TIDMKRPZ

RNS Number : 4110B

Kropz PLC

30 September 2022

Kropz plc ("Kropz", the "Company") and its subsidiaries (the "Group")

Unaudited Half Year Results for the Six Months ended 30 June 2022

Kropz plc (AIM: KRPZ), an emerging African phosphate developer and producer, announces its unaudited results for the six months ended 30 June 2022.

The financial report is available online at the Company's website www.kropz.com .

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Key financial indicators

-- Impairment in the value of property, plant, equipment and mine development assets at Kropz Elandsfontein (Pty) Ltd ("Elandsfontein") of US$44.7 million;

-- Property, plant, equipment and exploration assets, after the impairment above, of US$ 144 million as at 30 June 2022 (31 December 2021: US$ 180 million);

   --      Cash at 30 June 2022 of US$ 1 million (31 December 2021: US$ 2 million); and 

-- Trade and other payables at 30 June 2022 of US$ 8 million (31 December 2021: US$ 4 million).

Key corporate and operational developments during the period

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. The issue of ordinary shares was due to awards vesting that had been issued under the Company's Long-Term Incentive Plan of 31 July 2020, announced on 4 August 2020;

-- The fifth and final drawdown on the US$ 5 million equity facility with the ARC Fund, Kropz's major shareholder ("Further Equity Facility"), as announced on 26 February 2021, occurred on 10 March 2022 for US$ 200,000;

-- The third and fourth, and final drawdowns on the ZAR 200 Million Equity Facility with the ARC Fund ("ZAR 200 Million Equity Facility"), as announced on 29 September 2021 , occurred on 25 March 2022 for ZAR 40 million and on 26 April 2022 for ZAR 33 million;

-- As announced on 27 April 2022, Kropz Elandsfontein entered into an agreement with the ARC Fund for a ZAR 25 million (approximately US$ 1.60 million) bridge loan facility ("Loan 1") to meet cash requirements in respect of Kropz Elandsfontein and draw down of Loan 1 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 Fund 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 Loan 1, Kropz received an amount of ZAR 78.5 million (approximately US$ 5 million).

Elandsfontein

-- The focus at the Elandsfontein project continued to be production ramp-up of the mine and beneficiation plant;

-- To 30 June 2022, 5,000 tonnes of concentrate had been produced and was being stored in the Saldanha Bay storage facility;

-- BNP released the ZAR 77 million (approximately US$ 5 million) restricted cash in the bank account of Elandsfontein on 10 January 2022, upon satisfaction of the requirement by BNP for Kropz to bridge the funding shortfall in respect of Kropz Elandsfontein as announced on 1 September 2021;

-- 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 in Q4 2022 as a result of early geological challenges in the mining area - higher than expected volumes of indurated material limited the mining rate that could be achieved with the mining equipment on site at that time;

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

   --      Measures taken by management to address these issues are set out later in this 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. 

Key corporate and operational developments post period end

Corporate

-- The second drawdown on the ZAR 177 Million Equity Facility was made on 7 July 2022 for ZAR 60 million (approximately US$ 4 million);

-- As announced on 20 July 2022, Mark Summers, has resigned as Chief Executive Officer ("CEO") and Executive Director of the company effective the end of 2022. The Board has commenced a process for appointing a new CEO;

-- On 9 August 2022, a final drawdown on the ZAR 177 Million Equity Facility was made for ZAR 13.5 million (approximately US$ 0.9 million);

-- As announced on 14 September 2022, Machiel Reyneke retired as a non-executive director of the Company and was replaced by Mr Gerrit Duminy, as non-executive director and representative of the ARC Fund;

-- Today, Kropz, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 126 million (approximately US$ 7 million) bridge loan facility to meet further cash requirements at Elandsfontein in the ramp-up of operations at Elandsfontein; and

-- Kropz and the ARC Fund are currently working on a comprehensive funding structure to finance any further funding requirements in Kropz.

Elandsfontein

-- Subsequent to 30 June 2022, further delays were announced in the ramp-up of operations at Elandsfontein, largely been driven by initial ore variability in the current mining area. Mining rates and associated delivery of ore to the plant were compromised due to the presence of competent banks of hard material within the orebody, that were previously unknown. This hard material could not be mined using free-digging methods leading to new equipment being brought to site to test mechanical breakage of the material, while alternative mining methods are being evaluated;

-- To quantify and assess the impact of this hard material on the future mine plan, further drilling is currently in progress;

-- A revised mineral resource estimate will be produced later in the year, once the results of this current drilling programme have been interpreted;

-- As announced on 9 August 2022, Kropz, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 121.5 million (approximately US$ 7.3 million) bridge loan facility ("Loan 2") to meet immediate cash requirements at Kropz Elandsfontein. A draw down of ZAR 60 million (approximately US$ 3.6 million) on Loan 2 was made on 9 August 2022. Loan 2 is unsecured, repayable on demand, with no fixed repayment terms and is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable on Loan 2 at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly;

-- The second drawdown on Loan 2 was made on 1 September 2022 for ZAR 47 million (approximately US$ 2.8 million). The third and final draw down of ZAR 14.5 million on Loan 2 was made on 29 September 2022; and

-- At the date of this report, 10,000 tonnes of phosphate rock concentrate were in stock at the Saldanha Bay storage facility.

Hinda

-- Potential funding solutions for the development of Hinda are being evaluated and considered.

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (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.

For further information visit www.kropz.com or contact:

 
Kropz Plc                       Via Tavistock 
                               +44 (0) 20 7920 
Mark Summers (CEO)              3150 
 
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) 
Emily Moss                     +44 (0) 20 7920 
 Nick Elwes                     3150 
 Adam Baynes                    kropz@tavistock.co.uk 
 
R&A Strategic Communications   PR (South Africa) 
Charmane Russell               +27 (0) 11 880 
                                3924 
                                charmane@rasc.co.za 
 

About Kropz plc

Kropz is an emerging African phosphate developer and producer with phosphate projects in South Africa and the Republic of Congo ("RoC"). 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.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2022

 
                                                            30 June   31 December 
                                                               2022          2021 
                                                          Unaudited       Audited 
                                                 Notes      US$'000       US$'000 
 Non-current assets 
  Property, plant, equipment and mine 
  development                                      7        102,842       135,099 
 Exploration assets                               8          41,199        44,631 
 Right-of-use assets                                             62             7 
 Other financial assets                                       1,261         1,357 
                                                        -----------  ------------ 
                                                            145,364       181,094 
                                                        -----------  ------------ 
 Current assets 
 Inventories                                                  2,059         1,025 
 Trade and other receivables                                  1,906         1,511 
 Restricted cash                                                  -         4,858 
 Cash and cash equivalents                                    1,007         2,461 
                                                        -----------  ------------ 
                                                              4,972         9,855 
                                                        -----------  ------------ 
 
