanghai (Hong
Kong) Limited ("BOS") for a loan facility of up to US$65 million
(the "BOS Loan"). The Loan facility is for a maximum of 24 months
and is repayable 24 months from the drawdown. The total amount of
US$65m of the BOS Loan was drawn down on 28 June 2021 in order to
repay the CCBC Macau loan. The loan is secured by Standby Letter(s)
of Credit to be issued by Bank of Shanghai, Beijing Branch, and
guaranteed by CNMC under the terms of the loan agreement, for an
aggregate amount of not less than US$66,000,000, with validity of
not less than 24 months in favor of BOS. The loan has been repaid
in full on 9 June 2023.
19. Trade and other payables
2022 2021
US$000 US$000
Trade and other payables -- non-current
Other payables 1,235 -
Total non-current liabilities 1,235 -
Trade and other payables -- current
Trade and other payables 19,011 49,696
Total current liabilities 19,011 49,696
Total trade and other payables 20,246 49,696
The significant decrease relates to adjustments made on the
settlement of final amounts payable to contractors during the year
for historic construction work at the mine site.
The long term liabilities represent amounts owed to contractor
company Zhejiang Wenjian. Agreement regarding the balance payable
was signed pre-year end and is now repayable in full in 5
years.
20. Provisions for Other Liabilities and Charges
Rehabilitation Total
US$000 US$000
At 1 January 2022 1,085 1,085
Unwinding of discount 90 90
Add: increase in provision 1,483 1,483
At 31 December 2022 2,658 2,658
All provisions are non-current.
The Company makes full provision for the future cost of
rehabilitating the mine site and associated production facilities
on a discounted basis at the time of constructing the mine and
installing those facilities.
The rehabilitation provision represents the present value of
rehabilitation costs relating to the Pakrut mine site, which are
expected to be incurred up to 2029, which is the revised mine life
based on the resource estimates per the SRK Consulting updated
technical report. As part of the latest resource assessment report
issued by SKR for the Pakrut mine in 2022, new estimated
liabilities were calculated based on the revised expectation of
mine closure costs at 31 December 2022.
The discount rate used in the calculation of the provision as at
31 December 2022 year end was 10% (2021 - 9%) per annum. The value
of the undiscounted provision is US$5,180,167 (2021:
US$2,481,000).
21. Treasury Policy and Financial Instruments
The Company operates informal treasury policies which include
ongoing assessments of interest rate management and borrowing
policy. The Board approves all decisions on treasury policy.
Facilities are arranged, based on criteria determined by the
Board, as required to finance the long-term requirements of the
Company. The Company has financed its activities by the raising of
funds through the placing of shares and through the issue and
subsequent exercise of options and warrants.
There are no material differences between the book value and
fair value of the financial assets at the year end. Except for the
impact of discounting on the provisions for liabilities and other
charges, there are no material differences between the book value
and fair value of financial liabilities at the year end.
22. Share Capital
2022 2022 2021 2021
No. of Share No. of Share
ordinary Capital ordinary Capital
shares US$000 shares US$000
At 1 January (Ordinary shares
of $0.0001) each 382,392,292 38 382,392,292 38
Issued during the year - - - -
At 31 December (Ordinary
shares of US$0.0001 each) 382,392,292 38 382,392,292 38
All shares are authorised for issue and fully paid.
23. Share Based payments
Options can be granted to any employee of the Company in
accordance with the rules of the Company in accordance with the
rules of the Unapproved Share Option Scheme. The option price is
not to be less than the initial Placing Price or the price on the
day of issue. The options cannot be exercised for a period of at
least one year from the date of grant. In the event of any employee
to whom options have been granted ceasing to be an employee of the
Company he or she will have a set period in which to exercise those
options (depending on the reasons for leaving), falling which, the
options will lapse.
There were no share options outstanding at the year end.
