TIDMKRPZ

RNS Number : 6978Q

Kropz PLC

30 June 2022

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

30 June 2022

Kropz Plc

("Kropz" or the "Company")

Final Results for the Year ended 31 December 2021,

Posting of Annual Report and Accounts

and

Notice of General Meeting

Kropz Plc (AIM: KRPZ), an emerging African producer and developer of plant nutrient feed minerals, announces Final Results for the Year ended 31 December 2021 and the publication of the Company's Annual Report and Accounts.

The full financial report and Notice of General Meeting will be available online shortly on the Company's website at www.kropz.com and are being posted to shareholders today.

The Company will hold a General Meeting for the purposes of approving the Annual Report which will be held at the offices of Memery Crystal at 165 Fleet Street, London EC4A 2DY on 25 July 2022 at 1 p.m.

HIGHLIGHTS 2021

Key developments during the 2021 financial year

Corporate

-- Activities during the year were focused on completion of construction activities at Elandsfontein and finalisation of the Hinda updated feasibility study (" Hinda Updated FS ");

-- Kropz Plc (" Kropz " or the " Company ") secured a further convertible loan facility of up to US$ 5 million (not exceeding a maximum of ZAR 85 million) from the ARC Fund ("ARC"), Kropz's major shareholder in February 2021 ("Further Equity Facility"), used exclusively for the Hinda Updated FS and general corporate purposes ;

-- The fourth drawdown on the convertible loan facility, secured from ARC in June 2020, of up to US$ 40 million (not exceeding a maximum of ZAR 680 million) ("Original Equity Facility") occurred on 10 March 2021 for US$ 7 million;

-- The first drawdown on the Further Equity Facility occurred on 10 March 2021 for US$ 2 million;

-- The fifth drawdown on the Original Equity Facility occurred on 23 June 2021 for US$ 11 million;

-- The second drawdown on the Further Equity Facility occurred on 23 June 2021 for US$ 2 million;

-- The sixth and final drawdown on the Original Equity Facility occurred on 10 September 2021 for US$ 3 million;

-- The third drawdown on the Further Equity Facility occurred on 10 September 2021 for US$ 400,000;

-- On 15 October 2021, Kropz secured a new conditional convertible equity facility of up to ZAR 200 million (approximately US$ 13 million) ("New ZAR Equity Facility"), with ARC in order to deliver the Company's Elandsfontein phosphate project to first revenue;

-- The first drawdown on the New ZAR Equity Facility occurred on 26 October 2021 for ZAR 90 million (approximately US$ 6 million);

-- The fourth drawdown on the Further Equity Facility occurred on 10 December 2021 for US$ 400,000;

-- The second drawdown on the New ZAR Equity Facility occurred on 10 December 2021 for ZAR 37 million (approximately US$ 2 million);

   --      US$200,000 remained undrawn on the Further Equity Facility at 31 December 2021; and 

-- ZAR 73 million (approximately US$ 5 million) remained undrawn at 31 December 2021 on the New ZAR Equity Facility.

Elandsfontein

-- Activities focussed on completion of construction and commissioning activities at Elandsfontein;

-- As announced on 9 September 2021, the appeal against the award of the integrated Water Use Licence ("WUL") for the Elandsfontein project was dismissed by the South African Water Tribunal. The appeal was lodged by a small group calling themselves the West Coast Environmental Protection Association ("WCEPA"), on 26 June 2017. The appeal was heard, over four sittings, from October 2019 to February 2021;

-- Mining activities commenced in October 2021, and significant volumes of ore were made available to support commissioning ramp-up;

-- In November 2021, earthworks, civil construction, fabrication and erection of structural steel, platework and piping was completed and all mechanical equipment installed;

   --      Pre-commissioning (C2) and cold commissioning (C3) activities commenced in November 2021; 

-- Construction activities at Elandsfontein were completed in December 2021, under budget and on time;

-- "First-fill" reagents, sourced in South Africa and imported from the USA, were received on site in December 2021;

-- On 23 December 2021, a major milestone was achieved when first ore was introduced into the Elandsfontein plant; and

-- As announced on 23 November 2021, Transnet provided Elandsfontein with a draft port access agreement to support the long-term export of Elandsfontein's phosphate rock through the port of Saldanha. Signature of the contract is now being finalised between the parties. Exports through Cape Town will only be required for a maximum of 350,000 tonnes of Elandsfontein's export production of approximately 1 million tonnes per annum, and only if capacity through Saldanha is unavailable for a limited period of time.

Hinda

-- As announced on 4 February 2021, Kropz appointed Hatch Africa (Pty) Ltd ("Hatch"), a global engineering and construction firm, to complete the Hinda Updated FS;

-- The updated Environmental and Social Impact Assessment ("ESIA") was completed in December 2021 by WSP Global Inc ("WSP") out of Montreal, Canada;

-- The updated ESIA was lodged with the Republic of Congo ("RoC") Ministry of Environment in late December 2021; and

-- Hatch completed the Hinda Updated FS and the outcomes, as detailed below, were announced on 22 December 2021.

Aflao

   --      Kropz divested its 50% + 1 share interest in Aflao, as announced on 16 February 2021. 

Key developments post the financial year end

Corporate

-- Issued 6,700,000 ordinary shares, at an exercise price of GBP0.001 an ordinary share, in the Company to key members of the executive management team, including certain Persons Discharging Managerial Responsibilities ("PDMRs") . The issue of ordinary shares was due to awards vesting that had been issued under its Long-Term Incentive Plan ("LTIP Awards") on 31 July 2020 and as announced on 4 August 2020;

-- The fifth and final drawdown on the Further Equity Facility occurred on 10 March 2022 for US$ 200,000;

-- The third drawdown on the New ZAR Equity Facility occurred on 25 March 2022 for ZAR 40 million;

-- The fourth drawdown on the New ZAR Equity Facility occurred on 26 April 2022 for ZAR 33 million;

-- On 27 April 2022, Kropz announced that it had entered into an agreement with ARC for a ZAR 25 million (approximately US$ 1.60 million) bridge loan facility (the "Loan") to meet cash requirements in April 2022 and draw down of the Loan took place on 28 April 2022;

-- As announced on 11 May 2022, Kropz entered into a new conditional convertible equity facility of up to ZAR 177 million (approximately US$ 11 million) ("ZAR 177 Million Equity Facility") with ARC to fund Elandsfontein to first revenues from bulk concentrate sales;

-- The ZAR 177 Million Equity Facility was approved by Kropz shareholders and became unconditional on 1 June 2022; and

-- The first drawdown on the ZAR 177 Million Equity Facility occurred on 2 June 2022 for ZAR 103.5 million (approximately US$ 7 million). After set-off of the Loan, Kropz received an amount of ZAR 78.5 million (approximately US$ 5 million).

Elandsfontein

-- The focus at Elandsfontein continues to be production ramp-up of the mine and beneficiation plant, to reach nameplate capacity;

-- To date, 5,000 tonnes of saleable concentrate have been produced and are being stored in the Saldanha Bay storage facility;

-- BNP Paribas ("BNP") released the ZAR 77 million restricted cash in the bank account of Kropz Elandsfontein (Pty) Ltd ("Kropz Elandsfontein") on 10 January 2022, upon satisfaction of the requirement by BNP for Kropz to bridge the funding shortfall in respect of Elandsfontein as announced on 1 September 2021. The funding shortfall was satisfied when the New ZAR Equity Facility was secured from ARC;

-- As announced on 27 April 2022, a further funding shortfall of ZAR 177 million was expected due to slower than expected progress in the ramp up of operations at Elandsfontein;

-- First bulk sales are now expected to move into Q3 2022 as a result of early geological challenges in the mining area - higher than expected volumes of indurated material is limiting the mining rate that can be achieved with the current equipment on site;

-- The delay was also driven by the need to re-engineer parts of the fine flotation circuit as proposed by the vendor, but has also been affected lack of operator expertise and experience; and

-- Measures taken by management to address these issues are set out later in the annual report.

Hinda

-- Since 31 December 2021, management has been interrogating the Hinda Updated FS and financial model as prepared by Hatch;

-- Various capital cost optimisation initiatives have been identified for investigation ahead of detailed design; and

   --      Development alternatives are being considered and potential funding options investigated. 

General

-- The current and further potential effects of COVID-19, and the possibility of further waves in South Africa and the RoC remain a risk to Kropz's projects. Kropz has mitigated this risk as far as reasonably practicable by compliance with the Kropz COVID-19 policies and procedures.

 
Kropz Plc 
                               +27 (0) 79 744 
Mark Summers (CEO)              8708 
 
Grant Thornton UK LLP          Nominated Adviser 
Samantha Harrison 
 Harrison Clarke 
 George Grainger               +44 (0) 20 7383 
 Ciara Donnelly                 5100 
 
Hannam & Partners              Broker 
Andrew Chubb                    +44 (0) 20 7907 
 Ernest Bell                     8500 
 
Tavistock                      Financial PR & 
                                IR (UK) 
Nick Elwes                     +44 (0) 207 920 
 Jos Simson                     3150 
                                kropz@tavistock.co.uk 
 
R&A Strategic Communications   PR (South Africa) 
James Duncan                   +27 (0) 11 880 
                                3924 
                                james@rasc.co.za 
 

About Kropz Plc

Kropz is an emerging African phosphate producer and developer with projects in South Africa and the Republic of Congo. The vision of the Group is to become a leading independent phosphate rock producer and to develop into an integrated, mine-to-market plant nutrient company focusing on sub-Saharan Africa.

Chairman's Statement

Dear shareholder,

The 31 December 2021 financial year was another challenging year, particularly given the continued global COVID pandemic and associated impact on the global economy.

Thankfully, the COVID pandemic had no significant impact on the conclusion of construction activities at Elandsfontein. First ore was introduced into the Elandsfontein plant in December 2021, on time and under budget, a significant milestone given the challenges faced.

Hatch completed the Hinda Updated FS in late December 2021 and we are encouraged by the outcome and conclusions. Management are interrogating the findings and the next step would be to select the way forward for the progression of the project and sourcing the required funding for its development.

Thanks to the ARC Fund, Kropz's major shareholder, funding was secured to complete the Elandsfontein project and ramp-up operations and complete the Hinda Updated FS.

Progress continues to be made at Elandsfontein, but slower than expected progress in the ramp-up of operations, as announced on 27 April 2022, resulted in an additional funding requirement. Again ARC responded by agreeing to provide the required ZAR 177 million required to see Elandsfontein through to positive cash flow by way of a convertible equity facility.

The Board thanks all the members of the executive, management, the teams on the ground, contractors, auditors and advisers for all their efforts and assistance during the year. We once again want to thank our major shareholder, ARC, for their further commitment and continued support.

Lord Robin William Renwick of Clifton

Non-Executive Chairman

28 June 2022

Strategic Report for the year ended 31 December 2021

Market overview

Since February 2022, phosphate prices have reached new highs, largely due to the sanctions imposed on Russia, following their invasion of the Ukraine. Russia is a significant supplier of fertiliser feed products and associated sanctions increased the prices of phosphate products significantly as producers that relied on Russian sources sought to secure alternative sources of amongst others, low cadmium phosphate rock. The cessation of exports of phosphate products from China until mid-2022, has also inflated prices of phosphate related fertilizers.

The phosphate rock market remains strong and has shown good interest in Elandsfontein's low cadmium concentrate.

Significant changes in the state of affairs

Share issues

The issued share capital at 31 December 2020 was 558,627,558 ordinary shares (2019: 283,406,307).

On 3 March 2021, Kropz announced the fourth drawdown of US$ 7 million of the Original Equity Facility and the first drawdown of US$ 2 million under the Further Equity Facility. These drawdowns resulted in the issue of 89,185,185 ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and 34,745,359 ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The 123,930,544 ARC drawdown shares were admitted to trading on AIM on 10 March 2021.

On 16 June 2021, Kropz announced the fifth drawdown of US$ 11 million of the Original Equity Facility and the second drawdown of US$2 million under the Further Equity Facility. These drawdowns resulted in the issue of 140,148,148 ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and 34,745,359 ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The 174,893,507 ARC drawdown shares were admitted to trading on AIM on 23 June 2021.

On 7 September 2021, Kropz announced the sixth drawdown of US$ 3 million of the Original Equity Facility and the third drawdown of US$ 400,000 under the Further Equity Facility. These drawdowns resulted in the issue of 38,222,222 ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and 6,949,072 ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The 45,171,294 ARC drawdown shares were admitted to trading on AIM on 10 September 2021.

On 8 December 2021, Kropz announced the fourth drawdown of US$ 400,000 under the Further Equity Facility. This drawdown resulted in the issue of 6,949,072 ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The 6,949,072 ARC drawdown shares were admitted to trading on AIM on 13 December 2021.

The issued share capital at 31 December 2021 was 909,571,975 ordinary shares (2020: 558,627,558).

Projects

Elandsfontein

Elandsfontein hosts the second largest phosphate deposit in South Africa, after Foskor's operation at Phalaborwa. Elandsfontein has been developed with the capacity to produce circa one million tonnes per annum ("Mtpa") of phosphate rock concentrate from a shallow mineral resource which is expected to be sold on both local and international markets. The Company owns 74% of the issued share capital of Kropz Elandsfontein, the company which owns the Elandsfontein project.

Prior to 2021, in excess of US$ 135 million was spent at Elandsfontein on project capital expenditure to construct the processing plant and infrastructure, initial mining and capitalised working capital. Following a suspended commissioning process in 2017, Kropz Elandsfontein conducted further geological drilling and metallurgical test programme to define a robust process circuit, to cater for all ore types present within the Elandsfontein resource.

Elandsfontein's logistics are advantageous and allow for easy access to both local and international markets.

Activity for the year ended 31 December 2021

The focus for the 2021 financial year was completion of the construction activities on site. All major contracts were finalised to enable site establishment by the mining and plant operators. Mining activities recommenced in October 2021.

Mining and geology

The Elandsfontein resource is defined below, on a total (gross) and net attributable basis. No further geological drilling was conducted in 2021.

Mineral Resource Statement, as declared by Snowden and SRK on 31 October 2018

 
 
 Class        Quantity    Grade     Grade      Grade     Grade      Grade      Grade     Contained 
                (Mt)      (%P(2)    (%Al(2)    (%MgO)    (%Fe(2)    (%CaO)    (%SiO(2)    P(2) O(5) 
                           O(5)     O(3) )               O(3) )                  )          (Mt) 
                            ) 
 Gross 
=================================================================================================== 
 Measured       47.5      10.3       1.2        0.2       1.0       14.9       69.8         4.9 
 Indicated      30.3       5.1       1.2        0.1       0.9        7.1       82.9         1.6 
 Inferred       23.3       5.5       1.2        0.1       1.0        7.5       82.5         1.3 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 Total         101.1       7.7       1.2        0.2       0.9       10.9       75.9         7.8 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 Net Attributable (74% attributable to the Company) 
=================================================================================================== 
 Measured       35.2      10.3       1.2        0.2       1.0       14.9       69.8         3.6 
 Indicated      22.4       5.1       1.2        0.1       0.9        7.1       82.9         1.2 
 Inferred       17.2       5.5       1.2        0.1       1.0        7.5       82.5         0.9 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 Total          74.8       7.7       1.2        0.2       0.9       10.9       75.9         5.7 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 

Plant and processing

Pre-commissioning (C2) and cold commissioning (C3) activities commenced in November 2021 and construction activities at Elandsfontein were completed in December 2021, under budget and on time. On 23 December 2021, a major milestone was achieved when first ore was introduced into the Elandsfontein plant.

Dewatering of the aquifer continues in accordance with the updated ground water management plan.

The Department of Mineral Resources and Energy ("DMRE") issued a directive to Kropz Elandsfontein during 2020 to upgrade its Environmental Management Programme ("EMPr") in line with latest South African legislation. The updated EMPr was submitted to the DMRE in September 2020. On 26 March 2021, management received the updated EMPr for the Elandsfontein project from the DMRE. The updated EMPr strongly emphasizes the adherence to the required rehabilitation measures.

Offsets

In July 2020, Kropz Elandsfontein submitted a revised Offset Study to the DMRE. Management informed the DMRE that the 2015 Offset Study for the Elandsfontein project did not adequately consider Kropz Elandsfontein's effective rehabilitation measures which have demonstrated successful implementation over the past three growing seasons. Kropz Elandsfontein's rehabilitation measures have been shown to guarantee future rehabilitation success, if conducted in accordance with the approved mine rehabilitation plan drafted by Kropz Elandsfontein's appointed rehabilitation specialist.

Following due consideration of all the comments and responses received during the thirty-day public participation period, management received notification from the DMRE on 4 March 2021 that the conditions required to cater for the offsets of land will be removed from the Elandsfontein EMPr.

Several appeals against the DMRE's decision have been lodged and are being dealt with by the Department of Forestry, Fisheries and the Environment.

Water use licence ("WUL")

The outstanding appeal against the Elandsfontein WUL was heard from 1 to 4 February 2021. During this fourth sitting of the matter, final evidence was presented to the Water Tribunal.

The Water Tribunal issued a directive to all parties, setting out the dates to be met for heads of arguments, to allow a ruling in March 2021. The appellant was subsequently granted numerous postponements for the submission of their heads of arguments, which delayed the date of the ruling to September 2021.

As announced on 9 September 2021, the appeal was dismissed by the Water Tribunal.

Safety, health and environment

As at 31 December 2021, the lost time injury frequency rate, per 200,000 man hours, was 0.698 (2020 - zero). For the reporting period, three Lost Time injuries were regrettably suffered during the construction phase. No reportable and major environmental or safety incidents were reported during the year.

Corporate social responsibility ("CSR") and sustainability

The execution of the five-year Social and Labour Plan ("SLP"), aligned with the 2018 South African Mining Charter, and approved by the DMRE, remains on track. During the reporting period, the five-year closure plan was submitted and subsequently accepted by the DMRE. Kropz Elandsfontein has commenced with the development of the next iteration of the SLP for submission to the DMRE in Q3 2022. The plan includes progressive improvements to obtain compliance on the employment equity and procurement objectives of the South African Mining Charter scorecard. The following strategic focus areas have been identified:

   --      Education; 
   --      Social wellness; 
   --      Local economic development; and 
   --      Urban reconstruction and infrastructure upgrades. 

Through collaboration with the local community forum, various community development projects continued during 2021 and the selection of new projects will form part of the 2022 SLP.

Education support

During 2021 Kropz Elandsfontein continued to support the Hopefield Primary School teacher's programme.

Metallurgical skills development

As a result of the strong drive to employ from within the local municipal area, the commissioning of the plant necessitated skills development training in metallurgy to ensure successful commissioning and operation of the processing facility. This training was provided for the local employees who were recruited as part of the plant operating team.

Small, medium, micro enterprise ("SMME") development

During 2021, the second phase of the SMME development programme was completed. The focus during this phase was to assist the SMME's identified in the initial phase through a digital enablement programme, boosting the digital competencies of young start-ups in the community.

Adult matric certification

The previous two-year programme enabling individuals to complete their secondary school qualification resumed in 2021. Nine adults obtained a pass rate to qualify for their senior certificate at the end of 2021.

Thusong community centre upgrade

The construction of an additional classroom and meeting venues at the local community centre was completed towards the end of 2021, with final handover in early 2022. Opportunities are being investigated with other business partners to review further projects at the Thusong community centre.

Kropz Elandsfontein continues to engage with the local community on a regular basis.

Post reporting period events

Transport and logistics

As announced on 23 November 2021, Transnet provided Kropz Elandsfontein with a draft port access agreement to support the long-term export of Elandsfontein's phosphate rock through the port of Saldanha. Contract negotiations have been finalised and final signature is expected prior to the shipment of first product. Exports through Cape Town will potentially be required for no more than 350,000 tonnes of Elandsfontein's production of approximately 1 million tonnes per annum, if capacity through the port of Saldanha is unavailable for a limited period of time.

Hinda

The Hinda project, currently 100% owned by Cominco S.A., is believed to be one of the world's largest undeveloped phosphate reserves. Ownership is expected to be diluted to 90% through the participation of the RoC government. Hinda consists of a sedimentary hosted phosphate deposit located approximately 40 km northwest of the city of Pointe-Noire. The project is fully permitted.

Prior to acquisition by Kropz, more than US$ 40 million was spent on project development, including drilling, metallurgical test work and feasibility studies.

Activity for the year ended 31 December 2021

In early 2020, Kropz completed a competitive tender for an updated feasibility study for the Hinda project. Hatch was appointed in February 2021 to complete the Hinda Updated FS, targeting a phased approach in line with the terms of the mining investment agreement.

Hatch completed the Hinda Updated FS and the outcomes were announced on 22 December 2021.

Highlights

-- The phased approach studied will initially deliver 1 Mtpa phosphate rock concentrate through the existing Port of Pointe-Noire ("Phase 1"), expanding to 2 Mtpa phosphate rock concentrate through a new port facility at Pointe Indienne ("Phase 2");

-- The Hinda Updated FS demonstrates low technical and mining risk and attractive project economics;

-- The mineral resource is unchanged from the 2018 Competent Persons Report, with 201 million tonnes of measured mineral resource at 11.6% P(2) O(5) and 381 million tonnes of indicated mineral resource at 9.8% P(2) O(5) ;

-- The Hinda Updated FS delivers a 28-year life of mine ("LOM"), extracting 31 million tonnes of ore in Phase 1 and 214 million tonnes of ore in Phase 2;

-- Estimated Phase 1 capital cost is US$ 355 million, Phase 2 capital cost is US$ 310 million (in real 2021 terms), with a nominal, peak funding requirement of US$ 392 million, as the first phase supports the subsequent Phase 2 expansion capital expenditure;

-- Phase 1 operating cost on a free-on-board ( "FOB") basis is US$ 63 per tonne phosphate rock concentrate, and Phase 2 operating cost is US$ 70 per tonne phosphate rock concentrate, inclusive of mining royalties;

-- Using a December 2021 price forecast received from CRU on a FOB Pointe-Noire basis, the real LOM earnings before interest and taxation margin is US$ 65 per tonne of phosphate rock concentrate;

-- Estimated three-year execution schedule allows first revenue in 2025, assuming that the required funding is in place by the end of 2022; and

-- Base case, nominal internal rate of return ( "IRR") of 19.2% and base case, ungeared, nominal net present value ("NPV") (at 11.1% discount rate) of US$ 397 million.

The phased approach was intended to reduce up-front execution capital requirements by making use of existing port facilities, thus limiting the first phase to 1 Mtpa phosphate rock concentrate.

The Hinda Updated FS included detailed engineering of the open pit mine, associated mine dewatering and surface water management, the beneficiation plant and all associated infrastructure, tailings storage facilities and water storage dam, a gas fired power plant and gas supply pipeline, a 30 kV overhead line ("OHL") to support construction and early works, mine access roads, an accommodation camp and port infrastructure. Costs and schedules associated with procurement, construction management and commissioning are also included.

Hatch delivered a robust execution strategy, which provides high confidence in achieving execution success. The beneficiation plant employs standard and proven technologies, and the design is based on extensive laboratory and pilot-scale test work completed between 2013 and 2016.