   TOTAL ASSETS                                             150,336       190,949 
                                                        -----------  ------------ 
 
   Current liabilities 
 Trade and other payables                                     7,929         3,543 
 Lease liabilities                                               23             7 
 Other financial liabilities                     12          11,768         4,295 
                                                             19,720         7,845 
                                                        -----------  ------------ 
 Non-current liabilities 
 Shareholder loans and derivative liability      11          43,783        25,043 
 Lease liabilities                                               41             - 
 Other financial liabilities                     12          18,814        26,291 
 Provisions                                                   4,091         4,033 
                                                        -----------  ------------ 
                                                             66,729        55,367 
                                                        -----------  ------------ 
 
   TOTAL LIABILITIES                                         86,449        63,212 
                                                        -----------  ------------ 
 
 NET ASSETS                                                  63,887       127,737 
                                                        -----------  ------------ 
 
 Shareholders' equity 
 Share capital                                    9           1,212         1,194 
 Share premium                                    9         194,757       193,524 
 Merger reserve                                   9        (20,523)      (20,523) 
 Foreign exchange translation reserve                      (11,094)       (7,807) 
 Share-based payment reserve                                    586         1,197 
 Accumulated losses                                        (94,419)      (45,626) 
                                                        ----------- 
 
   Total equity attributable to the owners 
   of the Company                                            70,519       121,959 
 Non-controlling interests                                  (6,632)         5,778 
                                                        -----------  ------------ 
                                                             63,887       127,737 
                                                        -----------  ------------ 
 

The accompanying notes form part of the Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHSED 30 JUNE 2022

 
                                                                                Six months   Six months 
                                                                                     ended        ended 
                                                                                   30 June      30 June 
                                                                                      2022         2021 
                                                                                 Unaudited    Unaudited 
                                                                        Notes      US$'000      US$'000 
 
 Revenue                                                                                 -            - 
 Other income                                                                          500            7 
 
 Operating expenses                                                                (4,796)      (3,436) 
                                                                               -----------  ----------- 
 
 Operating loss                                                                    (4,296)      (3,429) 
 
 Finance income                                                         13              85        1,547 
 Finance expense                                                        14         (4,306)      (1,471) 
 Fair value losses from derivative asset/liability                      15         (7,637)      (3,728) 
 Impairment losses                                                      16        (44,700)            - 
 Loss on disposal of subsidiary                                                          -        (224) 
                                                                               -----------  ----------- 
 
 Loss before taxation                                                             (60,854)      (7,305) 
 
 Taxation                                                               17               -         (89) 
 
 Loss after taxation                                                              (60,854)      (7,394) 
                                                                               -----------  ----------- 
 
 Loss attributable to: 
 Owners of the Company                                                            (46,794)      (6,602) 
 Non-controlling interests                                                        (14,060)        (792) 
                                                                               -----------  ----------- 
                                                                                  (60,854)      (7,394) 
                                                                               -----------  ----------- 
 
 Loss for the period                                                              (60,854)      (7,394) 
 
 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                                                              (4,137)          628 
 
        *    Exchange differences on translating foreign 
             operations                                                                501        (175) 
                                                                               -----------  ----------- 
                                                                                   (3,636)          453 
                                                                               -----------  ----------- 
 
 Total comprehensive loss                                                         (64,490)      (6,941) 
                                                                               -----------  ----------- 
 Attributable to: 
 Owners of the Company                                                            (50,081)      (6,611) 
 Non-controlling interests                                                        (14,409)        (330) 
                                                                               -----------  ----------- 
                                                                                  (64,490)      (6,941) 
                                                                               -----------  ----------- 
 
 Loss per share attributable to owners 
  of the Company : 
 Basic and diluted (US cents)                                           18          (5.09)       (1.03) 
                                                                               -----------  ----------- 
 

The accompanying notes form part of the Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHSED 30 JUNE 2022

 
                                                        Foreign 
                                                       currency   Share-based                         Total 
                       Share     Share     Merger   translation       payment      Retained    attributable   Non-controlling         Total 
                     capital   premium    reserve       reserve       reserve      earnings       to owners          interest        equity 
                     US$'000   US$'000    US$'000       US$'000       US$'000       US$'000         US$'000           US$'000       US$'000 
 Unaudited 
  - six months 
  ended 30 
  June 2022 
 Balance 
  at 1 January 
  2022                 1,194   193,524   (20,523)       (7,807)         1,197      (45,626)         121,959             5,778       127,737 
 Total 
  comprehensive 
  loss for 
  the period               -         -          -       (3,287)             -      (46,794)        (50,081)          (14,409)      (64,490) 
 
   Issue of 
   shares                 18       503          -             -             -             -             521                 -           521 
 Share options 
  exercised                -       730          -             -         (730)             -               -                 -             - 
 Share based payment 
  charges -                          -          -             -           119             -             119                 -         119 
 Investment 
  in 
  non-redeemable 
  preference 
  shares of 
  Kropz 
  Elandsfontein            -         -          -             -             -       (1,999)         (1,999)             1,999             - 
                  ----------  --------  ---------  ------------  ------------  ------------  --------------  ----------------  ------------ 
 Transactions 
  with owners             18     1,233          -             -         (611)       (1,999)         (1,359)             1,999           640 
                  ----------  --------  ---------  ------------  ------------  ------------  --------------  ----------------  ------------ 
 Balance 
  at 30 June 
  2022                 1,212   194,757   (20,523)      (11,094)           586      (94,419)          70,519           (6,632)        63,887 
                  ----------  --------  ---------  ------------  ------------  ------------  --------------  ----------------  ------------ 
 
 Unaudited 
  - six months 
  ended 30 
  June 2021 
 Balance 
  at 1 January 
  2021                   706   168,212   (20,523)         2,334           385      (11,005)         140,109           (5,276)       134,833 
 Total 
  comprehensive 
  loss for 
  the period               -         -          -           (9)             -       (6,602)         (6,611)             (330)       (6,941) 
 
   Disposal 
   of subsidiary           -         -          -             -             -             -               -               168           168 
 Issue of 
  shares                 416    21,584          -             -             -             -          22,000                 -        22,000 
 Remeasurement 
  of derivative 
  asset on 
  issuance 
  of shares 
  (Note 15)                -         -          -             -             -       (4,673)         (4,673)                 -       (4,673) 
 Share based 
  payment 
  charges                  -         -          -             -           317             -             317                 -           317 
                  ----------  --------  ---------  ------------  ------------  ------------  --------------  ----------------  ------------ 
 Transactions 
  with owners            416    21,584          -             -           317       (4,673)          17,644               168        17,812 
                  ----------  --------  ---------  ------------  ------------  ------------  --------------  ----------------  ------------ 
 Balance 
  at 30 June 
  2021                 1,122   189,796   (20,523)         2,325           702      (22,280)         151,142           (5,438)       145,704 
                  ----------  --------  ---------  ------------  ------------  ------------  --------------  ----------------  ------------ 
 
