TIDMKRPZ

RNS Number : 6378H

Kropz PLC

31 July 2023

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

31 July 2023

Kropz Plc

("Kropz" or the "Company")

Final Audited Results for the Year ended 31 December 2022,

Posting of Annual Report and Accounts,

Notice of General Meeting

and

Restoration of Trading on AIM

Kropz Plc (AIM: KRPZ), an emerging African producer and developer of plant nutrient feed minerals, announces Final Audited Results for the Year ended 31 December 2022 and the publication of the Company's Annual Report and Accounts.

The full financial report will be available online immediately on the Company's website at www.kropz.com and will be posted to shareholders that have elected to receive printed copies today. Printed copies will, therefore, be available to shareholders during the course of the week.

The Company will hold a General Meeting for the purposes of approving the Annual Report which will be held at the offices of Memery Crystal at 165 Fleet Street, London EC4A 2DY on 1 September 2023 at 12.00 p.m.

Following the publication of the results for the year ended 31 December 2022, the Company has requested that the suspension of trading in its shares to be lifted with effect from 7.30 a.m. today, Monday 31 July 2023.

Highlights

Key developments during the 2022 financial year

Corporate

-- Kropz plc ("Kropz" or the "Company") issued 6,700,000 ordinary shares, at an exercise price of GBP0.001 an ordinary share, in the Company to key members of the executive management team, including certain Persons Discharging Managerial Responsibilities in January 2022. The issue of ordinary shares was due to awards vesting that had been issued under the Company's Long-Term Incentive Plan of 31 July 2020, announced on 4 August 2020;

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

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

-- As announced on 27 April 2022, Kropz Elandsfontein entered into an agreement with the ARC Fund for a ZAR 25 million (approximately US$ 1.60 million) bridge loan facility ("Loan 1") to meet cash requirements in respect of Kropz Elandsfontein and the drawdown of Loan 1 took place on 28 April 2022. Loan 1 was unsecured, repayable on demand, with no fixed repayment terms and was repayable by Kropz Elandsfontein on no less than two business days' notice. Interest was payable on Loan 1 at 14% nominal per annum and compounded monthly;

-- As announced on 11 May 2022, Kropz entered into a new conditional convertible equity facility of up to ZAR 177 million (approximately US$ 11 million) ("ZAR 177 Million Equity Facility") with the ARC Fund to fund Elandsfontein to first revenues from bulk concentrate sales - this was approved by Kropz shareholders and became unconditional on 1 June 2022; and

-- The first drawdown on the ZAR 177 Million Equity Facility occurred on 2 June 2022 for ZAR 103.5 million (approximately US$ 7 million). After set-off against Loan 1, Kropz received an amount of ZAR 78.5 million (approximately US$ 5 million);

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

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

-- As announced on 20 July 2022, Mark Summers expressed his intention to leave the Company and he resigned as Chief Executive Officer ("CEO") and Executive Director of the Company in January 2023;

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

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

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

-- As announced on 30 September 2022, Kropz, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 126 million (approximately US$ 7 million) bridge loan facility ("Loan 3") to meet immediate cash requirements at Kropz Elandsfontein. A draw down of ZAR 60.5 million (approximately US$ 3.4 million) on Loan 3 was made on 6 October 2022. Loan 3 was unsecured, repayable on demand, with no fixed repayment terms and was repayable by Kropz Elandsfontein on no less than two business days' notice. Interest was payable on Loan 3 at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly;

-- The second and final drawdown on Loan 3 was made on 28 October 2022 for ZAR 65.5 million (approximately US$ 3.7 million);

-- As announced on 14 November 2022, Kropz entered into a new conditional convertible equity facility of up to ZAR 550 million (approximately US$ 31.6 million) ("ZAR 550 Million Equity Facility") with ARC Fund to progress the ramp-up of operations at Elandsfontein and provide working capital to the Company for general corporate purposes and further funding of early site works, at the Hinda project in the Republic of Congo - which was approved by Kropz shareholders and became unconditional on 30 November 2022;

-- The first drawdown on the ZAR 550 Million Equity Facility occurred on 1 December 2022 for ZAR 307.5 million (approximately US$ 18.1 million). After set-off of Loan 2 and Loan 3 of ZAR 247.5 million, Kropz received an amount of ZAR 60 million (approximately US$ 3.5 million);

-- The second drawdown on the ZAR 550 Million Equity Facility of ZAR 135 million (approximately US$ 7.9 million) occurred on 22 December 2022; and

-- As announced on 7 December 2022, Michelle Lawrence resigned as chief operating officer of Kropz and as an executive director of Kropz Elandsfontein with effect from 1 January 2023. Mark Maynard was appointed chief operating officer with effect from 1 January 2023.

Elandsfontein

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

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

-- During 2022, further delays were experienced in the commissioning ramp up of operations at Elandsfontein resulting in further funding shortfalls due to:

-- The requirement to re-engineer parts of the fine flotation circuit as proposed by the vendor;

   --      The lack of operator expertise and experience; and 

-- Mining rates and associated delivery of ore to the plant being compromised due to the presence of competent banks of hard material within the orebody, that were previously unknown. Subsequently, the vendor has provided design changes which were implemented at the plant, additional operator training was conducted and new equipment was brought to site to facilitate mechanical breaking which has been effective to date, but alternative methods are being considered;

-- To quantify and assess the impact of this hard material on the future mine plan, an infill drilling programme was undertaken;

-- Independent geological consultants were commissioned which provided an updated JORC (2012) compliant Mineral Resource Estimate ("MRE"):

-- Updated MRE now caters for improved geotechnical characteristics of the ore in addition to the grade characteristics;

   --     Increase in total phosphate resources at Elandsfontein to 106.58 million tonnes ("Mt"); 

-- Downgrade of much of the previously Measured resource to Indicated, and downgrade of previously Indicated resources to Inferred. Total Measured and Indicated resource tonnage has reduced by approximately 76%. The updated resource considered core recovery, average drill hole spacing and sample count;

-- Grade has improved, with the refined lithological contacts and improved estimates from the infill drilling and pit sampling programme. This correlates well with the current pit intersections; and

   --      Proven reserve of 7.31 Mt at 10.71% P(2) O(5) . 

Hinda

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

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

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

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

Key developments post the financial year end

Corporate

-- As announced on 16 January 2023, Kropz appointed Louis Loubser to the board of the Company as Chief Executive Officer ("CEO") and executive director;

-- The third drawdown on the ZAR 550 Million Equity Facility of ZAR 60 million (approximately US$ 3.5 million) occurred on 25 January 2023;

-- The fourth drawdown on the ZAR 550 Million Equity Facility of ZAR 40 million (approximately US$ 2.2 million) occurred on 27 February 2023; and

-- Management is in the process of refinancing the BNP facility (outstanding amount US$ 18,750,000) and currently expects that a replacement loan will be in place in the third quarter of 2023 before the expiry of the facility.

Elandsfontein

-- First bulk shipment and sale of 33,000 tonnes of phosphate concentrate from Kropz Elandsfontein was announced on 23 January 2023;

-- A second shipment and sale of 20,000 tonnes of phosphate concentrate from Kropz Elandsfontein was announced on 14 March 2023;

-- During April 2023 two further shipments of 33,000 tonnes and 11,000 tonnes were sold and a further 33,000 tonnes in June 2023;

-- As announced on 14 March 2023, Kropz, Kropz Elandsfontein and ARC Fund agreed to further ZAR 285 million (approximately US$ 15.5 million) bridge loan facilities ("Loan 4") to meet immediate cash requirements at Kropz Elandsfontein. A first draw down of ZAR 25 million (approximately US$ 1.4 million) on Loan 4 was made on 14 March 2023. Loan 4 is unsecured, repayable on demand, with no fixed repayment terms and is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable on Loan 4 at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly; and

-- A second draw down on Loan 4 for an amount of ZAR 90 million was made on 28 March 2023, a third drawdown of ZAR 30 million was made on 25 April 2023 and a fourth draw down of Loan 4 was made on 23 June 2023.

Hinda

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

   --       Continued engagement with local government regarding project development; and 

-- Reduced sized project is currently being assessed to propose a fit-for-purpose low capex project to prove the concept of producing phosphate concentrate in the Congo and exporting it.

   For further information visit   www.kropz.com  or contact: 
 
 Kropz Plc                       Via Tavistock 
 Louis Loubser (CEO)             +44 (0) 207 920 3150 
 
 Grant Thornton UK LLP           Nominated Adviser 
 Samantha Harrison 
  Harrison Clarke 
  George Grainger 
  Ciara Donnelly                 +44 (0) 20 7383 5100 
 
 Hannam & Partners               Broker 
 Andrew Chubb 
  Ernest Bell                    +44 (0) 20 7907 8500 
 
 Tavistock                       Financial PR & IR (UK) 
 Nick Elwes                      +44 (0) 207 920 3150 
  Jos Simson                      kropz@tavistock.co.uk 
  Emily Moss 
 
 R&A Strategic Communications    PR (South Africa) 
 Charmane Russell                +27 (0) 11 880 3924 
  Marion Brower                   charmane@rasc.co.za 
                                  marion@rasc.co.za 
 

About Kropz Plc

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

Chairman's Statement

Dear shareholder,

In the course of 2022, we faced significant challenges in achieving desired production levels at Elandsfontein. Thanks to our major shareholder, African Rainbow Capital ("ARC") additional funding was provided to meet these challenges.

On 16 January 2023, we were delighted to announce that appointment of Louis Loubser, a very experienced mining operations executive, as the Chief Executive Officer of the Company. In March 2023 also ARC agreed to provide a ZAR 285 million bridge loan facility to Kropz Elandsfontein.

Since early 2023, production has improved at Elandsfontein, though not yet to planned levels, and we were delighted to announce the first bulk shipment of phosphate rock was made in January as well as a further 5 shipments that have been made in 2023 to date. The focus now is on achieving further sustainable increases in production and grade.

The Board thanks all the members of the executive, management, the teams on the ground, contractors, auditors and advisers for all their efforts and assistance during the year. I would also like to thank Mark Summers, the former CEO, for his service to the Company and wish him well for his future endeavours. We once again want to thank our major shareholder, ARC, for their further commitment and continued support.

Lord Robin William Renwick of Clifton

Non-executive Chairman

28 July 2023

Strategic Report for the year ended 31 December 2022

Market overview

Phosphate rock prices have dropped significantly since their peak in 2022 following the invasion of Ukraine on 24 February 2022. As of 2023, the market for phosphate rock has remained relatively stable, with modest price increases observed in the first few months of the year. The demand for phosphate continues to be strong from the agricultural sector, particularly from key markets such as the US, Brazil, China and India. There is a growing need for increased food production in India, China and especially Africa. However, there are still concerns around supply constraints impacted by the war in Ukraine and other geopolitical events. Lastly, the US is expected to become an increased importer of phosphate rock as supplies dwindle in central Florida and North Carolina. As a result, some price volatility is expected to continue over the near term. However, considering the macro economic drivers, the overall market is expected to remain relatively stable with modest price increases over the medium to long term.

Elandsfontein rock concentrate is expected to be able to enjoy a slight premium in pricing due to its low cadmium, low calcium and P(2) O(5) ratio as well as advantageous freight to Asia, Australia and New Zealand.

Significant changes in the state of affairs

Share issues

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

On 18 January 2022, Kropz announced the issue of 6,700,000 ordinary shares, at an exercise price of 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 as announced on 4 August 2020.

On 7 March 2022, Kropz announced the fifth and final drawdown of US$ 200,000 on the US$ 5 million equity facility with the ARC Fund, Kropz's major shareholder ("Further Equity Facility"), and this was settled by the issue of 3,474,536 new ordinary shares at the issue price of 4.20 pence per share to ARC on 10 March 2022. In addition, in accordance with the Original Equity Facility, any fees associated with the bank guarantee provided by ARC, would be settled by the issue of new ordinary shares to ARC. ARC notified the Company that the final guarantee fees due to ARC amounted to US$ 311,733 and was settled by the issue of 3,971,712 new ordinary shares at the issue price of 6.75 pence per share to ARC on 10 March 2022.

The issued share capital at 31 December 2022 was 923,718,223 ordinary shares (2021: 909,571,975).

Projects

Elandsfontein overview

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

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

Prior to 2022, in excess of US$ 170 million was spent at Elandsfontein on project capital expenditure to construct the original and optimisation phases of the processing plant and infrastructure, initial mining and capitalised working capital. Following a suspended commissioning process in 2017, Kropz Elandsfontein conducted further geological drilling and a metallurgical test programme to define a robust process circuit, to cater for the increased variability of ore present within the Elandsfontein resource. As a result of competent banks of hard material encountered in the pit, further drilling was conducted in 2022 and consequently a revised mineral resource estimate was produced as further discussed below.

Activity for the year ended 31 December 2022

The 2021 construction activities at Elandsfontein had largely been completed and mining activities which recommenced in October 2021 resulted in first ore being introduced into the plant in December 2021 with first production of phosphate rock concentrate ("Concentrate") being achieved in March 2022. The focus for the 2022 financial year, which continued into 2023, was to fully commission the plant, remove bottlenecks and establish specific operating parameters for the production ramp up phases towards steady state capacity.

Mining and geology

Delays were experienced in the ramp-up of operations at Elandsfontein, largely being driven by continued ore variability in the current mining area. Mining rates and associated delivery of ore to the plant were compromised due to the presence of competent banks of hard material within the orebody that were previously unknown.

Following additional infill drilling, relogging of historical cores and mapping of ore exposures as intersected within the current mining horizon, an updated JORC (2012) compliant Mineral Resource Estimate ("MRE") was announced on 10 January 2023.

Based on the current mining conditions, on-site learnings and revised geological interpretations, it was considered prudent that the mineral resource be reclassified.

The updated Elandsfontein resource is defined below, on a total (gross) and net attributable basis.

 
                   ELANDSFONTEIN RESOURCE STATEMENT AS OF 15 DECEMBER 2022 
  CLASS              TONNES    P(2)    SiO(2)    Al(2)     MgO    Fe(2)     CaO    CON-TAINED 
                               O(5)               O(3)             O(3)                  P(2) 
                                                                    (%)                  O(5) 
                       (Mt)     (%)       (%)      (%)     (%)              (%)          (Mt) 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Measured              9.40   11.21     65.58     1.13    0.16     0.90   16.10          1.05 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Indicated             9.62    7.90     75.21     1.17    0.12     0.86   11.24          0.76 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Total Measured 
  & Indicated         19.02    9.54     70.45     1.15    0.14     0.88   13.64          1.81 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Inferred             87.56    7.68     73.92     1.20    0.16     1.03   11.15          6.72 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Total Resources     106.58    8.01     73.30     1.19    0.16     1.00   11.59          8.54 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
                            NETT ATTRIBUTABLE (74% TO THE COMPANY) 
 Measured              6.96   11.21     65.58     1.13    0.16     0.90   16.10          0.78 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Indicated             7.12    7.90     75.21     1.17    0.12     0.86   11.24          0.56 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Total Measured 
  & Indicated         14.07    9.54     70.45     1.15    0.14     0.88   13.64          0.67 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Inferred             64.79    7.68     73.92     1.20    0.16     1.03   11.15          4.98 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Total Resources      78.87    8.01     73.30     1.19    0.16     1.00   11.59          6.32 
                   ========  ======  ========  =======  ======  =======  ======  ============ 
 Note: All numbers are reported to two significant figures. Rounding 
  may cause minor discrepancies to the numbers reported in this table. 
 

The resource estimate was updated after including the geological information contained in 30 additional sonic boreholes with recoveries above 90%. The additional drillholes have provided significant insight in terms of the geological interpretation, mineralised lithologies and data confidence. Differences are further seen in the elevation with regards to the top contact of mineralisation. The 2022 modelling further utilised implicit modelling which created additional refined contacts between lithologies. The optimised modelling has contributed to improved grades over the more accurately estimated areas and will improve planning in terms of anticipating mineralised horizons, and lithology types which are not always visibly distinguishable.