Further Opportunities

A mine plan was run, scheduling the immediate commencement of Phase 2 production, i.e. 2 Mtpa of phosphate rock concentrate to be exported through a new port facility. This opportunity led to a conservative increase in ungeared NPV (at 11.1% discount rate) to US$ 543 million with an IRR of 21%. The estimated capital cost for the immediate commencement of Phase 2 is US$ 618 million, based on the study work completed. If this option is studied further, it will be possible to optimise both capital and operating costs further.

Opportunities also exist to enter into a long-term power purchase agreement with one of several companies already established in-country. The capital cost of the gas fired power plant would therefore be removed from the estimate, although this would be offset by an increase in power costs.

A number of other capital cost optimisation initiatives have been identified for investigation ahead of detailed design.

Updated ESIA

The project has an approved environmental compliance certificate issued in April 2020, valid for 25 years. As a result of the modifications to the project in the Hinda Updated FS, the ESIA has been updated to comply with local regulations. The updated ESIA has been conducted in parallel with the execution of the Updated FS and was submitted to the RoC Ministry of Environment in December 2021.

Mining Investment Agreement ("MIA")

At the end of 2018, Kropz received the supervisory authority to initiate the process of ratification of the Hinda exploitation convention or MIA, which sets out the legal and fiscal framework under which Cominco S.A. would invest and operate within the RoC. The MIA was signed by all parties on 10 July 2018 and ratified by the RoC Government on 8 November 2021.

Declaration d'Utilite Publique ("DUP")

The Ministry of Land Tenure and Public Domain is responsible for managing land tenure and legal land rights in RoC. The land commission evaluates the land usage requirements of the Hinda Project and liaises with legal property owners and traditional land users to determine, based on the legislation, a baseline for land use to be used for compensation and relocation. This process is undertaken in line with IFC and other relevant standards.

The main declaration of public utility (DUP) process covering an area of 33 km(2) was launched in September 2020. Public consultations were organized by Cominco and CM2E. The initial land survey was carried out from end of November 2020 until mid-January 2021. Following optimisation through the Updated FS, the land footprint was reduced to 30 km(2) .

The MIA states that expropriation costs and compensations are to be borne by the government of the RoC.

General

In country, given the COVID pandemic, focus was on progressing the port occupancy agreement and sustaining solid relations with the local communities. Kropz maintains communications with a number of key stakeholders, including government, and local service providers.

Mineral resources

The Hinda resource is defined below, on a total (gross) and net attributable basis . No additional drilling was conducted in 2021.

Mineral Resource Statement, as declared by SRK on 31 August 2018

 
 
 Class        Quantity    Grade     Grade      Grade     Grade      Grade      Grade     Contained 
                (Mt)      (%P(2)    (%Al(2)    (%MgO)    (%Fe(2)    (%CaO)    (%SiO(2)    P(2) O(5) 
                           O(5)      O(3)                 O(3)                   )          (Mt) 
                            )          )                    ) 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 Gross 
=================================================================================================== 
 Measured      200.5      11.6       3.7        3.8       1.4       21.8       42.7         23.3 
 Indicated     380.9       9.8       5.0        3.3       1.8       17.6       48.5         37.3 
 Inferred       94.4       7.5       4.8        3.6       1.7       15.8       52.2         7.1 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 Total         675.8      10.0       4.6        3.5       1.7       18.6       47.3         67.7 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 Net Attributable (90% attributable to the Company) 
 Measured      180.5      11.6       3.7        3.8       1.4       21.8       42.7         20.9 
 Indicated     342.8       9.8       5.0        3.3       1.8       17.6       48.5         33.6 
 Inferred       85.0       7.5       4.8        3.6       1.7       15.8       52.2         6.4 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 Total         608.3      10.0       4.6        3.5       1.7       18.6       47.3         60.9 
===========  =========  ========  =========  ========  =========  ========  ==========  =========== 
 

Safety, health and environment

No environmental or safety incidents were reported during the year.

Sustainability

Cominco S.A. continued its interactions with the local communities associated with the Hinda project. On-going projects include the funding of teachers at local schools, educational support for vulnerable children, and food security projects through the establishment of nurseries.

Post reporting period events

The first phase of construction of a small office at the future construction site near PK Mbili has been complete. Additional works are ongoing. The routing for the 30 kV OHL has been finalised and surveyed, and the tie-in point with the existing Mboundi power station has been confirmed.

A memorandum of understanding has been signed with Italian gas major, ENI, in a move to secure the gas supply for the gas fired power plant and the concentrate dryer, both located at the mine site. Discussions with the port authority are ongoing to secure a port access agreement.

Strategy

The Company's long-term strategy is to build a portfolio of high-quality phosphate mines and to be a major player within the sub-Saharan African plant nutrient sector. Its priority is to bring Elandsfontein to steady-state production and then to develop Hinda.

Business model

The Company's business model is to source high-quality resources and to bring them into production to contribute to the Company's strategic competitiveness and profitability.

Once production has commenced at Elandsfontein and Hinda, the Company may consider acquiring additional assets and/or adding downstream beneficiation opportunities, where the Board believes shareholder value could be increased.

Objectives and outlook for the year ahead

Objectives

Kropz

Kropz's overriding objective is to deliver strong shareholder and stakeholder returns over the long term.

Elandsfontein

The primary focus of the year ahead will be to increasing ramp-up of operations to achieve nameplate capacity and enable the first commercial bulk shipment of phosphate rock concentrate while optimising process recoveries. Full production capacity is expected in Q4 2022 .

Hinda

Further to the completion of the Hinda Updated FS in December 2021, management is working to secure funding to commence with project development in accordance with the MIA.

Outlook

Kropz's Elandsfontein project delivered first production in early 2022. The Company is confident in the inherent value contained within each of its core assets. Global phosphate rock demand and pricing is robust, and the work being carried out will provide Kropz with direction for the next phase of its development, subject to short-term challenges being managed. The year ahead should provide the Company with a solid foundation for its future development.

Financial review for the year ended 31 December 2021

Summary financial highlights for the year:

   --      Cash and cash equivalents of US$ 2 million (2020: US$ 12 million) 

-- Restricted cash in terms of the amended facility agreement between Kropz Elandsfontein and BNP of US$ 5 million (2020: US$ 7 million). The restricted cash was released by BNP on 10 January 2022;

   --      Various equity and debt raises as set out in "Highlights" on page 1; 
   --      Trade and other payables of US$ 4 million (2020: US$ 5 million); and 

-- Property, plant, equipment and development and exploration assets of US$ 180 million (2020: US$ 159 million).

Key performance indicators

The Company is a mining and development entity whose assets comprise a mine and plant in the ramp-up phase in South Africa and an exploration asset in the RoC. Currently, minor revenues have been generated from local sales in South Africa. The key performance indicators for the Company will be first bulk production of phosphate rock from Elandsfontein, achieving steady state production and the successful advancement of the Hinda project.

Principal risks and uncertainties

The Company and its subsidiaries ("the Group") are subject to various risks relating to political, economic, legal, social, industry, business and financial conditions. The following risk factors, which are not presented in any order of priority, do not purport to be a complete list or explanation of all the risks involved in the Company or the Group's activities.

Ramp-up of Elandsfontein

The Elandsfontein project may require further funding to achieve steady state operations in Q4 2022. Any delays in securing of additional funding will have an adverse impact on the business and financial performance of the operation. There can be no guarantee that implementation of the recently completed modifications identified by the Company and its technical consultants will result in a successful long-term operation of the mine. Failure to achieve ramp-up of the Elandsfontein project, or a significant delay in the completion of ramp-up, could result in a material adverse impact on the business, and the financial performance and position of the Group. Further, see risk factor: COVID outbreak.

Access to infrastructure

Mining, processing, development and exploration activities depend, to a significant degree, on adequate infrastructure. In the course of developing Hinda, the Group may need to construct and support the construction of infrastructure, which includes permanent water supplies, tailings storage facilities, power, logistics services and access roads.

Reliable roads, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could materially adversely affect the Group's operations, financial condition and results of operations. Any such issues arising in respect of the supporting infrastructure or on the Group's sites could materially adversely affect the Group's results of operations or financial condition.

Furthermore, any failure or unavailability of the Group's operational infrastructure (for example, through equipment failure, disruption to its transportation arrangements or reduced port capacity) could materially adversely affect the production output from its mines or development of a mine or project.

Limited or reduced port capacity at the Port of Saldanha, as well as the associated cost increase for procuring alternative logistics could have an adverse impact on the business and financial performance of the Group.

Operational targets

The Group's principal asset, the Elandsfontein project, is an early stage mining and production project that has no operating track record upon which to base estimates of future production rates, operating costs, capital expenditures or financial performance. The operational targets of the Group will be subject to the completion of planned operational goals on time and according to budget, and are dependent on the effective support of personnel, systems, procedures and controls. Any failure of these may result in delays in the achievement of operational targets with a consequent material adverse impact on the business, operations and financial performance of the Group. It is, therefore, possible that mining and production rates might fluctuate.

The financial performance of the Group is subject to its ability to achieve a target concentrate specification and production efficiency at its Elandsfontein project, according to its pre-determined budget. Failure to do this may result in failure to achieve operational targets with a consequent material adverse impact on the business, operations and financial performance of the Group. Further, mining and production rates might fluctuate.

Excessive overburden stripping, non-economical mining of ore and the dilution of feed grade to the processing facility could all have an adverse impact on the processing operations. Furthermore, a high variability in the daily feed grades could also have an adverse impact on operations and financial performance of the Group.

Any further unscheduled interruptions in the Group's operations due to mechanical or other failures or industrial relations related issues or problems or issues with the supply of goods or services could have a serious impact on the financial performance of those operations.

New entrant risk

Kropz Elandsfontein will, once production has been achieved of a commercial saleable grade product, be a new entrant in the global phosphate rock market, selling its products into a globally competitive and established market.

There can be no guarantee that the sales estimates set by Kropz Elandsfontein will be achieved until a successful track record has been achieved. Not achieving appropriate selling prices for its commercial grade products, would have a material adverse effect on the business, operations and financial performance of the Group.

Mining risks

The business of mining and mineral processing involves a number of risks and hazards, including industrial accidents, labour disputes, community conflicts, activist campaigns, unusual or unexpected geological conditions, geotechnical risks, ore variability, equipment failure, changes in the regulatory environment, environmental hazards, ground water and weather and other natural phenomena such as earthquakes and floods. The Group may experience material mine or plant shutdowns or periods of reduced production as a result of any of the above factors. Such occurrences could result in material damage to, or the destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental and natural resource damage, delays in mining, monetary losses and possible legal liability, and may result in actual production differing, potentially materially, from estimates of production, whether expressly or by implication. There can be no assurance that the realisation of operating risks and the costs associated with them will not materially adversely affect the results of operations or financial conditions of the Group.

Geotechnical, ore variability, geological and hydrogeological risks could have a material adverse impact on the safety, business and financial performance of the Group's operation.

Failure to successfully dewater the mining area and maintain water levels in the mining area at the Elandsfontein project could have a material adverse impact on the operational performance, financial performance and financial condition of the Group.

Enforcement of contractual rights in the RoC

The legal system in the RoC is based on the French civil law system (the Civil Code of the former French Equatorial Africa), which has enacted the Uniform Act to harmonise business law in Africa in order to guarantee legal and judicial security for investors and companies in its member states, as well as a Uniform Act on Arbitration Law, allowing recourse to a standard arbitration mechanism for the settlement of contractual disputes arising from civil or commercial contracts concluded in the RoC as an alternative to RoC courts for legal proceedings relating to contracts.

Under Congolese law, parties may enter into private contracts in the language of their choice, however, a French translation is always required for them to be used before any constituted authority in the RoC. In addition, enforcement of contracts concluded outside of Congo before an RoC court, administrations and other constituted authorities, requires their prior registration with the Office for Registration and Stamp Duties and, in the absence of a specific exemption, payment of the applicable registration fees and stamp duties.

Certain contracts concluded in the RoC (such as leases) must also be presented for registration with the Office for Registration and Stamp Duties, due to their nature and listing in the General Tax Code, Volume 2. Moreover, certain contracts (such as commercial leases) must also be notarised or authenticated by a notary if concluded as private deeds, prior being registered as described above.

If any of these processes are not strictly followed, the RoC courts and administrations may disregard the concerned contract and, as regards the requirement to register certain contracts with the Office for Registration and Stamp Duties, the tax administration may apply fines of 100% of the amount of registration fees due. Further, the tax administration tends to disregard any payment convention exemption for the purpose of applying these fines.

If any of the Group's contracts are deemed unenforceable, this could have a material adverse effect on the operations and financial results of the Group.

COVID outbreak

The outbreak of COVID has had an impact on the Group's businesses and operations and will continue to do so. The timescale attached to this risk is not currently known. There is a risk that the outbreak, and subsequent waves of infections in different countries, has a material adverse impact on the Group's operations and financial results.

Directives are issued and measures implemented, from time to time, by the South African and RoC Governments to contain the spread of COVID involving lockdowns, curfews, quarantine requirements and travel restrictions ("Directives"). Kropz continuously monitors the situation closely, both in South Africa and the RoC, and codes of practice are in place to deal with outbreaks on site.

Kropz is currently unable to quantify the impact of the Directives going forward, but the Group will continue to progress all its workstreams as previously outlined.

Commodity pricing

The future profitability and viability of the Group's operations will be dependent upon the market price of phosphate rock to be sold by the Group. Mineral prices fluctuate widely and are affected by numerous factors beyond the control of the Company. The level of interest rates, the rate of inflation, the world supply of mineral commodities, the global level of demand from consumers and the stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems and political developments. Commodity prices have fluctuated widely in recent years, and future price declines could cause commercial production to be impracticable, thereby having a material adverse effect on the Company's business, financial condition and results of operations. A significant or sustained downturn in commodity prices would adversely affect the Group's available cash and liquidity and could have a material adverse effect on the business, results of operations and financial condition of the Group in the longer term.

In addition to adversely affecting the Group's reserve estimates and its financial condition, declining commodity prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the Elandsfontein project and the Hinda project are ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed.

Environmental regulation and environmental compliance

Mining operations have inherent risks and liabilities associated with damage to the environment and the disposal of waste products occurring as a result of mineral exploration and production. Environmental and safety legislation and regulation (e.g. in relation to reclamation, disposal of waste products, pollution and protection of the environment, protection of wildlife and otherwise relating to environmental protection) is frequently changing and is generally becoming more restrictive with a heightened degree of responsibility for companies and their Directors and employees and more stringent enforcement of existing laws and regulations. Future changes could impose significant costs and burdens on the Group (the extent of which cannot be predicted) both in terms of compliance and potential penalties, liabilities and remediation.

Breach of any environmental obligations could result in penalties and civil liabilities and/or suspension of operations, any of which could adversely affect the Group. Further, approval may be required for any material plant modifications or additional land clearing and for ground disturbing activities. Delays in obtaining such approvals could result in the delay to anticipated exploration programmes or mining activities.

There may also be unforeseen environmental liabilities resulting from mining activities, which may be costly to remedy. If the Group is unable to fully remedy an environmental problem, it may be required to stop or suspend operations or enter into interim compliance measures pending completion of the required remedy. The potential exposure may be significant and could have a material adverse effect on the Group. The Group has not purchased insurance for environmental risks (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) as it is not generally available at a price which the Group regards as reasonable.

In South Africa, the Regulations Pertaining to the Financial Provision for Prospecting, Exploration, Mining or Production Operations 2015 (R1147 of 20 Nov 2015) provides that the holder of a mining right must provide for rehabilitation and remediation costs, with particular reference to when the mine is decommissioned at the end of mining, or production operations. It is expected that mining operations at Elandsfontein will cease in year 2032. The under-provision of such a rehabilitation liability could result in future liabilities being payable, which could have a material adverse impact on the financial condition of the Group.

Government regulation and political risk

The Group's operating activities are subject to laws and regulations governing expropriation of property, health and worker safety, employment standards, waste disposal, protection of the environment, mine development, land and water use, prospecting, mineral production, exports, taxes, labour standards, occupational health standards, toxic wastes, the protection of endangered and protected species and other matters. While the Directors believe that the Group is in compliance with all material current laws and regulations affecting its activities, future changes in applicable laws, regulations, agreements or changes in their enforcement or regulatory interpretation could result in changes in legal requirements or in the terms of existing permits and agreements applicable to the Group or its properties, which could have a material adverse impact on the Group's current operations or planned development projects. Where required, obtaining necessary permits and licences can be a complex, time consuming process and the Group cannot assure whether any necessary permits will be obtainable on acceptable terms, in a timely manner or at all.

The costs and delays associated with obtaining necessary permits and complying with these permits and applicable laws and regulations could stop or materially delay or restrict the Group from proceeding with any future exploration or development of its properties. Any failure to comply with applicable laws and regulations or permits, even if inadvertent, could result in interruption or closure of exploration, development or mining operations or material fines, penalties or other liabilities.

The Group has operations located in South Africa and the RoC and the Group's activities may be affected in varying degrees by political stability and governmental regulations. Any changes in regulations or shifts in political attitudes in South Africa and the RoC are beyond the control of the Group and may adversely affect its operations.

Adverse sovereign action

The Group is exposed to the risk of adverse sovereign action by the governments of South Africa, RoC and other governments. The mining industry is important to the economies of these countries and thus can be expected to be the focus of continuing attention and debate. In similar circumstances in other developing countries, mining companies have faced the risks of expropriation and/or renationalisation, breach or abrogation of project agreements, application to such companies of laws and regulations from which they were intended to be exempt, denials of required permits and approvals, increases in royalty rates and taxes that were intended to be stable, application of exchange or capital controls, and other risks.

Environmental, social and governance ("ESG") and climate change

As the focus on ESG increases, there are increasing environmental, social and governance risks that may affect the Group's ability to raise capital; obtain permits; work with communities, regulators and NGOs; and/or protect its assets from impairments.

At Kropz, we acknowledge that our business activities affect the society and environment around us, and that we have an opportunity and an implicit duty to ensure this impact is positive. We also believe that efficient and sustainable operations are a necessities for long-term value creation.

We are committed to taking responsibility when conducting our business by integrating ESG factors into our investment decisions and operational processes. Given the stage of development of Kropz, social initiatives have been limited to those outlined above at Elandsfontein.

Climate change could potentially affect the demand for fertilisers by impacting global agricultural activity. This in turn could affect the demand for fertiliser feed materials, and could cause events such as prolonged droughts that could reduce the availability of water at the different project sites.

As the Kropz operations develop, more initiatives will be undertaken on the ESG front and progress on these will be reported on in the next annual report.

Governance

The Board considers sound governance as a critical component of the Group's success and the highest priority. The Company has an effective and engaged Board, with a strong non-executive presence from diverse backgrounds, and well-functioning governance committees. Through the Group's compensation policies and variable components of employee remuneration, the Remuneration and Nomination Committee ("Remuneration Committee") of the Board seeks to ensure that the Company's values are reinforced in employee behaviour and that effective risk management is promoted.

More information on our corporate governance can be found in the Corporate Governance Report on pages 43 to 55.

Directors' section 172 statement

The following disclosure describes how the Directors have had regard to the matters set out in section 172 and forms the Directors' statement required under section 414CZA of The Companies Act 2006. This reporting requirement is made in accordance with the corporate governance requirements identified in The Companies (Miscellaneous Reporting) Regulations 2018, which apply to company reporting on financial years starting on or after 1 January 2019.

The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

   a.     the likely consequences of any decision in the long term; 
   b.     the interests of the Company's employees; 

c. the need to foster the Company's business relationships with suppliers, customers and others;

   d.     the impact of the Company's operations on the community and the environment; 

e. the desirability of the Company maintaining a reputation for high standards of business conduct; and

   f.      the need to act fairly between members of the Company. 

The analysis is divided into two sections, the first to address stakeholder engagement, which provides information on stakeholders, issues and methods of engagement. The second section addresses principal decisions made by the Board and focuses on how the regard for stakeholders influenced decision-making.

Section 1: Stakeholder mapping and engagement activities within the reporting period

The Company continuously interacts with a variety of stakeholders important to its success, such as equity investors, joint venture partners, debt providers, employees, government bodies, local community and vendor partners. The Company works within the limitations of what can be disclosed to the various stakeholders with regards to maintaining confidentiality of market and/or commercially sensitive information.

 
 Who are the      Why is it        How did Kropz                                                       What resulted 
 key              important         engage with the                                                    from the 
 stakeholder      to engage this    stakeholder group                                                  engagement 
 groups           group of 
                  stakeholders 
 Equity           Access to             The key mechanisms                                             The Company 
 investors        capital                of engagement                                                 engaged 
 and equity       is of vital            included:                                                     with investors 
 partners         importance                                                                           on topics of 
                  to the                 Substantial                                                   strategy, 
 All              long-term              shareholders                                                  governance, 
 substantial      success of the          *    Both ARC and Kropz International have appointed         project 
 shareholders     business to                  Directors to the Board of Kropz; and                    updates and 
 that own more    enable                                                                               performance. 
 than 3% of the   the 
 Company's        development             *    The other existing substantial shareholders have        Please see 
 shares           of Hinda.                    regular meetings and interactions with the Chairman     "Dialogue 
 are listed on    Equity                       and/or CEO.                                             with 
 page 39 of the   partner                                                                              shareholders" 
 Directors'       involvement                                                                          section of the 
 Report.          is vital to                                                                          Directors' 
                  the                    Investment and                                                report 
 The Company      success of the         equity partners                                               on page 39. 
 owns             development of          *    ARC have representatives on the Kropz Elandsfontein 
 74% of Kropz     these                        and ELH Boards of Directors in terms of the             The CEO 
 Elandsfontein,   projects,                    respective shareholder's agreements; and                presented 
 the owner of     without which                                                                        at a number of 
 the              the Company                                                                          investor 
 Elandsfontein    cannot                  *    Regular Board meetings are held.                        roadshows, 
 project in       create value                                                                         conferences and 
 South            for its                                                                              one on one 
 Africa. 26% is   shareholders                                                                         meetings. 
 owned by ARC.    by producing           Prospective 
                  phosphate rock         and existing                                                  During 2021, the 
 The Company      concentrate            investors                                                     Company 
 owns             and                     *    The AGM and Annual and Interim Reports;                 completed 
 70% of           therefore a                                                                          the Further 
 Elandsfontein    return                                                                               Equity 
 Land Holdings    on the                  *    Investor roadshows and presentations;                   Facility for US$ 
 (Pty) Ltd        investment.                                                                          5 million and 
 ("ELH"),                                                                                              the New ZAR 
 the owner of     Through                 *    One on one investor meetings with the Chairman and/or   Equity 
 the              selected                     CEO;                                                    Facility for ZAR 
 Elandsfontein    engagement                                                                           200 million, 
 mining           activities,                                                                          both 
 property         the Company             *    Access to the Company's broker and advisers;            with ARC. 
 in South         strives 
 Africa.          to obtain                                                                            In terms of the 
 30% is owned     investor                *    Regular news and project updates; and                   additional 
 by ARC.          buy-in into                                                                          facilities 
                  its                                                                                  and capital 
 Kropz            strategic               *    Social media accounts e.g. Twitter @Kropzplc;           injection 
 Elandsfontein    objectives                                                                           prior to 31 
 may require      detailed on                                                                          December 
 further          page                    *    Site visits for potential cornerstone investors.        2021, ARC will 
 funding to       11 and the                                                                           potentially 
 complete         execution                                                                            acquire 
 the ramp up at   thereof.                                                                             a total further 
 Elandsfontein                                                                                         3.2% interest 
 and Cominco      The Company                                                                          in the Company, 
 Resources        seeks                                                                                eventually 
 requires         to promote an                                                                        taking 
 further          investor base                                                                        its 83.7% 
 funding to       that is                                                                              interest 
 develop          interested                                                                           at December 
 Hinda.           in a long-term                                                                       2021, 
                  holding in the                                                                       to 86.9%. 
 As such,         Company and 
 existing         will                                                                                 At the Company's 
 equity           support the                                                                          AGM held on 30 
 investors        Company                                                                              June 2021 all 
 and potential    in achieving                                                                         resolutions were 
 investment       its strategic                                                                        duly passed with 
 partners         objectives.                                                                          at least 96% 
 are important                                                                                         votes 
 stakeholders.    During the                                                                           in favour 
                  course                                                                               demonstrating 
                  of 2021, the                                                                         broad 
                  percentage of                                                                        shareholder 
                  shares held in                                                                       support. 
                  public hands 
                  decreased and                                                                        At the Company's 
                  the overall                                                                          general meeting 
                  daily                                                                                held on 23 July 
                  volume of                                                                            2021 all 
                  shares                                                                               resolutions 
                  traded                                                                               were duly passed 
                  increased.                                                                           with 100% of the 
                                                                                                       votes cast in 
                                                                                                       favour of 
                                                                                                       resolutions 
                                                                                                       proposed. 
 