 

The accompanying notes form part of the Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHSED 30 JUNE 2022

 
                                                       Six months   Six months 
                                                            ended        ended 
                                                          30 June      30 June 
                                                             2022         2021 
                                                        Unaudited    Unaudited 
                                                          US$'000      US$'000 
 Cash flows from operating activities 
 Loss before taxation                                    (60,854)      (7,305) 
 Adjustments for: 
 Depreciation of property, plant and 
  equipment                                                   425          430 
 Amortisation of right-of-use assets                           18           19 
 Impairment losses                                         44,700            - 
 Share-based payment                                          119          317 
 Interest income                                             (85)        (289) 
 Interest expense                                           2,414        1,011 
 Fair value losses from derivative asset/liability          7,637        3,728 
 Loss on disposal of subsidiary                                 -          224 
 Foreign currency exchange differences                      1,884      (1,028) 
 Fair value loss on game animals                               21           12 
                                                      -----------  ----------- 
 Operating cash flows before working 
  capital changes                                         (3,721)      (2,881) 
 Increase in trade and other receivables                    (478)      (1,985) 
 (Increase) / decrease in inventories                     (1,117)           11 
 Increase in payables                                       4,832        2,445 
 Accretion in provisions                                        -          177 
                                                      -----------  ----------- 
                                                            (484)      (2,233) 
 Income taxes paid                                              -            - 
                                                      -----------  ----------- 
 Net cash flows used in operating activities                (484)      (2,233) 
                                                      -----------  ----------- 
 
   Cash flows used in investing activities 
 Purchase of property, plant and equipment               (16,762)     (18,659) 
 Exploration and evaluation expenditure                     (194)      (1,931) 
 Receipt from other financial asset                            70            - 
 Interest received                                             85          289 
 Transfers from restricted cash                             4,858        1,946 
                                                      -----------  ----------- 
 Net cash flows used in investing activities             (11,943)     (18,355) 
                                                      -----------  ----------- 
 
   Cash flows from financing activities 
 Finance cost paid                                        (1,072)      (1,011) 
 Shareholder loan received                                 11,730            - 
 Repayment of lease liabilities                              (14)         (20) 
 Other financial liabilities received                          25           38 
 Issue of ordinary share capital                              554       22,000 
 Net cash flows from financing activities                  11,223       21,007 
                                                      -----------  ----------- 
 
   Net (decrease) / increase in cash and 
   cash equivalents                                       (1,204)          419 
 Cash and cash equivalents at beginning 
  of the period                                             2,461       11,572 
 Foreign currency exchange (losses) / 
  gains on cash                                             (250)          499 
                                                      -----------  ----------- 
 Cash and cash equivalents at end of 
  the period                                                1,007       12,490 
                                                      -----------  ----------- 
 

The accompanying notes form part of the Condensed Consolidated Financial Statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHSED 30 JUNE 2022

   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 RoC. The principal activity of the Company is that of a holding company for the Group, as well as performing all administrative, corporate finance, strategic and governance functions of the Group.

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

   2.       Basis of preparation 

These interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and in accordance with the accounting policies of the consolidated financial statements for the year ended 31 December 2021. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2021 annual report. The statutory financial statements for the year ended 31 December 2021 were prepared in accordance with UK adopted international accounting standards and the Companies Act 2006 applicable to companies reporting under the International Financial Reporting Standards ("IFRS"). They have been filed with the Registrar of Companies. The auditors' reported on those financial statements was unqualified but included a material uncertainty related to going concern.

The interim consolidated financial statements have been prepared under the historical cost convention unless otherwise stated in the accounting policies. They are presented in United States Dollars, the presentation currency of the Group and figures have been rounded to the nearest thousand.

The interim financial information is unaudited and does not constitute statutory accounts as defined in the Companies Act 2006.

The interim financial information was approved and authorised for issue by the Board of Directors on 30 September 2022.

   3.       Significant events 

The 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. Additionally, the recent Ukraine-Russia conflict has created increased uncertainty and volatility in debt and equity markets alongside increased inflationary pressures, supply chain constraints and increased foreign exchange volatility which may make the raising of funding more difficult to secure.

   4.       Going concern 

During the six months ended 30 June 2022, the Group incurred a loss of US$ 60.9 million (six months ended 30 June 2021: US$ 7.4 million) and experienced net cash outflows from operating activities. Cash and cash equivalents totalled US$ 1.0 million as at 30 June 2022 (31 December 2021: US$ 2.5 million)

Delays in the ramp-up of operations at Elandsfontein, as set out above, have delayed first revenues from Elandsfontein to later in 2022.

First revenue from Elandsfontein is now forecast in Q4 of 2022. 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 development and exploration requirements as they fall due.

In September 2021, Kropz secured the ZAR 200 Million Equity Facility of up to ZAR 200 million from the ARC Fund, 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 ZAR 200 Million Equity Facility of ZAR 90 million and a further ZAR 37 million on 10 December 2021. Two further drawdowns were made in 2022, one on 25 March 2022 for ZAR 40 million and ZAR 33 million on 26 April 2022. The ZAR 200 Million Equity Facility is fully drawn at the date of this report.

In April 2022, ARC Fund agreed to provide a ZAR 25 million (approximately US$ 1.6 million) bridge loan facility ("Loan 1") to Kropz Elandsfontein to meet its immediate cash requirements. Loan 1 was unsecured, repayable on demand, and there were no fixed repayment terms. It is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable on the Loan at 14% nominal, compounded monthly. Loan 1 was fully drawn down on 28 April 2022.

In May 2022, Kropz secured the ZAR 177 Million Equity Facility from the ARC Fund. The ZAR 177 Million Equity Facility could be drawn down following a written request from Kropz plc and at the discretion of the ARC Fund. The principal drawn amount may, at the discretion of ARC Fund, 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 was 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 had also been affected by early unpredicted ore variability and lack of operator experience. Since the announcement, the vendor provided design changes which were implemented at the plant, additional operator training was conducted and is ongoing and a mobile crusher ordered to facilitate the crushing of the affected ore to an appropriate size fraction until further test work has been conducted for a permanent solution.

First drawdown of the ZAR 177 Million Equity Facility of ZAR 103.5 million was made on 2 June 2022. Loan 1 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. The second drawdown on the ZAR 177 Million Equity Facility for ZAR 60 million was made on 7 July 2022 and third and final drawdown of ZAR 13.5 million on 9 August 2022.

As announced on 9 August 2022, Kropz, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 121.5 million (approximately US$ 7.3 million) bridge loan facility ("Loan 2") to meet immediate cash requirements at Elandsfontein due to further delays in the ramp-up of operations at Elandsfontein. These delays have largely been driven by increased ore variability in the current mining area. Mining rates and associated delivery of ore to the plant were compromised due to the presence of competent banks of hard material within the orebody, that were previously unknown. This hard material could not be mined using free-digging methods and new equipment needed to be brought to site to test mechanical breakage of the material. Alternative mining methods have been identified. In order to assess the impact of this hard material on the future mine plan, further drilling is currently in progress. A revised mineral resource estimate will be produced once the results of this drilling have been interpreted.