 
                        DIFFERENCE 2018 VS 2022 RESOURCE DECLARATION 
  CLASS             TONNES    P(2)    SiO(2)    Al(2)     MgO    Fe(2)     CaO    CON-TAINED 
                              O(5)               O(3)             O(3)                  P(2) 
                                                                                        O(5) 
                      (Mt)     (%)       (%)      (%)     (%)      (%)     (%)          (Mt) 
                  ========  ======  ========  =======  ======  =======  ======  ============ 
 Total Measured 
  and Indicated 
  2022               19.02    9.54     70.45     1.15    0.14     0.88   13.64          1.81 
                  ========  ======  ========  =======  ======  =======  ======  ============ 
 Total Measured 
  and Indicated 
  2018               77.80    8.30     74.90     1.17    0.17     0.93   11.86          3.60 
                  ========  ======  ========  =======  ======  =======  ======  ============ 
 Difference 
  Measured 
  and Indicated     -58.78    1.24     -4.45    -0.02   -0.03    -0.05    1.78         -1.79 
                  ========  ======  ========  =======  ======  =======  ======  ============ 
 Inferred 
  2022               87.56    7.68     73.92     1.20    0.16     1.03   11.15          6.72 
                  ========  ======  ========  =======  ======  =======  ======  ============ 
 Inferred 
  2018               23.30    5.48     82.50     1.15    0.13     0.95    7.50          1.28 
                  ========  ======  ========  =======  ======  =======  ======  ============ 
 Difference 
  Inferred           64.26    2.20     -8.58     0.05    0.03     0.08    3.65          5.44 
                  ========  ======  ========  =======  ======  =======  ======  ============ 
 Note: All numbers are reported to two significant figures. Rounding 
  may cause minor discrepancies to the numbers reported in this table. 
 

The 2022 reserve estimate was impacted by the reclassification of the resource estimate. Reserves are estimated at 17.42 Mt at a P(2) O(5) grade of 9.19% of which 7.31 Mt is proven at 10.71% P(2) O(5) , where previously no proven tonnes were stated in 2018.

 
    ELANDSFONTEIN RESERVE STATEMENT AS AT 15 DECEMBER 2022 
  CLASSIFICATION          TONNES      P(2) O(5)      CONTAINED 
                                                     P(2) O(5) 
                            (Mt)            (%)           (Mt) 
                       ---------  -------------  ------------- 
 Proven                     7.31          10.71           0.78 
                       ---------  -------------  ------------- 
 Probable                  10.11           8.09           0.82 
                       ---------  -------------  ------------- 
 Total Reserve             17.42           9.19           1.60 
                       ---------  -------------  ------------- 
            NETT ATTRIBUTABLE (74% TO THE COMPANY) 
 Proven                     5.41          10.71           0.58 
                       ---------  -------------  ------------- 
 Probable                   7.48           8.09           0.61 
                       ---------  -------------  ------------- 
 Total Reserve             12.89           9.19           1.18 
                       ---------  -------------  ------------- 
 

There is a 46 Mt difference between the 2018 and 2022 estimates, which is mainly due to the downgrade in the measured and indicated resource categories in the 2022 resource estimate.

 
 DIFFERENCE 2018 VS 2022 RESERVE DECLARATION 
  RESOURCE CLASSIFICATION           TONNES    P(2) O(5)     CONTAINED 
                                      (Mt)          (%)     P(2) O(5) 
                                                                 (Mt) 
                                  ========  ===========  ============ 
 Total Proven 2022                    7.31        10.71          0.78 
                                  ========  ===========  ============ 
 Total Proven 2018                       -            -             - 
                                  ========  ===========  ============ 
 Total Probable 2022                 10.11         8.09          0.82 
                                  ========  ===========  ============ 
 Total Probable 2018                 63.63         9.60          6.11 
                                  ========  ===========  ============ 
 Total Proven and Probable 
  2022                               17.42         9.19          1.60 
                                  ========  ===========  ============ 
 Total Proven and Probable 
  2018                               63.63         9.60          6.11 
                                  ========  ===========  ============ 
 Difference Proven and Probable     -46.21        -0.41         -4.51 
                                  ========  ===========  ============ 
 Note: All numbers are reported to two significant figures. 
  Rounding may cause minor discrepancies in this table 
 

Plant and processing

Hot commissioning (C4) activities and production ramp up was undertaken during 2022. Plant stability was difficult to achieve due to the influence of varying quantities of ultra fine material contained in the ore and poor flotation conditioning.

Despite power generation issues in South Africa causing intermittent load shedding, we were able to mitigate the adverse effects on our production by utilizing emergency backup generators on several occasions. However, it is important to note that this has led to increased operating costs.

Environmental Management Programme ("EMPr")

The Department of Mineral Resources and Energy ("DMRE") approved the Kropz EMPr on 20 November 2015. Due to transitional provisions in terms of Section 12 (5) of the National Environmental Act ("NEMA"), as amended, DMRE directed Kropz during 2016 to amend its EMPr to bring it into line with amendments in NEMA. Since there was an appeal against the DMRE having approved the Mining Right, this only became possible after the Minister of the DMRE dismissed the appeal against the Mining Right on 14 December 2017.

The amendments to the EMPr were subsequently made during 2020. The updated EMPr was submitted to the DMRE in September 2020. On 26 March 2021, management received the approved updated EMPr for the Elandsfontein project from the DMRE. The updated EMPr strongly emphasizes the adherence to the required rehabilitation measures.

Offsets

In November 2019, the DMRE directed Kropz to carry out a further Offset Study to be done by an independent specialist which was subjected to a thirty-day public participation process ("PPP").

In July 2020, Kropz Elandsfontein submitted a revised Offset Study to the DMRE. Herein, Management put forward its objections regarding the 2015 Offset Study originally submitted to the DMRE and contended that the 2015 Offset Study did not adequately consider Kropz's effective innovative rehabilitation measures already demonstrated.

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

It is understood that several appeals against the DMRE's decision were lodged with the Department of Forestry, Fisheries and the Environment, and the outcome of this matter remains pending.

Water use licence ("WUL")

An appeal against the Elandsfontein WUL was heard from 1 to 4 February 2021. Following four sittings on the matter, where final evidence was presented to the Water Tribunal, it was announced on 9 September 2021, that the appeal was dismissed.

Dewatering of the aquifer continued in accordance with the updated ground water management plan and monitoring activities remain in line with the WUL conditions.

Safety, health and environment

As at 31 December 2022, the Lost Time Injury Frequency Rate ("LTIFR"), per 200,000 man hours, was 1.290 (2021 - 0.698). The increase in LTIFR is related to four Lost Time injuries as compared to three in the previous reporting period of which one was a reportable injury. No major environmental incidents were reported during the year. Kropz Elandsfontein held various wellness campaigns during 2022, which included a blood donation drive, HIV and AIDS awareness and general health (i.e., blood pressure).

Corporate social responsibility ("CSR") and sustainability

The execution of the five-year Social and Labour Plan ("SLP"), aligned with the 2018 South African Mining Charter, and approved by the DMRE, remains on track. During the reporting period, Kropz Elandsfontein has commenced with the development of the next iteration of the SLP and submitted it in Q4 of 2022. The DMRE requested minor amendments, which were submitted in March 2023 for final approval. The plan includes progressive improvements to obtain compliance on the employment equity and procurement objectives of the South African Mining Charter scorecard.

The following strategic focus areas have been identified for the updated SLP:

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

Through collaboration with the local community forum, the execution of various community development projects continued during 2022 and the selection of new projects formed part of the 2022 - 2026 SLP. The Saldanha Bay Municipality ("SBM") confirmed alignment with their Infrastructure Development Plan ("IDP") and has endorsement of the various SLP projects.

SLP LED Projects

Education support

During 2022 Kropz Elandsfontein continued to support the Hopefield Primary School teacher's programme. Infrastructure upgrades were done at two Early Childhood Development ("ECD") centres in Hopefield. One of the upgrades was required to enable final registration of the ECD centre. For the 2022-2026 SLP, Education will remain a key focus area.

Disabled project

During 2022, with the assistance of a local NGO, a needs analysis was carried out for various disabled individuals in Hopefield. This identified necessary infrastructure upgrades which included the installation of handrails, wheelchair pathways etc. Fourteen recipients within the Hopefield community benefited from this project.

Hopefield Thusong community centre upgrade

The infrastructure upgrade of the community centre included the addition of two new rooms, a kitchen and bathroom facilities. The handover of the Thusong Centre took place at an official handover ceremony with the SBM mayor during 2022.

Ad-Hoc CSR Projects

Through engagements with various stakeholders, Kropz Elandsfontein supported the following initiatives and organizations:

   1)   Schools ECO Club (Annual Science camp and ECO awards) 
   2)   Silwerblare pensioners social club 
   3)   Universal Rugby club (Infrastructure and annual awards) 
   4)   Mfesane (Disabled day) 
   5)   All saints Anglican church (Annual event) 

Stakeholder Engagement

Kropz Elandsfontein continues to engage with the local community on a regular basis and held a community meeting during 2022 to provide an update on the state of the business and various other issues. Kropz Elandsfontein also issued quarterly newsletters to the community to keep them updated on the business as well as various initiatives and projects.

Post reporting period events

Transport and logistics

As announced on 23 November 2021, Transnet provided Kropz Elandsfontein with a draft port access agreement to support the long-term export of Elandsfontein's phosphate rock through the port of Saldanha. Final contract negotiations are underway. An interim agreement, with tariffs and a forecast of export quantities, is in place while the agreement is being finalised. Exports through Cape Town will potentially be required for no more than 350,000 tonnes of Elandsfontein's eventual production of approximately 1 million tonnes per annum, if capacity through the port of Saldanha is unavailable for a limited period of time.

Sales

The first bulk shipment and sale of 33,000 tonnes of phosphate concentrate from Kropz Elandsfontein was announced on 23 January 2023 with a second shipment and sale of 20,000 tonnes of phosphate concentrate as was announced on 14 March 2023. During April 2023, two further shipments of 33,000 tonnes and 11,000 tonnes were sold and a further 33,000 tonnes in June 2023. These exports occurred through the port of Saldanha.

Hinda

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

Prior to acquisition by Kropz, more than US$ 40 million was spent on project development, including drilling, metallurgical test work and feasibility studies. Since its acquisition by Kropz, a further US$ 4.7 million has been spent.

Activity for the year ended 31 December 2022

Kropz has been reviewing the Hinda Updated Feasibility Study ("Updated FS") and the financial model as prepared by Hatch.

Highlights of the Updated FS

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

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

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

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

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

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

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

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

   --      There is an estimated three-year execution schedule; and 

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

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

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

Further Opportunities

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

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

A number of other capital cost optimisation initiatives have been identified for investigation ahead of detailed design which should further improve project economics.

Updated ESIA

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

Mining Investment Agreement ("MIA")

The MIA, which sets out the legal and fiscal framework under which Cominco S.A. would invest and operate within the RoC was signed by all parties on 10 July 2018 and ratified by the RoC Government on 27 December 2021.

Déclaration d'Utilité Publique ("DUP")

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

The main declaration of public utility (DUP) process has covered an area of 30 km(2) . Public consultations were organized by Cominco and CM2E. Land surveys were carried out from end of November 2020 until mid-January 2021, followed by an optimisation session in line with the Updated FS. The final report is still to be finalised.

The MIA states that expropriation costs and compensations are to be borne by the government of the RoC and that Cominco can prefinance some or all of the costs.

Mineral resources

The Hinda resource is defined below, on a total (gross) and net attributable basis . No additional drilling was conducted in 2022.

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

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

Safety, health and environment

No environmental or safety incidents were reported during the year.

Sustainability

In line with the MIA and its commitments, Cominco S.A. continued its interactions with the local communities associated with the Hinda project. On-going projects include the usage of project site manpower, the funding of teachers at local schools, educational support for vulnerable children, specific projects for woman, water boreholes and food security projects through the establishment of orchards, vegetable gardens and small-scale agriculture projects.

Post reporting period events

Prior to commencing Phase 1, a reduced sized test project is currently being assessed to propose a fit-for-purpose low capex project to prove the concept of producing phosphate concentrate in the Congo and exporting it. The project will focus on the mining and processing the section of the resource which does not require flotation.

Strategy

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

Business model

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

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

Objectives and outlook for the year ahead

Objectives

Kropz

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

Elandsfontein

The primary focus of the year ahead will be to further increase the ramp-up of operations to achieve steady state while optimising process recoveries and mining costs. Optimised production capacity is expected to be determined over the next 12 months and will be based on the maximum profitability.

Hinda

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

Outlook

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

Financial review for the year ended 31 December 2022

Summary of key financial indicators for the year:

-- Impairment in the value of mine property, plant and equipment and inventory at Kropz Elandsfontein of US$ 93 million;

   --      Cash and cash equivalents of US$ 2 million (2021: US$ 2 million) 
   --      Various equity and debt raises as set out in "Highlights" on page 1; 
   --      Trade and other payables of US$ 7 million (2021: US$ 4 million); and 

-- Property, plant, equipment and development and exploration assets, after the impairment above, of US$ 111 million (2021: US$ 180 million).

Key performance indicators

The Company is a mining and development entity whose assets comprise a mine and plant in the ramp-up phase in South Africa and an exploration asset in the RoC. Currently, minor revenues have been generated from local sales in South Africa during 2022 with first bulk sale in January 2023. The key performance indicators for the Company will be achieving steady state production and the advancement of the Hinda project.

Principal risks and uncertainties

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

Access to financing

The ramp up at Elandsfontein, the capital expenditure plans of the Group and the further development and exploration of mineral properties in which the Group holds interests or which the Group may acquire, may depend upon the Group's ability to obtain financing through joint ventures, debt financing, equity financing or other means. No assurance can be given that the Group will be successful in obtaining any required financing as and when needed on acceptable terms or at all, which could prevent the Group from further development and exploration or additional acquisitions.

Failure to obtain additional financing on a commercial and timely basis may cause the Group to postpone its capital expenditure plans, forfeit its rights in properties or reduce or terminate operations. Reduced liquidity or difficulty in obtaining future financing could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

The Group's Projects may require greater investment than currently expected or suffer delays or interruptions, which could cause cost overruns. Any such delay, interruption or cost overruns in implementing the Group's planned capital investments could result in the Group failing to complete the Projects and a reduction in future production volumes, which could have a material adverse effect on the Group's business, financial condition, results of operations and prospects. In addition, the Projects may not prove to be commercially viable upon completion.

The Group's ability to obtain future financing will depend in part on its ability to achieve positive cash flows from its current operations within time and budget, an extended commissioning ramp-up period will have an adverse impact on the business and financial performance of the Group. Refer to note 2a to the Group financial statements which explains that the Group is reliant on revenue from production ramp up and expect to require additional financing and a material uncertainty exists that may that cast significant doubt on the Group's ability as a going concern.

Dependence on maintenance of good relationship with regulatory and governmental departments

The Group relies on the maintenance of good relationships with regulatory and governmental departments in South Africa and the RoC. Failure to maintain these relationships may adversely impact the Group's performance.

Ramp-up of Elandsfontein

The Elandsfontein project may require further funding to achieve steady state operations in Q4 2023. Any delays in securing of additional funding will have an adverse impact on the business and financial performance of the operation. There can be no guarantee that implementation of the recently completed modifications identified by the Company and its technical consultants will result in a successful long-term operation of the mine. Failure to achieve ramp-up of the Elandsfontein project, or a significant delay in the completion of ramp-up, could result in a material adverse impact on the business, and the financial performance and position of the Group.

Access to infrastructure

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

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

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

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

Operational targets

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

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

Any further unscheduled interruptions in the Group's operations due to mechanical, electrical or other failures or industrial relations related issues or problems or issues with the supply of goods or services could have a serious impact on the financial performance of those operations. Furthermore, any interruption or disruption in the supply chain of key production chemicals sourced from international suppliers could materially adversely affect the production output from the mine.

New entrant risk

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

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

Mining and mineral processing risks

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

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

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

Enforcement of contractual rights in the RoC

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

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

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

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

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

Commodity pricing

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

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

Environmental regulation and environmental compliance

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

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

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

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

Government regulation and political risk

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

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

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

Adverse sovereign action

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

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

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

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

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

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

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

Governance

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

More information on our corporate governance can be found in the Corporate Governance Report on pages 43 to 54.