                                                                                                       At the Company's 
                                                                                                       general meeting 
                                                                                                       held on 15 
                                                                                                       October 
                                                                                                       2021 all 
                                                                                                       resolutions 
                                                                                                       were duly passed 
                                                                                                       with at least 
                                                                                                       98% votes in 
                                                                                                       favour 
                                                                                                       of resolutions 
                                                                                                       proposed. 
                 ---------------  ------------------------------------------------------------------  ----------------- 
 
  Funding          Access to               *    One on one meetings with the CEO and/or COO;            In May 2020, 
  providers        funding                                                                              the 
  Kropz            is of vital                                                                          amended 
  Elandsfontein    importance              *    Regular reporting on project progress;                  facility 
  has a US$30      to the                                                                               agreement was 
  million,         long-term                                                                            signed between 
  fully            success of              *    Ad hoc discussions with management, as required; and    Kropz 
  utilised,        the                                                                                  Elandsfontein 
  debt facility    business to                                                                          and BNP, 
  with BNP that    be                      *    Tripartite discussions between Kropz Elandsfontein,     thereby 
  commenced in     able to                      ARC and management to ensure there are no compliance    moving the 
  September        complete                     matters outstanding in relation to the facility.        first 
  2016.            the                                                                                  principal debt 
                   Elandsfontein                                                                        repayment to 31 
                   project. The                                                                         December 2022. 
                   debt facility 
                   was utilised 
                   in the 
                   construction 
                   of 
                   Elandsfontein 
                   . 
 
                   Various 
                   contractual 
                   conditions of 
                   the debt 
                   finance 
                   require 
                   regular 
                   updates on 
                   ongoing 
                   progress. 
 
                   Ongoing 
                   support 
                   from 
                   potential 
                   new debt 
                   providers 
                   is required 
                   to 
                   achieve the 
                   construction 
                   of Hinda. 
                 ---------------  ------------------------------------------------------------------  ----------------- 
 
  Employees        The majority        General employees                                                Employees 
  The Company      of its               *    The Company maintains an open line of communication        The Board met 
  has              employees                 between its employees, senior management and the           with management 
  14 South         going forward             Board.                                                     to discuss the 
  African,         will be based                                                                        long-term 
  2 UK and 5       in South                                                                             remuneration 
  RoC              Africa               *    The CEO reports regularly to the Board;                    strategy. 
  employees,       and the 
  including        Directors                                                                            Advisors were 
  its              consider             *    Key members of the executive team are invited to some      appointed to do 
  Directors.       workforce                 of the audit and risk committee meetings;                  the independent 
                   issues                                                                               party review to 
  Two of the       holistically                                                                         examine 
  Directors        for the Group        *    There is a formalised employee induction into the          non-executive 
  are UK           as a whole.               Company's corporate governance policies and                Director and 
  residents,                                 procedures; and                                            executive 
  1 Monegasque,    The Company's                                                                        team 
  1 American       long-term                                                                            remuneration 
  and              success              *    There is an HR function in the UK.                         in 2018 at the 
  2 are South      is predicated                                                                        time of the AIM 
  African          on the                                                                               IPO. 
  resident         commitment 
  Directors.       of its              South African                                                    Board reporting 
                   workforce           employees                                                        has been 
  The CEO          to its vision        *    There is an HR function in South Africa;                   optimised 
  during           and the                                                                              to include 
  the year         demonstration                                                                        sections 
  under            of its values        *    Senior management regularly visit the operations in        on engagement 
  review was       on a daily                South Africa and engage with its employees through         with employees. 
  South            basis.                    one on one and staff meetings, employee events, 
  Africa-based.                              project updates, etc; and                                  South African 
  The CEO          The Board                                                                            and Congo 
  allocates        have                                                                                 employees 
  35% of his       identified           *    Staff safety committees continue to operate.               The team were 
  time             that                                                                                 trained in 
  to matters       reliance on                                                                          aspects 
  relating         key                                                                                  of corporate 
  to the           personnel is        Congo employees                                                  policies 
  Company          a known risk.        *    Senior management regularly visit the operations in        and procedures 
  in the UK.                                 RoC and engage with its employees through one on one       to engender 
                                             and staff meetings, employee events, project updates,      positive 
                                             etc.                                                       corporate 
                                                                                                        culture 
                                                                                                        aligned with 
                                                                                                        the 
                                                                                                        Company code of 
                                                                                                        conduct. 
 
                                                                                                        Meetings were 
                                                                                                        held with staff 
                                                                                                        to provide 
                                                                                                        project 
                                                                                                        updates and 
                                                                                                        ongoing 
                                                                                                        business 
                                                                                                        objectives. 
                 ---------------  ------------------------------------------------------------------  ----------------- 
 
  Governmental     Regular           The Company provides                                               Meetings have 
  bodies           engagement        general corporate                                                  been held with 
  The Company      with organs       presentations                                                      various 
  is               of                regarding the                                                      representatives 
  impacted by      state at          Elandsfontein                                                      of the 
  national,        national,         project development                                                national, 
  regional and     regional and      as part of ongoing                                                 regional and 
  local            local levels      stakeholder engagement                                             local 
  governmental     is required       with the South                                                     government 
  organisations    to                African government,                                                bodies, 
  in South         keep              Western Cape                                                       to discuss 
  Africa           stakeholders      provincial government                                              ongoing 
  and the RoC.     informed and      and local municipal                                                compliance and 
                   supportive of     government. The                                                    other 
                   project           Company maintained                                                 regulatory 
                   developments.     its good relations                                                 matters 
                                     with the respective                                                relating 
                                     government bodies                                                  to mining. 
                                     and frequently 
                                     communicated                                                       The Company has 
                                     progress.                                                          received its 
                                                                                                        South 
                                     The Company engages                                                African 
                                     with the relevant                                                  requisite 
                                     departments of                                                     environmental 
                                     the RoC government                                                 and land use 
                                     in order to progress                                               permits. 
                                     the development 
                                     of Hinda.                                                          In addition, 
                                                                                                        the 
                                                                                                        Company has 
                                                                                                        received 
                                                                                                        the required 
                                                                                                        permits 
                                                                                                        to develop 
                                                                                                        Hinda, 
                                                                                                        subject to 
                                                                                                        securing 
                                                                                                        of funding for 
                                                                                                        these 
                                                                                                        activities. 
                 ---------------  ------------------------------------------------------------------  ----------------- 
 
  Community        The Company             *    The Company has community liaison officers in South     The Company has 
  The local        engages                      Africa and RoC;                                         ongoing 
  communities      with the                                                                             engagements 
  adjacent to      local                                                                                with the local 
  Elandsfontein    community to            *    The Company has identified all key stakeholders         community as 
  in South         obtain                       within the local community in the reporting period;     part 
  Africa           acceptance                                                                           its 
  and Hinda in     for future                                                                           sustainability 
  the RoC.         development             *    Elandsfontein management has open dialogue with the     initiatives. 
                   plans.                       local government and community leaders regarding the 
                                                project development;                                    Stakeholder 
                   Community                                                                            identification 
                   engagement                                                                           has enabled the 
                   will inform             *    Similarly, Hinda management are actively engaging       Company to 
                   better                       with local government and communities directly          ensure 
                   understanding                impacted by the Hinda project; and                      that 
                   and decision                                                                         representatives 
                   making.                                                                              of all 
                                           *    The Company has existing Corporate Social               stakeholder 
                   The local                    Responsibility policies and management structure at     groups may 
                   community                    corporate level. The Company will expand on these       participate 
                   in Hopefield                 policies and structures at a local project level as     in the 
                   and the                      the Company moves into production.                      community 
                   greater                                                                              engagement 
                   Saldanha Bay                                                                         programme. 
                   municipal 
                   area 
                   provides 
                   employees 
                   for 
                   Elandsfontein 
                   and its 
                   contractors 
                   for 
                   operations. 
                   Similarly, 
                   the 
                   communities 
                   surrounding 
                   Hinda will 
                   provide 
                   employees to 
                   the project 
                   and 
                   contractors 
                   during 
                   construction 
                   and 
                   operation. 
 
                   The Company 
                   will 
                   have a social 
                   and economic 
                   impact on the 
                   local 
                   communities. 
                   The Company 
                   is 
                   committed to 
                   ensuring 
                   sustainable 
                   growth, 
                   minimising 
                   adverse 
                   impacts. 
                   The Company 
                   will 
                   engage these 
                   stakeholders 
                   as is 
                   appropriate. 
                 ---------------  ------------------------------------------------------------------  ----------------- 
 
  Suppliers        Kropz's                *    Management continue to work closely with appointed       See page 8 of 
  During the       contractors                 contractors, consultants and suppliers to manage and     the strategic 
  Elandsfontein    and suppliers               optimise deliverables; and                               report for an 
  operations       are                                                                                  update on the 
  phase,           fundamental                                                                          potential 
  the Company      to ensuring            *    One on one meetings between management and suppliers;    transport 
  will             that                                                                                 and logistics 
  be using key     the Company                                                                          uncertainties 
  suppliers        can                    *    Vendor site visits and facility audits to ensure         facing the 
  under            meet the                    supplier is able to meet requirements;                   Group. 
  commercial       ramp-up 
  contracts        and steady                                                                           Smaller local 
  for the          state                  *    Contact with procurement department and accounts         vendors were 
  operations       operating                   payable; and                                             engaged 
  of mine,         objectives.                                                                          at a broader 
  plant,                                                                                                level 
  road and port    Using quality          *    Assist local suppliers to address liquidity              to better align 
  logistic         suppliers                   challenges.                                              with company 
  operators        ensures                                                                              objectives. 
  and              that as a 
  laboratory       business, the 
  service          high 
  providers,       performance 
  all of whom      targets 
  are              can be met. 
  reputable and 
  established 
  service 
  providers. 
 
  The Company 
  also 
  relies on a 
  number 
  of supply and 
  maintenance 
  contracts 
  to ensure 
  ongoing 
  operations. 
  At a 
  community 
  level, the 
  Company 
  has also 
  partnered 
  with a number 
  of SMME 
  companies. 
                 ---------------  ------------------------------------------------------------------  ----------------- 
 

Section 2: Principal decisions by the Board

Principal decisions are defined as both those that have long-term strategic impact and are material to the Group, but also those that are significant to key stakeholder groups. In making the following principal decisions, the Board considered the outcome from its stakeholder engagement, the need to maintain a reputation for high standards of business conduct and the need to act fairly between the members of the Company.

During the financial year ending 31 December 2021

Divestment by the Company of its equity interest in Aflao, Ghana, entered into on 16 February 2021

During 2020, the Board agreed to divest from its 50% plus 1 share interest in First Gear Exploration Limited ("FGE"), the owner of the Aflao prospecting right. During February 2021, Kropz disposed of its interest in FGE to Consortium Minerals Ltd ("Consortium"), for a consideration of US$ 327,529, made up as follows:

   --      US$ 5,000 in cash ("Share Consideration"); and 

-- US$ 322,529 ("Loan Consideration") deferred cash consideration in respect of the shareholder loan from Kropz to FGE, which is being novated to Consortium.

The Share Consideration was payable by Consortium within seven days of completion. The Loan Consideration will be payable by Consortium to Kropz upon, the earlier of,

(i) the sign-off by a competent person of a definitive feasibility study on the Aflao deposit, as defined in the JORC Code 2012 edition; or

(ii) Consortium disposing or transferring the Shares prior to the event described in (i) being achieved; or

(iii) Consortium disposing or transferring the prospecting right prior to the event described in (i) being achieved .

Consortium is a subsidiary of Russell Brooks Ltd, who is a minority shareholder in FGE, with a 15% shareholding prior to the acquisition from Kropz.

The decision is aligned with the business model set out in the Company strategy, which was to invest in high quality assets in the phosphate rock market.

In making the above principal decisions, the Directors believe that they have considered all relevant stakeholders, potential impact and conflicts, the Company's business model and its long-term strategic objectives, and have acted accordingly to promote the success of the Company for the benefit of its members as a whole.

Convertible loan facility for US$ 5 million from ARC, entered into on 15 February 2021

Kropz secured the Further Equity Facility of up to US$ 5 million (not exceeding a maximum of ZAR 85 million) from ARC in February 2021, to be used exclusively for the Hinda Updated FS and general corporate purposes for Kropz . Quarterly drawdowns under the Equity Facility are at the sole discretion of Kropz. The first draw down of US$ 2 million on the Further Equity Facility occurred on 10 March 2021, the second draw down of US$ 2 million occurred on 23 June 2021, the third drawdown of US$ 400,000 occurred on 10 September 2021 and the fourth drawdown of US$ 400,000 occurred on 10 December 2021. The fifth and final drawdown of the Further Equity Facility occurred on 10 March 2022.

No specific shareholder approval was required for the Further Equity Facility as the Company received the necessary authority at the AGM in August 2020 to allot shares for cash, without first offering them to existing shareholders in proportion to their existing shareholdings, of approximately 20% of the Company's issued share capital at that time, representing 88,792,180 new ordinary shares. Ordinary shares to be issued to ARC in terms of the Further Equity Facility will be a maximum of 86,863,398 ordinary shares.

Repayment of the Further Equity Facility and any interest thereon will be in the form of immediate conversion into ordinary shares in Kropz and issued to ARC, at a conversion price of 4.202 pence per ordinary share each quarter, and any US$ amount will be converted to GBP at an agreed rate of US$ 1 = 0.73 GBP.

The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.

Existing shareholders may have conflicting interests with the Further Equity Facility due to potential dilution of their shareholding. The Directors considered the impact of this and concluded that obtaining the convertible facility from ARC was the only funding opportunity available to the Company in order to secure funding for the Hinda Update FS and for general working capital for the Group. Various funding alternatives had been investigated by the Directors, in conjunction with its brokers and advisers, over the last year, both from an equity raise perspective and through possible project finance facilities. Equity markets were subdued and no new or existing equity investors were prepared to provide the funding required for the Hinda Updated FS and Kropz's working capital requirements.

Due to the fact that Machiel Reyneke, the ARC representative on the Board, and Mike Nunn, representing Kropz International are considered to be concert parties, they were not permitted to consider or vote on the approval of the proposed US$ 5 million Further Equity Facility by the Board. The independent, non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, considered the transaction to be fair and reasonable.

As a result of the Further Equity Facility, ARC could increase its interest in the Company by a further approximate 2%, taking its eventual interest in the Company to approximately 84%.

The conclusion was that the Further Equity Facility was fair and reasonable, and the transaction was approved by the independent Directors, in consultation with the nominated adviser, and announced on RNS on 26 February 2021.

Convertible loan facility for ZAR 200 million from ARC, entered into on 29 September 2021

Kropz secured the New ZAR Equity Facility of up to ZAR 200 million from ARC in September 2021, to be used exclusively for the delivery of the Company's Elandsfontein project to first revenue .

The New ZAR Equity Facility comprised a total commitment of up to ZAR 200 million provided by ARC, which can be drawn down at the discretion of Kropz, as follows:

   --      ZAR 127 million from 15 October 2021 and up to 30 April 2022; and 

-- ZAR 73 million from the date as determined by ARC, and at its discretion, but no earlier than 15 October 2021 and until a further date as determined by ARC.

At any time during the term of the New ZAR Equity Facility, repayment of the New ZAR Equity Facility capital amount will, at the election of ARC, either be:

-- In the form of the conversion into ordinary shares of 0.1 pence each in the Company and issued to ARC, at a conversion price of 4.5058 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21 September 2021, and at fixed exchange rate of GBP 1 = ZAR 20.24 ("Conversion"); or

   --      Payable in cash by the Company at the end of the term of the New ZAR Equity Facility. 

The New ZAR Equity Facility would bear interest at 14% per annum and would be compounded monthly ("Interest"). Interest would be payable in cash to ARC by the Company. The term of the New ZAR Equity Facility would be from 15 October 2021, to the earlier of 5 years from 15 October 2021, or one year after the term loan facility provided by BNP Paribas to Kropz Elandsfontein (Pty) Ltd (in the amount not exceeding US$ 30 million), had been repaid.

The New ZAR Equity Facility was secured by the shares which Kropz holds in Cominco Resources Ltd ("Share Charge").

The first draw down of ZAR 90 million on the New Equity Facility occurred on 26 October 2021 and the second draw down of ZAR 37 million occurred on 10 December 2021.

Post 31 December 2021, the third drawdown of ZAR 40 million occurred on 16 March 2022 and the fourth drawdown of ZAR 33 million occurred on 26 April 2022. The New ZAR Equity Facility is fully drawn at the date of this annual report.

Specific shareholder approval was required for the New ZAR Equity Facility, which shareholder approval was obtained on 15 October 2021. Ordinary shares to be issued to ARC in terms of the New ZAR Equity Facility, if so elected by ARC, would be a maximum of 219,304,517 ordinary shares.

The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.

Existing shareholders may have conflicting interests with the New ZAR Equity Facility due to potential dilution of their shareholding. The Directors considered the impact of this and concluded that obtaining the convertible facility from ARC was the only funding opportunity available to the Company in order to secure funding for the delivery of the Elandsfontein project to first revenue. Various funding alternatives had been investigated by the Directors, in conjunction with its brokers and advisers, over the last year, both from an equity raise perspective and through possible project finance facilities. Equity markets were subdued and no new or existing equity investors were prepared to provide the required funding.

Due to the fact that Machiel Reyneke, the ARC representative on the Board, and Mike Nunn, representing Kropz International are considered to be concert parties, they were not permitted to consider or vote on the approval of the proposed New ZAR Equity Facility by the Board. The independent, non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, considered the transaction to be fair and reasonable.

As a result of the New Equity Facility, ARC could increase its interest in the Company by a further approximate 3%, taking its eventual interest in the Company to approximately 87%.

The conclusion was that the New ZAR Equity Facility was fair and reasonable and the transaction was approved by the independent Directors, in consultation with the nominated adviser, and announced on RNS on 29 September 2021.

Post 31 December 2021

As announced on 18 January 2022, Kropz issued 6,700,000 ordinary shares, at an exercise price of GBP0.001 an ordinary share, in the Company to key members of the executive management team, including certain PDMRs. The issue of ordinary shares are due to awards vesting and issued under its LTIP Awards, issued on 31 July 2020 as announced on 4 August 2020. Of the total above, 2,350,000 ordinary shares were issued to Mark Summers, 2,350,000 ordinary shares to Michelle Lawrence and 1,000,000 to Patrick Stevenaert.

BNP Paribas released the ZAR 77 million restricted cash in the bank account of Kropz Elandsfontein (Pty) Ltd on 10 January 2022, upon satisfaction of the requirement by BNP Paribas for the Group to bridge the funding shortfall in respect of Elandsfontein as announced on 1 September 2021. The funding shortfall was satisfied when the New ZAR Equity Facility was secured from ARC.

Convertible loan facility for ZAR 177 million from ARC, entered into on 11 May 2022

As announced on 27 April 2022, a funding shortfall of approximately US$ 11 million (approximately ZAR 177 million) was expected due to slower than expected progress in the ramp up of operations at Kropz Elandsfontein, production of sufficient phosphate rock concentrate for the first bulk sale would move to later than originally expected.

The ZAR 177 Million Equity Facility was in addition to the New ZAR Equity Facility, which ARC and the Company entered into in February 2021.

As announced on 27 April 2022, Kropz and ARC entered into a further ZAR 25 million (approximately US$ 1.60 million) bridge loan facility (the "Loan") to meet immediate cash requirements at Elandsfontein at the end of April 2022, expected to be ZAR 58 million. When the ZAR 177 Million Equity Facility becomes unconditional, the Loan will be offset against it leaving ZAR 152 million available for future drawdown.

The ZAR 177 Million Equity Facility comprises a total commitment of up to ZAR 177 million provided by ARC, which can be drawn down at the discretion of ARC.

At any time during the term of the ZAR 177 Million Equity Facility, repayment of the ZAR 177 Million Equity Facility capital amount would, at the election of ARC, either be:

-- In the form of the conversion into ordinary shares of 0.1 pence each in the Company and issued to ARC, at a conversion price of 9.256 pence per ordinary share each, representing the 30-day VWAP on 4 May 2022, and at a fixed exchange rate of ZAR 1 = GBP 0.0504 ("Further Conversion"); or

-- Payable in cash by the Company at the end of the term of the ZAR 177 Million Equity Facility.

The first drawdown of ZAR 103.5 million was made on 2 June 2022. Following a Further Conversion, the Company would apply for the newly issued Ordinary Shares in the capital of the Company to be admitted to trading on AIM.

The ZAR 177 Million Equity Facility will bear interest at 14% per annum and will be compounded monthly and will be payable in cash to ARC by the Company.

The term of the ZAR 177 Million Equity Facility is from 2 June 2022 to the earlier of:

   --      Five years from 2 June 2022; or 

-- One year after the term loan facility provided by BNP Paribas to Kropz Elandsfontein (in the amount not exceeding US$ 30 million), has been repaid;

The ZAR 177 Million Equity Facility is secured by the shares that Kropz holds in Cominco Resources Ltd.