A draw down for ZAR 60 million (approximately US$ 3.6 million) of Loan 2 was made on 9 August 2022. Loan 2 is unsecured, repayable on demand, and there are no fixed repayment terms. It is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable on the Loan at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly.

The second drawdown on Loan 2 was made on 1 September 2022 for ZAR 47 million (approximately US$ 2.8 million). The third and final draw down of ZAR 14.5 million on Loan 2 was made on 29 September 2022.

On 30 September 2022, Kropz, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 126 million (approximately US$ 7 million) bridge loan facility to meet forecast cash requirements at Elandsfontein up to expected first revenue receipts due to further delays in the ramp-up of operations at Elandsfontein. Once contractual agreements have been finalised, drawdowns will be announced when made on this further bridge loan.

On 24 February 2022, Russian troops invaded 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.

Additionally, at the date of these interim 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.

Key contracts associated with operational readiness and commencement of production activities at Kropz 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.

Production has steadily been increasing and 10,000 tonnes of phosphate rock concentrate is now in stock at the Saldanha Bay storage facility.

Current forecasts are based on first concentrate sales from Kropz Elandsfontein of approximately ZAR 40 million in October 2022, an average of ZAR 40 million per month for the 3-month period ended 31 December 2022 and ZAR169 million per month for the 14-month period ended 28 February 2024, thereafter. Should first concentrate sales not occur in October to December 2022, a funding shortfall would arise in Kropz Elandsfontein at the end of 31 December 2022 of approximately ZAR 209 million.

Failure to produce adequate quantities of phosphate rock concentrate to fulfil first 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 17-month forecast period for Kropz Elandsfontein is estimated at approximately ZAR 116 million per month.

Kropz Plc's future cashflows are dependent on concentrate revenues being achieved by Kropz Elandsfontein.

The Directors have reviewed the Group's overall cash position, debt repayments and outlook, for a period of seventeen months following the date of signature of these interim financial statements 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 interim financial statements.

Management is working hard with its contractors to overcome mining and production challenges and increase production to achieve steady state production. Management has successfully raised money in the past from its supportive shareholder base, but there is no guarantee forecast sales will be achieved by the end of the 2022 financial year and that adequate funds will be available 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.

   5.      Significant accounting policies 

The Company has applied the same accounting policies, presentation, methods of computation, significant judgements and the key sources of estimation uncertainties in its interim consolidated financial statements as in its audited financial statements for the year ended 31 December 2021, except for the adoption of new standards effective as of 1 January 2022. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

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). 

Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

IAS 37 defines an onerous contract as a contract in which the unavoidable costs (costs that the Group has committed to pursuant to the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

The amendments to IAS 37.68A clarify, that the costs relating directly to the contract consist of both:

   --      The incremental costs of fulfilling that contract- e.g. direct labour and material; and 

-- An allocation of other costs that relate directly to fulfilling contracts: e.g. allocation of depreciation charge on property, plant and equipment used in fulfilling the contract.

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

The amendment to IAS 16 prohibits an entity from deducting from the cost of an item of property, plant and equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended use. The proceeds from selling such items, together with the costs of producing them, are now recognised in profit or loss.

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

   --        IFRS 1: Subsidiary as a First-time Adopter (FTA) 
   --        IFRS 9: Fees in the '10 per cent' Test for Derecognition of Financial liabilities 

-- IFRS 16: Amendment of illustrative example 13 to remove any confusion about the treatment of lease

   --        IAS 41: Taxation in Fair Value Measurements 

References to Conceptual Framework (Amendments to IFRS 3)

In May 2020, the IASB issued amendments to IFRS 3, which update a reference to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations.

These amendments had no impact on the interim condensed consolidated financial statements of the Group.

   6.      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         RoC      Group 
 30 June 2022                 US$'000     US$'000    US$'000 
 
 Total non-current assets     104,140      41,224    145,364 
                            ---------  ----------  --------- 
 
 
                                South 
                               Africa         RoC      Group 
 31 December 2021             US$'000     US$'000    US$'000 
 
 Total non-current assets     136,431      44,663    181,094 
                            ---------  ----------  --------- 
 
   7.      Tangible assets - Property, plant, equipment and mine development 
 
                           30 June           30 June    30 June    31 Dec          31 Dec     31 Dec 
                              2022              2022       2022      2021            2021       2021 
                                         Accumulated 
                                        depreciation   Carrying               Accumulated   Carrying 
                              Cost    and impairment      value      Cost    depreciation      value 
                           US$'000           US$'000    US$'000   US$'000         US$'000    US$'000 
 Buildings and 
  infrastructure 
 Land                        1,481                 -      1,481     1,515               -      1,515 
 Buildings                  10,281           (3,161)      7,120    10,514            (56)     10,458 
 Capitalised road 
  costs                      7,941           (5,570)      2,371     8,121         (2,978)      5,143 
 Capitalised electrical 
  sub-station costs          3,445           (2,340)      1,105     3,523         (1,213)      2,310 
 
 Machinery, plant 
  and equipment 
 Critical spare 
  parts                      2,101                 -      2,101     1,713               -      1,713 
 Plant and machinery        90,610          (27,377)     63,233    86,243            (63)     86,180 
 Water treatment 
  plant                      2,381             (718)      1,663     2,435               -      2,435 
 Furniture and fittings         58              (41)         17        49            (40)          9 
 Geological equipment           83              (47)         36        65            (45)         20 
 Office equipment               32              (27)          5        32            (21)         11 
 Other fixed assets              1               (1)          -         1             (1)          - 
 Motor vehicles                 97              (97)          -       100           (100)          - 
 Computer equipment             76              (44)         32        65            (41)         24 
 
 Mine development           18,520           (5,583)     12,937    18,938               -     18,938 
 
 Stripping activity 
  costs                     15,101           (4,552)     10,549     6,126               -      6,126 
 
 Game animals                  192                 -        192       217               -        217 
 
 Total                     152,400          (49,558)    102,842   139,657         (4,558)    135,099 
                          --------  ----------------  ---------  --------  --------------  --------- 
 

Reconciliation of property, plant, equipment and mine development - Period ended 30 June 2022

 
                                                                                                Foreign 
                             Opening               Impairment   Fair value   Deprecia-tion     exchange    Closing 
                             Balance   Additions    provision         loss          charge    gain/loss    balance 
                             US$'000     US$'000      US$'000      US$'000         US$'000      US$'000    US$'000 
 Buildings and 
  infrastructure 
 Land                          1,515           -                         -               -         (34)      1,481 
 Buildings                    10,458           -      (3,099)            -             (7)        (232)      7,120 
 Capitalised 
  road costs                   5,143           -      (2,394)            -           (280)         (98)      2,371 
 Capitalised 
  electrical sub-station 
  costs                        2,310           -      (1,039)            -           (121)         (45)      1,105 
 
