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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