The ZAR 177 Million Equity Facility was conditional on:

-- approval from the SARB. The SARB application was lodged on 17 May 2022 and the approval received on 1 June 2022; and

   --      shareholder approval of the Company which was received on 30 May 2022. 

The ZAR 177 million Equity Facility was above the authorisation limits given at the last Annual General Meeting in June 2021. Specific shareholder approval was required for the ZAR 177 Million Equity Facility, which shareholder approval was obtained on 30 May 2022. Ordinary shares to be issued to ARC in terms of the New ZAR 177 Million Equity Facility, if so elected by ARC, would be a maximum of 96,378,566 ordinary shares.

The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.

Existing shareholders may have conflicting interests with the ZAR 177 Million Equity Facility due to potential dilution of their shareholding. The Directors considered the impact of this and concluded that obtaining the convertible facility from ARC was the only funding opportunity available to the Company in order to secure funding for the delivery of the Elandsfontein project to first revenue. Various funding alternatives had been investigated by the Directors, in conjunction with its brokers and advisers, over the last year, both from an equity raise perspective and through possible project finance facilities. Equity markets were subdued and no new or existing equity investors were prepared to provide the required funding.

Due to the fact that Machiel Reyneke, the ARC representative on the Board, and Mike Nunn, representing Kropz International are considered to be concert parties, they were not permitted to consider or vote on the approval of the proposed US$ 5 million Further Equity Facility by the Board. The independent, non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, considered the transaction to be fair and reasonable.

As a result of the New ZAR Equity Facility and the ZAR 177 Million Equity Facility, ARC could increase its interest in the Company by a further approximate 4.3%, taking its eventual interest in the Company to approximately 87.5%.

The conclusion was that the ZAR 177 Million Equity Facility was fair and reasonable and the transaction was approved by the independent Directors, in consultation with the nominated adviser, and announced on RNS on 11 May 2022.

This Strategic Report was approved by the Board of Directors.

Mark Summers

Chief Executive Officer

28 June 2022

Consolidated Statement of Financial Position

As at 31 December 2021

 
                                                31 December    31 December    31 December 
                                                       2021           2020           2019 
                                       Notes        US$'000        US$'000        US$'000 
                                                                 (Restated      (Restated 
                                                                 - Note 2)      - Note 2) 
 Non-current assets 
  Property, plant, equipment and 
  mine development                       4          135,099        114,473        105,224 
 Exploration assets                     5            44,631         44,348         40,192 
 Right-of-use asset                     6                 7             45             37 
 Other financial assets                 7             1,357          1,477          1,534 
                                              -------------  -------------  ------------- 
                                                    181,094        160,343        146,987 
                                              -------------  -------------  ------------- 
 Current assets 
 Inventories                            8             1,025            821            875 
 Trade and other receivables            9             1,511          1,611            329 
 Derivative asset                      10                 -          8,586              - 
 Restricted cash                       11             4,858          7,355              - 
 Cash and cash equivalents             12             2,461         11,572         15,530 
                                              -------------  -------------  ------------- 
                                                      9,855         29,945         16,734 
                                              -------------  -------------  ------------- 
 
   TOTAL ASSETS                                     190,949        190,288        163,721 
                                              -------------  -------------  ------------- 
 
   Current liabilities 
 Trade and other payables              19             3,543          4,780          1,536 
 Lease liabilities                     16                 7             42             19 
 Other financial liabilities           17             4,295          2,500         29,982 
 Current taxation                      27                 -              -            174 
 Other tax liabilities                                    -              -            451 
                                                      7,845          7,322         32,162 
                                              -------------  -------------  ------------- 
 Non-current liabilities 
 Shareholder loans and derivative      15            25,043         15,703         14,701 
 Lease liabilities                     16                 -              6             21 
 Other financial liabilities           17            26,291         28,113              - 
 Provisions                            18             4,033          4,311          3,702 
                                              -------------  -------------  ------------- 
                                                     55,367         48,133         18,424 
                                              -------------  -------------  ------------- 
 
   TOTAL LIABILITIES                                 63,212         55,455         50,586 
                                              -------------  -------------  ------------- 
 
 NET ASSETS                                         127,737        134,833        113,135 
                                              -------------  -------------  ------------- 
 
 

Consolidated Statement of Financial Position

As at 31 December 2021 (continued)

 
                                            31 December    31 December    31 December 
                                                   2021           2020           2019 
                                   Notes        US$'000        US$'000        US$'000 
                                                             (Restated      (Restated 
                                                             - Note 2)      - Note 2) 
 Shareholders' equity 
 Share capital                     13             1,194            706            363 
                                  13 / 
 Share premium                      14          193,524        168,212        147,339 
                                  13 / 
 Merger reserve                     14         (20,523)       (20,523)       (20,523) 
 Foreign exchange translation 
  reserve                          14           (7,807)          2,334             53 
 Share-based payment reserve       14             1,197            385            167 
 Accumulated losses                            (45,626)       (22,010)       (18,655) 
 Total equity attributable to 
  the owners of the Company                     121,959        129,104        108,744 
 Non-controlling interests         34             5,778          5,729          4,391 
                                          -------------  -------------  ------------- 
                                                127,737        134,833        113,135 
                                          -------------  -------------  ------------- 
 

The notes form an integral part of these Consolidated Financial Statements. The Financial Statements were approved and authorised for issue by the Board of Directors and signed on its behalf by:

Mark Summers

Chief Executive Officer

28 June 2022

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2021

 
                                                                                  Year ended     Year ended 
                                                                                 31 December    31 December 
                                                                                        2021           2020 
                                                                        Notes        US$'000        US$'000 
 
 Revenue                                                                                   -              - 
 Other income                                                                            172             29 
 
 Operating expenses                                                     23           (6,503)        (5,912) 
                                                                               -------------  ------------- 
 
 Operating loss                                                                      (6,331)        (5,883) 
 
 Finance income                                                         22               480          1,244 
 Finance expense                                                        25           (7,391)        (5,914) 
 Fair value (loss) / gains from derivative 
  asset / liability                                                     31           (4,792)          8,586 
 Loss on disposal of subsidiary                                         26             (224)              - 
 
 Loss before taxation                                                               (18,258)        (1,967) 
 
 Taxation                                                               27                 -             36 
 
 Loss after taxation                                                                (18,258)        (1,931) 
                                                                               -------------  ------------- 
 
 (Loss) / profit attributable to: 
 Owners of the Company                                                              (13,787)          1,531 
 Non-controlling interests                                                           (4,471)        (3,462) 
                                                                               -------------  ------------- 
                                                                                    (18,258)        (1,931) 
                                                                               -------------  ------------- 
 
 Loss for the year                                                                  (18,258)        (1,931) 
 
 Other comprehensive income: 
 Items that may be subsequently reclassified 
  to profit or loss 
 
        *    Exchange differences on translation of parent company 
             financial statements from functional to presentation 
             currency                                                                  (643)          1,922 
 
        *    Exchange differences on translating foreign 
             operations                                                             (10,541)            273 
                                                                               -------------  ------------- 
 Total comprehensive (loss) / income                                                (29,442)            264 
                                                                               -------------  ------------- 
 
 Attributable to: 
 Owners of the Company                                                              (23,928)          3,812 
 Non-controlling interests                                                           (5,514)        (3,548) 
                                                                               -------------  ------------- 
                                                                                    (29,442)            264 
                                                                               -------------  ------------- 
 
 (Loss) / profit per share attributable 
  to owners of the Company : 
 Basic (US cents)                                                       28            (1.80)           0.40 
 Diluted (US cents)                                                     28            (1.80)           0.39 
                                                                               -------------  ------------- 
 
 
                                                                                    Consolidated Statement of Changes in Equity 
                                                                                            For the year ended 31 December 2021 
                                                      Foreign 
                                                     currency   Share-based 
                     Share     Share     Merger   translation       payment   Retained               Non-controlling      Total 
                   capital   premium    reserve       reserve       reserve   earnings       Total          interest     equity 
                   US$'000   US$'000    US$'000       US$'000       US$'000    US$'000     US$'000           US$'000    US$'000 
 Balance at 1 
  January 2020, 
  as previously 
  reported             363   147,339   (20,523)            53           167   (12,536)     114,863           (1,728)    113,135 
 Prior year 
  adjustment             -         -          -             -             -    (6,119)     (6,119)             6,119          - 
                  --------  --------  ---------  ------------  ------------  ---------  ----------  ----------------  --------- 
 As restated           363   147,339   (20,523)            53           167   (18,655)     108,744             4,391    113,135 
 Total 
  comprehensive 
  profit 
  / 
  (loss) for the 
  year                   -         -          -         2,281             -      1,531       3,812           (3,548)        264 
 
 Issue of shares       343    21,173          -             -             -          -      21,516                 -     21,516 
 Cost of issuing 
  shares                 -     (320)          -             -             -          -       (320)                 -      (320) 
 Issue of 
  warrants               -      (10)          -             -            10          -           -                 -          - 
 Lapsed warrants         -        30          -             -          (30)          -           -                 -          - 
 Investment in 
  non-redeemable 
  preference 
  shares of 
  Kropz 
  Elandsfontein          -         -          -             -             -    (4,886)     (4,886)             4,886          - 
 Share based 
  payment 
  charges                -         -          -             -           238          -         238                 -        238 
                  --------  --------  ---------  ------------  ------------  ---------  ----------  ----------------  --------- 
 Transactions 
  with owners          343    20,873          -             -           218    (4,886)      16,548             4,886     21,434 
                  --------  --------  ---------  ------------  ------------  ---------  ----------  ----------------  --------- 
 Balance at 31 
  December 
  2020 as 
  restated             706   168,212   (20,523)         2,334           385   (22,010)     129,104             5,729    134,833 
 Total 
  comprehensive 
  loss 
  for the year           -         -          -      (10,141)             -   (13,787)    (23,928)           (5,514)   (29,442) 
 
 Issue of shares       488    25,312          -             -             -          -      25,800                 -     25,800 
 Disposal of 
  subsidiary             -         -          -             -             -          -           -               181        181 
 Extinguishment 
  of derivative 
  asset upon 
  equity draw 
  down                   -         -          -             -             -    (4,447)     (4,447)                 -    (4,447) 
 Investment in 
  non-redeemable 
  preference 
  shares of 
  Kropz 
  Elandsfontein          -         -          -             -             -    (5,382)     (5,382)             5,382          - 
 Share based 
  payment 
  charges                -         -          -             -           812          -         812                 -        812 
                  --------  --------  ---------  ------------  ------------  ---------  ----------  ----------------  --------- 
 Transactions 
  with owners          488    25,312          -             -           812    (9,829)      16,783             5,563     22,346 
                  --------  --------  ---------  ------------  ------------  ---------  ----------  ----------------  --------- 
 Balance at 31 
  December 
  2021               1,194   193,524   (20,523)       (7,807)         1,197   (45,626)     121,959             5,778    127,737 
                  --------  --------  ---------  ------------  ------------  ---------  ----------  ----------------  --------- 
 
 
         Consolidated Statement of Cash Flows 
          For the year ended 31 December 2021 
                                                            Year ended     Year ended 
                                                           31 December    31 December 
                                                  Notes           2021           2020 
                                                               US$'000        US$'000 
                                                                            (Restated 
                                                                            - Note 2) 
 Cash flows from operating activities 
 Loss before taxation                                         (18,258)        (1,967) 
 Adjustments for: 
 Depreciation of property, plant and 
  equipment                                        4               904            780 
 Amortisation of right-of-use assets               6                39             51 
 Share-based payment charge                       13               812            238 
 Finance income                                   22             (480)        (1,244) 
 Finance costs                                    25             3,267          2,948 
 Fair value (loss) / gain on derivative 
  asset / liability                               31             4,792        (8,586) 
 Debt modification loss                           17                 -          1,109 
 Debt modification present value adjustment       25             (258)          (119) 
 Foreign currency exchange differences                           4,382          1,858 
 Fair value loss on game animals                   4              (51)             18 
 Operating cash flows before working 
  capital changes                                              (4,851)        (4,914) 
 Decrease / (increase) in trade and 
  other receivables                               29               256        (1,278) 
 (Increase) / decrease in inventories             29             (291)             17 
 Increase in trade and other payables             29             3,178             28 
 Decrease in other tax liabilities                                   -          (388) 
                                                               (1,708)        (6,535) 
 Income taxes paid                                                   -          (128) 
                                                         -------------  ------------- 
 Net cash flows used in operating 
  activities                                                   (1,708)        (6,663) 
                                                         -------------  ------------- 
 
 Cash flows used in investing activities 
 Purchase of property, plant and equipment         4          (38,553)       (10,927) 
 Exploration and evaluation expenditure            5           (3,931)          (257) 
 Disposal of subsidiary                           26                 5              - 
 Finance income received                          22               480          1,244 
 Transfer from / (to) restricted cash             11             2,497        (7,355) 
 Net cash flows used in investing 
  activities                                                  (39,502)       (17,295) 
                                                         -------------  ------------- 
 
   Cash flows from financing activities 
 Finance costs paid                               25           (2,028)        (2,079) 
 Shareholder loan received                        15             8,037            411 
 Repayment of lease liabilities                   16              (39)           (53) 
 Other financial liabilities                      29                54          (464) 
 Issue of ordinary share capital                  13            25,800         21,516 
 Costs of share issues                            13                 -          (320) 
 Net cash flows from financing activities                       31,824         19,011 
                                                         -------------  ------------- 
 
   Net decrease in cash and cash equivalents                   (9,386)        (4,947) 
 Cash and cash equivalents at beginning 
  of the year                                                   11,572         15,530 
 Foreign currency exchange gains / 
  (losses) on cash                                                 275            989 
 Cash and cash equivalents at end 
  of the year                                                    2,461         11,572 
                                                         -------------  ------------- 
 

Notes to the Consolidated Financial Statements for the year ended 31 December 2021

   (1)        General information 

Kropz is an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and a phosphate project in the Republic of Congo (" RoC"). The principal activity of the Company is that of a holding company for the Group, as well as performing all administrative, corporate finance, strategic and governance functions of the Group.

The Company was incorporated on 10 January 2018 and is a public limited company, with its ordinary shares admitted to the AIM Market of the London Stock Exchange on 30 November 2018 trading under the symbol, "KRPZ". The Company is domiciled in England and incorporated and registered in England and Wales. The address of its registered office is 35 Verulam Road, Hitchin, SG5 1QE. The registered number of the Company is 11143400.

The Group holds interests in two projects - in South Africa and the RoC.

   (2)        Summary of significant accounting policies 

The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied unless otherwise stated.

(a) Basis of preparation

The Consolidated Financial Statements of the Company have been prepared in prepared in accordance with UK adopted international accounting standards and the Companies Act 2006 applicable to companies reporting under IFRS. The Consolidated Financial Statements have been prepared under the historical cost convention, as modified for any financial assets, financial liabilities and game animals which are stated at fair value through profit or loss. The Consolidated Financial Statements are presented in United States Dollars, the presentation currency of the Company and figures have been rounded to the nearest thousand.

Going concern

During the year ended 31 December 2021, the Group incurred a loss of US$ 18.3 million (2020: US$ 1.9 million) and experienced net cash outflows from operating activities. Cash and cash equivalents totalled US$ 2.5 million as at 31 December 2021 (2020: US$ 11.6 million) and US$ 4.9 million (2020: US$ 7.4 million) was restricted in terms of the amended facility agreement between Kropz Elandsfontein and BNP. ZAR 77 million (approximately US$ 4.9 million) was locked up by BNP in the accounts of Kropz Elandsfontein in terms of the BNP amended facility agreement at 31 December 2021. On 10 January 2022, BNP released the restricted funding of ZAR 77 million.

Apart from forecast first revenue from Elandsfontein, the Group has no current source of operating revenue and is therefore dependent on both existing cash resources and facilities and future fund raisings to meet overheads and future exploration requirements as they fall due.

In September 2021, Kropz secured the New ZAR Equity Facility of up to ZAR 200 million from ARC, to be used exclusively for the purposes of bringing the Elandsfontein project to first revenues. On 26 October 2021, Kropz received a draw down on the New ZAR Equity Facility of ZAR 90 million and a further ZAR 37 million on 10 December 2021. Two further draw downs were made in 2022, one on 25 March 2022 for ZAR 40 million and ZAR 33 million on 26 April 2022. The New ZAR Equity Facility is fully drawn at the date of this report.

In April 2022, ARC agreed to provide a ZAR 25 million (approximately US$ 1.6 million) bridge loan facility (the "Loan") to Kropz Elandsfontein (Pty) Ltd to meet its immediate cash requirements. The Loan was unsecured, repayable on demand, and there were no fixed repayment terms. It is repayable by Kropz on no less than two business days' notice. Interest is payable on the Loan at 14% nominal, compounded monthly. The Loan was drawn down on 28 April 2022.

In May 2022, Kropz secured a Further ZAR Equity Facility of up to ZAR 177 million from ARC. The ZAR 177 Million Equity Facility can be drawn down following a written request from Kropz plc and at the discretion of ARC. The principal drawn amount may, at the discretion of ARC, at any time be converted to ordinary shares, or alternatively be repaid in cash at the end of the term of the ZAR 177 Million Equity Facility which is 27 October 2026. The ZAR 177 Million Equity Facility is to be used exclusively for the purposes of bringing the Elandsfontein project to first revenues, given a slower ramp-up in operations than originally envisaged. The delay in ramp-up was largely driven by the need to re-engineer parts of the fine flotation circuit proposed by the vendor, but has also been affected by early unpredicted ore variability and lack of operator experience. Since the announcement, the vendor has provided design changes which were implemented at the plant, additional operator training was conducted and is ongoing and a mobile crusher ordered in the interim to facilitate the crushing of the affected ore to an appropriate size fraction until further test work has been conducted for a permanent solution. Several alternatives to deal with the indurated material in the pit are being investigated, and new equipment has arrived on site to improve the mining efficiency and facilitate adequate feed to the plant.

First drawdown of the ZAR 177 Million Equity Facility of ZAR 103.5 million was made on 2 June 2022. The Loan of ZAR 25 million was set off against the first draw down and the net amount of ZAR 78.5 million received by the Company.

During 2021, due to second/third waves of the COVID-19 pandemic and cases diagnosed with new variants of the virus, some jurisdictions reimposed lockdowns and movement restrictions. Further waves are expected in 2022. The Company has developed a policy and is evolving procedures to address the health and wellbeing of its employees, consultants and contractors, and their families, in the face of the COVID outbreak. The timing and extent of the impact and recovery from COVID is unknown but it may affect planned activities.

On 24 February 2022, Russian troops started invading Ukraine. The war in Ukraine and related events take place at a time of significant global economic uncertainty and volatility, and the effects are likely to interact with and exacerbate the effects of current market conditions. Phosphate markets are currently in turmoil, largely due to the sanctions imposed on Russia. Russia is a significant supplier of fertiliser feed products and associated sanctions increased the prices of phosphate products significantly as producers that relied on Russian sources scrambled to secure alternative sources of amongst others, low cadmium phosphate rock. Kropz does not have Russian entities in its supply chain nor customers and will benefit from higher phosphate prices.

Current budgeted estimates are based on first bulk concentrate sales from Kropz Elandsfontein of approximately ZAR 50 million in July 2022, at an average of ZAR 159 million per month for the 18-month period ended 31 December 2023. Should first bulk concentrate sales not occur in July 2022, a funding shortfall would arise in Kropz Elandsfontein at the end of July 2022 of approximately ZAR 50 million.

Failure to produce adequate quantities of phosphate rock concentrate to fulfil these first bulk sales in the projected time frame, could negatively impact production ramp-up and cash generation and create an additional funding requirement. The average operating costs over the 18-month forecast period for Kropz Elandsfontein is estimated at approximately ZAR 130 million per month. This will have a further knock-on effect on Kropz Plc as its cashflows are dependent on concentrate revenues being achieved by Kropz Elandsfontein.

Additionally, at the date of these financial statements, the potential future impact of COVID is uncertain, and any delays or interruptions could cause delays that would require additional funding through the raising of debt or equity.

The Directors have reviewed the Group's overall cash position, debt repayments and outlook, for a period of eighteen months following the date of signature of this Annual Report and have considered sensitivities around pricing, volume and timing of production and stress tested various scenarios, in respect of the matters identified above and are of the opinion that it is appropriate to adopt the going concern basis of accounting in preparing these financial statements. Key contracts associated with operational readiness and commencement of production activities at Elandsfontein are finalised, except for Transnet. Negotiations with Transnet were finalised in December 2021 and final signature of the Transnet contract is expected prior to the shipment of first concentrate sales.

Management has successfully raised money in the past from its supportive shareholder base, but there is no guarantee that adequate funds will be available if needed in the future. These circumstances indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The financial report does not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.

Functional and presentational currencies

The Consolidated Financial Statements are presented in US Dollars.

The functional currency of Kropz plc is Pounds Sterling and its presentation currency is US Dollars, due to the fact that US Dollars is the recognised reporting currency for most listed mining resource companies on AIM.

The functional currency of Kropz SA and its subsidiaries (as shown below) is South African Rand, being the currency in which the majority of the companies' transactions are denominated.

The functional currencies of Cominco Resources and its subsidiaries are Euros, Pounds Sterling and Central African Francs being the currency in which the majority of the companies' transactions are denominated. Its presentation currency is US Dollars.

The functional and presentation currency of First Gear was US Dollars.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency are recorded at the rate of exchange prevailing on the date of the transaction.

At the end of each financial year, monetary items denominated in foreign currencies are retranslated at the rates prevailing as of the end of the financial year. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

In order to satisfy the requirements of IAS 21 with respect to presentation currency, the consolidated nancial statements have been translated into US Dollars using the procedures outlined below:

-- Assets and liabilities where the functional currency is other than US Dollars were translated into US Dollars at the relevant closing rates of exchange;

-- Non-US Dollar trading results were translated into US Dollars at the relevant average rates of exchange;

-- Differences arising from the retranslation of the opening net assets and the results for the period have been taken to the foreign currency translation reserve; and

-- Share capital has been translated at the historical rates prevailing at the dates of transactions; and

-- Exchange differences arising on the net investment in subsidiaries are recognised in other comprehensive income.

Changes in accounting policies

   (i)            New standards, interpretations and amendments adopted from 1 January 2021 

Two new standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2021:

   --      COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendments to IFRS 16); and 

-- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS4 and IFRS 16).

The Group has considered the above new standards and amendments and has concluded that,

they are either not relevant to the Group or they do not have a significant impact on the Group's

consolidated financial statements.

   (ii)           New standards, interpretations and amendments not yet effective 

At the date of authorisation of these consolidated Group financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective. Management are currently assessing the impact of these new standards on the Group. The Group does not believe that the amendments will have a significant impact, with the exception of IAS 16 which will be relevant once the Group generates sales in 2022, which impact is currently being analysed by management.

The following amendments are effective for the period beginning 1 January 2022:

   --      Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37); 
   --      Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); 

-- Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and

   --      References to Conceptual Framework (Amendments to IFRS 3). 