Directors' section 172 statement

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

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

   a.   the likely consequences of any decision in the long term; 
   b.   the interests of the Company's employees; 
   c.   the need to foster the Company's business relationships with suppliers, customers and others; 
   d.   the impact of the Company's operations on the community and the environment; 

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

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

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

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

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

 
 Who are the       Why is it         How did Kropz                                                    What resulted 
 key stakeholder   important          engage with the                                                 from the 
 groups            to engage this     stakeholder group                                               engagement 
                   group of 
                   stakeholders 
 Equity            Access to         The key mechanisms                                               The Company 
 investors         capital            of engagement                                                   engaged 
 and equity        is of vital        included:                                                       with investors 
 partners          importance                                                                         on topics of 
                   to the             Substantial                                                     strategy, 
 All substantial   long-term          shareholders                                                    governance, 
 shareholders      success of the      *    Both ARC and Kropz International have appointed           project 
 that own more     business to              Directors to the Board of Kropz; and                      updates and 
 than 3% of the    enable                                                                             performance. 
 Company's         the development 
 shares            of Hinda.           *    The other existing substantial shareholders have          Please see 
 are listed on     Equity                   regular meetings and interactions with the Chairman       "Dialogue 
 page 37 of the    partner                  and/or CEO.                                               with 
 Directors'        involvement                                                                        shareholders" 
 Report.           is vital to the                                                                    section of the 
                   success of the                                                                     Directors' 
 The Company       development of     Investment and                                                  report 
 owns              these projects,    equity partners                                                 on page 37. 
 74% of Kropz      without which       *    ARC have representatives on the Kropz Elandsfontein 
 Elandsfontein,    the Company              and ELH Boards of Directors in terms of the               The CEO 
 the owner of      cannot                   respective shareholder's agreements; and                  presented 
 the               create value                                                                       at a number of 
 Elandsfontein     for its                                                                            investor 
 project in        shareholders        *    Regular Board meetings are held.                          roadshows, 
 South             by producing                                                                       conferences and 
 Africa. 26% is    phosphate rock                                                                     one on one 
 owned by ARC.     concentrate and                                                                    meetings. 
                   therefore a        Prospective 
 The Company       return             and existing                                                    During 2022, the 
 owns              on the             investors                                                       Company secured 
 70% of            investment.         *    The AGM and Annual and Interim Reports;                   the ZAR 177 
 Elandsfontein                                                                                        Million 
 Land Holdings     Through                                                                            Equity Facility, 
 (Pty) Ltd         selected            *    Investor roadshows and presentations;                     ZAR 121.5 
 ("ELH"),          engagement                                                                         million 
 the owner of      activities,                                                                        and ZAR 126 
 the               the Company         *    One on one investor meetings with the Chairman and/or     million 
 Elandsfontein     strives                  CEO;                                                      bridge loans as 
 mining property   to obtain                                                                          well as a 
 in South          investor                                                                           further 
 Africa.           buy-in into its     *    Access to the Company's broker and advisers;              ZAR 550 million 
 30% is owned      strategic                                                                          Equity Facility 
 by ARC.           objectives                                                                         with ARC. 
                   detailed on         *    Regular news and project updates; and 
 Kropz             page                                                                               In terms of the 
 Elandsfontein     13 and the                                                                         ZAR 200 Million 
 may require       execution           *    Social media accounts e.g. Twitter @Kropzplc;             Equity Facility 
 further           thereof.                                                                           and the 
 funding to                                                                                           additional 
 complete          The Company         *    Site visits for potential cornerstone investors.          equity 
 the ramp up at    seeks                                                                              facilities, 
 Elandsfontein.    to promote an                                                                      ARC will 
 Cominco           investor base                                                                      potentially 
 Resources         that is                                                                            be able to 
 requires          interested                                                                         acquire 
 further           in a long-term                                                                     a total further 
 funding to        holding in the                                                                     8.3% interest 
 develop           Company and                                                                        in the Company, 
 Hinda.            will                                                                               eventually 
                   support the                                                                        taking 
 As such,          Company                                                                            its 83.2% 
 existing          in achieving                                                                       interest 
 equity            its strategic                                                                      at December 
 investors         objectives.                                                                        2022, 
 and potential                                                                                        to 91.5%. 
 investment        During the 
 partners          course                                                                             At the Company's 
 are important     of 2022, the                                                                       general meeting 
 stakeholders.     percentage of                                                                      held on 30 May 
                   shares held in                                                                     2022 all 
                   public hands                                                                       resolutions 
                   decreased and                                                                      were duly passed 
                   the overall                                                                        with 100% of the 
                   daily                                                                              votes cast in 
                   volume of                                                                          favour of 
                   shares                                                                             resolutions 
                   traded                                                                             proposed. 
                   increased. 
                                                                                                      At the Company's 
                                                                                                      AGM held on 30 
                                                                                                      June 2022 all 
                                                                                                      resolutions were 
                                                                                                      duly passed. 
 
                                                                                                      At the Company's 
                                                                                                      general meeting 
                                                                                                      held on 30 
                                                                                                      November 
                                                                                                      2022 all 
                                                                                                      resolutions 
                                                                                                      were duly passed 
                                                                                                      with at least 
                                                                                                      98% votes in 
                                                                                                      favour 
                                                                                                      of resolutions 
                                                                                                      proposed. 
                  ----------------  ---------------------------------------------------------------  ----------------- 
 
  Funding           Access to           *    One on one meetings with the CEO and/or COO;              In May 2020, 
  providers         funding                                                                            the 
  Kropz             is of vital                                                                        amended 
  Elandsfontein     importance          *    Regular reporting on project progress;                    facility 
  has a US$30       to the                                                                             agreement was 
  million,          long-term                                                                          signed between 
  fully             success of the      *    Ad hoc discussions with management, as required; and      Kropz 
  utilised,         business to be                                                                     Elandsfontein 
  debt facility     able to                                                                            and BNP, 
  with BNP that     complete            *    Tripartite discussions between Kropz Elandsfontein,       thereby 
  commenced in      the                      ARC and management to ensure there are no compliance      moving the 
  September         Elandsfontein            matters outstanding in relation to the facility.          first 
  2016.             project. The                                                                       principal debt 
                    debt facility                                                                      repayment to 31 
                    was utilised                                                                       December 2022. 
                    in the                                                                             The first 
                    construction                                                                       quarterly 
                    of                                                                                 instalment of 
                    Elandsfontein.                                                                     US$ 3.75 
                                                                                                       million 
                    Various                                                                            was made during 
                    contractual                                                                        December 2022. 
                    conditions of 
                    the debt 
                    finance 
                    require 
                    regular 
                    updates on 
                    ongoing 
                    progress. 
 
                    Ongoing 
                    support 
                    from potential 
                    new debt 
                    providers 
                    is required to 
                    achieve the 
                    construction 
                    of Hinda. 
                  ----------------  ---------------------------------------------------------------  ----------------- 
 
  Employees         The majority        General employees                                              Employees 
  The Company       of its               *    The Company maintains an open line of communication      The Board met 
  has               employees                 between its employees, senior management and the         with management 
  14 South          going forward             Board.                                                   to discuss the 
  African,          will be based                                                                      long-term 
  2 UK and 5 RoC    in South                                                                           remuneration 
  employees,        Africa               *    The CEO reports regularly to the Board;                  strategy. 
  including         and the 
  its Directors.    Directors                                                                          Advisors were 
                    consider             *    Key members of the executive team are invited to some    appointed to do 
  Two of the        workforce                 of the audit and risk committee meetings;                the independent 
  Directors         issues                                                                             party review to 
  are UK            holistically                                                                       examine 
  residents,        for the Group        *    There is a formalised employee induction into the        non-executive 
  1 Monegasque,     as a whole.               Company's corporate governance policies and              Director and 
  1 American and                              procedures; and                                          executive 
  2 are South       The Company's                                                                      team 
  African           long-term                                                                          remuneration 
  resident          success              *    There is an HR function in the UK.                       in 2018 at the 
  Directors.        is predicated                                                                      time of the AIM 
                    on the                                                                             IPO. 
  The CEO during    commitment 
  the year under    of its              South African                                                  Board reporting 
  review was        workforce           employees                                                      has been 
  South             to its vision        *    There is an HR function in South Africa;                 optimised 
  Africa-based.     and the                                                                            to include 
                    demonstration                                                                      sections 
                    of its values        *    Senior management regularly visit the operations in      on engagement 
                    on a daily                South Africa and engage with its employees through       with employees. 
                    basis.                    one on one and staff meetings, employee events, 
                                              project updates, etc; and                                South African 
                    The Board have                                                                     and Congo 
                    identified                                                                         employees 
                    that                 *    Staff safety committees continue to operate.             The team were 
                    reliance on                                                                        trained in 
                    key                                                                                aspects 
                    personnel is                                                                       of corporate 
                    a known risk.       Congo employees                                                policies 
                                         *    Senior management regularly visit the operations in      and procedures 
                                              RoC and engage with its employees through one on one     to engender 
                                              and staff meetings, employee events, project updates,    positive 
                                              etc.                                                     corporate 
                                                                                                       culture 
                                                                                                       aligned with 
                                                                                                       the 
                                                                                                       Company code of 
                                                                                                       conduct. 
 
                                                                                                       Meetings were 
                                                                                                       held with staff 
                                                                                                       to provide 
                                                                                                       project 
                                                                                                       updates and 
                                                                                                       ongoing 
                                                                                                       business 
                                                                                                       objectives. 
                  ----------------  ---------------------------------------------------------------  ----------------- 
 
  Governmental      Regular            The Company provides                                            Meetings have 
  bodies            engagement         general corporate                                               been held with 
  The Company is    with organs of     presentations                                                   various 
  impacted by       state at           regarding the                                                   representatives 
  national,         national,          Elandsfontein                                                   of the 
  regional and      regional and       project development                                             national, 
  local             local levels       as part of ongoing                                              regional and 
  governmental      is required to     stakeholder engagement                                          local 
  organisations     keep               with the South                                                  government 
  in South          stakeholders       African government,                                             bodies, 
  Africa            informed and       Western Cape                                                    to discuss 
  and the RoC.      supportive of      provincial government                                           ongoing 
                    project            and local municipal                                             compliance and 
                    developments.      government. The                                                 other 
                                       Company maintained                                              regulatory 
                                       its good relations                                              matters 
                                       with the respective                                             relating 
                                       government bodies                                               to mining. 
                                       and frequently 
                                       communicated                                                    The Company has 
                                       progress.                                                       received its 
                                                                                                       South 
                                       The Company engages                                             African 
                                       with the relevant                                               requisite 
                                       departments of                                                  environmental 
                                       the RoC government                                              and land use 
                                       in order to progress                                            permits. 
                                       the development 
                                       of Hinda.                                                       In addition, 
                                                                                                       the 
                                                                                                       Company has 
                                                                                                       received 
                                                                                                       the required 
                                                                                                       permits 
                                                                                                       to develop 
                                                                                                       Hinda, 
                                                                                                       subject to 
                                                                                                       securing 
                                                                                                       funding for 
                                                                                                       these 
                                                                                                       activities. 
                  ----------------  ---------------------------------------------------------------  ----------------- 
 
  Community         The Company         *    The Company has community liaison officers in South       The Company has 
  The local         engages                  Africa and RoC;                                           ongoing 
  communities       with the local                                                                     engagements 
  adjacent to       community to                                                                       with the local 
  Elandsfontein     obtain              *    The Company has identified all key stakeholders           community as 
  in South          acceptance               within the local community in the reporting period;       part 
  Africa            for future                                                                         of its 
  and Hinda in      development                                                                        sustainability 
  the RoC.          plans.              *    Elandsfontein management has open dialogue with the       initiatives. 
                                             local government and community leaders regarding the 
                    Community                project development;                                      Stakeholder 
                    engagement                                                                         identification 
                    will inform                                                                        has enabled the 
                    better              *    Similarly, Hinda management are actively engaging         Company to 
                    understanding            with local government and communities directly            ensure 
                    and decision             impacted by the Hinda project; and                        that 
                    making.                                                                            representatives 
                                                                                                       of all 
                    The local           *    The Company has existing Corporate Social                 stakeholder 
                    community                Responsibility policies and management structure at       groups may 
                    in Hopefield             corporate level. The Company will expand on these         participate 
                    and the                  policies and structures at a local project level as       in the 
                    greater                  the Company moves into production.                        community 
                    Saldanha Bay                                                                       engagement 
                    municipal area                                                                     programme. 
                    provides 
                    employees 
                    for 
                    Elandsfontein 
                    and its 
                    contractors 
                    for 
                    operations. 
                    Similarly, the 
                    communities 
                    surrounding 
                    Hinda will 
                    provide 
                    employees to 
                    the project 
                    and 
                    contractors 
                    during 
                    construction 
                    and operation. 
 
                    The Company 
                    will 
                    have a social 
                    and economic 
                    impact on the 
                    local 
                    communities. 
                    The Company is 
                    committed to 
                    ensuring 
                    sustainable 
                    growth, 
                    minimising 
                    adverse 
                    impacts. 
                    The Company 
                    will 
                    engage these 
                    stakeholders 
                    as is 
                    appropriate. 
                  ----------------  ---------------------------------------------------------------  ----------------- 
 
  Suppliers         Kropz's             *    Management continue to work closely with appointed        See page 10 of 
  During the        contractors              contractors, consultants and suppliers to manage and      the strategic 
  Elandsfontein     and suppliers            optimise deliverables; and                                report for an 
  operations        are                                                                                update on the 
  phase,            fundamental                                                                        potential 
  the Company       to ensuring         *    One on one meetings between management and suppliers;     transport 
  will              that                                                                               and logistics 
  be using key      the Company                                                                        uncertainties 
  suppliers         can                 *    Vendor site visits and facility audits to ensure          facing the 
  under             meet the                 supplier is able to meet requirements; and                Group. 
  commercial        ramp-up 
  contracts         and steady                                                                         Smaller local 
  for the           state               *    Contact with procurement department and accounts          vendors were 
  operations        operating                payable.                                                  engaged 
  of mine,          objectives.                                                                        at a broader 
  plant,                                                                                               level 
  road and port     Using quality                                                                      to better align 
  logistic          suppliers                                                                          with company 
  operators         ensures                                                                            objectives. 
  and laboratory    that as a 
  service           business, the 
  providers,        high 
  all of whom       performance 
  are               targets 
  reputable and     can be met. 
  established 
  service 
  providers. 
 
  The Company 
  also 
  relies on a 
  number 
  of supply and 
  maintenance 
  contracts 
  to ensure 
  ongoing 
  operations. 
  At a community 
  level, the 
  Company 
  has also 
  partnered 
  with a number 
  of SMME 
  companies. 
                  ----------------  ---------------------------------------------------------------  ----------------- 
 

Section 2: Principal decisions by the Board

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

During the financial year ending 31 December 2022

A third drawdown of ZAR 40 million occurred on 16 March 2022 and the fourth drawdown of ZAR 33 million occurred on 26 April 2022 of the ZAR 200 Million Equity Facility. The ZAR 200 Million Equity Facility is fully drawn at the date of this annual report.

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

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

The ZAR 177 Million Equity Facility was in addition to the ZAR 200 Million Equity Facility, which ARC and the Company entered into in February 2021.

As announced on 27 April 2022, Kropz and ARC entered into a further ZAR 25 million (approximately US$ 1.60 million) bridge loan facility (the "Loan 1") to meet immediate cash requirements at Elandsfontein at the end of April 2022. When the ZAR 177 Million Equity Facility became unconditional, Loan 1 was offset against it leaving ZAR 152 million available for future drawdown.

The ZAR 177 Million Equity Facility comprises a total commitment of up to ZAR 177 million provided by ARC, which was to be drawn down subject to ARC's discretion.

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

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

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

Following a Conversion, the Company will apply for the newly issued Ordinary Shares in the capital of the Company to be admitted to trading on AIM, a market operated by London Stock Exchange plc ("AIM").

The first drawdown of ZAR 103.5 million was made on 2 June 2022.

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

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

   --      Five years from 2 June 2022; or 

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

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

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

Convertible loan facility for ZAR 550 million from ARC, entered into on 14 November 2022

As announced on 14 November 2022, Kropz entered into a new convertible equity facility of up to ZAR 550 million ("ZAR 550 Million Equity Facility") (approximately US$ 31.6 million), with ARC in order to progress the ramp-up of operations at the Elandsfontein project. In addition, the funding would also provide working capital to the Company for general corporate purposes and further funding, of approximately US$ 1 million for working capital and early site works, at the Hinda project in the Republic of the Congo.