 Machinery, 
  plant and equipment 
 Critical spare 
  parts                        1,713         450            -            -               -         (62)      2,101 
 Plant and machinery          86,180       6,634     (27,315)            -             (1)      (2,265)     63,233 
 Water treatment 
  plant                        2,435           -        (718)            -               -         (54)      1,663 
 Furniture and 
  fittings                         9          10                         -             (2)            -         17 
 Geological equipment             20          20                         -             (3)          (1)         36 
 Office equipment                 11           -                         -             (6)            -          5 
 Other fixed 
  assets                           -           -                         -               -            -          - 
 Motor vehicles                    -           -                         -               -            -          - 
 Computer equipment               24          14                         -             (5)          (1)         32 
                                                                                         - 
 Mine development             18,938           -      (5,583)            -               -        (418)     12,937 
                                                                                         - 
 Stripping activity 
  costs                        6,126       9,634      (4,552)            -               -        (659)     10,549 
 
 Game animals                    217           -            -         (21)               -          (4)        192 
 
 Total                       135,099      16,762     (44,700)         (21)           (425)      (3,873)    102,842 
                           ---------  ----------  -----------  -----------  --------------  -----------  --------- 
 

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

 
                                                                                     Foreign 
                             Opening                 Fair value   Deprecia-tion     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                          2,067           -              -               -        (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 
                           ---------  ----------  -------------  --------------  -----------  --------- 
 

Kropz Elandsfontein has a fully drawn down project financing facility with BNP Paribas for US$ 30 million (see Note 12). BNP has an extensive security package over all the assets of Kropz Elandsfontein and Elandsfontein Land Holdings (Pty) Ltd ("Elandsfontein Land Holdings") as well as the share investments in those respective companies owned by Kropz SA (Pty) Ltd ("Kropz SA").

   8.      Intangible assets - exploration and evaluation costs 
 
                                   30 June   31 December 
                                      2022          2021 
                                   US$'000       US$'000 
 Capitalised exploration costs 
 Cost                               41,199        44,631 
 Amortisation                            -             - 
                                 ---------  ------------ 
 Carrying value                     41,199        44,631 
                                 ---------  ------------ 
 

Reconciliation of exploration assets

 
                                                                               Foreign 
                                         Opening                              exchange    Closing 
                                         Balance   Additions     Disposals        loss    balance 
                                         US$'000     US$'000       US$'000     US$'000    US$'000 
       Period ended 30 June 2022 
       Capitalised exploration 
        costs                             44,631         194             -     (3,626)     41,199 
                                   -------------  ----------  ------------  ----------  --------- 
 

Reconciliation of exploration assets

 
                                                                             Foreign 
                                       Opening                              exchange    Closing 
                                       Balance   Additions     Disposals        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 
                                 -------------  ----------  ------------  ----------  --------- 
 

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 Board of Directors assessed whether there were any indicators of impairment. No indicators were identified.

   9.      Share capital 

Shares were issued during the period as set out below:

 
                                                   Share      Share     Merger 
                                       Number    capital    premium    reserve     Total 
                                           of 
                                       shares    US$'000    US$'000    US$'000   US$'000 
 At 1 January 2021                558,627,558        706    168,212   (20,523)   148,395 
 
 Convertible loan - 
  issue of shares                 350,944,417        488     25,312          -    25,800 
 As at 31 December 
  2021                            909,571,975      1,194    193,524   (20,523)   174,195 
                               --------------  ---------  ---------  ---------  -------- 
 
 Share options exercised            6,700,000          9        731          -       740 
 Shares issued in settlement 
  of guarantee fees                 3,971,712          4        307          -       311 
 Convertible loan - 
  issue of shares                   3,474,536          5        195          -       200 
                               --------------  ---------  ---------  ---------  -------- 
 At 30 June 2022                  923,718,223      1,212    194,757   (20,523)   175,446 
                               --------------  ---------  ---------  ---------  -------- 
 
 

The changes to the issued share capital of the Company which occurred between 1 January 2022 and 30 June 2022 were as follows:

Convertible loan facilities

Kropz secured a convertible loan facility of up to US$ 5 million (not exceeding a maximum of ZAR 85 million) from ARC Fund ("Further Equity Facility") in February 2021, to be used exclusively for the Hinda Updated FS and general corporate purposes for Kropz. Quarterly drawdowns under the Further Equity Facility are at the sole discretion of Kropz. Repayment of the Further Equity Facility and any interest thereon will be in the form of immediate conversion into ordinary shares in Kropz and issued to ARC Fund, at a conversion price of 4.202 pence per ordinary share each quarter, and any US$ amount will be converted to GBP at an agreed rate of US$ 1 = 0.73 GBP. Ordinary shares to be issued to ARC Fund in terms of the Further Equity Facility will be a maximum of 86,863,398 ordinary shares.

The fifth and final drawdown on the Further Equity Facility occurred on 10 March 2022 for US$ 200,000 which was settled by way of the issue of 3,474,536 new ordinary shares at the issue price of 4.202 pence per ordinary share to the ARC Fund.

As announced on 13 May 2020, and pursuant to the terms of the original US$ 40 million equity facility, any fees associated with the bank guarantee provided by ARC Fund, would be settled by the issue of new ordinary shares to ARC Fund. The final guarantee fees due to ARC Fund, amounting to US$ 311,733 was settled by the issue of 3,971,712 new ordinary shares on 10 March 2022.

Share based payment arrangements

Employee Share Option Plan and Long-Term Incentive Plan

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.

The charge to profit and loss for the period ended 30 June 2022 was US$ 119,000 (period ended 30 June 2021: US$ 317,000).

As announced on 4 August 2020, 6,700,000 LTIP Awards were awarded to a Director and senior management. 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 performance conditions were met and 6,700,000 LTIP Awards vested on 31 December 2021. Consequently, 6,700,000 ordinary shares were issued on 24 January 2022, at an exercise price of GBP0.001 an ordinary share, in the Company.