The following amendments are effective for the period beginning 1 January 2023:

   --      Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2); 
   --      Definition of Accounting Estimates (Amendments to IAS 8); and 

-- Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).

Prior year adjustments

   (i)            Restatement of prior year statement of cash flows 

The Group has restated certain prior year comparatives to correctly present amounts in the Group financial statements for the year ended 31 December 2021.

The prior year cash flow incorrectly included non-cash movements related to interest accrued, non-cash movements in provisions and the non-cash debt modification loss, together with misclassification of trade payables directly associated with capitalised cost to property, plant and equipment in calculating the actual cash flow for certain line items.

Accordingly the prior year statement of cash flows and note 29 have been restated to correct these errors. The restatement had no impact on the statement of comprehensive income, the statement of financial position or the statement of changes in equity.

Impact on adjustment on the consolidated statement of cash flows

 
 
                                       Year ended                   Year ended 
                                      31 December    Prior year    31 December 
                                             2020    adjustment           2020 
                                          US$'000       US$'000        US$'000 
                                   (As previously                      (As re- 
                                          stated)                      stated) 
 Cash flows from operating 
  activities 
 Foreign currency exchange 
  differences                                 261         1,597          1,858 
 Increase / (decrease) in 
  provisions                                  765         (765)              - 
 Increase in trade and other 
  payables                                  3,356       (3,328)             28 
 
   Cash flows used in investing 
   activities 
 Purchase of property, plant 
  and equipment                          (14,589)         3,662       (10,927) 
 
   Cash flows from financing 
   activities 
 Finance costs paid                       (2,948)           869        (2,079) 
 Shareholder loan received                  1,624       (1,213)            411 
 Other financial liabilities                1,935       (2,399)          (464) 
 Foreign currency exchange 
  (losses) / gains on cash                  (588)         1,577            989 
 
   (ii)           Restatement of prior year non-controlling interest 

Previously the preference share investment by Kropz plc in Kropz Elandsfontein was incorrectly recorded as inter-company liability measured at the total amount paid for the investment and eliminated on consolidation with no resulting impact on non-controlling interest. The group has identified that the instrument should have been measured at fair value with a residual equity element in Kropz Elandsfontein for the amounts paid in excess of their value. Accordingly the restatement reflects the benefit accruing to the non-controlling interests arising from their proportionate share of the portion of the preference share investment treated as equity. This increases the net assets of Kropz Elandsfontein and therefore gives rise to a consequential impact on non-controlling interest.

Impact on adjustment on the consolidated statement of changes in equity

 
 
                                    Year ended     Year ended     Year ended 
                                   31 December    31 December    31 December 
                                          2020           2019           2018 
                                       US$'000        US$'000        US$'000 
 
 Increase in non-controlling 
  interest                               4,886          1,370          4,749 
 Decrease in retained earnings         (4,886)        (1,370)        (4,749) 
 Effect on total equity                      -              -              - 
 
   (b)        Basis of consolidation 

The Consolidated Financial Statements comprise the financial statements of the subsidiaries listed in Note 3.

A subsidiary is defined as an entity over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Specifically, the Group controls an investee if, and only if, the Group has all of the following:

a) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

   b)    Exposure, or rights, to variable returns from its involvement with the investee; and 
   c)     The ability to use its power over the investee to affect its returns. 

Generally, there is a presumption that a majority of voting rights results in control. When the Group has less than a majority of the voting, or similar, rights of an investee, it considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

   --      The contractual arrangements with the other vote holders of the investee; 
   --      Rights arising from other contractual arrangements; and 
   --      The Group's voting rights and potential voting rights. 

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intra-group transactions, balances and unrealised gains on transactions are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.

The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.

Accounting for asset acquisition within a corporate structure

Acquisitions of mineral assets through acquisition of non-operational corporate structures that do not represent a business, and therefore do not meet the de nition of a business combination, are accounted for as the acquisition of an asset and recognised at the fair value of the consideration.

Non-controlling interests

The Group initially recognised any non-controlling interest in the acquiree at the non-controlling interest's proportionate share of the acquiree's net assets. The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests. The benefit accruing to the non-controlling interests arising from their proportionate share of the portion of the non-redeemable and non-participating preference share investment by Kropz plc into Kropz Elandsfontein is attributed to the non-controlling interests in proportion to their relative ownership interests.

Merger relief

The issue of shares by the Company is accounted for at the fair value of the consideration received. Any excess over the nominal value of the shares issued is credited to the share premium account other than in a business combination where the consideration for shares in another company includes the issue of shares, and on completion of the transaction, the Company has secured at least a 90%. equity holding in the other company. In such circumstances the credit is applied to the merger relief reserve. In the case of the Company's acquisition of Cominco Resources, where shares were acquired on a share for share basis, then merger relief has been applied to those shares issued in exchange for shares in Cominco Resources.

   (c)        Property, plant, equipment and mine development 

Property, plant, equipment and mine development includes buildings and infrastructure, machinery, plant and equipment, site preparation and development and essential spare parts that are held to minimise delays arising from plant breakdowns, that are expected to be used during more than one period.

Assets that are in the process of being constructed are measured at cost less accumulated impairment and are not depreciated. All other classes of property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment. Land is depreciated over the life of the mine.

Historical cost includes expenditure that is directly attributable to the acquisition of the items, including:

-- The estimated costs of decommissioning the assets and site rehabilitation costs to the extent that they related to the asset;

   --      Capitalised borrowing costs; 
   --      Capitalised pre-production expenditure; and 
   --      Topsoil and overburden stripping costs. 

The cost of items of property, plant and equipment are capitalised into its various components where the useful life of the components differs from the main item of property, plant and equipment to which the component can be logically assigned. Expenditure incurred to replace a signi cant component of property, plant and equipment is capitalised and any remaining carrying value of the component replaced is written off as an expense in the income statement.

Direct costs incurred on major projects during the period of development or construction are capitalised. Subsequent expenditure on property, plant and equipment is capitalised only when the expenditure enhances the value or output of the asset beyond original expectations, it is probable that future economic bene ts associated with the item will ow to the entity and the cost of the item can be measured reliably. Costs incurred on repairing and maintaining assets are recognised in the income statement in the period in which they are incurred.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in pro t or loss.

Depreciation

All items of property, plant and equipment are depreciated on either a straight-line method or unit of production method at cost less estimated residual values over their useful lives as follows:

 
 
 Item                              Depreciation            Average useful 
  Buildings and infrastructure      method                  life 
 Buildings                         Units of production     Life of mine* 
 Roads                             Straight-line           15 years 
 Electrical sub-station            Straight-line           15 years 
 
 Machinery, Plant and 
  Equipment 
 Fixed plant and equipment         Units of production     Life of mine* 
 Water treatment plant             Units of production     Life of mine* 
 Critical spare parts              Straight-line           2-15 years 
 Furniture and fittings            Straight-line           6 years 
 Motor vehicles                    Straight-line           5 years 
 Computer equipment                Straight-line           3 years 
 
 Mineral exploration               Units of production     Life of mine* 
  site preparation 
 
 Stripping activity                Units of production     Life of identified 
                                                            ore* 
 

* Depreciation of mining assets is computed principally by the units-of-production method over life-of-identified ore based on estimated quantities of economically recoverable proved and probable reserves, which can be recovered in future from known mineral deposits.

Useful lives and residual values

The asset's useful lives and residual values are reviewed and adjusted if appropriate, at each reporting date.

Stripping activity asset

The costs of stripping activity which provides a bene t in the form of improved access to ore is capitalised as a non-current asset until ore is exposed where the following criteria are met:

-- it is probable that future economic bene t in the form of improved access to the ore body will ow to the entity;

   --      the component of the ore body for which access has been improved can be identi ed; and 
   --      the cost of the stripping activity can be reliably measured. 

The stripping activity is initially measured at cost and subsequently carried at cost less depreciation and impairment losses.

   (d)        Mineral exploration and evaluation costs 

All costs incurred prior to obtaining the legal right to undertake exploration and evaluation activities on a project are written off as incurred. Following the granting of a prospecting right, general administration and overhead costs directly attributable to exploration and evaluation activities are expensed and all other costs are capitalised and recorded at cost on initial recognition.

The following expenditures are included in the initial and subsequent measurement of the exploration and evaluation assets:

   --      Acquisition of rights to explore; 
   --      Topographical, geological, geochemical or geographical studies; 
   --      Exploratory drilling; 
   --      Trenching; 
   --      Sampling; 

-- Activities in relation to the evaluation of both the technical feasibility and the commercial viability of extracting minerals;

   --      Exploration staff related costs; and 
   --      Equipment and infrastructure. 

Exploration and evaluation costs that have been capitalised are classi ed as either tangible or intangible according to the nature of the assets acquired and this classi cation is consistently applied.

If commercial reserves are developed, the related deferred exploration and evaluation costs are then reclassified as development and production assets within property, plant and equipment.

All capitalised exploration and evaluation expenditure is monitored for indications of impairment in accordance with IFRS 6.

   (e)        Leases 

All leases are accounted for by recognising a right-of-use asset and a lease liability except for:

   --      Leases of low value assets; and 
   --      Leases with a duration of 12 months or less. 

Identifying Leases

The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of time in exchange for consideration. Leases are those contracts that satisfy the following criteria:

(a) There is an identified asset;

(b) The Group obtains substantially all the economic benefits from use of the asset; and

(c) The Group has the right to direct use of the asset.

The Group considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease.

In determining whether the Group obtains substantially all the economic benefits from use of the asset, the Group considers only the economic benefits that arise from use of the asset, not those incidental to legal ownership or other potential benefits.

In determining whether the Group has the right to direct use of the asset, the Group considers whether it directs how and for what purpose the asset is used throughout the period of use. If there are no significant decisions to be made because they are pre-determined due to the nature of the asset, the Group considers whether it was involved in the design of the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Group applies other applicable IFRSs rather than IFRS 16.

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used.

The discount rate is the rate implicit in the lease, if readily determinable. If not, the Company's incremental borrowing rate is used which the Company has assessed to be 5.22%, being an average LIBOR plus 3%, being an appropriate level of risk to the risk-free rate of borrowing.

Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

   --      amounts expected to be payable under any residual value guarantee; 

-- the exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option; and

-- any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

   --      lease payments made at or before commencement of the lease; 
   --      initial direct costs incurred; and 

-- the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset (typically leasehold dilapidations).

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.

   (f)        Game animals 

Game animals are wild animals that occur on the farm properties owned by the Group. The animals are owned by Elandsfontein Land Holdings and held within the approximately 5,000 hectares of farmland owned by Elandsfontein Land Holdings. The property is appropriately fenced with game specific fencing. These animals are managed in terms of a game management plan and excess animals are either sold as live animals or harvested as and when required based on estimated stocking levels and vegetation conditions. Law in South Africa specifies that wild animals are the property of the owner of the land that they occupy.

Game animals are measured at their fair value less estimated point-of-sale costs, fair value being determined upon the age and size of the animals and relevant market prices. Market price is determined on the basis that the animal is either to be sold to be slaughtered or realised through sale to customers at fair market value.

Fair market value of game animals is determined by using average live game animal selling prices achieved at live game animal auctions during the relevant year and published from time to time on game animal auctioneering websites.

   (g)        Financial instruments 

Classi cation and measurement

The Group classi es its nancial instruments into the following categories:

   --      Financial assets measured at amortised cost; 
   --      Financial assets measured at fair value through profit and loss; 
   --      Financial liabilities measured at amortised cost; and 
   --      Derivative financial instruments are accounted for at fair value through profit and loss. 

Classi cation of nancial assets depends on the business model for managing the nancial assets and the contractual terms of the cash ows. Management determines the classi cation of nancial assets at initial recognition. Generally, the Group does not acquire nancial assets for the purpose of selling in the short term. The Group's business model is primarily that of "hold to collect" (where assets are held in order to collect contractual cash ows).

Financial assets held at amortised cost

This classi cation applies to debt instruments which are held under a hold to collect business model and which have cash ows that meet the "solely payments of principal and interest" ("SPPI") criteria.

At initial recognition, trade and other receivables that do not have a signi cant nancing component are recognised at their transaction price. Other nancial assets are initially recognised at fair value plus related transaction costs. They are subsequently measured at amortised cost using the effective interest method. Any gain or loss on de-recognition or modi cation of a nancial asset held at amortised cost is recognised in the income statement.

Financial assets and liabilities held at fair value through profit or loss

Financial assets and liabilities at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. Assets and liabilities in this category are classified as current if they are expected to be settled within twelve months, otherwise they are classified as non-current.

Call options in the Company's own equity are recorded at fair value and change in fair value recorded through income statement.

Undrawn facilities with a conversion option, for which the terms give rise to a derivative, are revalued for changes in the share price prior to draw down with a resulting loss for revaluation booked to Profit and Loss and the remaining receivable extinguished through equity based on the relative draw down percentage of undrawn facilities at each reporting period.

Impairment of nancial assets

A forward-looking expected credit loss ("ECL") review is required for debt instruments measured at amortised cost or held at fair value through other comprehensive income, nancial guarantees not measured at fair value through pro t or loss and other receivables that give rise to an unconditional right to consideration.

As permitted by IFRS 9, the Group applies the "simpli ed approach" to trade receivables, contract assets and lease receivables and the "general approach" to all other nancial assets. The general approach incorporates a review for any signi cant increase in counterparty credit risk since inception. The ECL reviews include assumptions about the risk of default and expected loss rates.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insigni cant risk of changes in value. These are classi ed as nancial assets at amortised cost.

Trade and other payables

Trade and other payables are classi ed as nancial liabilities at amortised cost.

Interest bearing borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

Modification of debt instruments

When the contractual terms of a financial liability are substantially modified, it is accounted for as an extinguishment of the original debt instrument and the recognition of a new financial liability. The new debt instrument is recorded at fair value and any difference from the carrying amount of the extinguished liability, including any non-cash consideration transferred, is recorded in profit or loss. Any costs or fees incurred are generally included in profit or loss, too.

If a modification to the terms of a financial liability is not substantial, then the amortised cost of the liability is recalculated as the present value of the estimated future contractual cash flows, discounted at the original effective interest rate. The resulting gains or losses are recognised in profit or loss. Any costs or fees incurred adjust the carrying amount of the modified financial liability and are amortised over its term. The periodic re-estimation of cash flows to reflect movements in market rates of interest will change the effective interest rate of a floating-rate financial liability.

To determine whether a modification of terms is substantial, the Company performs a quantitative assessment. If the difference in the present values of the cash flows is less than 10 percent, then the Company performs a qualitative assessment to identify substantial differences in terms that by their nature are not captured by the quantitative assessment. Performing a qualitative assessment may require a high degree of judgement based on the facts and circumstances.

   (h)        Taxation 

Current tax assets and liabilities

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Deferred tax assets and liabilities

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for nancial reporting purposes at the reporting date.

A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting pro t nor taxable pro t and differences relating to investments in subsidiaries to the extent they are controlled and probably will not reverse in the foreseeable future.

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable pro t will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting pro t nor taxable pro t.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Tax expense

Tax expense is recognised in the same component of total comprehensive income (i.e. continuing operations, discontinued operations, or other comprehensive income) or equity as the transaction or other event that resulted in the tax expense.

   (i)         Impairment of non-financial assets 

The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset.

If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.

The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment loss, of assets carried at cost less any accumulated depreciation or amortisation, is recognised immediately in pro t or loss.

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in pro t or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

   (j)         Inventories 

Inventories are measured at the lower of cost and net realisable value.

Plant spares and consumables stores are capitalised to the balance sheet and expensed to the income statement as they are utilised.

Spares and consumables are valued at the lower of cost and net realisable value. Cost is determined using the weighted average method.

Obsolete, redundant and slow-moving items of spares and consumables are identi ed on a regular basis and written down to their net realisable value.

Inventories are included in current assets, unless the inventory will not be used within 12 months after the end of the reporting period.

   (k)        Provisions and contingencies 

Environmental rehabilitation

The provision for environmental rehabilitation is recognised as and when an obligation to incur rehabilitation and mine closure costs arises from environmental disturbance caused by the development or ongoing production of a mining property. Estimated long-term environmental rehabilitation provisions are measured based on the Group's environmental policy taking into account current technological, environmental and regulatory requirements. Any subsequent changes to the carrying amount of the provision resulting from changes to the assumptions as to the timing of the rehabilitation applied in estimating the obligation are recognised in property, plant and equipment.

The provisions are based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the reporting date, using the risk-free rate and the risk adjusted cash ows that re ect current market assessments and the risks speci c to the provisions. Increases due to the additional environmental disturbances are capitalised and amortised over the remaining life of the mine.

Decommissioning provision

The estimated present value of costs relating to the future decommissioning of plant or other site preparation work, taking into account current environmental and regulatory requirements, is capitalised as part of property, plant and equipment, to the extent that it relates to the construction of an asset, and the related provisions are raised in the statement of nancial position, as soon as the obligation to incur such costs arises.

These estimates are reviewed at least annually and changes in the measurement of the provision that result from the subsequent changes in the timing of costs and the risk-free rate, are added to, or deducted from, the cost of the related asset in the current period. Other changes are charged to profit or loss. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the income statement. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy on impairment of non- nancial assets above.

   (l)         Share capital and equity 

Ordinary shares are classi ed as equity and are recorded at the proceeds received net of issue costs.

   (m)      Convertible debt 

The proceeds received on issue of the Group's convertible debt which fail the fixed-for-fixed criterion under IFRS are allocated into their liability and derivative liability components. The derivative liability is measured at fair value with subsequent changes recognised in profit or loss The debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the debt.

   (n)        Borrowing costs 

Interest on borrowings directly related to the nancing of qualifying capital projects under development is added to the capitalised cost of those projects during the development phase, until such time as the assets are substantially ready for their intended use or sale which, in the case of mining properties, is when they are capable of commercial production. Where funds have been borrowed speci cally to nance the project, the amount capitalised represents the actual borrowing costs incurred. Where the funds used to nance a project forming part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period.

Qualifying assets are assets that necessarily take a substantial period of time (more than 12 months) to get ready for their intended use or sale. Borrowing costs are added to the cost of these assets, until the assets are substantially ready for their intended use or sale.

Capitalisation is suspended during extended periods in which active development is interrupted.

Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

All other borrowing costs are recognised in the income statement in the period in which they are incurred.

   (o)        Employee benefits 

The cost of short-term employee bene ts, such as leave pay and sick leave, bonuses, and non-monetary bene ts such as medical care, are recognised in the period in which the service is rendered and are not discounted.

   (p)        Intangible assets 

All intangible assets are stated at cost less accumulated amortisation and any accumulated impairment losses.

   (q)        Finance income 

Interest income is recognised as other income on an accruals basis based on the effective yield on the investment.

   (r)        Share-based payment arrangements 

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. Equity-settled share based payments to non-employees are measured at the fair value of services received, or if this cannot be measured, at the fair value of the equity instruments granted at the date that the Group obtains the goods or counterparty renders the service.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity.

Where there are no vesting conditions, the expense and equity reserve arising from share-based payment transactions is recognised in full immediately on grant.

At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to other reserves.

Details regarding the determination of the fair value of equity-settled share-based transactions are set out in the Directors' Report and Note 13 to the Consolidated Financial Statements.

   (s)        Critical accounting estimates and judgements 

The preparation of nancial statements in conformity with IFRS requires management, from time to time, to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. These estimates and associated assumptions are based on experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

The critical judgements made by management in applying accounting policies, apart from those involving estimations, that have the most signi cant effect on the amounts recognised in the nancial statements, are outlined as follows:

   (i)             Control over the activities of First Gear 

The acquisition of First Gear by the Company was accounted for on the basis of the Company having control with effect from acquisition and holding 50% plus one share. Management considered that it controlled First Gear as this holding gave the Company control over its strategic, operational and financing decisions.

   (ii)           Exploration and evaluation assets (Note 5) 

The application of the Group's accounting policy for exploration and evaluation assets requires judgement in determining whether it is likely that costs incurred will be recovered through successful development or sale of the asset under review when assessing impairment. Estimates and assumptions made may change if new information becomes available. If, after expenditures are capitalised, information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalised is written off in the net profit or loss in the period when the new information becomes available. In situations where indicators of impairment are present for the Group's exploration and evaluation, estimates of recoverable amount must be determined as the higher of the estimated value in use or the estimated fair value less costs to sell.

   (iii)          Functional currency 

The Group transacts in multiple currencies. The assessment of the functional currency of each entity within the consolidated Group involves the use of judgement in determining the primary economic environment each entity operates in. The Group first considers the currency that mainly influences sales prices for goods and services, and the currency that mainly influences labour, material and other costs of providing goods or services. In determining functional currency, the Group also considers the currency from which funds from financing activities are generated, and the currency in which receipts from operating activities are usually retained. See Note 32 for sensitivity analysis of foreign exchange risk.

   (iv)          Decommissioning and rehabilitation provisions (Note 18) 

Quantifying the future costs of these obligations is complex and requires various estimates and judgements to be made, as well as interpretations of and decisions regarding regulatory requirements, particularly with respect to the degree of rehabilitation required, with reference to the sensitivity of the environmental area surrounding the sites. Consequently, the guidelines issued for quantifying the future rehabilitation cost of a site, as issued by the Department of Mineral Resources, have been used to estimate future rehabilitation costs.

   (v)           Other financial assets 

The Group has given guarantees to a number of third parties as described in Note 7 and lodged funds as security.

The amounts are recoverable subject to satisfactory performance of certain conditions which requires judgement as to the likelihood of the return of such guarantees. At the balance sheet date the Directors make judgements on the amounts expected to be returned and consider that all amounts are recoverable.

   (vi)          Taxation 

Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.

The Group recognises the net future tax bene t related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Group to make signi cant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash ows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash ows and taxable income differ signi cantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the end of the reporting period could be impacted.

Management's judgement is that due to the mine not being at steady state production it is premature to recognise a deferred tax asset for the accumulated tax losses.

   (vii)         Fair value of financial instruments 

The judgements and estimates made by the Group in determining the fair values of the financial instruments are described in Note 10, 15 and 31 to the Consolidated Financial Statements.

Impairment indicator assessment

The Group reviews and tests the carrying value of assets when events or changes in circumstances ("impairment indicators") suggest that the carrying amount may not be recoverable. At 31 December 2021 an impairment indicator assessment was performed and no impairment indicators were considered to exist. As part of the impairment indicator assessment, management evaluate the life of mine plan discounted cash flow model. These calculations require the use of estimates and assumptions. The key estimates made include discount rates, being the Group's weighted average cost of capital, future prices of phosphate rock, mine production levels and foreign currency exchange rates.

   (t)        Key sources of estimation uncertainty 

Property, plant and equipment

The depreciable amount of property, plant and equipment is allocated on a systematic basis over its useful life. In determining the depreciable amount management makes certain assumptions with regard to the residual value of assets based on the expected estimated amount that the Group would currently obtain from disposal of the asset, after deducting the estimated cost of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. If an asset is expected to be abandoned the residual value is estimated at zero.