The ZAR 550 Million Equity Facility comprises a total commitment of up to ZAR 550 million provided by ARC, which can be drawn down at the discretion of Kropz, as follows:

-- Loan 2 and Loan 3 were settled by way of a first advance under the New ZAR 550 Million Equity Facility, once approved and unconditional, leaving ZAR 302.5 million available for further drawdown over the facility term; and

-- The remaining ZAR 302.5 million of the ZAR 550 Million Equity Facility was available from the date that all the conditions were met (the "Effective Date") and up to 15 December 2023. Each drawdown, however, remains subject to ARC's sole discretion.

At any time during the term of the ZAR 550 Million Equity Facility, the repayment of the ZAR 550 Million Equity Facility capital amount will, at the election of ARC, either be:

-- In the form of the conversion into ordinary shares of 0.1 pence each ("Ordinary Shares") in the Company and issued to ARC, at a conversion price of 4.579 pence per Ordinary Share each, representing the 30-day VWAP on 21 October 2022, and at fixed exchange rate of ZAR 1 = GBP 0.048824 ("Conversion"); or

-- Payable in cash by the Company at the end of the term of the ZAR 550 Million Equity Facility.

Following a Conversion, the Company will apply for the newly issued Ordinary Shares in the capital of the Company to be admitted to trading on AIM, a market operated by London Stock Exchange plc ("AIM").

The New ZAR 550 Million Equity Facility will bear interest at the South African prime overdraft interest rate plus 6 per cent., nominal per annum and compounded monthly ("Interest"). Interest will be payable in cash to ARC by the Company.

The term of the ZAR 550 Million Equity Facility will be from the Effective Date, to the earlier of:

   --      5 years from the Effective Date; or 

-- 2 years after the term loan facility provided by BNP Paribas to Elandsfontein (in the amount not exceeding US$ 30 million), has been repaid in full, or such later date as ARC may agree in writing;

The ZAR 550 Million Equity Facility will be available for drawdown until 15 December 2023.

The ZAR 550 Million Equity Facility is secured by the shares which Kropz holds in Cominco Resources Ltd ("Share Charge").

Approval from the South African Reserve Bank for the ZAR 550 Million Equity Facility was obtained on 17 November 2022 and shareholder approval on 30 November 2022.

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

Existing shareholders may have conflicting interests with the ZAR 177 Million Equity Facility and ZAR 550 Million Equity Facility due to potential dilution of their shareholding. The Directors considered the impact of this and concluded that obtaining the convertible facility from ARC was the only funding opportunity available to the Company in order to secure funding for the delivery of the Elandsfontein project to first revenue. Various funding alternatives had been investigated by the Directors, in conjunction with its brokers and advisers, over the last year, both from an equity raise perspective and through possible project finance facilities. Equity markets were subdued and no new or existing equity investors were prepared to provide the required funding.

Due to the fact that Machiel Reyneke and Gerrit Duminy, the ARC representatives on the Board, and Mike Nunn, representing Kropz International are considered to be concert parties, they were not permitted to consider or vote on the approval of the proposed ZAR 177 Million Equity Facility and ZAR 550 Million Equity Facility by the Board. The independent, non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, in consultation with the nominated adviser, considered the transaction to be fair and reasonable.

As a result of the ZAR 200 Million Equity Facility, ZAR 177 Million Equity Facility and the ZAR 550 Million Equity Facility, ARC could increase its interest in the Company by a further approximate 8.3%, taking its eventual interest in the Company to approximately 91.5%.

First drawdown of the ZAR 550 Million Equity Facility for ZAR 307.5 million (approximately US$ 18.1 million) was made on 1 December 2022 which comprised:

   --      Set-off of Loan 2 and Loan 3 of ZAR 247.5 million; 

-- ZAR 10 million for the Company's general corporate purposes and funding of ongoing running costs of the Hinda Project; and

   --      ZAR 50 million in respect of working capital for Elandsfontein. 

A second drawdown of ZAR 135 million (approximately US$ 7.9 million) of the ZAR 550 Million Equity Facility was made on 22 December 2022.

Post 31 December 2022

A third drawdown of ZAR 60 million (approximately US$ 3.5 million) of the ZAR 550 Million Equity Facility was made on 25 January 2023 and a fourth drawdown of ZAR 40 million (approximately US$ 2.2 million) on 27 February 2023.

As announced on 14 March 2023, Kropz, Kropz Elandsfontein and ARC Fund agreed to further ZAR 285 million (approximately US$ 15.5 million) bridge loan facilities ("Loan 4") to meet immediate cash requirements at Kropz Elandsfontein. A first draw down of ZAR 25 million (approximately US$ 1.4 million) on Loan 4 was made on 14 March 2023.

Loan 4 is unsecured, repayable on demand, with no fixed repayment terms and is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable on Loan 4 at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly.

A second draw down on Loan 4 for an amount of ZAR 90 million was made on 28 March 2023, a third drawdown of ZAR 30 million was made on 25 April 2023 and a fourth drawdown of ZAR 80 million was made on 23 June 2023.

This Strategic Report was approved by the Board of Directors.

Louis Loubser

Chief Executive Officer

28 July 2023

Consolidated Statement of Financial Position

As at 31 December 2022

 
                                                   31 December   31 December 
                                                          2022          2021 
                                           Notes       US$'000       US$'000 
 Non-current assets 
  Property, plant, equipment and mine 
  development                                4          68,965       135,099 
 Exploration assets                         5           42,415        44,631 
 Right-of-use asset                         6                -             7 
 Other financial assets                     7              860         1,357 
                                                  ------------  ------------ 
                                                       112,240       181,094 
                                                  ------------  ------------ 
 Current assets 
 Inventories                                8            3,273         1,025 
 Trade and other receivables                9            1,857         1,511 
 Restricted cash                           10                -         4,858 
 Cash and cash equivalents                 11            2,120         2,461 
                                                  ------------  ------------ 
                                                         7,250         9,855 
                                                  ------------  ------------ 
 
   TOTAL ASSETS                                        119,490       190,949 
                                                  ------------  ------------ 
 
   Current liabilities 
 Trade and other payables                  18            7,284         3,543 
 Lease liabilities                         15                -             7 
 Other financial liabilities               16           26,808         4,295 
 Current taxation                          26              597             - 
                                                  ------------  ------------ 
                                                        34,689         7,845 
                                                  ------------  ------------ 
 Non-current liabilities 
 Shareholder loans and derivative          14           55,102        25,043 
 Other financial liabilities               16                -        26,291 
 Provisions                                17            2,697         4,033 
                                                  ------------  ------------ 
                                                        57,799        55,367 
                                                  ------------  ------------ 
 
   TOTAL LIABILITIES                                    92,488        63,212 
                                                  ------------  ------------ 
 
 NET ASSETS                                             27,002       127,737 
                                                  ------------  ------------ 
 
 
 
                                                   31 December   31 December 
                                                          2022          2021 
                                           Notes       US$'000       US$'000 
 Shareholders' equity 
 Share capital                             12            1,212         1,194 
                                          12 / 
 Share premium                              13         194,063       193,524 
                                          12 / 
 Merger reserve                             13        (20,523)      (20,523) 
 Foreign exchange translation reserve      13         (11,195)       (7,807) 
 Share-based payment reserve               13              271         1,197 
 Accumulated losses                                  (116,972)      (45,626) 
                                                  ------------  ------------ 
 Total equity attributable to the 
  owners of the Company                                 46,856       121,959 
 Non-controlling interests                 33         (19,854)         5,778 
                                                  ------------  ------------ 
                                                        27,002       127,737 
                                                  ------------  ------------ 
 

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

Louis Loubser

Chief Executive Officer

28 July 2023

 
             Consolidated Statement of Comprehensive 
                                              Income               Year ended     Year ended 
                 For the year ended 31 December 2022              31 December    31 December 
                                                                         2022           2021 
                                                         Notes        US$'000        US$'000 
 
 Revenue                                                                    -              - 
 Other income                                                             116            172 
 
 Operating expenses                                      22           (5,808)        (6,503) 
                                                                -------------  ------------- 
 
 Operating loss                                                       (5,692)        (6,331) 
 
 Finance income                                          21               136            480 
 Finance expense                                         24           (9,812)        (7,391) 
 Fair value gain / (loss) from derivative 
  liability                                              30            10,807        (4,792) 
 Impairment losses                                       25          (92,661)              - 
 Loss on disposal of subsidiary                                             -          (224) 
                                                                -------------  ------------- 
 
 Loss before taxation                                                (97,222)       (18,258) 
 
 Taxation                                                26             (602)              - 
 
 Loss after taxation                                                 (97,824)       (18,258) 
                                                                -------------  ------------- 
 
 Loss profit attributable to: 
 Owners of the Company                                               (66,639)       (13,787) 
 Non-controlling interests                                           (31,185)        (4,471) 
                                                                -------------  ------------- 
                                                                     (97,824)       (18,258) 
                                                                -------------  ------------- 
 
 Loss for the year                                                   (97,824)       (18,258) 
 
 Other comprehensive income: 
 Items that may be subsequently reclassified 
  to profit or loss 
 
   *    Exchange differences on translating foreign 
        operations                                                    (3,246)       (11,184) 
                                                                -------------  ------------- 
 Total comprehensive loss                                           (101,070)       (29,442) 
                                                                -------------  ------------- 
 
 Attributable to: 
 Owners of the Company                                               (70,027)       (23,928) 
 Non-controlling interests                                           (31,043)        (5,514) 
                                                                -------------  ------------- 
                                                                    (101,070)       (29,442) 
                                                                -------------  ------------- 
 
 Loss per share attributable to owners 
  of the Company : 
 Basic and diluted (US cents)                            27            (7.23)         (1.80) 
                                                                -------------  ------------- 
 
 
  Consolidated Statement of 
                    Changes 
     in Equity For the year 
                      ended 
           31 December 2022 
                                                       Foreign 
                                                      currency   Share-based 
                      Share     Share     Merger   translation       payment    Retained              Non-controlling       Total 
                    capital   premium    reserve       reserve       reserve    earnings      Total          interest      equity 
                    US$'000   US$'000    US$'000       US$'000       US$'000     US$'000    US$'000           US$'000     US$'000 
 Balance at 1 
  January 
  2021                  706   168,212   (20,523)         2,334           385    (22,010)    129,104             5,729     134,833 
 Total 
  comprehensive 
  loss 
  for the year            -         -          -      (10,141)             -    (13,787)   (23,928)           (5,514)    (29,442) 
 
 Issue of shares        488    25,312          -             -             -           -     25,800                 -      25,800 
 Disposal of 
  subsidiary              -         -          -             -             -           -          -               181         181 
 Extinguishment 
  of derivative 
  asset upon 
  equity draw 
  down                    -         -          -             -             -     (4,447)    (4,447)                 -     (4,447) 
 Investment in 
  non-redeemable 
  preference 
  shares of 
  Kropz 
  Elandsfontein           -         -          -             -             -     (5,382)    (5,382)             5,382           - 
 Share based 
  payment 
  charges                 -         -          -             -           812           -        812                 -         812 
                  ---------  --------  ---------  ------------  ------------  ----------  ---------  ----------------  ---------- 
 Transactions 
  with owners           488    25,312          -             -           812     (9,829)     16,783             5,563      22,346 
                  ---------  --------  ---------  ------------  ------------  ----------  ---------  ----------------  ---------- 
 Balance at 31 
  December 
  2021                1,194   193,524   (20,523)       (7,807)         1,197    (45,626)    121,959             5,778     127,737 
 Total 
  comprehensive 
  loss 
  for the year            -         -          -       (3,388)             -    (66,639)   (70,027)          (31,043)   (101,070) 
 
 Issue of shares         18       539          -             -             -           -        557                 -         557 
 Share options 
  exercised               -         -          -             -         (694)         694          -                 -           - 
 Share based 
  payment credit          -         -          -             -         (222)           -      (222)                 -       (222) 
 Lapsed warrants                                                        (10)          10          -                 -           - 
 Investment in 
  non-redeemable 
  preference 
  shares of 
  Kropz 
  Elandsfontein           -         -          -             -             -     (5,411)    (5,411)             5,411           - 
 Transactions 
  with owners            18       539          -                       (926)     (4,707)    (5,076)             5,411         335 
                  ---------  --------  ---------  ------------  ------------  ----------  ---------  ----------------  ---------- 
 Balance at 31 
  December 
  2022                1,212   194,063   (20,523)      (11,195)           271   (116,972)     46,856          (19,854)      27,002 
                  ---------  --------  ---------  ------------  ------------  ----------  ---------  ----------------  ---------- 
 
 
         Consolidated Statement of Cash Flows               Year ended     Year ended 
          For the year ended 31 December 2022              31 December    31 December 
                                                  Notes           2022           2021 
                                                               US$'000        US$'000 
 
 Cash flows from operating activities 
 Loss before taxation                                         (97,222)       (18,258) 
 Adjustments for: 
 Depreciation of property, plant and 
  equipment                                        4               821            904 
 Amortisation of right-of-use assets               6                 5             39 
 Impairment losses                                25            92,661              - 
 Share-based payment (credit) / charge            12             (222)            812 
 Finance income                                   21             (136)          (480) 
 Finance costs                                    24             6,496          3,267 
 Fair value (gain) / loss on derivative 
  liability                                       30          (10,807)          4,792 
 Debt modification present value adjustment       24             (233)          (258) 
 Foreign currency exchange differences                           3,550          4,382 
 Fair value loss / (gain) on game 
  animals                                          4                21           (51) 
                                                         -------------  ------------- 
 Operating cash flows before working 
  capital changes                                              (5,066)        (4,851) 
 (Increase) / decrease in trade and 
  other receivables                               28             (471)            256 
 (Increase) / decrease in inventories             28           (3,453)          (291) 
 (Decrease) / increase in trade and 
  other payables                                  28             (172)          3,178 
                                                         -------------  ------------- 
 Net cash flows used in operating 
  activities                                                   (9,162)        (1,708) 
                                                         -------------  ------------- 
 
 Cash flows used in investing activities 
 Purchase of property, plant and equipment         4          (29,215)       (38,553) 
 Exploration and evaluation expenditure            5             (346)        (3,931) 
 Disposal of subsidiary                                              -              5 
 Other financial asset                            28               427              - 
 Finance income received                          21               136            480 
 Transfer from restricted cash                    10             4,727          2,497 
                                                         -------------  ------------- 
 Net cash flows used in investing 
  activities                                                  (24,271)       (39,502) 
                                                         -------------  ------------- 
 
   Cash flows from financing activities 
 Finance costs paid                               24           (2,586)        (2,028) 
 Shareholder loan received                        14            38,727          8,037 
 Repayment of lease liabilities                   15               (6)           (39) 
 Other financial liabilities                      28           (3,712)             54 
 Issue of ordinary share capital                  12               557         25,800 
                                                         -------------  ------------- 
 Net cash flows from financing activities                       32,980         31,824 
                                                         -------------  ------------- 
 
   Net decrease in cash and cash equivalents                     (453)        (9,386) 
 Cash and cash equivalents at beginning 
  of the year                                                    2,461         11,572 
 Foreign currency exchange gains / 
  (losses) on cash                                                 112            275 
                                                         -------------  ------------- 
 Cash and cash equivalents at end 
  of the year                                                    2,120          2,461 
                                                         -------------  ------------- 
 

Notes to the Consolidated Financial Statements for the year ended 31 December 2022

   (1)      General information 

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

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

   (2)      Summary of significant accounting policies 

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

   (a)      Basis of preparation 

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

Going concern

During the year ended 31 December 2022, the Group incurred a loss of US$ 97.8 million (2021: US$ 18.3 million) after impairment losses and experienced net cash outflows from operating activities. Cash and cash equivalents totalled US$ 2.1 million as at 31 December 2022 (2021: US$ 2.5 million).

Elandsfontein is currently the Group's only source of operating revenue. As Elandsfontein is still busy ramping up its operations an operating loss is therefore also expected in the year following the date of these accounts. The Group is consequently dependent on future fundraisings to meet any production costs, overheads, future development and exploration requirements and quarterly repayments on the BNP loan that cannot be met from existing cash resources and sales revenue.