24. Cash flow information
31 December 2022 31 December 2021
US$000 US$000
Cash flows from Operating Activities
Loss before income tax (288,128) (235)
Adjustments for:
Impairment charge 265,953 -
Finance income 2 (6)
Finance costs 15,242 10,826
Depreciation 18,685 7,972
Foreign exchange loss (1,075) 1,853
Change in working capital:
Inventory 625 (1,423)
Trade and other receivables (1,689) (1,869)
Trade and other payables 3,467 3,222
Other current assets (2,928) (549)
Other current liabilities (1,290) (5,890)
Net Cash generated from Operating
Activities 8,865 13,904
24. Cash flow information (continued)
Net debt reconciliation
31 December 2022 31 December 2021
US$000 US$000
Cash and cash equivalents 4,544 7,472
Borrowings -- repayable within one year (379,368) (303,953)
Borrowing -- repayable after one year - (65,000)
Net debt (374,824) (361,481)
31 December 2022 31 December 2021
US$000 US$000
Cash and cash equivalents 4,544 7,472
Borrowings -- fixed interest rates (22,466) (117,664)
Borrowings -- variable interest rates (356,902) (251,289)
Net debt (374,824) (361,481)
24. Cash flow information (continued)
Borrowings due Borrowings due
Cash at bank within 1 year after 1 year Total
US$000 US$000 US$000 US$000
Net debt as at 1
January 2021 27,196 (368,919) (19,822) (361,545)
Cash flows (19,724) 30,613 - 10,889
Interest accrued - - (10,825) (10,825)
Movement between
current and
non-current - 34,353 (34,353) -
Net debt as at 31
December 2021 7,472 (303,953) (65,000) (361,481)
Cash flows (2,928) - - (2,928)
Interest accrued - (10,415) - (10,415)
Movement between
current and
non-current - (65,000) 65,000 -
Net debt as at 31
December 2022 4,544 (379,368) - (374,824)
25. Controlling Party
The Directors consider China Nonferrous Metals Mining (Company)
Co. Limited ("CNMC") to be the ultimate controlling party, by
virtue of their shareholding and representation on the Board of
Directors.
26. Contingent Liabilities
During 2018, a contract was entered into between LLC Pakrut
& LLC WenJian, a Company set up by a former employee of Pakrut
(Dept. 2), to provide outsourced services including the extraction
of ore, delivery of ore to smelting plant, cleaning of mine, mine
development and construction works. LLC WenJian is not considered
to be a related party.
Although LLC WenJian hold the relevant license for the
construction works, the Company does not hold a license in
accordance with the laws of Tajikistan "On subsoil" and "On
licensing of certain types of activities" for implementing the
other services they have been contracted to perform. This is a
breach of Tajik laws and regulations which could result in
penalties being imposed on both parties to the contract. The
outcome of this situation is unclear and could result in fines
imposed with the worst-case scenario being that Pakrut could have
their own license rescinded by the Tajik government. There is no
visibility surrounding the value or nature of any penalty at this
time.
27. Related Party Transactions
The amount paid by the Company and Kryso Resources Limited to
CNMIM for interest on the loan in 2022 amounted to US$Nil
(2021:US$Nil). The amount payable by the Company to CNMIM for
interest on the loan in 2022 amounted to US$1,275,337 (2021:
US$1,257,032). CNMIM is a significant shareholder of China
Nonferrous Gold Limited.
The amount payable by the Company to CNMC Trade for interest on
the loans in 2022 amounted to US$7,944,521 (2021: US$5,062,816).
The amount payable by the Company to CNMC International Capitals
Company for interest on the loans in 2022 amounted to US$3,119,918
(2021: US$2,207,276). CNMC is the ultimate parent of China
Nonferrous Gold Limited.
During the year of 2022, CNMC guaranteed the Company's loan to
China CITIC Bank with a total amount of US$20 million.
During 2022, 15MCC (a related party to CNG through being a
subsidiary of CNMC, the Company's ultimate controlling party)
provided equipment and materials, together with installation and
construction work to the Company amounting to US$Nil (2021: $Nil)
and the Company advanced payments to 15MCC amounting to US$Nil in
2022 (2021:Nill). As at 31 December 2022, the total liability due
to 15MCC was US$10,949,107 (2021: US$11,819,082 ).
In 2015 the Company entered into an additional consultancy
contract with CNMC Hongtoushan Fushun Mining Co Ltd., through CNMIM
as agent as follows:
Smelting and Processing Agreement
CNMC Hongtoushan Fushun Mining Co Ltd. (CNHFMG) is a copper mine
and processing operation owned by CNMC. On 7th of September 2015,
the Company entered into a smelting and processing agreement with
CNHFMG.
Under the terms of the Agreement, CNG will pay to CNHFMG an
amount of RMB 17.99 (approximately US$2.8) per gram of finished
gold once the Project commences the 12-month production period.
Prior to this period the Company will cover the labour and
associated costs of CNFMG. Once in production, in the event the
recovery of the plant is above the Beijing General Research
Institute of Mining and Metallurgy forecast rate over the life of
production of 82.99 percent, CNHFMG will share 40 percent of the
profits from the upside directly due to the increased recovery. In
the event recovery is below 75 percent, CNHFMG will bear 20 per
cent of any loss incurred by the Company from the Project due to
directly to recovery levels.