In determining the useful lives of property, plant and equipment that is depreciated, management considers the expected usage of assets, expected physical wear and tear, legal or similar limits of assets such as mineral rights as well as obsolescence.

This estimate is further impacted by management's best estimation of proved and probable phosphate ore reserves and the expected future life of each of the mines within the Group. The forecast production could be different from the actual phosphate mined. This would generally result from signi cant changes in the factors or assumptions used in estimating phosphate reserves. These factors include:

   --      changes in proved and probable ore reserves; 
   --      differences between achieved ore prices and assumptions; 
   --      adverse movements in foreign exchange; 
   --      unforeseen operational issues at mine sites; and 

-- changes in capital, operating, mining, processing, reclamation and logistics costs, discount rates and foreign exchange rates.

Any change in management's estimate of the useful lives and residual values of assets would impact the depreciation charge. Any change in management's estimate of the total expected future life of each of the mines would impact the depreciation charge as well as the estimated rehabilitation and decommissioning provisions.

Life of mine

Life of mine is de ned as the remaining years of production, based on proposed production rates and ore reserves and will be assessed as soon as additional exploration drilling has been performed and further reserves proven based on additional test results.

Fair value of derivative instruments

Information about the specific techniques, assumptions and inputs is disclosed in Note 10, 15 and 31 to the Consolidated Financial Statements. The key estimates associated with the fair value of the derivative liability include volatility and the assumptions regarding conversion timing.

Subsidiaries of the Group

The subsidiaries of the Group, all of which are private companies limited by shares, as at 31 December 2021, are as follows:

 
 Company                Country              Registered Office    Principal           Percentage 
                         of Registration                           Activity            of ordinary 
                         or Incorporation                                              shares held 
                                                                                       by Company 
                                             Unit 213, The 
                                              Hills 
                                              Buchanan Square 
                                              160 Sir Lowry 
                                              Road 
                                              Woodstock 
 Kropz SA (Pty)                               Cape Town 8001      Intermediate 
  Limited               South Africa          South Africa         holding company         100% 
 Elandsfontein          South Africa                              Property               70% * 
  Land Holdings                                                    owner 
  (Pty) Ltd 
 Kropz Elandsfontein    South Africa                              Phosphate              74% ** 
  (Pty) Ltd                                                        exploration 
                                                                   and mining 
 West Coast 
  Fertilisers                                                      Phosphoric 
  (Pty) Ltd               South Africa                              acid production       70% 
 Xsando (Pty) 
  Ltd                   South Africa                               Sand sales             70% 
                                             Woodbourne Hall, 
                                              PO Box 3162, 
                                              Road Town, 
 Cominco Resources                            Tortola, British    Intermediate 
  Limited                 BVI                 Virgin Islands       holding company         100% 
 
 Cominco S.A.           RoC                                        Development          100% *** 
 Cominco Resources      England and                                Service company 
  (UK) Ltd               Wales                                                           100% *** 
 
   * 46.67% held indirectly 
   ** 38.18% held indirectly 
   *** held indirectly 
 

The accounting reference date of each of the subsidiaries is coterminous with that of the Company.

   (4)        Tangible assets - Property, plant, equipment and mine development 
 
                            31 Dec          31 Dec     31 Dec    31 Dec          31 Dec     31 Dec 
                              2021            2021       2021      2020            2020       2020 
                                       Accumulated   Carrying               Accumulated   Carrying 
                              Cost    Depreciation      value      Cost    Depreciation      value 
                           US$'000         US$'000    US$'000   US$'000         US$'000    US$'000 
 Buildings and 
  infrastructure 
 Land                        1,515               -      1,515     2,067               -      2,067 
 Buildings                  10,514            (56)     10,458    11,003            (12)     10,991 
 Capitalised road 
  costs                      8,121         (2,978)      5,143     8,824         (2,647)      6,177 
 Capitalised electrical 
  sub-station costs          3,523         (1,213)      2,310     3,828         (1,063)      2,765 
 
 Machinery, plant 
  and equipment 
 Critical spare 
  parts                      1,713               -      1,713     1,285               -      1,285 
 Plant and machinery        86,243            (63)     86,180    66,683            (74)     66,609 
 Water treatment 
  plant                      2,435               -      2,435     1,129               -      1,129 
 Furniture and fittings         49            (40)          9        44            (41)          3 
 Geological equipment           65            (45)         20        47            (47)          - 
 Office equipment               32            (21)         11        35            (17)         18 
 Other fixed assets              1             (1)          -         1             (1)          - 
 Motor vehicles                100           (100)          -       128           (128)          - 
 Computer equipment             65            (41)         24        47            (42)          5 
 
 Mine development           18,938               -     18,938    20,046               -     20,046 
 
 Stripping activity 
  costs                      6,126               -      6,126     3,193               -      3,193 
 
 Game animals                  217               -        217       185               -        185 
 
 Total                     139,657         (4,558)    135,099   118,545         (4,072)    114,473 
                          --------  --------------  ---------  --------  --------------  --------- 
 

Reconciliation of property, plant, equipment and mine development - Year ended 31 December 2021

 
                                                                                  Foreign 
                             Opening               Fair value   Depreciation     exchange    Closing 
                             Balance   Additions         gain         charge    gain/loss    balance 
                             US$'000     US$'000      US$'000        US$'000      US$'000    US$'000 
 Buildings and 
  infrastructure 
 Land                          2,067           -            -              -        (552)      1,515 
 Buildings                    10,991           -            -           (49)        (484)     10,458 
 Capitalised 
  road costs                   6,177           -            -          (583)        (451)      5,143 
 Capitalised 
  electrical sub-station 
  costs                        2,765           -            -          (253)        (202)      2,310 
 
 Machinery, 
  plant and equipment 
 Critical spare 
  parts                        1,285         571            -              -        (143)      1,713 
 Plant and machinery          66,609      29,578            -            (4)     (10,003)     86,180 
 Water treatment 
  plant                        1,129       1,503            -              -        (197)      2,435 
 Furniture and 
  fittings                         3          10            -            (2)          (2)          9 
 Geological equipment              -          24            -            (2)          (2)         20 
 Office equipment                 18           -            -            (6)          (1)         11 
 Other fixed 
  assets                           -           -            -              -            -          - 
 Motor vehicles                    -           -            -              -            -          - 
 Computer equipment                5          24            -            (5)            -         24 
 
 Mine development             20,046         528            -              -      (1,636)     18,938 
 
 Stripping activity 
  costs                        3,193       3,433            -              -        (500)      6,126 
 
 Game animals                    185           -           51              -         (19)        217 
 
 Total                       114,473      35,671           51          (904)     (14,192)    135,099 
                           ---------  ----------  -----------  -------------  -----------  --------- 
 

Reconciliation of property, plant, equipment and mine development - Year ended 31 December 2020

 
                                                                                    Foreign 
                             Opening                 Fair value   Depreciation     exchange    Closing 
                             Balance   Additions           loss         charge    gain/loss    balance 
                             US$'000     US$'000        US$'000        US$'000      US$'000    US$'000 
 Buildings and 
  infrastructure 
 Land                          2,159           -              -              -         (92)      2,067 
 Buildings                    11,480           -              -            (2)        (487)     10,991 
 Capitalised 
  road costs                   7,064           -              -          (529)        (358)      6,177 
 Capitalised 
  electrical sub-station 
  costs                        3,154           -              -          (230)        (159)      2,765 
 
 Machinery, 
  plant and equipment 
 Critical spare 
  parts                        1,213         123              -              -         (51)      1,285 
 Plant and machinery          56,284      12,712              -            (5)      (2,382)     66,609 
 Water treatment 
  plant                            -       1,129              -              -            -      1,129 
 Furniture and 
  fittings                         3           1              -            (1)            -          3 
 
 Geological equipment              -           -              -              -            -          - 
 Office equipment                 24           1              -            (5)          (2)         18 
 Other fixed 
  assets                           -           -              -              -            -          - 
 Motor vehicles                    6           -              -            (5)          (1)          - 
 Computer equipment                5           4              -            (3)          (1)          5 
 
 Mine development             20,354         553              -              -        (861)     20,046 
 
 Stripping activity 
  costs                        3,265          66              -              -        (138)      3,193 
 
 Game animals                    213           -           (18)              -         (10)        185 
 
 Total                       105,224      14,589           (18)          (780)      (4,542)    114,473 
                           ---------  ----------  -------------  -------------  -----------  --------- 
 

Game animals

Game animal assets are carried at fair value. The different levels are de ned as follows:

-- Level 1: Quoted unadjusted prices in active markets for identical assets or liabilities that the Group can access as measurement date.

-- Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly.

   --      Level 3: Unobservable inputs for the asset or liability. 

Levels of fair value measurements - Level 3.

Impairment

The Elandsfontein mine is currently under development. The Directors have therefore carried out a review of impairment indicators. As part of the impairment indicator assessment, the net present value of the life of mine plan is considered. The life of the mine is most sensitive to the following key estimates and assumptions:

   --      Discount rate; 
   --      Phosphate rock prices; 
   --      Phosphate recoveries; 
   --      Foreign exchange rates; and 
   --      Operating costs. 

Economical recoverable resources represent management's expectations at the time of completing the assessment of the carrying value of property, plant, equipment and mine development and are based on the resource statements and exploration and evaluation work undertaken by appropriately qualified persons, forecast phosphate prices which are obtained from independent external commissioned experts and a forecast South African rand exchange rate with is aligned with forward market rates. Based on the assumptions the recoverable amount of assets significantly exceeds its carrying amount and no impairment indicators were identified.

Sensitivity Analysis

The following table summarises the potential impact of changes in the key estimates and assumptions (assessed independently of each other):

 
                                                        Headroom (%) 
                                      Breakeven point 
 Impact if discount rate                       at 19%              0 
                                         Increased by 
                                                   4%           59.1 
 
                                         increased by 
 Impact if selling prices                         10%          167.9 
                                       reduced by 10%           57.9 
 
                                         increased by 
 Impact if production tonnes                      10%          164.1 
                                       reduced by 10%           56.1 
 
                                         increased by 
 Impact if foreign exchange rates                 10%          143.6 
                                       reduced by 10%           75.4 
 
                                         increased by 
 Impact if operating costs:                       10%           81.0 
                                       reduced by 10%          144.8 
 
   (5)        Intangible assets - Exploration and evaluation costs 
 
                   31 Dec     31 Dec     31 Dec     31 Dec     31 Dec     31 Dec 
                     2021       2021       2021       2020       2020       2020 
                              Amort-   Carrying                Amort-   Carrying 
                     Cost    isation      value       Cost    isation      value 
                  US$'000    US$'000    US$'000    US$'000    US$'000    US$'000 
 
   Capitalised 
   costs           44,631          -     44,631     44,348          -     44,348 
                 --------  ---------  ---------  ---------  ---------  --------- 
 

The costs of mineral resources acquired and associated exploration and evaluation costs are not subject to amortisation until they are included in the life-of-the-mine plan and production has commenced.

Where assets are dedicated to a mine, the useful lives are subject to the lesser of the asset category's useful life and the life of the mine, unless those assets are readily transferable to another productive mine. In accordance with the requirements of IFRS 6, the Directors assessed whether there were any indicators of impairment. No indicators were identified.

Reconciliation of exploration assets

 
                                                                              Foreign 
                                       Opening                               exchange    Closing 
                                       Balance   Additions   Disposals    gain/(loss)    balance 
                                       US$'000     US$'000     US$'000        US$'000    US$'000 
       Year ended 31 December 
        2021 
       Capitalised exploration 
        costs                           44,348       3,931        (62)        (3,586)     44,631 
                                 -------------  ----------  ----------  -------------  --------- 
 
 
                                                                              Foreign 
                                       Opening                               exchange    Closing 
                                       Balance   Additions   Disposals    gain/(loss)    balance 
                                       US$'000     US$'000     US$'000        US$'000    US$'000 
       Year ended 31 December 
        2020 
       Capitalised exploration 
        costs                           40,192         257           -          3,899     44,348 
                                 -------------  ----------  ----------  -------------  --------- 
 
   (6)        Right-of-use assets 
 
                                        Year ended    Year ended 
                                       31 December   31 December 
                                              2021          2020 
                                           US$'000       US$'000 
       Cost 
       Brought forward                         117            55 
       Additions                                 -            61 
       Foreign exchange differences            (7)             1 
                                      ------------  ------------ 
       As at 31 December                       110           117 
                                      ------------  ------------ 
 
       Amortisation 
       Brought forward                          72            18 
       Charge for the year                      39            51 
       Foreign exchange differences            (8)             3 
                                      ------------  ------------ 
       As at 31 December                       103            72 
                                      ------------  ------------ 
 
       Net book value                            7            45 
                                      ------------  ------------ 
 
   (7)        Other financial assets 
 
                                          31 December   31 December 
                                                 2021          2020 
                                              US$'000       US$'000 
       DMR guarantee (1)                          630           687 
       Eskom guarantee (2)                        330           359 
       Eskom guarantee (3)                        334           363 
       Heritage Western Cape Trust (4)             63            68 
                                         ------------  ------------ 
       Total                                    1,357         1,477 
                                         ------------  ------------ 
 
   (1)   DMR guarantee 

Guarantee in favour of the Department of Mineral Resources for ZAR 10,000,000 in respect of a " nancial guarantee for the rehabilitation of land disturbed by prospecting/mining".

   (2)   Eskom guarantee 

Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 5,235,712 in respect of "supply agreement (early termination) guarantee".

   (3)   Eskom guarantee 

Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 5,305,333 in respect of an "electricity accounts guarantee".

   (4)   Heritage Western Cape Trust 

ZAR 1,000,000 settlement agreement trust fund held in trust by attorneys on behalf of the Heritage Western Cape Trust until Kropz Elandsfontein lodged a heritage impact assessment. The heritage impact assessment was lodged in 2018 and the Group is waiting for the release and return of the guarantee.

Fair value of other nancial assets

The carrying value of other nancial assets approximate their fair value.

   (8)        Inventories 
 
                      31 December   31 December 
                             2021          2020 
                          US$'000       US$'000 
       Consumables            600           798 
       Spare parts            425            23 
                     ------------  ------------ 
       Total                1,025           821 
                     ------------  ------------ 
 
   (9)        Trade and other receivables 
 
                                         31 December   31 December 
                                                2021          2020 
                                             US$'000       US$'000 
       Prepayments and accrued income            238           124 
       Deposits                                   46            47 
       VAT                                     1,112         1,326 
       Other receivables                         115           114 
                                        ------------  ------------ 
       Total                                   1,511         1,611 
                                        ------------  ------------ 
 

Credit quality of trade and other receivables

The credit quality of trade and other receivables are considered recoverable due to management's assessment of debtors' ability to repay the outstanding amount.

Credit risk

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above.

Trade and other receivables past due but not impaired

None of the trade and other receivables were past due at the end of the reporting dates.

Trade and other receivables impaired

None of the trade and other receivables were considered impaired. Trade and other receivables have not been discounted as the impact of discounting is considered to be insigni cant.

Fair value of trade and other receivables

The carrying value of trade and other receivables approximate their fair value.

Expected credit losses

There are no current receivable balances lifetime expected credit losses in the current year.

   (10)     Derivative asset 
 
                                     31 December   31 December 
                                            2021          2020 
                                         US$'000       US$'000 
       Convertible loan facility               -         8,586 
                                   -------------  ------------ 
 

The Group secured a convertible loan facility from ARC, Kropz's major shareholder, in June 2020 ("Original Equity Facility") for the development of Elandsfontein. Under the terms of the convertible equity facility, ARC committed to provide up to a ZAR equivalent of US$ 40 million (up to a maximum of ZAR 680 million) to the Company which will be converted into new ordinary shares. The cap of ZAR 680 million was put in place as ARC secured this facility from Rand Merchant Bank in South Africa in order to fulfil its commitments to the Company. The Company, via Kropz Elandsfontein, receives the ZAR equivalent of the draw down based on the actual exchange rate prevailing at the time of the drawdown, subject to a maximum exchange rate of ZAR 17 to the US$.

The convertible loan facility was used exclusively for Kropz Elandsfontein's purposes. Immediately upon draw down, new ordinary shares in the Company are issued to ARC at a fixed share price (6.75 pence per share) and fixed GBP / US$ exchange rate (0.86). Drawdowns are at the sole discretion of the Company and no interest is payable on the drawdown unless equity shares are not issued to ARC in terms of a drawdown. At 31 December 2020, US$ 21 million of the facility remained undrawn which equated to 267,555,556 new ordinary shares to be issued in the Company pursuant to the terms of the agreement. A Monte-Carlo simulation was applied to simulate the expected share price at a 60% volatility and the expected share price was deemed to be 4.37 pence per share. As at 31 December 2021, the Original Equity Facility was fully drawn.

   (11)     Restricted cash 
 
                              31 December   31 December 
                                     2021          2020 
                                  US$'000       US$'000 
       Short-term deposits          4,858         7,355 
                             ------------  ------------ 
 

In May 2020, Kropz Elandsfontein and BNP agreed to amend and restate the term loan facility agreement entered into on or about 13 September 2016 (as amended from time to time). The BNP facility amendment agreement extends inter alia the final capital repayment date to Q3 2024, with eight equal capital repayments to commence in Q4 2022 and an interest rate of 6.5% plus US LIBOR, up to project completion and 4.5% plus US LIBOR thereafter. In addition, the amended BNP facility agreement locked up ZAR 200 million of cash held in the bank account of Kropz Elandsfontein at that time, to be released by BNP to Kropz Elandsfontein pro rata drawdowns from ARC in terms of the Original Equity Facility. The locked up funds would be released by BNP in the ratio of 1:3, representing a drawdown of ZAR1 for every ZAR3 drawn down from ARC in terms of the Original Equity Facility. At 31 December 2021, ZAR 77 million remained locked up and invested with BNP as short-term deposits. BNP released the remaining ZAR 77 million restricted cash in the bank account of Kropz Elandsfontein on 10 January 2022.

Fair value of short-term deposits

Due to the short-term nature of restricted cash the carrying amount is deemed to approximate the fair value.

   (12)     Cash and cash equivalents 
 
                        31 December   31 December 
                               2021          2020 
                            US$'000       US$'000 
       Bank balances          2,460        11,571 
       Cash on hand               1             1 
                       ------------  ------------ 
       Total                  2,461        11,572 
                       ------------  ------------ 
 

Credit quality of cash at bank and short-term deposits, excluding cash on hand

The Group only deposits cash and cash equivalents with reputable banks with good credit ratings.

Fair value of cash at bank

Due to the short-term nature of cash and cash equivalents the carrying amount is deemed to approximate the fair value.

   (13)     Share capital 

Each shareholder has the right to one vote per ordinary share in general meeting. Any distributable profit remaining after payment of distributions is available for distribution to the shareholders of the Company in equal amounts per share. Shares were issued as set out below:

 
                                            Share      Share     Merger 
                             Number of    capital    premium    reserve     Total 
                                shares    US$'000    US$'000    US$'000   US$'000 
 At 1 January 2020         283,406,307        363    147,339   (20,523)   127,179 
 
 Placing of shares           4,505,060          5        349          -       354 
 Convertible loan - 
  issue of shares          244,866,271        306     18,694          -    19,000 
 Open offer - issue 
  of shares                 25,849,920         32      2,130          -     2,162 
 Cost of issuing shares              -          -      (320)          -     (320) 
 Lapsed warrants                     -          -         30          -        30 
 Issue of warrants                   -          -       (10)          -      (10) 
                          ------------  ---------  ---------  ---------  -------- 
 As at 31 December 
  2020                     558,627,558        706    168,212   (20,523)   148,395 
                          ------------  ---------  ---------  ---------  -------- 
 
 Convertible loan - 
  issue of shares          350,944,417        488     25,312          -    25,800 
                          ------------  ---------  ---------  ---------  -------- 
 At 31 December 2021       909,571,975      1,194    193,524   (20,523)   174,195 
                          ------------  ---------  ---------  ---------  -------- 
 

Issue of shares in the year ended 31 December 2021:

The changes to the issued share capital of the Company which occurred between 1 January 2021 and 31 December 2021 were as follows:

Convertible loan facility

Kropz secured a convertible loan facility from ARC, Kropz's major shareholder, in June 2020 for the development of Elandsfontein. Under the terms of the convertible equity facility, ARC committed to provide up to a ZAR equivalent of US$ 40 million (ZAR 680 million) to the Company which will be converted into new ordinary shares ("Original Equity Facility"). The cap of ZAR 680 million was put in place as ARC secured this facility from Rand Merchant Bank in South Africa in order to fulfil its commitments to the Company. The Company, via Kropz Elandsfontein, receives the ZAR equivalent of the draw down based on the actual exchange rate prevailing at the time of the draw down, subject to a maximum exchange rate of ZAR 17 to the US$. The convertible loan facility will be used exclusively for Kropz Elandsfontein's purposes. Immediately upon draw down, new ordinary shares in the Company are issued to ARC at a fixed share price (6.75 pence per share) and fixed GBP / US$ exchange rate (0.86) and pursuant to the amended preference share subscription agreement ("PSSA"), Kropz plc shall subscribe for further non-redeemable preference shares in Kropz Elandsfontein. Drawdowns are at the sole discretion of the Company and no interest is payable on the drawdown unless equity shares are not issued to ARC in terms of a draw down. The Original Equity Facility was fully drawn during 2021.

Kropz secured a further convertible loan facility of up to US$ 5 million (not exceeding a maximum of ZAR 85 million) from ARC ("Further Equity Facility") in February 2021, to be used exclusively for the Hinda Updated FS and general corporate purposes for Kropz. Quarterly drawdowns under the Further Equity Facility are at the sole discretion of Kropz. Immediately upon draw down, new ordinary shares in the Company are issued to ARC at a fixed share price (4.202 pence per share) and fixed GBP / US$ exchange rate (0.73).

The first drawdown on the Further Equity Facility was for US$ 2 million which was paid by way of issue of 34,745,359 new ordinary shares at the issue price of 4.202 pence per ordinary share to the ARC Fund on 10 March 2021.

The fourth drawdown on the Original Equity Facility was for US$ 7 million which was paid by way of issue of 89,185,185 new ordinary shares at the issue price of 6.75 pence per ordinary share to the ARC Fund on 10 March 2021.

The fifth drawdown on the Original Equity Facility was for US$ 11 million which was paid by way of issue of 140,148,148 new ordinary shares at the issue price of 6.75 pence per ordinary share to the ARC Fund on 23 June 2021.

The second drawdown on the Further Equity Facility was for US$ 2 million which was paid by way of issue of 34,745,359 new ordinary shares at the issue price of 4.202 pence per ordinary share to the ARC Fund on 23 June 2021.

The sixth and final drawdown on the Original Equity Facility was for US$ 3 million which was paid by way of issue of 38,222,222 new ordinary shares at the issue price of 6.75 pence per ordinary share to the ARC Fund on 10 September 2021.

The third drawdown on the Further Equity Facility was for US$ 400,000 which was paid by way of issue of 6,949,072 new ordinary shares at the issue price of 4.202 pence per ordinary share to the ARC Fund on 10 September 2021.