The Company did not reach project completion as stipulated in the BNP facility agreement by 31 December 2022. Considering the delay in achieving sales, the Company also failed to fund the debt service reserve account as required. BNP have, to date, waived these requirements, preventing the Company from falling in default of its loan terms, by means of several waivers since December 2022 to 30 September 2023.

At the end of the waiver period, the bank has the contractual right to request the immediate repayment of the outstanding loan amount of US$ 18,750,000. Management is in the process of refinancing the loan and expects that a replacement loan will be in place in the third quarter of 2023.

Operational cash flows and impairment loss

An impairment loss of US$ 92.7 million has been recognised as at 31 December 2022 in relation to the Elandsfontein mine based on the 5-year forecast and the latest life of mine (LOM) plans following the downgrade of the resource per an updated MRE as announced on 10 January 2023 and set out in the Strategic report. Please refer to Note 25 for some key assumptions and sensitivity analysis. The recoverable amount of the Elandsfontein mine was estimated based on discounted cashflows expected to be generated from the continued use of the cash generating unit (CGU) using market-based commodity prices and exchange rate assumptions, estimated quantities of recoverable minerals, production levels, operating costs and capital requirements and its eventual disposal based on the CGU's 5 year and latest LOM plans. These calculations include a number of estimates which if the actual outcome were different could have a significant impact on the financial outcome of the Elandsfontein mine operations and the Group's funding needs.

The going concern assessment was performed using the Group's 18-month forecast. The Group's going concern and forecast cash flows are largely driven by Elandsfontein, as the Group's only operating asset. Elandsfontein's forecast cashflows are based on its updated mine plan, considering the downgrade of the resource per an updated MRE as announced on 10 January 2023 and set out in the Strategic report and utilises the model which was used for impairment purposes. Please refer to Note 25 for some key assumptions and sensitivity analysis.

Elandsfontein's forecast cashflows were estimated using market-based commodity prices, exchange rate assumptions, estimated quantities of recoverable minerals, production levels, operating costs and capital requirements over an 18-month period. As with the impairment assessment, the going concern assessment only considered Elandsfontein's resources defined as "measured" and "indicated" per the updated MRE. The resource classified as "inferred" was not considered part of the mine plan for purposes of the going concern and impairment assessments.

The forecast cashflows include a number of estimates which if the actual outcome were different could have a significant impact on the financial outcome of the Elandsfontein mine operations and the Group's funding needs.

The 18-month forecast assumes the refinancing of the BNP loan facility in September 2023.

The critical estimates in the LOM plan and forecast cashflows expected to be generated are as follows:

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

The going concern assessment and forecast cashflows are highly sensitive to these estimates.

Phosphate rock prices and grade: Forecast phosphate rock prices are based on management's estimates of quality of production and selling price and are derived from forward price curves and long-term views of global supply and demand in a changing environment, particularly with respect to climate risk, building on past experience of the industry and consistent with external sources.

The first bulk shipment and sale of 33,000 tonnes of phosphate concentrate from Kropz Elandsfontein occurred in January 2023. A second shipment and sale of 20,000 tonnes of phosphate concentrate from Kropz Elandsfontein was recorded 14 March 2023. During April 2023 two bulk sales were achieved of 33,000 tonnes and 11,000 tonnes respectively. A further sale of 33,000 tonnes was recorded in June 2023.

Kropz is a new entrant to the phosphate market and has to date sold its shipments at a discount to market prices as it firstly establishes itself in the market and secondly works to improve its product grade.

In relation to pricing the most significant judgement in the LOM plan and cashflow forecast is that Kropz will be able to obtain the market price for its 31% P(2) O(5) phosphate concentrate for all shipments from beginning of 2024. The cashflow model assumes a discount to the prevailing market price for 31% P(2) O(5) phosphate concentrate for the period up to April 2023 largely due to variability in the grade of Elandsfontein's product being produced during its ramp-up phase and considering that Elandsfontein is a new market entrant. The ability to achieve market rates on sales is largely dependent on Elandsfontein's ability to consistently produce 31% P(2) O(5) concentrate. Failing this, the Group may continue to suffer a discount to market rates. Estimated phosphate rock prices that have been used to estimate future revenues in the LOM are as follows:

 
                                                   Long term 
  Assumptions                    2023        2024   (2025+) 
-------------------------  ----------  ----------  --------- 
Phosphate rock per tonne      $140        $159       $164 
 

Phosphate recoveries: The production volumes incorporated into the LOM model were 2.8 million tonnes of phosphate rock. Estimated production volumes are based on detailed LOM plans of the measured and indicated resource as defined in the MRE, and take into account development plans for the mine agreed by management as part of the long-term planning process. Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the development of the infrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted.

Estimated production volumes have been used to estimate future revenues. Such estimates made within the impairment assessment are subject to significant uncertainty given the ongoing ramp up, and production volumes achieved subsequent to the year end have been lower than expected.

There was a delay in ramp-up largely driven by the need to re-engineer parts of the fine flotation circuit proposed by the vendor, but it has also been affected by early unpredicted ore variability and lack of operator experience. Mining rates and associated delivery of ore to the plant were also compromised due to the presence of competent banks of hard material within the orebody, that were previously unknown. This hardbank material could, at the time, not be mined with the available equipment on site, resulting in mining delays while the required equipment for mechanical breaking could be brought to site.

Subsequently the vendor has provided design changes which were implemented at the plant, additional operator training was conducted and a mobile crusher implemented in the interim to facilitate the crushing of the affected ore to an appropriate size fraction until further test work has been conducted for a permanent solution. Several alternatives to deal with the indurated material in the pit were investigated, and new equipment has arrived on site to improve the mining efficiency and facilitate adequate feed to the plant.

Post year-end, Elandsfontein has produced 100,000 tonnes from January 2023 to June 2023. Given the slower actual ramp-up compared to the LOM plan, the forecast cashflow assumes that production will ramp up to an average of 34,000 tonnes per month in 2H 2023. With the ramp-up of the Elandsfontein mine still underway and the challenges experienced to date, it is uncertain whether these production volumes will be achieved.

Reserves and resources: The LOM plan includes only the measured and indicated resources as defined in the MRE which represents only around 4 years of forecast production. There was a significant reduction in the measured and indicated resource in the MRE issued in December 2022 as set out in the Strategic report. The Directors believe that the inferred resources in the MRE are capable of being accessed giving a mine life of around 15 years, but this has not been taken into account in the discounted cashflows.

Exchange rates: Foreign exchange rates are estimated with reference to external market forecasts. The assumed long-term US dollar/ZAR exchange rate over LOM is estimated to be ZAR19/USD and for the forecast cashflows to be ZAR18.50/USD.

Operating cost: Operating costs are estimated with reference to contractual and actual current costs adjusted for inflation. Key operating cost estimates are mine and plant operating costs and transportation and port costs.

Mine and plant operating costs: The forecast mine and plant costs were based on the contracted rates with the current mine and plant operators.

Port costs: The Group has a draft port access agreement with Transnet for Saldanha port but this has not yet been signed. The Group has paid guest port charges for Saldanha for the shipments in 2023 to date, which are higher than the assumed port cost in the LOM model but in line with the draft agreement with Transnet.

Transportation costs: Transnet has informed the Group that it may have to export some shipments through Cape Town in 2023 and 2024 which would lead of higher transportation cost to Cape Town. The transportation costs in the discounted cashflows assume that 10% of 2023 and 2024 shipments are through Cape Town at the higher logistic cost.

As production is still ramping up and the port access agreement with Transnet has not yet been signed, the actual operating costs may be higher than the estimates in the discounted cash flows.

Discount rates: A discount rate of 12.59% was applied to the discounted cash flows used in the LOM plan. This discount rate is derived from the Group's post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group's investors. The cost of debt is based on its interest-bearing borrowings the Group is obliged to service. Specific risk is incorporated by applying beta factors. The beta factors are evaluated annually based on publicly available market data.

There is a risk that revenue is lower and operating costs are higher than the estimates included in the discounted cashflows with the result that the recoverable amount from the Elandsfontein mine is lower than the discounted cashflows. Please also see Note 25 Impairment losses for sensitivity analysis.

Funding

The Group is consequently dependent on future fundraisings to meet any production costs, overheads, future development and exploration requirements and quarterly repayments on the BNP loan that cannot be met from existing cash resources and sales revenue.

ARC Fund, on various occasions in the past provided funding to support the Group's operations. In May 2022, Kropz secured a further ZAR equity facility of up to ZAR 177 million from ARC Fund to be used exclusively for the purposes of bringing the Elandsfontein project to first revenues, given a slower ramp-up in operations than originally envisaged. More recently, as announced on 14 March 2023, Kropz, Kropz Elandsfontein and the ARC Fund agreed to further ZAR 285 million (approximately US$ 15.5 million) bridge loan facilities to meet immediate cash requirements at Kropz Elandsfontein. A first draw down of ZAR 25 million (approximately US$ 1.4 million) on this was made on 14 March 2023. The loan is unsecured, repayable on demand, with no fixed repayment terms and is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly. A second draw down for an amount of ZAR 90 million was made on 28 March 2023 and a third drawdown of ZAR 30 million was made on 25 April 2023. A fourth drawdown of ZAR 80 million was made on 23 June 2023 for Kropz Elandsfontein to be able to service its quarterly payment of interest and capital to BNP Paribas. ZAR 60 million remains undrawn at the date of this report. Given that BNP Paribas is exiting South Africa, the Group was unable to refinance the existing loan with them. Considering their position, BNP has been supportive of the refinancing strategy and has waived the requirement on the Company to reach project completion at Elandsfontein as well as to fund the debt service reserve account consecutively since December 2022 to 30 September 2023. Kropz Elandsfontein has made all the capital and interest payments to BNP as required to the date of this report.

A further funding shortfall is expected in the year subsequent to the date of these accounts and as a result the Group will need to raise funding to provide additional working capital to finance its ongoing activities.

Management has successfully raised money in the past from its supportive major shareholder, but there is no guarantee that adequate funds will be available if needed in the future. Management has confirmed with ARC and have sufficient comfort that they have no intention to call any outstanding loans over the next 12-months for cash repayment. Management engages frequently with BNP regarding the capital repayment and refinancing of the BNP debt facility. Significant progress has been made with the refinancing of the BNP loan facility and Management, at the date of this report, are in advance discussions with several investors to provide the required funding to repay the BNP debt facility.

Going concern basis

Based on the Group's current available reserves, recent operational performance, forecast production and sales coupled with Management's track record to successfully raise additional funds as and when required, to meet its working capital and capital expenditure requirements, the Board have concluded that they have a reasonable expectation that the Group will continue in operational existence for the foreseeable future and at least to December 2024.

For these reasons, the financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business.

As there can be no guarantee that the required future funding can be raised in the necessary timeframe, a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

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

Functional and presentational currencies

The Consolidated Financial Statements are presented in US Dollars.

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

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

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

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

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

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

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

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

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

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

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

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

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

Changes in accounting policies

   (i)         New standards, interpretations and amendments adopted from 1 January 2022 

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

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

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

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

The Group has considered the above new standards and amendments and has concluded that, with the exception of IAS 16 which is relevant to the Group as it generated sales, they are either not relevant to the Group or they do not have a significant impact on the Group's consolidated financial statements.

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

The amendment to IAS 16 prohibits an entity from deducting from the cost of an item of PP&E any proceeds received from selling items produced while the entity is preparing the asset for its intended use (for example, the proceeds from selling samples produced during the testing phase of a plant after it is being constructed but before start of commercial production). The proceeds from selling such samples, together with the costs of producing them, were recognised in profit or loss as other income in accordance with the amended standard.

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

At the date of authorisation of these consolidated Group financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective. Management are currently assessing the impact of these new standards on the Group. With the exception of IAS 1 presentation of financial statements (amendment - classification of liabilities as current or non-current), the Group does not believe that the amendments will have a significant impact.

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

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

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

The following amendments are effective for the period beginning 1 January 2024:

   --      IFRS 16 Leases (Amendment - Liability in a Sale and Leaseback); 

-- IAS 1 Presentation of Financial Statements (Amendment - Classification of Liabilities as Current or Non-current); and

-- IAS 1 Presentation of Financial Statements (Amendment - Non-current Liabilities with Covenants).

On implementation of IAS 1 presentation of financial statements (amendment - classification of liabilities as current or non-current), the Group will present its convertible loan liabilities as current liabilities as opposed to non-current liabilities which is the presentation in these financial statements.

   (b)      Basis of consolidation 

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

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

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

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

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

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

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

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

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

Accounting for asset acquisition within a corporate structure

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

Non-controlling interests

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

Merger relief

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

   (c)      Property, plant, equipment and mine development 

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

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

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

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

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

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

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

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

Depreciation

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

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

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

Useful lives and residual values

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

Stripping activity asset

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

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

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

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

   (d)      Mineral exploration and evaluation costs 

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

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

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

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

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

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

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

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

   (e)      Leases 

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

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

Identifying Leases

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

(a) There is an identified asset;

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

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

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

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

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

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

The discount rate is the rate implicit in the lease, if readily determinable. If not, the Company's incremental borrowing rate is used which the Company has assessed to be 7.22%, being an average SOFR plus 3%, being an appropriate level of risk to the risk-free rate of borrowing.

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

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

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

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

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

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

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

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

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

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

   (f)      Game animals 

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

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

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

   (g)      Financial instruments 

Classi cation and measurement

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

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

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

Financial assets held at amortised cost

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

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

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

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

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

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

Impairment of nancial assets

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

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

Cash and cash equivalents

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

Trade and other payables

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

Interest bearing borrowings

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

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

Modification of debt instruments

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

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

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

   (h)      Taxation 

Current tax assets and liabilities

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

Deferred tax assets and liabilities

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

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

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

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

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

Tax expense

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

   (s)      Impairment of non-financial assets 

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

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

The recoverable amount of an asset or a cash-generating unit ('CGU') is the higher of its fair value less costs to of disposal ('FVLCD') and its value in use ('VIU').

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

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

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

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

   (j)       Inventories 

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

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

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

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

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

   (k)      Provisions and contingencies 

Environmental rehabilitation

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

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

Decommissioning provision

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

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

   (l)       Share capital and equity 

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

   (m)     Convertible debt 

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

   (n)      Borrowing costs 

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

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

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

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

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

   (o)      Employee benefits 

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

   (p)      Intangible assets 

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

   (q)      Finance income 

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

   (r)      Share-based payment arrangements 

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

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

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

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

Details regarding the determination of the fair value of equity-settled share-based transactions are set out in the Directors' Report and Note 12 to the Consolidated Financial Statements.

   (s)      Critical accounting estimates and judgements 

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

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

   (i)         Exploration and evaluation assets (Note 5) 

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

   (ii)         Functional currency 

The Group transacts in multiple currencies. The assessment of the functional currency of each entity within the consolidated Group involves the use of judgement in determining the primary economic environment each entity operates in. The Group first considers the currency that mainly influences sales prices for goods and services, and the currency that mainly influences labour, material and other costs of providing goods or services. In determining functional currency, the Group also considers the currency from which funds from financing activities are generated, and the currency in which receipts from operating activities are usually retained. See Note 31 for sensitivity analysis of foreign exchange risk.

   (iii)        Decommissioning and rehabilitation provisions (Note 17) 

Quantifying the future costs of these obligations is complex and requires various estimates and judgements to be made, as well as interpretations of and decisions regarding regulatory requirements, particularly with respect to the degree of rehabilitation required, with reference to the sensitivity of the environmental area surrounding the sites. Consequently, the guidelines issued for quantifying the future rehabilitation cost of a site, as issued by the South African Department of Mineral Resources, have been used to estimate future rehabilitation costs. The Group appointed Braaf Environmental Practitioners to conduct an independent specialist update of the decommissioning and rehabilitation provision.

   (iv)        Other financial assets 

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

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

   (v)        Taxation 

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

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

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

   (vi)        Fair value of financial instruments 

The judgements and estimates made by the Group in determining the fair values of the financial instruments are described in Note 14 and 30 to the Consolidated Financial Statements.