During 2022, CNHFMG provided equipment and materials, together
with installation and construction work to the Company amounting to
US$Nil (2021:US$Nil) and the Company advanced payments to CNHFMG
amounting of 2022 was US$375,141.69(2021:US$Nill). As at 31
December 2022, the total liability due to CNHFMG was Nill (the
arrears have been paid off in January 2022). As of January 2022,
the project funds between the company and CNHFMG have been fully
settled.
As of December 31, 2022, Pakrut still has gold sales business
with Daye Nonferrous Metals. In December 2022, a total of 200.509
kg of gold were sold in related party transactions, with an amount
of $12,424,619.54, which has been received. However, in 2023,
according to the currently signed gold sales contract, as the Tajik
government does not agree to export the gold for sale, the gold
will not be exported for sale and will no longer be sold to Daye
Nonferrous Metals.
28. Events after the Reporting Period
Loans and financing
In January 2023, the Company executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of up to USD $19.50
million (the"CNMC Loan") including an annual interest rate at 0.5%
plus 3 month LIBOR and no extra fees payable to CNMC Trade for this
arrangement, which is repayable within 3 months from the date of
drawdown. CNMC Trade has indicated it will extend this loan for one
year from the initial repayment date, and subject to regulatory
approval and processes pursuant to AIM Rule 13 of the AIM Rules for
Companies the extension contract should be signed soon. This CNMC
Loan has been used to repay the existing China CITIC Bank
Corporation Limited ("CITIC") bank facilities of USD $20m.
In June 2023, the Company executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of up to USD $65
million (the"CNMC Loan") including an annual interest rate at 0.5%
plus 3 month LIBOR, which is repayable within 3 months from the
date of drawdown. This CNMC Loan has been used to repay the
existing Bank of Shanghai (Hong Kong) Limited ("BOS") loan facility
of USD $65m, which was due for repayment on 9 June 2023.
In the first quarter of 2023, the Company repaid US$1.9m of the
CNMC Trade Company Limited ("CNMC Trade") loan, which was drawn on
September 20, 2017.
Both CNMC Trade Company Limited (CNMC Trade) and CNMC
International Capitals Company Limited (CNNICC ) have indicated
they will extend the expired loans for one year from the previous
due date, and subject to regulatory approvals and processes, the
results of which cannot be guaranteed, the extension contracts
should be signed soon. CNMIM has also agreed to extend the expired
loan with CNG to 31 May 2024 subject to regulatory approvals. At
this stage there can be no guarantee that these loans will be
extended. The Company at the date of this report has total of
US$316.07 million of debt facilities (including banking facilities
without interest).
Snowfall at Pakrut Gold Mine
In February 2023, the area surrounding the Pakrut gold mine site
experienced high levels of snowfall resulting in several avalanches
and landslides. There were no casualties at site and the Pakrut
site itself remained undamaged. However, the avalanches did damage
one electric power transmission tower that supplies the mine
resulting in a consequential interruption of the power supply. In
addition, the roads to the site were damaged. The lack of power
meant that the underground mining and the processing plant were
suspended with immediate effect. The smelting plant was suspended
from 28 February 2023 until the power issue was resolved.
Accordingly, there was no production at site for at least one month
with a consequential impact on revenues and financial results. The
Company deployed emergency maintenance teams to the area to
urgently carry out repair work on the road and to recover the power
supply facilities. On 16 March 2023 the power supply was
re-established and production resumed at the Pakrut mine site. On
11 April 2023 the road to the mine site was repaired and is now
open, and the smelting plant has resumed production. Accordingly,
normal operations have resumed at site according schedule.
SRK report
The Company signed a service agreement with SRK (SRK Consulting
China Co., Ltd.) to review the resource estimation of the Pakrut
gold mine to update the latest resource data. The Technical Report
("ITR") was completed by SRK Consulting China Limited ("SRK") and
Company released an update to it Mineral Resource and Ore Reserve
estimates for Pakrut in accordance with the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore
Reserves ("JORC Code", 2012 edition as current effective edition).
The update reflects a substantial reduction in the Mineral Resource
Estimate released by the Company (under its previous name of Kryso
Resources plc) on 17 June 2013, and reflects the Company's
increasing knowledge and access to the underground ore body as
operational work has progressed.
Specific detailed information can be found on the website:
https://www.businesswire.com/news/home/20230424005462/en/
Change of Board
On 30 May 2023, Mr. Zhang has tendered his resignation as
managing director with immediate effect. At the same time, Mr. Feng
Zhishuo was appointed as managing director of the Company and an
Executive Director of the Company with immediate effect.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20230630696796/en/
CONTACT:
China Nonferrous Gold Limited
SOURCE: China Nonferrous Gold Limited
Copyright Business Wire 2023
(END) Dow Jones Newswires
June 30, 2023 08:05 ET (12:05 GMT)
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