   10.     Key management personnel remuneration 

The remuneration for each Director and Key Management Personnel ("KMP") of the Group during the period was as follows:

 
                                                  Short-Term Benefits 
 Period ended 30 June             Remuneration                 Options 
  2022                                     (i)      Bonus         (ii)     Total 
                                           US$        US$          US$       US$ 
 Executive directors 
 Mark Summers                          161,879          -       52,638   214,517 
                                 -------------  ---------  -----------  -------- 
                                       161,879          -       52,638   214,517 
                                 -------------  ---------  -----------  -------- 
 Non-executive directors 
 Lord Robin Renwick                     25,946          -            -    25,946 
 Linda Beal                             24,269          -            -    24,269 
 Mike Daigle                            31,135          -            -    31,135 
 Machiel Reyneke (iii)                       -          -            -         - 
 Mike Nunn (iii)                             -          -            -         - 
                                 -------------  ---------  -----------  -------- 
                                        81,350          -            -    81,350 
                                 -------------  ---------  -----------  -------- 
 
 Total directors' remuneration         243,229          -       52,638   295,867 
                                 -------------  ---------  -----------  -------- 
 
 Executives 
 Michelle Lawrence                     116,474          -       36,510   152,984 
 Patrick Stevenaert                     81,328          -        9,021    90,349 
                                 -------------  ---------  -----------  -------- 
                                       197,802          -       45,531   243,333 
                                 -------------  ---------  -----------  -------- 
 
 
                                                      Short-Term Benefits 
 Period ended 30 June                                           Options 
  2021                            Remuneration(i)       Bonus      (ii)          Total 
                                              US$         US$       US$            US$ 
 Executive directors 
 Mark Summers                             154,491           -        127,317   281,808 
                                 ----------------  ----------  -------------  -------- 
                                          154,491           -        127,317   281,808 
                                 ----------------  ----------  -------------  -------- 
 Non-executive directors 
 Lord Robin Renwick                        27,759           -              -    27,759 
 Linda Beal                                25,965           -              -    25,965 
 Mike Daigle                               33,311           -              -    33,311 
 Machiel Reyneke (iii)                          -           -              -         - 
 Mike Nunn (iii)                                -           -              -         - 
                                 ----------------  ----------  -------------  -------- 
                                           87,035           -              -    87,035 
                                 ----------------  ----------  -------------  -------- 
 
 Total directors' remuneration            241,526           -        127,317   368,843 
                                 ----------------  ----------  -------------  -------- 
 
 Executives 
 Michelle Lawrence                        109,585           -        110,062   219,647 
 Patrick Stevenaert                        89,692           -         41,165   130,857 
                                 ----------------  ----------  -------------  -------- 
                                          199,277           -        151,227   350,504 
                                 ----------------  ----------  -------------  -------- 
 
 
   (i)       Includes UK NIC, UK payroll tax and pension. 

(ii) Options as share-based payment arrangements under the ESOP, LTIP and other schemes are expensed over the vesting period, which includes the years to which they relate and their subsequent vesting periods.

   (iii)     Machiel Reyneke and Mike Nunn receive no Director fees. 

The following ESOP options, which were issued at the time of admission to AIM as share-based payment arrangements, were outstanding to KMP at the period ended 30 June 2022:

 
 Name                 Expiry Date    Exercise Price   Number of Options 
                                      (pence) 
-------------------  -------------  ---------------  ------------------ 
                      28 November 
 Mark Summers          2028               0.1                 3,362,609 
                      28 November 
 Michelle Lawrence     2028               0.1                 1,465,137 
                                                     ------------------ 
                                                              4,827,746 
                                                     ------------------ 
 

The following LTIP options, which were issued on 2 July 2021 as share-based payment arrangements, were outstanding to KMP at the period ended 30 June 2022:

 
 Name                  Vesting dates    Exercise Price   Number of Options 
                                         (pence) 
--------------------  ---------------  ---------------  ------------------ 
 Mark Summers             Various            0.1                 2,400,000 
 Michelle Lawrence        Various            0.1                 2,400,000 
 Patrick Stevenaert       Various            0.1                   900,000 
                                                        ------------------ 
                                                                 5,700,000 
                                                        ------------------ 
 
   11.     Shareholder loans and derivative liability 
 
                                 30 June   31 December 
                                    2022          2021 
                                 US$'000       US$'000 
 ARC Fund                         16,489        16,196 
 Convertible debt - ARC Fund      15,583         6,191 
 Derivative liability             11,711         2,656 
                               ---------  ------------ 
                                  43,783        25,043 
                               ---------  ------------ 
 

ARC Fund

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 Fund

On 20 October 2021, the Company entered into a new convertible equity facility of up to ZAR 200 million ("ZAR 200 Million Equity Facility") with ARC Fund. The Company made a drawdown of ZAR 90 million of the ZAR 200 Million Equity Facility on 26 October 2021, ZAR 37 million on 9 December 2021, ZAR40 million on 25 March 2022 and a further ZAR 33 million on 26 April 2022. The ZAR 200 Million Equity Facility is fully drawn down at the date of this report. Interest is payable at 14% nominal, compounded monthly. At any time during the term of the ZAR 200 Million Equity Facility, repayment of the ZAR 200 Million Equity Facility capital amount will, at the election of ARC Fund, 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 Fund, 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, or payable in cash by the Company at the end of the term of the ZAR 200 Million Equity Facility which is 27 October 2026.

On 11 May 2022, the Company entered into a new convertible equity facility of up to ZAR 177 million ("ZAR 177 Million Equity Facility") with ARC Fund. The Company made a drawdown of ZAR 103.5 million of the ZAR 177 Million Equity Facility on 2 June 2022. Interest is payable at 14% nominal, compounded monthly. At any time during the term of the ZAR 177 Million Equity Facility, repayment of the ZAR 177 Million Equity Facility capital amount will, at the election of ARC Fund, either be in the form of the conversion into Ordinary Shares in the Company and issued to ARC Fund, at a conversion price of 9.256 pence per Ordinary Share each, representing the 30-day VWAP on 4 May 2022, and at fixed exchange rate of ZAR 1 = GBP 0.0504, or payable in cash by the Company at the end of the term of the ZAR 177 Million Equity Facility which is 2 June 2027. Two further draw downs were made in 2022, one on 7 July 2022 for ZAR 60 million and ZAR 13.5 million on 9 August 2022. The ZAR 177 Million Equity Facility is fully drawn down 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 first 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 21).

   12.     Other financial liabilities 
 
                           30 June   31 December 
                              2022          2021 
                           US$'000       US$'000 
 BNP Paribas                30,064        30,041 
 Greenheart Foundation         518           545 
                         ---------  ------------ 
 Total                      30,582        30,586 
                         ---------  ------------ 
 
 
 Non-current financial liabilities    18,814   26,291 
 Current financial liabilities        11,768    4,295 
                                     -------  ------- 
 Total                                30,582   30,586 
                                     -------  ------- 
 

BNP

A US$ 30,000,000 facility was made available by BNP Paribas 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 Paribas 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 Paribas 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 Paribas. In May 2020, Kropz Elandsfontein and BNP Paribas agreed to amend and restate the term loan facility agreement entered into on or about 13 September 2016 (as amended from time to time). The BNP Paribas facility amendment agreement extends inter alia the final capital repayment date to Q3 2024, with eight equal capital repayments to commence in Q4 2022 and an interest rate of 6.5% plus US LIBOR, up to project completion and 4.5% plus US LIBOR thereafter. Financial closure occurred on 25 June 2020.