The fourth drawdown on the Further Equity Facility was for US$ 400,000 which was paid by way of issue of 6,949,072 new ordinary shares at the issue price of 4.202 pence per ordinary share to the ARC Fund on 10 December 2021. At year end, US$ 200,000 of the Further Equity Facility remained undrawn.

Share based payment arrangements

Employee Share Option Plan and Long-Term Incentive Plan

As more fully described in the Directors' Report, the Company operates an ownership-based scheme for executives and senior employees of the Group. In accordance with the provisions of the plans, executives and senior employees may be granted options to purchase parcels of ordinary shares at an exercise price determined by the Board based on a recommendation by the Remuneration Committee.

The following plans have been adopted by the Company:

-- an executive share option plan used to grant awards on Admission of the Company to AIM and following Admission (the "ESOP Awards") - a performance and service-related plan pursuant to which nominal-cost options can be granted; and

-- an executive long-term incentive plan (the "LTIP Awards") - a performance and service-related plan pursuant to which conditional share awards, nominal-cost options and market value options can be granted, (together, the "Incentive Plans").

An option-holder has no voting or dividend rights in the Company before the exercise of a share option.

ESOP Awards

ESOP Awards were issued at the time of the Admission of the Company's shares to the AIM market of the London Stock Exchange in November 2018.

The ESOP Awards will vest as to performance as follows:

-- 20% of the award shall vest for growth in share price of 100% from the Admission placing price (40 pence);

-- a further 20% of the award shall vest for growth in share price of 250% from the Admission placing price;

-- a further 30% of the award shall vest for growth in share price of 350% from the Admission placing price; and

-- a further 30% of the award shall vest for growth in share price of 500% from the Admission placing price.

The value of the options was calculated by way of a Monte Carlo Simulation using the following assumptions.

 
 ESOP Award assumptions at issue date 
 Share price                              GBP 0.40 
 Exercise price                           GBP 0.40 
 Expected volatility                           40% 
 Expected dividends                             0% 
 Risk-free interest rate                      2.1% 
 Option life                              10 years 
 

The expected volatility is based on the historic volatility. Options are stated in UK Pound Sterling as the Company is listed on the AIM market of the London Stock Exchange.

Ian Harebottle resigned on 29 February 2020 and the 3,362,609 ESOP options awarded to him lapsed and expired on that date.

LTIP Awards

During 2020, the Company granted conditional share awards over ordinary shares in the Company to key members of the executive management team under its LTIP Awards plan. These LTIP Awards have performance conditions aligned to the implementing the Company's strategic plans, including appropriate weightings on the successful commissioning of the Elandsfontein mine and completion of an updated feasibility study on the Hinda project.

As announced on 4 August 2020, the Company granted LTIP Awards to key members of the executive management team, including certain Persons Discharging Managerial Responsibilities ("PDMRs"), including Mark Summers and Chief Operating Officer ("COO") Michelle Lawrence, under its LTIP Awards.

The LTIP Awards are nil priced options over a total of 6,700,000 ordinary shares. Of this total, 2,350,000 LTIP Awards were granted to each of Mark Summers and Michelle Lawrence and 1,000,000 to Patrick Stevenaert. The LTIP Awards vested on 31 December 2021 and were exercised in January 2022, pursuant to the terms of the LTIP Plan Rules (as set out in the Company's Admission Document), including financial and non-financial performance conditions and, in respect of Mark Summers and Michelle Lawrence, continued employment by the Company.

The value of the options was calculated by using the Black-Scholes model, using the following assumptions.

 
 LTIP Award assumptions at issue date 
 Share price                              GBP 0.085 
 Exercise price                           GBP 0.001 
 Expected volatility                            26% 
 Expected dividends                              0% 
 Risk-free interest rate                       1.1% 
 Option life                                3 years 
 

As announced on 2 July 2021, the Company granted LTIP Awards to key members of the executive management team, including certain Persons Discharging Managerial Responsibilities ("PDMRs"), including Mark Summers and Chief Operating Officer ("COO") Michelle Lawrence, under its LTIP Awards.

The LTIP Awards are nil priced options over a total of 7,800,000 ordinary shares. Of this total, 2,400,000 LTIP Awards were granted to each of Mark Summers and Michelle Lawrence and 900,000 to Patrick Stevenaert. The LTIP Awards will vest on various dates from 30 June 2022 to 31 December 2024, subject to the terms of the LTIP Plan Rules (as set out in the Company's Admission Document), including financial and non-financial performance conditions and, in respect of Mark Summers and Michelle Lawrence, continued employment by the Company.

The value of the options was calculated by using the Black-Scholes model, using the following assumptions.

 
 LTIP Award assumptions at issue date 
 Share price                              GBP 0.055 
 Exercise price                           GBP 0.001 
 Expected volatility                            30% 
 Expected dividends                              0% 
 Risk-free interest rate                       1.3% 
 Option life                                7 years 
 

The charge to profit and loss for share options was US$ 812,000 (31 December 2020: US$ 238,000).

The LTIP Awards are nil priced options over a total of 14,500,000 ordinary shares representing 1.6% of the Company's issued share capital at 31 December 2021. Following the grant of the LTIP Awards, together with the existing 4,827,746 ESOP Awards, the ESOP Awards and LTIP Awards represent 2.1% of the Company's issued share capital at 31 December 2021.

Equity warrants

As part of the equity facility and fundraising, on 4 August 2020 the Company granted 121,837 warrants over the ordinary shares of 0.1 pence each in the Company, exercisable at 6.75 pence per Ordinary Share for a period of two years from issue.

The warrants were issued to brokers in relation to their involvement in issuance of equity instruments of the Company. The services provided relate to share issuance and share issuance expenses are included within equity. The warrants were valued at the year end using a Black-Scholes valuation model. The charge to share premium account in respect of warrants issued during the year was US$ nil (2020: US$ 10,000).

121,837 equity warrants remained in place at 31 December 2021 (2020: 121,837 equity warrants).

   (14)     Reserves 

Nature and purpose of reserves

Foreign exchange translation reserve

The foreign exchange translation reserve comprises all foreign currency differences arising from the translation of the assets, liabilities and equity of the entities included in these consolidated nancial statements from their functional currencies to the presentational currency. A decrease in the reserve of US$ 10,141,000 (2020: addition US$ 2,281,000) was recorded due to changes in the foreign currencies used to translate assets, liabilities and equity at consolidation.

Share premium

The share premium account represents the amount received on the issue of ordinary shares by the Company, other than those recognised in the merger reserve described below, in excess of their nominal value and is non-distributable.

Merger reserve

The merger reserve represents the amount received on the issue of ordinary shares by the Company in excess of their nominal value on acquisition of subsidiaries where merger relief under section 612 of the Companies Act 2006 applies. The merger reserve consists of the merger relief on the issue of shares to acquire Kropz SA on 27 November 2018 and Cominco Resources on 30 November 2018. The merger reserve also includes differences between the book value of assets and liabilities acquired and the consideration for the business acquired under common control.

Share-based payment reserve

The share-based payment reserve arises from the requirement to value share options and warrants in existence at fair value (see Note 13).

   (15)     Shareholder loans and derivative 
 
                                 31 December   31 December 
                                        2021          2020 
                                     US$'000       US$'000 
       ARC                            16,196        15,703 
       Convertible debt - ARC          6,191             - 
       Derivative liability            2,656             - 
                                ------------  ------------ 
                                      25,043        15,703 
                                ------------  ------------ 
 

ARC

The loans are: (i) US$ denominated, but any repayments will be made in ZAR at the then prevailing ZAR/US$ exchange rate; (ii) carry interest at monthly US LIBOR plus 3%; and (iii) are repayable by no later than 1 January 2035 (or such earlier date as agreed between the parties to the shareholder agreements).

Convertible debt - ARC

On 20 October 2021, the Company entered into a new convertible equity facility of up to ZAR 200 million ("New ZAR Equity Facility") with ARC, the Company's major shareholder. The Company made a drawdown of ZAR 90 million of the New ZAR Equity Facility on 26 October 2021 and a further ZAR 37 million on 9 December 2021 and ZAR 73 million remained undrawn at 31 December 2021 . Interest is payable at 14% nominal, compounded monthly. At any time during the term of the New ZAR Equity Facility, repayment of the New ZAR Equity Facility capital amount will, at the election of ARC, either be in the form of the conversion into ordinary shares of 0.1 pence each ("Ordinary Shares") in the Company and issued to ARC, at a conversion price of 4.5058 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21 September 2021, and at fixed exchange rate of GBP 1 = ZAR 20.24 ("Conversion"), or payable in cash by the Company at the end of the term of the New ZAR Equity Facility which is 27 October 2026 . Two further draw downs were made in 2022, one on 25 March 2022 for ZAR 40 million and ZAR 33 million on 26 April 2022. The New ZAR Equity Facility is fully drawn at the date of this report.

Convertible liability

It was determined that the conversion option embedded in the convertible debt equity facility be accounted for separately as a derivative liability. Although the amount to be settled is fixed in ZAR, when converted back to Kropz's functional currency, will result in a variable amount of cash based on the exchange rate at the date of conversion. The value of the liability component and the derivative conversion component were determined at the date of draw down using a Monte Carlo simulation. The debt host liability was bifurcated based on the determined value of the option. Subsequently, the embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value recorded in profit and loss (refer to Note 31).

Fair value of shareholder loans

The carrying value of the loans approximates their fair value.

   (16)     Finance lease liabilities 
 
                                        Year ended     Year ended 
                                       31 December    31 December 
                                              2021           2020 
                                           US$'000        US$'000 
 In respect of right-of-use assets 
 Balance brought forward                        48             40 
 Additions during the year                       -             60 
 Repayments during the year                   (39)           (53) 
 Foreign exchange differences                  (2)              1 
                                     -------------  ------------- 
 Lease liabilities at end of year                7             48 
                                     -------------  ------------- 
 
 Maturity 
 Current                                         7             42 
 Non-current                                     -              6 
                                     -------------  ------------- 
 Total lease liabilities                         7             48 
                                     -------------  ------------- 
 
   (17)     Other financial liabilities 
 
                          31 December   31 December 
                                 2021          2020 
                              US$'000       US$'000 
 BNP                           30,041        30,118 
 Greenheart Foundation            545           495 
 Total                         30,586        30,613 
                         ------------  ------------ 
 
 
 Maturity 
 Non-current    26,291   28,113 
 Current         4,295    2,500 
               -------  ------- 
 Total          30,586   30,613 
               -------  ------- 
 

BNP

A US$ 30,000,000 facility was made available by BNP to Kropz Elandsfontein in September 2016. Interest was charged at three months US LIBOR plus 4.5% and was initially repayable quarterly over 2 years. The rst capital repayment was due on 31 March 2018.

The Group was unable to fund the instalment payments on the loan as they fell due in early 2018 and consequently, under the terms of the facility agreement, was in default from 1 April 2018. On 20 September 2018 the Group and BNP conditionally agreed a waiver of the breach and restructure of the facility under which the rst capital repayment was deferred to 30 September 2020. In addition, BNP provided the necessary consents required to facilitate all the contemplated transactions leading up to the admission of Kropz plc to AIM. The waiver and restructured facility were only contingent on the admission of Kropz plc's shares to trading on AIM by 30 November 2018, which did occur on that date. The facility has been fully drawn down.

During January 2020, given the delays in the recommissioning of Elandsfontein, Kropz Elandsfontein was once again placed into default by BNP. In May 2020, Kropz Elandsfontein and BNP agreed to amend and restate the term loan facility agreement entered into on or about 13 September 2016 (as amended from time to time). The BNP facility amendment agreement extends inter alia the final capital repayment date to Q3 2024, with eight equal capital repayments to commence in Q4 2022 and an interest rate of 6.5% plus US LIBOR, up to project completion and 4.5% plus US LIBOR thereafter. In addition, the amended BNP facility agreement locked up ZAR 200 million of cash held in the bank account of Kropz Elandsfontein at that time, to be released by BNP to Kropz Elandsfontein pro rata drawdowns from ARC in terms of the Original Equity Facility. The locked up funds would be released by BNP in the ratio of 1:3, representing a drawdown of ZAR 1 for every ZAR 3 drawn down from ARC in terms of the Original Equity Facility. Financial closure occurred on 25 June 2020.

In accordance with IFRS 9, the Group recognised a loss in 2020 of US$ 1,109,000 in profit and loss arising from the modification of the loan.

Greenheart Foundation

A loan has been made to the Group by Greenheart Foundation which is interest-free and repayable on demand. Mark Summers, a Director of the Kropz plc, is a Director of Greenheart Foundation.

Fair value of other nancial liabilities

The carrying value of the loans approximate their fair value.

   (18)     Provisions 

Reconciliation of provisions - Year ended 31 December 2021

 
                                                              Foreign 
                                   Opening     Additions/    exchange    Closing 
                                   Balance    Adjustments       gains    balance 
                                   US$'000        US$'000     US$'000    US$'000 
 Provision for dismantling 
  costs                              2,477           (42)       (194)      2,241 
 Provisions for rehabilitation       1,834            112       (154)      1,792 
                                 ---------  -------------  ----------  --------- 
 Total                               4,311             70       (348)      4,033 
                                 ---------  -------------  ----------  --------- 
 

Reconciliation of provisions - Year ended 31 December 2020

 
                                                              Foreign 
                                   Opening     Additions/    exchange    Closing 
                                   Balance    Adjustments        gain    balance 
                                   US$'000        US$'000     US$'000    US$'000 
 Provision for dismantling 
  costs                                650          1,854        (27)      2,477 
 Provisions for rehabilitation       3,052        (1,089)       (129)      1,834 
                                 ---------  -------------  ----------  --------- 
 Total                               3,702            765       (156)      4,311 
                                 ---------  -------------  ----------  --------- 
 

Dismantling and rehabilitation provisions

All environmental rehabilitation and dismantling provisions at year-end have been reviewed by management and adjusted as appropriate for changes in legislation, technological and other circumstances. The expected timing of any out ows of these provisions will be on the closure of the mine. Estimates are based on costs that are reviewed regularly and adjusted as appropriate for new circumstances. In determining the environmental rehabilitation liability, an inflation rate of 4.5% (2020: 5%) was assumed to increase the rehabilitation liability for the next 11 years (2020: 10 years), and a rate of 7.46% (2020: 7.71%) to discount that amount to present value.

   (19)     Trade and other payables 
 
                   31 December   31 December 
                          2021          2020 
                       US$'000       US$'000 
 Trade payables          2,527         4,471 
 Other payables              -            17 
 Accruals                1,016           292 
                  ------------  ------------ 
 Total                   3,543         4,780 
                  ------------  ------------ 
 

Fair value of trade and other payables

Trade and other payables are carried at amortised cost, with their carrying value approximating their fair value.

   (20)     Commitments 
 
                                   31 December   31 December 
                                          2021          2020 
                                       US$'000       US$'000 
 Authorised capital commitments          1,871        14,815 
                                  ------------  ------------ 
 

The committed expenditure relates to plant construction.

   (21)     Directors' remuneration, interests and transactions 

The Directors of the Company and the two executives of Kropz Elandsfontein and Cominco Resources are considered to be the Key Management Personnel of the Group. Details of the Directors' remuneration, Key Management Personnel remuneration which totalled US$ 1,942,127 (2020: US$ 1,413,184) (including notional option cost and social security contributions) and Directors' interests in the share capital of the Company are disclosed in the Directors' Report. Amounts reflected relate to short-term employee benefits and were converted to US$ at the 31 December 2021 GBP exchange rate of 0.727 and ZAR exchange rate of ZAR 14.789.

The highest paid Director in the year received remuneration, excluding notional gains on share options, of US$ 542,739 (2020: US$ 295,516).

   (22)     Finance income 
 
                               Year ended     Year ended 
                              31 December    31 December 
                                     2021           2020 
                                  US$'000        US$'000 
 Foreign currency gains                 -            109 
 Interest income received             480          1,135 
                            -------------  ------------- 
 Total                                480          1,244 
                            -------------  ------------- 
 
   (23)     Operating expenses 
 
                                                     Year ended     Year ended 
                                                    31 December    31 December 
                                                           2021           2020 
                                                        US$'000        US$'000 
 Fair value (gain) / loss on game animals                  (51)             18 
 Amortisation of right of use asset                          39             51 
 Depreciation of property, plant and machinery              904            780 
 Employee costs (excluding share option 
  cost)                                                   1,392            933 
 Share option cost                                          812            238 
 Electricity and water - mine operations                  1,067            807 
 Inventory expense                                          183             16 
 Mining costs                                                 9            167 
 Plant operating costs and recoveries                       217            833 
 Professional and other services                            821            951 
 Auditor's remuneration in respect of audit 
  of the Group and parent                                    86             89 
 Auditor's remuneration in respect of audit 
  of the Cominco Group                                       42             32 
 Component auditor's remuneration in respect 
  of audit of South African controlled entities              68             56 
 Other expenses                                             914            941 
                                                  -------------  ------------- 
 Total                                                    6,503          5,912 
                                                  -------------  ------------- 
 
   (24)     Staff costs 
 
                                              Year ended     Year ended 
                                             31 December    31 December 
                                                    2021           2020 
                                                     No.            No. 
 The average monthly number of employees 
  was: 
 Operations                                           11              9 
 Finance and administration                            6              6 
 Management                                            3              3 
                                           -------------  ------------- 
                                                      20             18 
                                           -------------  ------------- 
 
 
                                                    Year ended     Year ended 
                                                   31 December    31 December 
                                                          2021           2020 
                                                       US$'000        US$'000 
 Aggregate remuneration (including Directors): 
 Wages and salaries (including bonuses)                  1,274            823 
 Social security costs                                     115            109 
 Share-based payments                                      812            238 
 Pension costs                                               3              1 
                                                         2,204          1,171 
                                                 -------------  ------------- 
 
   (25)     Finance expense 
 
                                             Year ended     Year ended 
                                            31 December    31 December 
                                                   2021           2020 
                                                US$'000        US$'000 
 Shareholder loans                                  670            611 
 Foreign exchange losses                          4,382          1,857 
 Bank debt                                        2,024          2,061 
 BNP - debt modification loss (Note 17)               -          1,109 
 BNP - debt modification present value 
  adjustment amortisation                         (258)          (119) 
 BNP amendment fee amortisation                     227            104 
 Finance leases                                       1              2 
 Other                                              345            289 
                                          -------------  ------------- 
 Total                                            7,391          5,914 
                                          -------------  ------------- 
 
   (26)     Loss on disposal of subsidiary 

On 15 February 2021, the Group divested of its interests in Aflao, the phosphate project located in Ghana by selling its shareholding in First Gear Exploration Ltd ("First Gear Exploration"), a 50% owned subsidiary of the Company, to Consortium Minerals Ltd ("Consortium") (the "Disposal"). As a result of the sale, Kropz has no further interest in Aflao.

Consortium is a subsidiary of Russell Brooks Ltd, who was a minority shareholder in First Gear Exploration, with a 15% shareholding prior to the Disposal.

The consideration for the sale of the Kropz interest in First Gear Exploration was:

   --      US$ 5,000 cash ("Share Consideration"); and 

-- US$ 322,529 ("Loan Consideration") deferred cash consideration in respect of the shareholder loan from Kropz to First Gear Exploration, which is being novated to Consortium.

The Share Consideration was payable by Consortium within seven days of completion. The Loan Consideration will be payable by Consortium to Kropz upon, the earlier of,

(i) the sign-off by a competent person of a definitive feasibility study on the Aflao deposit, as defined in the JORC Code 2012 edition; or

(ii) Consortium disposing or transferring the Shares prior to the event described in (i) being achieved; or

(iii) Consortium disposing or transferring the prospecting right prior to the event described in (i) being achieved.

As at the date of this report, the Loan Consideration remains outstanding and the amount has not been accounted for as recoverability is not certain.

This disposal allows the Company to focus on its strategy of developing the Elandsfontein phosphate project in South Africa and progressing the Hinda phosphate project in the RoC.

The loss on disposal was calculated as follows:

 
                                                US$'000 
 Consideration                                        5 
 Net liabilities on disposal                      (348) 
 Non-controlling interest on disposal               181 
 Derecognition of exploration and evaluation 
  assets                                           (62) 
                                               -------- 
 Loss on disposal                                 (224) 
                                               -------- 
 
   (27)     Taxation 
 
 Major components of tax charge                        Year ended   Period ended 
                                                      31 December    31 December 
                                                             2021           2020 
                                                          US$'000        US$'000 
 Deferred 
 Originating and reversing temporary differences                -              - 
 Current tax 
 Local income tax recognised in respect 
  of prior year                                                 -           (36) 
                                                   --------------  ------------- 
 Total                                                          -           (36) 
                                                   --------------  ------------- 
 

Reconciliation of tax charge

 
                                             Year ended     Year ended 
                                            31 December    31 December 
                                                   2021           2020 
                                                US$'000        US$'000 
 Loss before tax                               (18,258)        (1,967) 
                                          -------------  ------------- 
 
 Applicable UK tax rate                             19%            19% 
 Tax at applicable tax rate                     (3,469)          (374) 
 Adjustments for different tax rates in 
  the Group                                     (2,177)        (1,219) 
 Non-taxable losses / (gains)                       786        (1,631) 
 Disallowable expenditure                           759            648 
 Prior year tax charge                                -           (36) 
 Losses carried forward not recognised            4,101          2,576 
                                          -------------  ------------- 
 Tax (credit) / charge                                -           (36) 
                                          -------------  ------------- 
 

The movement in tax liabilities is summarised below:

 
                                    Year ended     Year ended 
                                   31 December    31 December 
                                          2021           2020 
                                       US$'000        US$'000 
 
 Balance brought forward                     -            174 
 Current year charge                         -           (36) 
 Tax paid                                    -          (128) 
 Foreign exchange differences                -           (10) 
                                --------------  ------------- 
 Balance carried forward                     -              - 
                                --------------  ------------- 
 

The Group had losses for tax purposes of approximately US$ 52.1 million as at 31 December 2021 (2020: US$ 43.8 million) which, subject to agreement with taxation authorities, are available to carry forward against future profits. They can be carried forward indefinitely.

A net deferred tax asset of approximately US$ 14.6 million (2020: US$ 12.3 million), after set off of accelerated depreciation allowances in respect of fixed assets of US$ 34.7 million (2020: US$ 29.9 million), arises in respect of these losses. It has not been recognised as steady state production has not been reached. The deferred tax asset and deferred tax liability relate to income tax in the same jurisdiction and the law permits set off.