   (vii)       Impairment indicator assessment 

The Group reviews and tests the carrying value of assets when events or changes in circumstances ("impairment indicators") suggest that the carrying amount may not be recoverable. At 31 December 2022 an impairment indicator assessment was performed and impairment charge of US$ 93 million recorded (refer to Note 25). As part of the impairment indicator assessment, management evaluate the life of mine plan discounted cash flow model. These calculations require the use of estimates and assumptions. The key estimates made include discount rates, being the Group's weighted average cost of capital, future prices of phosphate rock, mine production levels and foreign currency exchange rates.

   (t)       Key sources of estimation uncertainty 

Property, plant and equipment

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

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

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

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

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

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

In determining the FVLCD for purposes of the impairment consideration, the value is most sensitive to the following assumptions:

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

Refer to Note 25 for further details.

Life of mine

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

Fair value of derivative instruments

Information about the specific techniques, assumptions and inputs is disclosed in Note 14 and 30 to the Consolidated Financial Statements. The key estimates associated with the fair value of the derivative liability include volatility and the assumptions regarding conversion timing.

   (3)      Subsidiaries of the Group 

The subsidiaries of the Group, all of which are private companies limited by shares, as at 31 December 2022, are as follows:

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

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

   (4)      Tangible assets - Property, plant, equipment and mine development 
 
                            31 Dec            31 Dec     31 Dec    31 Dec          31 Dec     31 Dec 
                              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                        1,418             (795)        623     1,515               -      1,515 
 Buildings                   9,840           (5,597)      4,243    10,514            (56)     10,458 
 Capitalised road 
  costs                      7,600           (5,709)      1,891     8,121         (2,978)      5,143 
 Capitalised electrical 
  sub-station costs          3,297           (2,445)        852     3,523         (1,213)      2,310 
 
 Machinery, plant 
  and equipment 
 Critical spare 
  parts                      1,786           (1,002)        784     1,713               -      1,713 
 Plant and machinery        95,061          (53,486)     41,575    86,243            (63)     86,180 
 Water treatment 
  plant                      2,333           (1,308)      1,025     2,435               -      2,435 
 Furniture and fittings         56              (41)         15        49            (40)          9 
 Geological equipment           79              (48)         31        65            (45)         20 
 Office equipment               30              (28)          2        32            (21)         11 
 Other fixed assets              1               (1)          -         1             (1)          - 
 Motor vehicles                 93              (93)          -       100           (100)          - 
 Computer equipment             79              (45)         34        65            (41)         24 
 
 Mine development           17,724           (9,788)      7,936    18,938               -     18,938 
 
 Stripping activity 
  costs                     22,257          (12,485)      9,772     6,126               -      6,126 
 
 Game animals                  182                 -        182       217               -        217 
 
 Total                     161,836          (92,871)     68,965   139,657         (4,558)    135,099 
                          --------  ----------------  ---------  --------  --------------  --------- 
 

Reconciliation of property, plant, equipment and mine development - Year ended 31 December 2022

 
                                                       Fair                               Foreign 
                             Opening                  value    Impair-   Depreciation    exchange    Closing 
                             Balance   Additions       loss      ment*         charge        loss    balance 
                             US$'000     US$'000    US$'000    US$'000        US$'000     US$'000    US$'000 
 Buildings and 
  infrastructure 
 Land                          1,515           -          -      (795)              -        (97)        623 
 Buildings                    10,458           -          -    (5,747)           (33)       (435)      4,243 
 Capitalised 
  road costs                   5,143           -          -    (2,522)          (527)       (203)      1,891 
 Capitalised 
  electrical sub-station 
  costs                        2,310           -          -    (1,137)          (229)        (92)        852 
 
 Machinery, 
  plant and equipment 
 Critical spare 
  parts                        1,713         190          -    (1,046)              -        (73)        784 
 Plant and machinery          86,180      14,911          -   (55,775)            (1)     (3,740)     41,575 
 Water treatment 
  plant                        2,435          56          -    (1,366)              -       (100)      1,025 
 Furniture and 
  fittings                         9          10          -          -            (4)           -         15 
 Geological equipment             20          18          -          -            (6)         (1)         31 
 Office equipment                 11           -          -          -            (9)           -          2 
 Other fixed 
  assets                           -           -          -          -              -           -          - 
 Motor vehicles                    -           -          -          -              -           -          - 
 Computer equipment               24          24          -          -           (12)         (2)         34 
 
 Mine development             18,938           -          -   (10,227)              -       (775)      7,936 
 
 Stripping activity 
  costs                        6,126      17,178          -   (13,035)              -       (497)      9,772 
 
 Game animals                    217           -       (21)          -              -        (14)        182 
 
 Total                       135,099      32,387       (21)   (91,650)          (821)     (6,029)     68,965 
                           ---------  ----------  ---------  ---------  -------------  ----------  --------- 
 

* Refer to Note 25.

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

 
                                                                                   Foreign 
                             Opening                 Fair value   Depreciation    exchange    Closing 
                             Balance   Additions           gain         charge        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 
                           ---------  ----------  -------------  -------------  ----------  --------- 
 

Game animals

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

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

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

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

Levels of fair value measurements - Level 3.

Kropz Elandsfontein has a fully drawn down project financing facility with BNP Paribas for US$ 30 million (see Note 16). BNP has an extensive security package over all the assets of Kropz Elandsfontein and Elandsfontein Land Holdings (Pty) Ltd ("Elandsfontein Land Holdings") as well as the share investments in those respective companies owned by Kropz SA (Pty) Ltd ("Kropz SA").

   (5)      Intangible assets - Exploration and evaluation costs 
 
                   31 Dec     31 Dec     31 Dec    31 Dec     31 Dec     31 Dec 
                     2022       2022       2022      2021       2021       2021 
                              Amort-   Carrying               Amort-   Carrying 
                     Cost    isation      value      Cost    isation      value 
                  US$'000    US$'000    US$'000   US$'000    US$'000    US$'000 
 
   Capitalised 
   costs           42,415          -     42,415    44,631          -     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 Directors assessed whether there were any indicators of impairment. No indicators were identified.

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 
        2022 
       Capitalised exploration 
        costs                           44,631         346           -     (2,562)     42,415 
                                 -------------  ----------  ----------  ----------  --------- 
 
 
                                                                           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 
                                 -------------  ----------  ----------  ----------  --------- 
 
   (6)      Right-of-use assets 
 
                                        Year ended    Year ended 
                                       31 December   31 December 
                                              2022          2021 
                                           US$'000       US$'000 
       Cost 
       Brought forward                         110           117 
       Foreign exchange differences            (7)           (7) 
                                      ------------  ------------ 
       As at 31 December                       103           110 
                                      ------------  ------------ 
 
       Amortisation 
       Brought forward                         103            72 
       Charge for the year                       5            39 
       Foreign exchange differences            (5)           (8) 
                                      ------------  ------------ 
       As at 31 December                       103           103 
                                      ------------  ------------ 
 
       Net book value                            -             7 
                                      ------------  ------------ 
 
   (7)      Other financial assets 
 
                                              31 December   31 December 
                                                     2022          2021 
                                                  US$'000       US$'000 
       DMR guarantee (1)                                -           630 
       Eskom guarantee (2)                            309           330 
       Eskom guarantee (3)                            313           334 
       Heritage Western Cape Trust (4)                  -            63 
       Centriq insurance DMR guarantee (5)            238             - 
                                             ------------  ------------ 
       Total                                          860         1,357 
                                             ------------  ------------ 
 

(1) DMR guarantee

Guarantee in favour of the Department of Mineral Resources for ZAR 10 million in respect of a " nancial guarantee for the rehabilitation of land disturbed by prospecting/mining". The guarantee was replaced by Centriq insurance during the year.

(2) Eskom guarantee

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

(3) Eskom guarantee

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

(4) Heritage Western Cape Trust

ZAR 1 million settlement agreement trust fund held in trust by attorneys on behalf of the Heritage Western Cape Trust until Kropz Elandsfontein lodged a heritage impact assessment. The heritage impact assessment was lodged in 2018 and the guarantee funds returned to the Group during the year.

(5) Centriq insurance DMR guarantee

Guarantee in favour of Department of Mineral Resources of ZAR 50 million in respect of a "financial guarantee for the rehabilitation of land disturbed by prospecting/mining" under an insurance policy. Two additional annual premiums of ZAR 4.5 million are due on 1 November 2023 and 1 November 2024 respectively.

Fair value of other nancial assets

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

   (8)      Inventories 
 
                       31 December   31 December 
                              2022          2021 
                           US$'000       US$'000 
       Concentrate*            790             - 
       Consumables           2,483         1,025 
       Total                 3,273         1,025 
                      ------------  ------------ 
 

* Phosphate rock produced by Kropz Elandsfontein.

   (9)      Trade and other receivables 
 
                                         31 December   31 December 
                                                2022          2021 
                                             US$'000       US$'000 
       Prepayments and accrued income            209           238 
       Deposits                                   41            46 
       VAT                                     1,294         1,112 
       Other receivables                         313           115 
                                        ------------  ------------ 
       Total                                   1,857         1,511 
                                        ------------  ------------ 
 

Credit quality of trade and other receivables

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

Credit risk

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

Trade and other receivables past due but not impaired

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

Trade and other receivables impaired

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

Fair value of trade and other receivables

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

Expected credit losses

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

   (10)    Restricted cash 
 
                               31 December   31 December 
                                      2022          2021 
                                   US$'000       US$'000 
       Short-term deposits               -         4,858 
                             -------------  ------------ 
 

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

Fair value of short-term deposits

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

   (11)    Cash and cash equivalents 
 
                        31 December   31 December 
                               2022          2021 
                            US$'000       US$'000 
       Bank balances          2,120         2,460 
       Cash on hand               -             1 
                       ------------  ------------ 
       Total                  2,120         2,461 
                       ------------  ------------ 
 

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

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

Fair value of cash at bank

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

   (12)    Share capital 

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

 
                                                 Share      Share     Merger 
                                  Number of    capital    premium    reserve     Total 
                                     shares    US$'000    US$'000    US$'000   US$'000 
 At 1 January 2020              558,627,558        706    168,212   (20,523)   148,395 
 
 Convertible loan - issue 
  of shares                     350,944,417        488     25,312          -    25,800 
 As at 31 December 2021         909,571,975      1,194    193,524   (20,523)   174,195 
                               ------------  ---------  ---------  ---------  -------- 
 
 Share options exercised          6,700,000          9          -          -         9 
 Shares issued in settlement 
  of guarantee fees               3,971,712          4        307          -       311 
 Convertible loan - issue 
  of shares                       3,474,536          5        232          -       237 
                               ------------  ---------  ---------  ---------  -------- 
 At 31 December 2022            923,718,223      1,212    194,063   (20,523)   174,752 
                               ------------  ---------  ---------  ---------  -------- 
 

Issue of shares in the year ended 31 December 2022:

The changes to the issued share capital of the Company which occurred between 1 January 2022 and 31 December 2022 were as follows:

Convertible loan facility

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

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

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

Share based payment arrangements

Employee Share Option Plan and Long-Term Incentive Plan

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

The following plans have been adopted by the Company:

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

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

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

ESOP Awards

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

The ESOP Awards will vest as to performance as follows:

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

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

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

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

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

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

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

As announced on 20 July 2022, Mark Summers expressed his intention to leave the Company and he resigned as Chief Executive Officer ("CEO") and Executive Director of the Company in January 2023 and the 3,362,609 ESOP options awarded to him lapsed and expired. Michelle Lawrence resigned on 31 December 2022 and the 1,465,137 ESOP options awarded to her lapsed and expired on that date. There are therefore nil ESOP options remaining at 31 December 2022.

LTIP Awards

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

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

The LTIP Awards are GBP0.001 priced options over a total of 6,700,000 ordinary shares. Of this total, 2,350,000 LTIP Awards were granted to each of Mark Summers and Michelle Lawrence and 1,000,000 to Patrick Stevenaert. The LTIP Awards vested on 31 December 2021 and were exercised in January 2022, pursuant to the terms of the LTIP Plan Rules (as set out in the Company's Admission Document), including financial and non-financial performance conditions and, in respect of Mark Summers and Michelle Lawrence, continued employment by the Company. Consequently, 6,700,000 ordinary shares were issued on 24 January 2022, at an exercise price of GBP0.001 an ordinary share, in the Company.

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

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

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

The LTIP Awards are GBP0.001 priced options over a total of 7,800,000 ordinary shares. Of this total, 2,400,000 LTIP Awards were granted to each of Mark Summers and Michelle Lawrence and 900,000 to Patrick Stevenaert. The LTIP Awards will vest on various dates from 30 June 2022 to 31 December 2024, subject to the terms of the LTIP Plan Rules (as set out in the Company's Admission Document), including financial and non-financial performance conditions and, in respect of Mark Summers and Michelle Lawrence, continued employment by the Company.

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

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

As announced on 20 July 2022, Mark Summers expressed his intention to leave the Company and he resigned in January 2023 and the 2,400,000 LTIP options awarded to him lapsed and expired. Michelle Lawrence resigned on 31 December 2022 and the 2,400,000 LTIP options awarded to her lapsed and expired on that date. The lapsed and expired options were reversed through profit and loss.

A net credit to expense of US$ 222,000 was recognised in profit and loss related to the employee share options (31 December 2021: charge of US$ 812,000).

The LTIP Awards remaining at 31 December 2022 are GBP0.001 priced options over a total of 3,000,000 ordinary shares representing 0.3% of the Company's issued share capital.

Equity warrants

As part of the equity facility and fundraising, on 4 August 2020 the Company granted 121,837 warrants over the ordinary shares of 0.1 pence each in the Company, exercisable at 6.75 pence per Ordinary Share for a period of two years from issue. As they had not been exercised, these options lapsed during the 2022 financial year and nil equity warrants remained in place at 31 December 2022 (2021: 121,837 equity warrants).

   (13)    Reserves 

Nature and purpose of reserves

Foreign exchange translation reserve

The foreign exchange translation reserve comprises all foreign currency differences arising from the translation of the assets, liabilities and equity of the entities included in these consolidated nancial statements from their functional currencies to the presentational currency. A decrease in the reserve of US$ 3,388,000 (2021: US$ 10,141,000) was recorded due to changes in the foreign currencies used to translate assets, liabilities and equity at consolidation.

Share premium

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

Merger reserve

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

Share-based payment reserve

The share-based payment reserve arises from the requirement to value share options and warrants in existence at fair value (see Note 12).

   (14)    Shareholder loans and derivative 
 
                                                  31 December   31 December 
                                                         2022          2021 
                                                      US$'000       US$'000 
       Shareholder loans - ARC                         17,010        16,196 
       Convertible debt - ARC                          15,055         6,191 
       Derivative liability (refer to Note 30)         23,037         2,656 
                                                 ------------  ------------ 
                                                       55,102        25,043 
                                                 ------------  ------------ 
 

Shareholders loan - ARC

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

Convertible debt - ARC

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

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

As announced on 14 November 2022, the Company entered into a new conditional convertible equity facility of up to ZAR 550 million ("ZAR 550 Million Equity Facility") with ARC. Interest is payable at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly. At any time during the term of the ZAR 550 Million Equity Facility, repayment of the ZAR 550 Million Equity Facility capital amount will, at the election of ARC, either be in the form of the conversion into Ordinary Shares in the Company and issued to ARC, at a conversion price of 4.579 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21 October 2022 and at fixed exchange rate of ZAR 1 = GBP 0.48824 ("Conversion"), or payable in cash by the Company at the end of the term of the ZAR 550 Million Equity Facility which is 30 November 2027. The first drawdown on the ZAR 550 Million Equity Facility occurred on 1 December 2022 for ZAR 307.5 million. The second drawdown on the ZAR 550 Million Equity Facility of ZAR 135 million occurred on 22 December 2022. The third drawdown on the ZAR 550 Million Equity Facility of ZAR 60 million occurred on 25 January 2023 and the fourth drawdown of ZAR 40 million occurred on 27 February 2023. ZAR 7.5 million remains undrawn on the ZAR 550 Million Equity Facility.