BNP Paribas has an extensive security package over all the assets of Kropz Elandsfontein and Elandsfontein Land Holdings as well as the share investments in those respective companies owned by Kropz SA.

   13.     Finance income 
 
                           Six months   Six months 
                                ended        ended 
                              30 June      30 June 
                                 2022         2021 
                              US$'000      US$'000 
 Interest income                   85          289 
 Foreign exchange gains             -        1,258 
                          -----------  ----------- 
 Total                             85        1,547 
                          -----------  ----------- 
 
   14.     Finance expense 
 
                                            Six months   Six months 
                                                 ended        ended 
                                               30 June      30 June 
                                                  2022         2021 
                                               US$'000      US$'000 
 Shareholder loans                               1,215          243 
 Foreign exchange losses                         1,892           44 
 Bank debt                                       1,057        1,010 
 BNP Paribas - Debt modification present 
  value adjustment amortisation                  (123)        (130) 
 BNP Paribas amendment fee amortisation            108          114 
 Finance leases                                      3            - 
 Other                                             154          190 
                                           -----------  ----------- 
 Total                                           4,306        1,471 
                                           -----------  ----------- 
 
   15.     Fair value losses from derivative asset/liability 
 
                                                     Six months   Six months 
                                                          ended        ended 
                                                        30 June      30 June 
                                                           2022         2021 
                                                        US$'000      US$'000 
 Fair value loss from convertible loan facilities         7,637        3,728 
 Total                                                    7,637        3,728 
                                                    -----------  ----------- 
 

The Group secured a US$ 40 million convertible loan facility from ARC Fund, Kropz's major shareholder, in June 2020 for the development of Elandsfontein. Under the terms of the convertible equity facility, ARC Fund 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 Fund secured this facility from Rand Merchant Bank in South Africa in order to fulfil its commitments to the Company. The Company, via Kropz Elandsfontein, received 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$.

Immediately upon draw down, new ordinary shares in the Company were issued to ARC Fund 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 Fund in terms of a drawdown.

Kropz secured a further convertible loan facility of up to US$ 5 million (not exceeding a maximum of ZAR 85 million) from ARC Fund ("Further Equity Facility") in February 2021, to be used exclusively for the Hinda Updated FS and general corporate purposes for Kropz. Repayment of the Further Equity Facility and any interest thereon will be in the form of immediate conversion into ordinary shares in Kropz and issued to ARC Fund, at a conversion price of 4.202 pence per ordinary share each quarter, and any US$ amount will be converted to GBP at an agreed rate of US$ 1 = 0.73 GBP.

At 30 June 2021, US$ 4 million remained undrawn of the Original and Further Equity Facility which equated to 55,594,902 new ordinary shares to be issued in the Company pursuant to the terms of the Original Equity Facility and Further Equity Facility. 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 5.70 pence per share. Accordingly, the derivative asset was revalued for changes in the share price prior to draw down with the resulting loss for revaluation for the six months ended 30 June 2021 booked to profit and loss of US$ 3,728,000 and US$ 4,673,000 receivable extinguished through equity based on the relative draw down percentage of the undrawn facilities at period end.

On 20 October 2021, the Company entered into a new convertible equity facility of up to ZAR 200 million ("ZAR 200 Million Equity Facility") and on 11 May 2022 of up to ZAR 177 million ("ZAR 177 Million Equity Facility") with ARC Fund (refer to Note 11). It was determined that the conversion option embedded in the convertible debt equity facilities be accounted for separately as a derivative liability. 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 21).

   16.     Impairment losses 

The Elandsfontein mine is currently in the ramp-up phase. 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 net present value is most sensitive to the following key estimates and assumptions:

   --      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. These assessments are based on the resource statements and exploration and evaluation work undertaken by appropriately qualified persons. Forecast phosphate prices have been obtained from independent external experts and forecast South African Rand exchange rates from commercial banks. Based on the assumptions the recoverable amount of assets (US$ 100.5 million) is significantly less than its carrying amount (US$ 145.2 million) and an impairment of US$ 44.7 million is required.

The impairment loss was allocated as follows:

 
                                                   Six months   Six months 
                                                        ended        ended 
                                                      30 June      30 June 
                                                         2022         2021 
                                                      US$'000      US$'000 
 Property, plant, equipment and mine development 
  assets                                               44,700            - 
 Total                                                 44,700            - 
                                                  -----------  ----------- 
 

Sensitivity Analysis

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

 
                                                          Reversal of / 
                                                          (increase in) 
                                                             impairment 
                                                            US$ million 
 
                                         Increased by 
  Impact if discount rate                          2%            (12.3) 
 
                                         increased by 
  Impact if selling prices                        10%              44.7 
                                       reduced by 10%            (63.8) 
 
                                         increased by 
  Impact if production tonnes                     10%              44.7 
                                       reduced by 10%            (57.8) 
 
                                         increased by 
  Impact if foreign exchange rates                10%              44.7 
                                       reduced by 10%            (59.8) 
 
                                         increased by 
  Impact if operating costs:                      10%            (54.3) 
                                       reduced by 10%              44.7 
 
   17.     Taxation 
 
 Major components of tax charge                      Six months   Six months 
                                                          ended        ended 
                                                        30 June      30 June 
                                                           2022         2021 
                                                        US$'000      US$'000 
 Deferred 
 Originating and reversing temporary differences              -            - 
 Current tax 
 UK tax in respect of current period                          -           89 
                                                   ------------  ----------- 
 Total                                                        -           89 
                                                   ------------  ----------- 
 

The Group had losses for tax purposes of approximately US$ 78.2 million (31 December 2021: US$ 52.1 million) which, subject to agreement with taxation authorities, are available to carry forward against future profits. A net deferred tax asset arising from these losses has not been recognised as steady state production has not been reached.

   18.     Earnings per share 

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

 
                                                 Six months    Six months 
                                                      ended         ended 
                                                    30 June       30 June 
                                                       2022          2021 
                                                    US$'000       US$'000 
 Loss attributable to ordinary shareholders        (46,794)       (6,602) 
 Weighted average number of ordinary shares 
  in Kropz plc                                  920,069,356   643,728,660 
 
 Basic and diluted loss per share (US cents)         (5.09)        (1.03) 
                                               ------------  ------------ 
 

The diluted loss per share and the basic loss per share are recorded as the same amount, as the conversion of share options decreases the basic loss per share, thus being anti-dilutive.