   (28)     Earnings per share 

The calculations of basic and diluted loss per share have been based on the following loss attributable to ordinary shareholders and weighted average number of ordinary shares outstanding:

 
                                                         Year ended      Year ended 
                                                        31 December     31 December 
                                                               2021            2020 
                                                            US$'000         US$'000 
 (Loss) / Profit attributable to ordinary 
  shareholders                                             (13,787)           1,531 
 
         Weighted average number of ordinary shares 
         used in basic (loss) / earnings per share      765,871,834     383,896,428 
 Share options and warrants                                       -      11,649,583 
                                                      -------------  -------------- 
 Weighted average number of ordinary shares 
  used in diluted (loss) / earnings per 
  share                                                 765,871,834     395,546,011 
                                                      -------------  -------------- 
 
 Basic (loss) / earnings per share (US$ 
  cents)                                                     (1.80)            0.40 
 Diluted (loss) / earnings per share 
  (US$ cents)                                                (1.80)            0.39 
                                                      -------------  -------------- 
 

Because the Group was in a net loss position attributable to ordinary shareholders in 2021, diluted loss per share excludes the effects of ordinary share equivalents consisting of share options and warrants, which are anti-dilutive.

   (29)     Notes to the statement of cash flows 

Issue of shares

Year ended 31 December 2021

 
                                             Non-cash 
                                        consideration   Cash consideration     Total 
                                              US$'000              US$'000   US$'000 
 Equity facility - issue of shares                  -               25,800    25,800 
                                                    -               25,800    25,800 
 ----------------------------------------------------  -------------------  -------- 
 

Year ended 31 December 2020

 
                                             Non-cash 
                                        consideration   Cash consideration     Total 
                                              US$'000              US$'000   US$'000 
 Placing of shares                                  -                  354       354 
 Equity facility - issue of shares                  -               19,000    19,000 
 Open offer - issue of shares                       -                2,162     2,162 
 Cost of issuing shares                             -                (320)     (320) 
                                     ----------------  -------------------  -------- 
 As at 31 December 2020                             -               21,196    21,196 
                                     ----------------  -------------------  -------- 
 

Net debt reconciliation

Year ended 31 December 2021

 
                                                                                  Foreign 
                             Opening     Accrued   Fair value         Cash       exchange    Closing 
                             Balance    interest    movements    movements    gain/(loss)    balance 
                             US$'000     US$'000      US$'000      US$'000        US$'000    US$'000 
 Other financial 
  assets                       1,477           -            -            -          (120)      1,357 
 Shareholder loan 
  payable and derivative    (15,703)       (670)        (653)      (8,037)             20   (25,043) 
 Other financial 
  liabilities               (30,613)          31            -         (54)             50   (30,586) 
 Finance leases                 (48)           -            -           39              2        (7) 
                           ---------  ----------  -----------  -----------  -------------  --------- 
 Total                      (44,887)       (639)        (653)      (8,052)           (48)   (54,279) 
                           ---------  ----------  -----------  -----------  -------------  --------- 
 

Year ended 31 December 2020 (restated - refer to Note 2)

 
                                                                                              Foreign 
                     Opening     Accrued                    Modifi-cation         Cash       exchange    Closing 
                     Balance    interest   New agreements            loss    movements    gain/(loss)    balance 
                     US$'000     US$'000          US$'000         US$'000      US$'000        US$'000    US$'000 
 Other financial 
  assets               1,534           -                -                            -           (57)      1,477 
 Shareholder 
  loan payable 
  and derivative    (14,701)       (611)                -                        (411)             20   (15,703) 
 Other financial 
  liabilities       (29,982)           -                -         (1,109)          464             14   (30,613) 
 Finance 
  leases                (40)           -             (60)                           53            (1)       (48) 
                   ---------  ----------  ---------------  --------------  -----------  -------------  --------- 
 Total              (43,189)       (611)             (60)         (1,109)          106           (24)   (44,887) 
                   ---------  ----------  ---------------  --------------  -----------  -------------  --------- 
 

Reconciliation of working capital items:

Year ended 31 December 2021

 
                                                                          Foreign 
                                 Opening         Cash      Capital       exchange    Closing 
                                 Balance    movements    allocated    gain/(loss)    balance 
                                 US$'000      US$'000      US$'000        US$'000    US$'000 
 Trade and other receivables       1,611        (256)            -            156      1,511 
 Inventories                         821          291            -           (87)      1,025 
 Trade and other payables        (4,780)      (3,178)        2,599          1,816    (3,543) 
 Total                           (2,348)      (3,143)        2,599          1,885    (1,007) 
                               ---------  -----------  -----------  -------------  --------- 
 

Year ended 31 December 2020 (restated - refer Note 2)

 
                                                                          Foreign 
                                 Opening         Cash      Capital       exchange    Closing 
                                 Balance    movements    allocated    gain/(loss)    balance 
                                 US$'000      US$'000      US$'000        US$'000    US$'000 
 Trade and other receivables         329        1,278            -              4      1,611 
 Inventories                         875         (17)            -           (37)        821 
 Trade and other payables        (1,536)         (28)      (3,328)            112    (4,780) 
 Total                             (332)        1,233      (3,328)             79    (2,348) 
                               ---------  -----------  -----------  -------------  --------- 
 
   (30)     Related parties 

Kropz plc and its subsidiaries

The following parties are related to Kropz plc:

 
 Name                           Relationship 
 Mark Summers                   Director 
 Mike Nunn                      Director 
 Linda Beal                     Director 
 Mike Daigle                    Director 
 Lord Robin William Renwick     Director 
 Machiel Johannes Reyneke       Director 
 Kropz SA                       Subsidiary 
 Elandsfontein Land Holdings    Subsidiary 
  (Pty) Ltd ("ELH") 
 Kropz Elandsfontein            Subsidiary 
 West Coast Fertilisers (Pty)   Subsidiary 
  Ltd 
 Xsando (Pty) Ltd               Subsidiary 
 Cominco Resources Limited      Subsidiary 
 Cominco S.A.                   Subsidiary 
 Cominco Resources (UK) Ltd     Subsidiary 
 Kropz International            Shareholder 
 The ARC Fund ("ARC")           Shareholder 
 

Details of remuneration to KMP are contained in Note 21 to the Consolidated Financial Statements.

In addition to share issues to related parties set out in Note 13 to the Consolidated Financial Statements, the following transactions were carried out with related parties:

Related party balances

Loan accounts - owed to related parties

 
                                          31 December   31 December 
                                                 2021          2020 
                                              US$'000       US$'000 
 ARC                                           16,196        15,703 
 Convertible debt - ARC                         6,191             - 
 Derivative liability (refer Note 15)           2,656             - 
 Greenheart Foundation (refer Note 17)            545           495 
                                         ------------  ------------ 
 Total                                         25,588        16,198 
                                         ------------  ------------ 
 

Related party balances

Interest accrued to related parties

 
            Year ended     Year ended 
           31 December    31 December 
                  2021           2020 
               US$'000        US$'000 
 ARC               670            611 
         -------------  ------------- 
 Total             670            611 
         -------------  ------------- 
 

Convertible loan facilities

As described in Note 13, the Company made drawdowns totalling US$ 25.8 million (2020: US$ 19 million) under its convertible loan facilities from ARC.

   (31)     Categories of financial instrument 

Financial assets and liabilities by category

The accounting policies for nancial instruments have been applied to the line items below:

 
                                            31 December   31 December 
                                                   2021          2020 
                                                US$'000       US$'000 
 Financial assets at amortised cost 
 Trade and other receivables                        399           285 
 Other financial assets                           1,357         1,477 
 Restricted cash                                  4,858         7,355 
 Cash and cash equivalents                        2,461        11,572 
                                           ------------  ------------ 
 Total                                            9,075        20,689 
                                           ------------  ------------ 
 
 Financial assets at fair value 
 Derivative asset                                     -         8,586 
                                           ------------  ------------ 
 
 Financial liabilities at amortised cost 
 Trade and other payables                         3,543         4,780 
 Finance leases                                       7            48 
 Shareholder loans                               22,387        15,703 
 Other financial liabilities                     30,586        30,613 
                                           ------------  ------------ 
 Total                                           56,523        51,144 
                                           ------------  ------------ 
 
 Financial liabilities at fair value 
 Derivative liability                             2,656             - 
                                           ------------  ------------ 
 

Recognised fair value measurements

The net fair value and carrying amounts of financial assets and financial liabilities are disclosed in the Consolidated Statement of Financial Position and in the notes to the Consolidated Statement of Financial Position.

This note provides an update on the judgements and estimates made by the Group in determining the fair values of the financial instruments.

   (i)            Financial instruments Measured at Fair Value 

The financial instruments recognised at fair value in the Statement of Financial Position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. At the reporting date, the Group had a convertible facility with ARC. The US$ amount of the facility is convertible into ordinary shares of the parent entity (Note 15).

   (ii)           Fair value hierarchy 
   --      The fair value hierarchy consists of the following levels 
   --      Quoted prices in active markets for identical assets and liabilities (Level 1); 

-- Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

-- Inputs for the asset and liability that are not based on observable market date (unobservable inputs) (Level 3).

 
                       Level      Level      Level 
                           1          2          3      Total 
                     US$'000    US$'000    US$'000    US$'000 
 
 2021 
 Derivative asset          -          -          -          - 
                   ---------  ---------  ---------  --------- 
 
 2020 
 Derivative asset          -          -      8,586      8,586 
                   ---------  ---------  ---------  --------- 
 
 
                           Level      Level      Level 
                               1          2          3      Total 
                         US$'000    US$'000    US$'000    US$'000 
 
 2021 
 Derivative liability          -          -      2,656      2,656 
                       ---------  ---------  ---------  --------- 
 
 2020 
 Derivative liability          -          -          -          - 
                       ---------  ---------  ---------  --------- 
 

There were no transfers between levels for recurring fair value measurements during the year. The Group's policy is to recognise transfers into and transfer out of fair value hierarchy levels as at the end of the reporting period.

   (iii)          Reconciliation:  Level 3 fair value measurement 
 
                                                Year           Year 
                                               ended          ended 
                                         31 December    31 December 
                                                2021           2020 
                                             US$'000        US$'000 
 Derivative asset 
 Opening balance                               8,586              - 
 Fair value (loss) / gain recognised 
  in profit and loss                         (4,139)          8,586 
 Extinguished on issuance of equity          (4,447)              - 
                                       -------------  ------------- 
 Closing balance                                   -          8,586 
                                       -------------  ------------- 
 
 
 Derivative liability 
 Opening balance                              -   - 
 Fair value at initial recognition      (2,015)   - 
 Fair value loss recognised in profit             - 
  and loss                                (653) 
 Foreign exchange                            12   - 
 Closing balance                        (2,656)   - 
                                       -------- 
 
   (iv)          Valuation technique used to determine fair value 

Derivative asset:

A Monte-Carlo simulation was applied to simulate the expected share price at a 60% volatility multiplied by the number of shares to be issued pursuant to the Original and Further Equity Facility compared to the quoted market share price.

Derivative liability:

A Monte-Carlo simulation was applied to value the option component of the convertible debt at a 30% volatility in share price, 14% volatility in the GBP:ZAR exchange rate and risk free rate of 0.76% multiplied by the number of shares to be issued pursuant to the drawn amounts under the New ZAR Equity Facility. A change of US$ 1.8 million in value would be observed should share price volatility increase over 60%, risk free rate above 10% and foreign exchange starting rate above R34/GBP.

   (32)     Financial risk management objectives 

Capital risk management:

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and bene ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the Group consists of shareholder and external debt, which includes loans and borrowings (excluding derivative nancial liabilities) disclosed in Notes 15 and 17 and equity as disclosed in the Statement of Financial Position.

Shareholder and external third-party loans from foreign entities to South African companies are subject to the foreign exchange controls as imposed by the South African Reserve Bank ("SARB"). All inward loans into South Africa require approval by the SARB and all loans in the current capital structure have been approved by the SARB and all entities in the Group are compliant with the SARB approvals relevant to the entity concerned and the approvals granted by the SARB.

Liquidity risk:

Prudent liquidity risk management implies maintaining suf cient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group treasury maintains exibility in funding by maintaining availability under committed credit lines.

The Group's risk to liquidity is a result of obligations associated with nancial liabilities of the Group and the availability of funds to meet those obligations. The Group manages liquidity risk through an ongoing review of future commitments and credit facilities.

The table below analyses the Group's nancial liabilities into relevant maturity groupings based on the remaining period at the statement of nancial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash ows. Balances due within 12 months equal their carrying balances as the impact of discounting is not signi cant.

 
                                               Between    Between 
                                     Less          one    two and       Over 
                                     than          and       five       five 
                                 one year    two years      years      years 
                                  US$'000      US$'000    US$'000    US$'000 
 At 31 December 2021 
 Shareholder loans payable              -            -     13,711     24,246 
 Trade and other payables           3,543            -          -          - 
 Finance leases                         7            -          -          - 
 Other financial liabilities        5,676       15,950     11,509          - 
                               ----------  -----------  ---------  --------- 
 Total                              9,226       15,950     25,220     24,246 
                               ----------  -----------  ---------  --------- 
 
 
                                     Less      Between       Between 
                                 than one      one and       two and          Over 
                                     year    two years    five years    five years 
                                  US$'000      US$'000       US$'000       US$'000 
 At 31 December 2020 
 Shareholder loans payable              -            -             -        15,703 
 Trade and other payables           4,780            -             -             - 
 Finance leases                        42            6             -             - 
 Other financial liabilities        2,500        5,155        27,479             - 
                               ----------  -----------  ------------  ------------ 
 Total                              7,322        5,161        27,479        15,703 
                               ----------  -----------  ------------  ------------ 
 

Credit risk:

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in nancial loss to the Group. The Group's nancial assets include trade and other receivables, loans receivable, other nancial assets and cash and cash equivalents.

Ongoing credit evaluation is performed on the nancial conditions of the counterparties to the trade and other receivables, loans receivable and other nancial assets. The Group only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party. No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties.

Interest rate risk:

As the Group has signi cant interest-bearing assets, the Group's income and operating cash ows are substantially dependent on changes in market interest rates. At 31 December 2021, if interest rates on the shareholder and BNP loans (denominated in US$) had been 1% higher/lower with all other variables held constant, post-tax losses and equity for the year would have been approximately US$ 541,000 (2020: US$ 450,000) higher/lower respectively.

Foreign currency risk:

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's financing activities (when financial liabilities and cash are denominated other than in a company's functional currency).

Most of the Group's transactions are carried out in South African Rand. Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level.

The Group maintains a natural hedge whenever possible, by matching the cash inflows (revenue stream) and cash outflows used for purposes such as capital and operational expenditure in the respective currencies.

The Group's net exposure to foreign exchange risk was as follows:

 
                                            Functional currency 
                                          South 
                                        African   British 
                                           Rand     Pound      Total 
 As at 31 December 2021                 US$'000   US$'000    US$'000 
-----------------------------------   ---------  --------  --------- 
 
 Financial assets denominated 
  in US$                                      -       313        313 
------------------------------------  ---------  --------  --------- 
 
 Financial liabilities denominated 
  in US$                               (46,196)         -   (46,196) 
------------------------------------  ---------  --------  --------- 
 
 Net foreign currency exposure         (46,196)       313   (45,883) 
------------------------------------  ---------  --------  --------- 
 
 
                                            Functional currency 
                                          South 
                                        African   British 
                                           Rand     Pound      Total 
 As at 31 December 2020                 US$'000   US$'000    US$'000 
-----------------------------------   ---------  --------  --------- 
 
 Financial assets denominated 
  in US$                                      -       971        971 
------------------------------------  ---------  --------  --------- 
 
 Financial liabilities denominated 
  in US$                               (44,238)         -   (44,238) 
------------------------------------  ---------  --------  --------- 
 
 Net foreign currency exposure         (44,238)       971   (43,267) 
------------------------------------  ---------  --------  --------- 
 

Foreign currency sensitivity analysis:

The following tables demonstrate the sensitivity to a reasonably possible change in South African Rand and GBP exchange rates, with all other variables held constant.

The impact on the Group's profit before tax is due to changes in the fair value of monetary assets and liabilities. The Group's exposure to foreign currency changes for all other currencies is not material.

A 10% movement in the Rand and Pound against the US Dollar would increase/(decrease) net assets by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

 
                                  As at          As at 
                            31 December    31 December 
                                   2021           2020 
                              Increase/      Increase/ 
                             (Decrease)     (Decrease) 
                                US$'000        US$'000 
------------------------  -------------  ------------- 
 Effects on net assets 
 Rand: 
  - strengthened by 10%         (4,620)        (4,424) 
  - weakened by 10%               4,620          4,424 
------------------------  -------------  ------------- 
 Effects on net assets 
 GBP: 
  - strengthened by 10%              31             97 
  - weakened by 10%                (31)           (97) 
------------------------  -------------  ------------- 
 
   (33)     Segment information 

Operating segments

The Board of Directors consider that the Group has one operating segment, being that of phosphate mining and exploration. Accordingly, all revenues, operating results, assets and liabilities are allocated to this activity.

Geographical segments

The Group operates in two principal geographical areas - South Africa and the RoC.

The Group's non-current assets by location of assets are detailed below.

 
                                South 
                               Africa       Congo      Group 
                              US$'000     US$'000    US$'000 
 As at 31 December 2021 
 Total non-current assets     136,431      44,663    181,094 
                            ---------  ----------  --------- 
 
 
                                South 
                               Africa       Congo      Group 
                              US$'000     US$'000    US$'000 
 As at 31 December 2020 
 Total non-current assets     116,027      44,316    160,343 
                            ---------  ----------  --------- 
 
   (34)     Non-controlling interests 
 
                                               31 December    31 December 
                                                      2021           2020 
                                                   US$'000        US$'000 
                                                                (Restated 
                                                                - Note 2) 
 As at beginning of year                             5,729          4,391 
 Share of losses for the year                      (4,471)        (3,462) 
 Share of other comprehensive income               (1,043)           (86) 
 Disposal of subsidiary                                181              - 
 Kropz plc's investment in non-redeemable 
  preference shares of Kropz Elandsfontein 
  attributable to non-controlling interest           5,382          4,886 
 As at end of the year                               5,778          5,729 
                                             -------------  ------------- 
 
   (35)     Material subsequent events 

As announced on 18 January 2022, Kropz issued 6,700,000 ordinary shares, at an exercise price of GBP0.001 an ordinary share, in the Company to key members of the executive management team, including certain Persons Discharging Managerial Responsibilities ("PDMRs"), The issue of ordinary shares are due to awards vesting and issued under its Long Term Incentive Plan ("LTIP Awards"), issued on 31 July 2020 as announced on 4 August 2020. Of the total above, 2,350,000 ordinary shares were issued to Mark Summers, 2,350,000 ordinary shares to Michelle Lawrence and 1,000,000 to Patrick Stevenaert.

On 23 February 2022, the South African Minister of Finance announced that the corporate tax rate would be reduced from 28% to 27% for the years of assessment beginning on or after 1 April 2022. This is a non-adjusting post balance sheet event.

The fifth and final drawdown on the Further Equity Facility occurred on 10 March 2022 for US$ 200,000 which was paid by way of issue of 7,446,248 new ordinary shares at the issue price of 4.202 pence per ordinary share to the ARC Fund.

The third drawdown on the New ZAR Equity Facility occurred on 25 March 2022 for ZAR 40 million and the fourth drawdown on the New ZAR Equity Facility occurred on 26 April 2022 for ZAR 33 million.

BNP Paribas released the ZAR 77 million restricted cash in the bank account of Kropz Elandsfontein (Pty) Ltd on 10 January 2022, upon satisfaction of the requirement by BNP Paribas for the Group to bridge the funding shortfall in respect of Elandsfontein as announced on 1 September 2021. The funding shortfall was satisfied when the New ZAR Equity Facility was secured from ARC.

As announced on 27 April 2022, a further funding shortfall of ZAR 177 million is expected due to slower than expected progress in the ramp up of operations at Elandsfontein. The delay was largely driven by the need to re-engineer parts of the fine flotation circuit proposed by the vendor, but further exacerbated by early unpredicted ore variability and lack of operator experience. As a result, production of sufficient phosphate rock concentrate for the first bulk sale will move to later than originally expected.

Kropz and ARC entered into a ZAR 25 million (approximately US$ 1.60 million) bridge loan facility (the "Loan") on 27 April 2022 to meet cash requirements in April 2022 and draw down of the Loan took place on 28 April 2022. The Loan is repayable on demand, and there are no fixed repayment terms. It is repayable by Kropz on no less than two business days' notice. Interest is payable on the Loan at 14% nominal, compounded monthly.

On 11 May 2022, Kropz entered into a new conditional convertible equity facility of up to ZAR 177 million ("ZAR 177 Million Equity Facility"), with ARC to fund the Company's Elandsfontein phosphate project to first revenues from bulk concentrate sales:

-- The ZAR 177 Million Equity Facility comprises a total commitment of up to ZAR 177 million provided by ARC, which can be drawn down following a written request from Kropz and at the discretion of ARC;

-- At any time during the term of the ZAR 177 Million Equity Facility, repayment of the ZAR 177 Million Equity Facility capital amount will, at the election of ARC, either be:

-- In the form of the conversion into ordinary shares of 0.1 pence each ("Ordinary Shares") in the Company and issued to ARC, at a conversion price of 9.256 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 4 May 2022, and at a fixed exchange rate of ZAR 1 = GBP 0.0504 ("Conversion"); or

   --      Payable in cash by the Company at the end of the term of the New ZAR Equity Facility; 

-- The first drawdown was made on 2 June 2022 and the Loan was set-off against the first drawdown of the ZAR 177 Million Equity Facility;

-- Following a Conversion, the Company will apply for the newly issued Ordinary Shares in the capital of the Company to be admitted to trading on AIM;

-- The ZAR 177 Million Equity Facility bears interest at 14% per annum compounded monthly ("Interest"). Interest will be payable in cash to ARC by the Company;

-- The term of the ZAR 177 Million Equity Facility will be from the Effective Date to the earlier of:

   --      Five years from the Effective Date; or 

-- One year after the term loan facility provided by BNP Paribas to Kropz Elandsfontein (in the amount not exceeding US$ 30 million), has been repaid;

-- The ZAR 177 Million Equity Facility is secured by the shares that Kropz holds in Cominco Resources Ltd ("Share Charge"); and

   --      The ZAR 177 Million Equity Facility was conditional on: 

-- approval from the South African Reserve Bank ("SARB"). The SARB application was lodged on 16 May 2022 and the approval received on 1 June 2022; and

   --      shareholder approval which was received on 30 May 2022. 

First drawdown of the ZAR 177 Million Equity Facility of ZAR 103.5 million was made on 2 June 2022. The Loan of ZAR 25 million was set off against the first draw down and the net amount of ZAR 78.5 million received by the Company.

   (36)     Ultimate controlling party 

The Directors consider Ubuntu-Botho Commercial Enterprises Proprietary Limited to be the ultimate controlling party of the Company

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

FR PPUPWQUPPGAB

(END) Dow Jones Newswires

June 30, 2022 02:00 ET (06:00 GMT)

Kropz (LSE:KRPZ)
Graphique Historique de l'Action
De Juil 2022 à Août 2022 Plus de graphiques de la Bourse Kropz
Kropz (LSE:KRPZ)
Graphique Historique de l'Action
De Août 2021 à Août 2022 Plus de graphiques de la Bourse Kropz