Convertible liability

It was determined that the conversion option embedded in the convertible debt equity facility be accounted for separately as a derivative liability. Although the amount to be settled is fixed in ZAR, when converted back to Kropz's functional currency will result in a variable amount of cash based on the exchange rate at the date of conversion. The value of the liability component and the derivative conversion component were determined at the date of draw down using a Monte Carlo simulation. The debt host liability was bifurcated based on the determined value of the option. Subsequently, the embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value recorded in profit and loss (refer to Note 30).

Fair value of shareholder loans

The carrying value of the loans approximates their fair value.

   (15)    Finance lease liabilities 
 
                                        Year ended     Year ended 
                                       31 December    31 December 
                                              2022           2021 
                                           US$'000        US$'000 
 In respect of right-of-use assets 
 Balance brought forward                         7             48 
 Repayments during the year                    (6)           (39) 
 Foreign exchange differences                  (1)            (2) 
                                     -------------  ------------- 
 Lease liabilities at end of year                -              7 
                                     -------------  ------------- 
 
 Maturity 
 Current                                         -              7 
 Non-current                                     -              - 
                                     -------------  ------------- 
 Total lease liabilities                         -              7 
                                     -------------  ------------- 
 
   (16)    Other financial liabilities 
 
                          31 December   31 December 
                                 2022          2021 
                              US$'000       US$'000 
 BNP                           26,298        30,041 
 Greenheart Foundation            510           545 
 Total                         26,808        30,586 
                         ------------  ------------ 
 
 
 Maturity 
 Non-current         -   26,291 
 Current        26,808    4,295 
               -------  ------- 
 Total          26,808   30,586 
               -------  ------- 
 

BNP

A US$ 30,000,000 facility was made available by BNP Paribas to Kropz Elandsfontein in September 2016.

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

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

The BNP loan is subject to covenant clauses. Kropz Elandsfontein did not reach project completion as stipulated in the agreement to be 31 December 2022 and failed to fund the Debt Service Reserve Account, however BNP Paribas has provided, post balance sheet date, a waiver to 30 September 2023. The outstanding balance is therefore presented as a current liability as at 31 December 2022.

Greenheart Foundation

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

Fair value of other nancial liabilities

The carrying value of the loans approximate their fair value.

   (17)    Provisions 

Reconciliation of provisions - Year ended 31 December 2022

 
                                                              Foreign 
                                   Opening     Additions/    exchange    Closing 
                                   Balance    Adjustments       gains    balance 
                                   US$'000        US$'000     US$'000    US$'000 
 Provision for dismantling 
  costs                              2,241        (1,367)          99        973 
 Provisions for rehabilitation       1,792          (185)         117      1,724 
                                 ---------  -------------  ----------  --------- 
 Total                               4,033        (1,552)         216      2,697 
                                 ---------  -------------  ----------  --------- 
 

Reconciliation of provisions - Year ended 31 December 2021

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

Dismantling and rehabilitation provisions

Prior to 2015, financial provisioning and rehabilitation were governed by the Mineral and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002) ("MPRDA") and the National Environmental Management Act, 1998 (Act No. 107 of 1998) ("NEMA"). As such the previous financial provisioning was based on the quantum of the financial provision under regulations 53 and 54 of the MPRDA and the guideline document published by the Department of Mineral Resources (now "Department of Mineral Resources and Energy") (DMR 2005 Guideline Document for the Evaluation of the Quantum of Closure-Related Financial Provision Provided by a Mine) and assessed according to the guideline.

The Kropz Elandsfontein Mine was placed on Care and Maintenance Phase from August 2017 to September 2020 due to flaws in the design of the production process. This was followed by an Optimisation Phase from September 2020 to September 2021 which related to plant modifications to meet optimal operational requirements to allow the mine to go into production. At this time, Kropz Elandsfontein updated their EMPr to include the optimisation phase. As such the DMRE issued updated conditions, which stated that the holder of the EMPr must annually assess the environmental liabilities of the operation by using the master rates in line with the applicable Consumer Price Index ("CPI") at the time and address the shortfall on the financial provision submitted in terms of section 24P of NEMA. To comply with the requirements, Kropz Elandsfontein commissioned Braaf Environmental Practitioners SA (Pty) Ltd to update the provision in 2021, which was done under the 2015 Regulations (GNR 1147) and approved by the DMRE.

Prior to the 2022 financial provision update, the DMRE was consulted to determine which regulations must be adhered to, Regulation 54 of the MPRDA Regulations (i.e., the DMR 2005 Guideline Document for the Evaluation of the Quantum of Closure-Related Financial Provision Provided by a Mine) or the 2015 regulations (GNR 1147), as amended. The DMRE confirmed that since the publication of GNR No. 45058 by the Minister of her intention to repeal the 2015 Financial Provisioning Regulations and to make new Regulations for Financial Provisioning on 27 August 2021, the updated 2022 Kropz Elandsfontein financial provisions should be determined under regulations 53 and 54 of the MPRDA and the DMR 2005 Guideline Document for the Evaluation of the Quantum of Closure-Related Financial Provision Provided by a Mine and DMRE's 2005 escalated master rates. In terms of the current transitional provisions (GNR No. 46378 of 19 May 2022) of the proposed Regulations mining companies have until, 19 September 2023 to comply with the 2015 Regulations, as amended. However, on 19 May 2023, the Minister published a further extension to the due date for mining companies to comply with the proposed Regulations, being 19 February 2024.

As such the 2022 provision was based on the DMRE master rates for rehabilitation and instruction from the DMRE which is the prescribed requirements in terms of the approvals and regulations. This has resulted in reduction in the quantum of the provision.

The expected timing of any outflows of these provisions will be on the closure of the respective mines. Estimates are based on costs that are reviewed regularly and adjusted as appropriate for new circumstances. Future cash flows are appropriately discounted. A discount rate of 5.52% (2021: 7.46%) was used.

   (18)    Trade and other payables 
 
                   31 December   31 December 
                          2022          2021 
                       US$'000       US$'000 
 Trade payables          6,605         2,527 
 Other payables             10             - 
 Accruals                  669         1,016 
                  ------------  ------------ 
 Total                   7,284         3,543 
                  ------------  ------------ 
 

Fair value of trade and other payables

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

   (19)    Commitments 
 
                                    31 December   31 December 
                                           2022          2021 
                                        US$'000       US$'000 
 Authorised capital commitments               -         1,871 
                                  -------------  ------------ 
 

The committed expenditure at 31 December 2021 relates to plant construction.

   (20)    Directors' remuneration, interests and transactions 

The Directors of the Company and the two executives of Kropz Elandsfontein and Cominco Resources are considered to be the Key Management Personnel of the Group. Details of the Directors' remuneration, Key Management Personnel remuneration which totalled US$ 747,329 (2021: US$ 1,882,116) (including notional option cost and social security contributions) and Directors' interests in the share capital of the Company are disclosed in the Directors' Report. Amounts reflected relate to short-term employee benefits and were converted to US$ at the 31 December 2022 GBP exchange rate of 0.812 and ZAR exchange rate of ZAR 16.373.

The highest paid Director in the year received remuneration, excluding notional gains on share options, of US$ 330,340 (2021: US$ 542,739). Refer to page 33 to 34 for further details.

   (21)    Finance income 
 
                      Year ended     Year ended 
                     31 December    31 December 
                            2022           2021 
                         US$'000        US$'000 
 Interest income             136            480 
                   -------------  ------------- 
 Total                       136            480 
                   -------------  ------------- 
 
   (22)    Operating expenses 
 
                                                     Year ended     Year ended 
                                                    31 December    31 December 
                                                           2022           2021 
                                                        US$'000        US$'000 
 Fair value loss / (gain) on game animals                    22           (51) 
 Amortisation of right of use asset                           5             39 
 Depreciation of property, plant and machinery              821            904 
 Employee costs (excluding share option 
  cost)                                                   1,133          1,392 
 Share option (credit) / cost                             (222)            812 
 Electricity and water - mine operations                    928          1,067 
 Inventory expense                                            -            183 
 Mining costs                                                54              9 
 Plant operating costs and recoveries                       216            217 
 Professional and other services                            667            821 
 Auditor's remuneration in respect of audit 
  of the Group and parent                                   136             86 
 Auditor's remuneration in respect of audit 
  of the Cominco Group                                       52             42 
 Component auditor's remuneration in respect 
  of audit of South African controlled entities              71             68 
 Other expenses                                           1,925            914 
                                                  -------------  ------------- 
 Total                                                    5,808          6,503 
                                                  -------------  ------------- 
 
   (23)    Staff costs 
 
                                              Year ended     Year ended 
                                             31 December    31 December 
                                                    2022           2021 
                                                     No.            No. 
 The average monthly number of employees 
  was: 
 Operations                                           10             11 
 Finance and administration                            6              6 
 Management                                            3              3 
                                           -------------  ------------- 
                                                      19             20 
                                           -------------  ------------- 
 
 
                                                    Year ended     Year ended 
                                                   31 December    31 December 
                                                          2022           2021 
                                                       US$'000        US$'000 
 Aggregate remuneration (including Directors): 
 Wages and salaries (including bonuses)                  1,003          1,274 
 Social security costs                                     127            115 
 Share-based payments (credit) / cost                    (222)            812 
 Pension costs                                               3              3 
                                                           911          2,204 
                                                 -------------  ------------- 
 
   (24)    Finance expense 
 
                                            Year ended     Year ended 
                                           31 December    31 December 
                                                  2022           2021 
                                               US$'000        US$'000 
 Shareholder loans                               3,407            670 
 Foreign exchange losses                         3,550          4,382 
 Bank debt                                       2,576          2,024 
 BNP - debt modification present value 
  adjustment amortisation                        (233)          (258) 
 BNP amendment fee amortisation                    205            227 
 Finance leases                                      -              1 
 Other                                             307            345 
                                         -------------  ------------- 
 Total                                           9,812          7,391 
                                         -------------  ------------- 
 
   (25)    Impairment losses 

As a result of the recoverable amount analysis performed during the year, the following impairment loss was recognised:

 
                 31 December   31 December 
                        2022          2021 
                     US$'000       US$'000 
 Mine property        91,650             - 
 Inventory             1,011             - 
                ------------  ------------ 
                      92,661             - 
                ------------  ------------ 
 

The impairment loss was recognised in relation to the Elandsfontein mine. The triggers for the impairment test were primarily due to the hard bank encountered in the pit which necessitated further drilling and the effect of changes to the mine plan resulting from the updated MRE and downgrading of the measured and indicated resource. The recoverable amount of the Elandsfontein mine was based on management's estimate of FVLCD and is estimated based on discounted future cash flows expected to be generated from the continued use of the CGU using market-based commodity prices and exchange assumptions, estimated quantities of recoverable minerals, production levels, operating costs and capital requirements, and its eventual disposal, based on the CGU's 5 year plans and latest life of mine (LOM) plans following the downgrade of the resource per an updated MRE as announced on 10 January 2023. The impairment test only considered the section of the mineral resource classified as measured and indicated. The inferred resource classification was disregarded for impairment testing purposes.

Key assumptions

The determination of FVLCD is most sensitive to the following assumptions:

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

Phosphate rock prices : Forecast phosphate rock prices are based on management's estimates and are derived from forward price curves and long-term views of global supply and demand in a changing environment, particularly with respect to climate risk, building on past experience of the industry and consistent with external sources. These prices are reviewed semi-annually. Estimated long-term phosphate rock prices for the current period that have been used to estimate future revenues, are as follows:

 
                                                 Long term 
  Assumptions                  2023      2024     (2025+) 
-------------------------  --------  --------  ----------- 
Phosphate rock per tonne     $140      $159      $164 
 

Phosphate recoveries : The production volumes incorporated into the cash flow model were 2.8 million tonnes of phosphate rock. Estimated production volumes are based on detailed life-of-mine plans, of the measured and indicated resourced as defined in the MRE, and take into account development plans for the mine agreed by management as part of the long-term planning process. Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the development of the infrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted.

Exchange rates : Foreign exchange rates are estimated with reference to external market forecasts and updated semi-annually. The assumed long-term US dollar/ZAR exchange rate is estimated to be ZAR19/USD.

Operating cost : Operating costs are estimated with reference to contractual and actual current cost and adjusted for inflation.

Discount rates : A discount rate of 12.59% was applied to the cash flows. This discount rate is derived from the Group's post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group's investors. The cost of debt is based on its interest-bearing borrowings the Group is obliged to service. Specific risk is incorporated by applying beta factors. The beta factors are evaluated annually based on publicly available market data.

Sensitivity analysis

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

 
                                                          Reversal of / 
                                                          (increase in) 
                                                             impairment 
                                                            US$ million 
 
                                         Increased by 
  Impact if discount rate                          2%             (3.0) 
                                        reduced by 2%               3.2 
 
                                         increased by 
  Impact if selling prices                        10%              26.2 
                                       reduced by 10%            (27.6) 
 
                                         increased by 
  Impact if production tonnes                     10%              12.5 
                                       reduced by 10%            (13.0) 
 
                                         increased by 
  Impact if foreign exchange rates                10%              27.1 
                                       reduced by 10%            (28.5) 
 
                                         increased by 
  Impact if operating costs:                      10%            (21.5) 
                                       reduced by 10%              20.7 
 
   (26)    Taxation 
 
 Major components of tax charge                      Year ended   Period ended 
                                                    31 December    31 December 
                                                           2022           2021 
                                                        US$'000        US$'000 
 Deferred 
 Originating and reversing temporary differences              -              - 
 Current tax 
 Local income tax                                         (602)              - 
                                                  -------------  ------------- 
 Total                                                    (602)              - 
                                                  -------------  ------------- 
 

The tax charge arose predominantly due to the devaluation of GBP against US$ and the recorded unrealised foreign exchange gains being taxable in the UK.

Reconciliation of tax charge

 
                                             Year ended     Year ended 
                                            31 December    31 December 
                                                   2022           2021 
                                                US$'000        US$'000 
 Loss before tax                               (97,222)       (18,258) 
                                          -------------  ------------- 
 
 Applicable UK tax rate                             19%            19% 
 Tax at applicable tax rate                    (18,472)        (3,469) 
 Adjustments for different tax rates in 
  the Group                                    (12,031)        (2,177) 
 Disallowable expenditure                        23,744          1,545 
 Losses carried forward not recognised            7,361          4,101 
                                          -------------  ------------- 
 Tax (credit) / charge                              602              - 
                                          -------------  ------------- 
 

The movement in tax liabilities is summarised below:

 
                                  Year ended     Year ended 
                                 31 December    31 December 
                                        2022           2021 
                                     US$'000        US$'000 
 
 Balance brought forward                   -              - 
 Current year charge                     602              - 
 Interest                                  6              - 
 Tax paid                                  -              - 
 Foreign exchange differences           (11)              - 
                               -------------  ------------- 
 Balance carried forward                 597              - 
                               -------------  ------------- 
 

The Group had losses for tax purposes of approximately US$ 57.5 million as at 31 December 2022 (2021: US$ 52.1 million) which, subject to agreement with taxation authorities, are available to carry forward against future profits. They can be carried forward indefinitely.

A net deferred tax asset of approximately US$ 16.1 million (2021: US$ 14.6 million), after set off of accelerated depreciation allowances in respect of fixed assets of US$ 41.1 million (2021: US$ 34.7 million), arises in respect of these losses. It has not been recognised as steady state production has not been reached. The deferred tax asset and deferred tax liability relate to income tax in the same jurisdiction and the law permits set off.