   19.     Related party transactions 

Details of share issues, KMP remuneration and shareholder loans are explained in Notes 9, 10 and 11. In addition, the following transactions were carried out with related parties:

Related party balances

Loan accounts - Owed to related parties

 
                                 30 June   31 December 
                                    2022          2021 
                                 US$'000       US$'000 
 ARC Fund                         16,489        16,196 
 Convertible debt - ARC Fund      15,583         6,191 
 Derivative liability             11,711         2,656 
 Greenheart Foundation               518           545 
                               ---------  ------------ 
 Total                            44,301        25,588 
                               ---------  ------------ 
 

Related party balances

Interest paid to related parties

 
             Six months   Six months 
                  ended        ended 
                30 June      30 June 
                   2022         2021 
                US$'000      US$'000 
 ARC Fund         1,215          243 
            -----------  ----------- 
 Total            1,215          243 
            -----------  ----------- 
 
   20.     Seasonality of the Group's business 

There are no seasonal factors which materially affect the operations of any company in the Group.

   21.     Fair value 

The following table compares the carrying amounts and fair values of the Group's financial assets and financial liabilities as at 30 June 2022.

The Group considers that the carrying amount of the following financial assets and financial liabilities are a reasonable approximation of their fair value:

   --      Trade receivables; 
   --      Trade payables; 
   --      Restricted cash; and 
   --      Cash and cash equivalents. 
 
                                   As at 30 June       As at 31 December 
                                        2022                  2021 
                                Carrying       Fair   Carrying       Fair 
                                  amount      value     amount      value 
                                 US$'000    US$'000    US$'000    US$'000 
 Financial Assets 
 Other financial assets            1,261      1,261      1,357      1,357 
 Derivative asset                      -          -          -          - 
                               ---------  ---------  ---------  --------- 
 Total                             1,261      1,261      1,357      1,357 
                               ---------  ---------  ---------  --------- 
 
 Financial Liabilities 
 Shareholder loans                32,072     32,072     22,387     22,387 
 Derivative liability             11,711     11,711      2,656      2,656 
 Other financial liabilities      30,582     30,582     30,586     30,586 
                               ---------  ---------  ---------  --------- 
 Total                            74,365     74,365     55,629     55,629 
                               ---------  ---------  ---------  --------- 
 
 

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.

   (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 
 
 30 June 2022 
 Derivative asset          -          -          -          - 
                   ---------  ---------  ---------  --------- 
 
 31 December 2021 
 Derivative asset          -          -          -          - 
                   ---------  ---------  ---------  --------- 
 
 
                             Level       Level      Level 
                                 1           2          3      Total 
                           US$'000     US$'000    US$'000    US$'000 
 
 30 June 2022 
 Derivative liability            -           -     11,711     11,711 
                        ----------  ----------  ---------  --------- 
 
 31 December 2021 
 Derivative liability            -           -      2,656      2,656 
                        ----------  ----------  ---------  --------- 
 

There were no transfers between levels for recurring fair value measurements during the year.

   (iii)        Reconciliation:  Level 3 fair value measurement 
 
                                          Six months           Year 
                                               ended          ended 
                                             30 June    31 December 
                                                2022           2021 
                                             US$'000        US$'000 
 Derivative asset 
 Opening balance                                   -          8,586 
 Fair value loss recognised in profit 
  and loss                                         -        (4,139) 
 Extinguished on issuance of equity                -        (4,447) 
                                        ------------  ------------- 
 Closing balance                                   -              - 
                                        ------------  ------------- 
 
 
 Derivative liability 
 Opening balance                          (2,656)         - 
 Fair value at initial recognition        (2,320)   (2,015) 
 Fair value loss recognised in profit 
  and loss                                (7,637)     (653) 
 Foreign exchange                             902        12 
                                        ---------  -------- 
 Closing balance                         (11,711)   (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 ZAR 200 Million Equity Facility and ZAR 177 Million Equity Facility.

   22.     Events after the reporting period 

The second drawdown on the ZAR 177 Million Equity Facility of ZAR 60 million was made on 7 July 2022 and third and final drawdown of ZAR 13.5 million on 9 August 2022.

Further delays in the ramp-up of operations at Elandsfontein has largely been driven by ore variability in the current mining area, as discussed above.

As announced on 9 August 2022, Kropz, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 121.5 million (approximately US$ 7.3 million) bridge loan facility ("Loan 2") to meet immediate cash requirements at Elandsfontein. A draw down ZAR 60 million (approximately US$ 3.6 million) of Loan 2 was made on 9 August 2022 and the third and final draw down of ZAR 14.5 million (approximately US$ 800,000) was made on 29 September 2022.

Loan 2 is unsecured, repayable on demand, and there are no fixed repayment terms. It is repayable by Elandsfontein on no less than two business days' notice. Interest is payable on Loan 2 at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly.

At the date of this report, 10,000 tonnes of phosphate rock concentrate were in stock at the Saldanha Bay storage facility.

As announced on 30 September 2022, Kropz, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 126 million (approximately US$ 7 million) bridge loan facility to meet further cash requirements at Elandsfontein due to further delays in the ramp-up of operations at Elandsfontein. A further announcement will be made once contractual agreements have been finalised and drawdowns made on this further bridge loan.

Company information

Directors

Lord Robin William Renwick of Clifton, Non-executive Chairman

Mark Robert Summers, Chief Executive Officer

Michael (Mike) John Nunn, Non-executive Director

Gerrit Jacobus Duminy, Non-executive Director (appointed 14 September 2022)

Michael (Mike) Albert Daigle, Independent Non-executive Director

Linda Janice Beal, Independent Non-executive Director

Company secretary

Mark Robert Summers

Company number

11143400

Registered address

35 Verulam Road

Hitchin SG5 1QE

Independent auditors

BDO LLP

55 Baker Street

London W1U 7EU

Nominated adviser

Grant Thornton UK LLP

30 Finsbury Square

London EC2A 1AG

Broker

H&P Advisory Limited

2 Park Street

Mayfair

London W1K 2HX

Legal advisers as to English Law

Memery Crystal Limited

165 Fleet Street

London EC4A 2DY

Legal advisers as to South African Law

Werksmans Attorneys

The Central, 96 Rivonia Road

Sandton 2196

Johannesburg

South Africa

Bowmans

22 Bree Street

Cape Town 8000

South Africa

Legal advisers as to the laws of Republic of Congo

PricewaterhouseCoopers Tax & Legal

88 Avenue du General de Gaulle

B.P. 1306

Pointe-Noire

Congo

Legal advisers as to the laws of the British Virgin Islands

Harney Westwood & Riegels LP

Craigmuir Chambers

PO Box 71,

Road Town

Tortola VG1110

British Virgin Islands

Registrars

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol BS13 8AE

Principal bankers

Barclays

One Churchill Place

London E14 5HP

BNP Paribas

11 Crescent Place

Melrose Arch

Johannesburg 2196

South Africa

Financial PR

Tavistock Communications Limited

1 Cornhill

London EC3V 3ND

Market consultant

CRU Consulting

Chancery House

53-64 Chancery Lane

London WC2A 1QS

Company's website: www.kropz.com

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END

IR WPUBWBUPPGCU

(END) Dow Jones Newswires

September 30, 2022 10:44 ET (14:44 GMT)

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