   (27)    Earnings per share 

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

 
                                                         Year ended     Year ended 
                                                        31 December    31 December 
                                                               2022           2021 
                                                            US$'000        US$'000 
 Loss attributable to ordinary shareholders                (66,639)       (13,787) 
 
         Weighted average number of ordinary shares 
         used in basic loss per share                   921,908,785    765,871,834 
 Share options and warrants                                       -              - 
                                                      -------------  ------------- 
 Weighted average number of ordinary shares 
  used in diluted loss per share                        921,908,785    765,871,834 
                                                      -------------  ------------- 
 
 Basic and diluted loss per share (US$ 
  cents)                                                     (7.23)         (1.80) 
                                                      -------------  ------------- 
 

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

   (28)    Notes to the statement of cash flows 

Issue of shares

Year ended 31 December 2022

 
                                             Non-cash 
                                        consideration   Cash consideration     Total 
                                              US$'000              US$'000   US$'000 
 Share options exercised                            -                    9         9 
 Shares issued in settlement 
  of guarantee fees                                 -                  311       311 
 Equity facility - issue of shares                  -                  237       237 
 As at 31 December 2022                             -                  557       557 
                                     ----------------  -------------------  -------- 
 

Year ended 31 December 2021

 
                                             Non-cash 
                                        consideration   Cash consideration     Total 
                                              US$'000              US$'000   US$'000 
 Equity facility - issue of shares                  -               25,800    25,800 
 As at 31 December 2021                             -               25,800    25,800 
                                     ----------------  -------------------  -------- 
 

Net debt reconciliation

Year ended 31 December 2022

 
                                                                                  Foreign 
                             Opening     Accrued   Fair value         Cash       exchange    Closing 
                             Balance    interest    movements    movements    gain/(loss)    balance 
                             US$'000     US$'000      US$'000      US$'000        US$'000    US$'000 
 Other financial 
  assets                       1,357           -            -        (427)           (70)        860 
 Shareholder loan 
  payable and derivative    (25,043)     (3,791)        8,671     (38,727)          1,135   (57,755) 
 Other financial 
  liabilities               (30,586)          28            -        3,712           (38)   (26,808) 
 Finance leases                  (7)           -            -            6              1          - 
                           ---------  ----------  -----------  -----------  -------------  --------- 
 Total                      (54,279)     (3,763)        8,671     (35,436)          1,028   (83,703) 
                           ---------  ----------  -----------  -----------  -------------  --------- 
 

Year ended 31 December 2021

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

Reconciliation of working capital items:

Year ended 31 December 2022

 
                                                                          Foreign 
                                 Opening         Cash      Capital       exchange    Closing 
                                 Balance    movements    allocated    gain/(loss)    balance 
                                 US$'000      US$'000      US$'000        US$'000    US$'000 
 Trade and other receivables       1,511          471            -          (125)      1,857 
 Inventories                       1,025        3,453            -          (197)      4,281 
 Trade and other payables        (3,543)          172      (4,588)            675    (7,284) 
 Total                           (1,007)        4,096      (4,588)            353    (1,146) 
                               ---------  -----------  -----------  -------------  --------- 
 

Year ended 31 December 2021

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

Kropz plc and its subsidiaries

The following parties are related to Kropz plc:

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

Details of remuneration to KMP are contained in Note 20 to the Consolidated Financial Statements.

In addition to share issues to related parties set out in Note 12 to the Consolidated Financial Statements, the following transactions were carried out with related parties:

Related party balances

Loan accounts - owed to related parties

 
                                          31 December   31 December 
                                                 2022          2021 
                                              US$'000       US$'000 
 Shareholder loans - ARC                       17,010        16,196 
 Convertible debt - ARC                        15,055         6,191 
 Derivative liability (refer Note 14)          23,037         2,656 
 Greenheart Foundation (refer Note 16)            510           545 
                                         ------------  ------------ 
 Total                                         55,612        25,588 
                                         ------------  ------------ 
 

Related party balances

Interest accrued to related parties

 
            Year ended     Year ended 
           31 December    31 December 
                  2022           2021 
               US$'000        US$'000 
 ARC             3,407            670 
         -------------  ------------- 
 Total           3,407            670 
         -------------  ------------- 
 

Convertible loan facilities

As described in Note 12 and 14, the Company made drawdowns totalling US$ 39.2 million (2021: US$ 25.8 million) under its convertible loan facilities from ARC.

   (30)    Categories of financial instrument 

Financial assets and liabilities by category

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

 
                                            31 December   31 December 
                                                   2022          2021 
                                                US$'000       US$'000 
 Financial assets at amortised cost 
 Trade and other receivables                        563           399 
 Other financial assets                             860         1,357 
 Restricted cash                                      -         4,858 
 Cash and cash equivalents                        2,120         2,461 
                                           ------------  ------------ 
 Total                                            3,543         9,075 
                                           ------------  ------------ 
 
 Financial liabilities at amortised cost 
 Trade and other payables                         7,284         3,543 
 Finance leases                                       -             7 
 Shareholder loans                               32,065        22,387 
 Other financial liabilities                     26,808        30,586 
                                           ------------  ------------ 
 Total                                           66,157        56,523 
                                           ------------  ------------ 
 
 Financial liabilities at fair value 
 Derivative liability                            23,037         2,656 
                                           ------------  ------------ 
 

Recognised fair value measurements

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

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

   (i)         Financial instruments Measured at Fair Value 

The financial instruments recognised at fair value in the Statement of Financial Position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. At the reporting date, the Group had a convertible facility with ARC. The US$ amount of the facility is convertible into ordinary shares of the parent entity (Note 14).

   (ii)         Fair value hierarchy 

The fair value hierarchy consists of the following levels

   --      Quoted prices in active markets for identical assets and liabilities (Level 1); 

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

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

 
                           Level      Level      Level 
                               1          2          3      Total 
                         US$'000    US$'000    US$'000    US$'000 
 
 2022 
 Derivative liability          -          -     23,037     23,037 
                       ---------  ---------  ---------  --------- 
 
 2021 
 Derivative liability          -          -      2,656      2,656 
                       ---------  ---------  ---------  --------- 
 

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

   (iii)        Reconciliation:  Level 3 fair value measurement 
 
                                                 Year           Year 
                                                ended          ended 
                                          31 December    31 December 
                                                 2022           2021 
                                              US$'000        US$'000 
 Derivative asset 
 Opening balance                                    -          8,586 
 Fair value (loss) / gain recognised 
  in profit and loss                                -        (4,139) 
 Extinguished on issuance of equity                 -        (4,447) 
                                       --------------  ------------- 
 Closing balance                                    -              - 
                                       --------------  ------------- 
 
 
 Derivative liability 
 Opening balance                          (2,656)         - 
 Fair value at initial recognition       (31,852)   (2,015) 
 Fair value gain/(loss) recognised in 
  profit and loss                          10,807     (653) 
 Foreign exchange                             664        12 
 Closing balance                         (23,037)   (2,656) 
                                        ---------  -------- 
 
   (iv)        Valuation technique used to determine fair value 

Derivative liability:

The fair value is calculated with reference to market rates using industry valuation techniques and appropriate models from a third-party provider. The Monte-Carlo model utilised includes a high level of complexity and the main inputs are share price volatility, risk margin, foreign exchange volatility and UK risk-free rate. A number of factors are considered in determining these inputs, including assessing historical experience but also considering future expectations. The determined fair value of the option is multiplied by the number of shares available for issue pursuant to the ZAR 200 Million Equity Facility, ZAR 177 Million Equity Facility and the ZAR 550 Million Equity Facility (refer to Note 14).

Valuation results (as at 31 December 2022)

 
                   Total loan amount  Value per    Number of      Total Value 
Facility                       (ZAR)  share (p)       Shares            (GBP) 
-----------------  -----------------  ---------  -----------  --------------- 
ZAR200m facility         200,000,000       2.30  219,272,939        5,043,278 
ZAR177m facility         177,000,000       1.21   96,378,567        1,166,181 
ZAR550m facility         442,500,000       2.72  471,819,613       12,833,493 
-----------------  -----------------  ---------  -----------  --------------- 
Total                                            787,471,119       19,042,952 
-----------------  -----------------  ---------  -----------  --------------- 
 

Sensitivity Valuation results (as at 31 December 2022) - Volatility

 
                                    Total Value 
                                        (GBP) - 
                                           100%  Total Value 
                                     historical  (GBP) - 50% 
                   Base volatility   volatility   historical 
Facility                                          volatility 
                        assumption        (75%)        (38%) 
-----------------  ---------------  -----------  ----------- 
ZAR200m facility               57%    7,979,681    2,668,731 
ZAR177m facility               57%    2,453,442      312,645 
ZAR550m facility               57%   20,327,348    6,682,147 
-----------------  ---------------  -----------  ----------- 
Total                                30,760,471    9,663,523 
-----------------  ---------------  -----------  ----------- 
 

Sensitivity Valuation results (as at 31 December 2022) - Risk Margin

 
                                        Total Value  Total Value 
                   Base risk margin      (GBP) - 7%   (GBP) - 3% 
Facility                 assumption     risk margin  risk margin 
-----------------  ----------------  --------------  ----------- 
ZAR200m facility                 5%       5,082,230    5,013,961 
ZAR177m facility                 5%       1,175,389    1,158,446 
ZAR550m facility                 5%      12,915,580   12,698,104 
-----------------  ----------------  --------------  ----------- 
Total                                    19,173,199   18,870,511 
-----------------  ----------------  --------------  ----------- 
 

Sensitivity Valuation results (as at 31 December 2022) - FX volatility

 
                                         Total Value    Total Value 
                                             (GBP) - 
                                                 20%    (GBP) - 10% 
Facility           Base FX volatility  FX volatility  FX volatility 
-----------------  ------------------  -------------  ------------- 
ZAR200m facility                  14%      4,680,397      5,322,515 
ZAR177m facility                  14%      1,017,667      1,285,233 
ZAR550m facility                  14%     11,855,707     13,508,493 
-----------------  ------------------  -------------  ------------- 
Total                                     17,553,771     20,116,241 
-----------------  ------------------  -------------  ------------- 
 

Sensitivity Valuation results (as at 31 December 2022) - UK risk-free rate

 
                                      Total Value  Total Value 
                                          (GBP) -   (GBP) - UK 
                                            UK rf           rf 
                   Base UK risk-free 
Facility                        rate         + 2%          -2% 
-----------------  -----------------  -----------  ----------- 
ZAR200m facility                3.6%    4,716,201    5,405,789 
ZAR177m facility                3.6%    1,074,410    1,267,672 
zAR550m facility                3.6%   11,779,774   13,933,510 
-----------------  -----------------  -----------  ----------- 
Total                                  17,570,385   20,606,971 
-----------------  -----------------  -----------  ----------- 
 
   (31)    Financial risk management objectives 

Capital risk management:

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

The capital structure of the Group consists of shareholder and external debt, which includes loans and borrowings (excluding derivative nancial liabilities) disclosed in Notes 14 and 16 and equity as disclosed in the Statement of Financial Position.

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

Liquidity risk:

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

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

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

 
                                               Between    Between 
                                     Less          one    two and       Over 
                                     than          and       five       five 
                                 one year    two years      years      years 
                                  US$'000      US$'000    US$'000    US$'000 
 At 31 December 2022 
 Shareholder loans payable              -            -    152,099          - 
 Trade and other payables           7,283            -          -          - 
 Finance leases                         -            -          -          - 
 Other financial liabilities       17,233       11,747          -          - 
                               ----------  -----------  ---------  --------- 
 Total                             24,516       11,747    152,099          - 
                               ----------  -----------  ---------  --------- 
 
 
                                     Less      Between       Between 
                                 than one      one and       two and          Over 
                                     year    two years    five years    five years 
                                  US$'000      US$'000       US$'000       US$'000 
 At 31 December 2021 
 Shareholder loans payable              -            -        13,711        24,246 
 Trade and other payables           3,543            -             -             - 
 Finance leases                         7            -             -             - 
 Other financial liabilities        5,676       15,950        11,509             - 
                               ----------  -----------  ------------  ------------ 
 Total                              9,226       15,950        25,220        24,246 
                               ----------  -----------  ------------  ------------ 
 

Credit risk:

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

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

Interest rate risk:

As the Group has signi cant interest-bearing assets, the Group's income and operating cash ows are substantially dependent on changes in market interest rates. At 31 December 2022, if interest rates on the shareholder and BNP loans (denominated in US$) had been 1% higher/lower with all other variables held constant, post-tax losses and equity for the year would have been approximately US$ 769,000 (2021: US$ 541,000) higher/lower respectively.

Foreign currency risk:

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

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

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

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

 
                                            Functional currency 
                                          South 
                                        African   British 
                                           Rand     Pound      Total 
 As at 31 December 2022                 US$'000   US$'000    US$'000 
-----------------------------------   ---------  --------  --------- 
 
 Financial assets denominated 
  in US$                                      -        28         28 
------------------------------------  ---------  --------  --------- 
 
 Financial liabilities denominated 
  in US$                               (43,260)         -   (43,260) 
------------------------------------  ---------  --------  --------- 
 
 Net foreign currency exposure         (43,260)        28   (43,232) 
------------------------------------  ---------  --------  --------- 
 
 
                                            Functional currency 
                                          South 
                                        African   British 
                                           Rand     Pound      Total 
 As at 31 December 2021                 US$'000   US$'000    US$'000 
-----------------------------------   ---------  --------  --------- 
 
 Financial assets denominated 
  in US$                                      -       313        313 
------------------------------------  ---------  --------  --------- 
 
 Financial liabilities denominated 
  in US$                               (46,196)         -   (46,196) 
------------------------------------  ---------  --------  --------- 
 
 Net foreign currency exposure         (46,196)       313   (45,883) 
------------------------------------  ---------  --------  --------- 
 

Foreign currency sensitivity analysis:

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

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

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

 
                                  As at          As at 
                            31 December    31 December 
                                   2022           2021 
                              Increase/      Increase/ 
                             (Decrease)     (Decrease) 
                                US$'000        US$'000 
------------------------  -------------  ------------- 
 Effects on net assets 
 Rand: 
  - strengthened by 10%         (5,832)        (4,620) 
  - weakened by 10%               5,832          4,620 
------------------------  -------------  ------------- 
 Effects on net assets 
 GBP: 
  - strengthened by 10%         (1,296)             31 
  - weakened by 10%               1,296           (31) 
------------------------  -------------  ------------- 
 
   (32)    Segment information 

Operating segments

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

Geographical segments

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

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

 
                                South 
                               Africa       Congo      Group 
                              US$'000     US$'000    US$'000 
 As at 31 December 2022 
 Total non-current assets      69,795      42,445    112,240 
                            ---------  ----------  --------- 
 
 
                                South 
                               Africa       Congo      Group 
                              US$'000     US$'000    US$'000 
 As at 31 December 2021 
 Total non-current assets     136,431      44,663    181,094 
                            ---------  ----------  --------- 
 
   (33)    Non-controlling interests 
 
                                              31 December   31 December 
                                                     2022          2021 
                                                  US$'000       US$'000 
 As at beginning of year                            5,778         5,729 
 Share of losses for the year                    (31,185)       (4,471) 
 Share of other comprehensive income                  142       (1,043) 
 Disposal of subsidiary                                 -           181 
 Kropz plc's investment in non-redeemable 
  preference shares of Kropz Elandsfontein 
  attributable to non-controlling interest          5,411         5,382 
 As at end of the year                           (19,854)         5,778 
                                             ------------  ------------ 
 
   (34)    Material subsequent events 

The third drawdown on the ZAR 550 Million Equity Facility of ZAR 60 million (approximately US$ 3.5 million) occurred on 25 January 2023.

The fourth drawdown on the ZAR 550 Million Equity Facility of ZAR 40 million (approximately US$ 2.2 million) occurred on 27 February 2023.

First bulk shipment and sale of 33,000 tonnes of phosphate concentrate from Kropz Elandsfontein was announced on 23 January 2023.

A second shipment and sale of 20,000 tonnes of phosphate concentrate from Kropz Elandsfontein was announced on 14 March 2023.

During April 2023 two further shipments of 33,000 tonnes and 11,000 tonnes were sold. A further 33,000 tonnes were sold in June 2023.

As announced on 14 March 2023, Kropz, Kropz Elandsfontein and ARC Fund agreed to further ZAR 285 million (approximately US$ 15.5 million) bridge loan facilities ("Loan 4") to meet immediate cash requirements at Kropz Elandsfontein. A first draw down of ZAR 25 million (approximately US$ 1.4 million) on Loan 4 was made on 14 March 2023. Loan 4 is unsecured, repayable on demand, with no fixed repayment terms and is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable on Loan 4 at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly.

A second draw down on Loan 4 for an amount of ZAR 90 million was made on 28 March 2023 and a third drawdown of ZAR 30 million was made on 25 April 2023 and a fourth drawdown of ZAR 80 million was made on 23 June 2023.

   (35)    Ultimate controlling party 

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

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END

FR UKSOROWUBUAR

(END) Dow Jones Newswires

July 31, 2023 02:00 ET (06:00 GMT)

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