Adriatic Metal. Regulatory News (ADT1)

31 March 2023

Adriatic Metals PLC 

("Adriatic Metals" or the "Company")

Annual Report and Audited Financial Statements 

for the year ended 31 December 2022

Adriatic Metals PLC (ASX:ADT, LSE:ADT1, OTCQX:ADMLF) is pleased to announce its Annual Report and Audited Financial Statements for the year ended 31 December 2022.

The Board advises all shareholders and interested stakeholders that the Company's Annual Report including the audited results for the year ended 31 December 2022 is available on the Company's website: https://www.adriaticmetals.com/downloads/investors/2022-interactive-digital-annual-report-full-document-for-website-high-res.pdf

An abridged version of the results for the year ended 31 December 2022 is included below. As explained in note 2b to the consolidated financial statements, the results for 2022 are presented in United States Dollars compared with the financial statements for 2021 which were presented in Great British Pounds. This change in presentation currency reflects the fact that the USD is a more widely recognised currency for the mining sector in which the Company operates and that its project finance debt package, offtake agreements and mining services contracts are denominated in United States Dollars. The Company considers that this change will give investors and other key stakeholders a clearer understanding of its performance over time.

A copy of the Annual Report 2022 will be submitted to the Financial Services Authority's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

By order of the Board

Michael Rawlinson

Chairman of the Board

Consolidated Statement of Financial Position

AT 31 DECEMBER 2022

*See note 2b for details of the restatement of the prior year comparatives.

The accompanying notes are an integral part of these consolidated financial statements.

The consolidated financial statements of Adriatic Metals PLC, registered number 10599833, were approved and authorised for issue by the Board of Directors on 30 March 2023 and were signed on its behalf by:

Consolidated Statement of Comprehensive Income

FOR THE YEAR ENDED 31 DECEMBER 2022

See note 2b for details of the restatement of the prior year comparatives.

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statement of Changes in Equity

FOR THE YEAR ENDED 31 DECEMBER 2022

*See note 2b for details.

*See note 2b for details

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statement of Cash Flows

FOR THE YEAR ENDED 31 DECEMBER 2022

The accompanying notes are an integral part of these consolidated financial statements.

*See note 2b for details.

Notes to the Consolidated Financial Statements

1.  Corporate information

The consolidated financial statements present the financial information of Adriatic Metals PLC and its subsidiaries detailed in note 3 (collectively, the "Group") for the year ended 31 December 2022. Adriatic Metals PLC (the Company or the parent) is a public company limited by shares and incorporated in England and Wales. The registered office is located at Ground Floor, Regent House, 65 Rodney Road, Cheltenham GL50 1HX, United Kingdom.

The Group's principal activity is precious and base metals exploration and development. The Group owns the Vares Project in Bosnia and Herzegovina and the Raska Project in Serbia.

Bosnia and Herzegovina and Serbia are well-positioned in central Europe and boast strong mining history, pro-mining environment, highly skilled workforce as well as extensive existing infrastructure and logistics.

2.  Basis of preparation

A. Statement of compliance

 The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 (the "Companies Act").

The consolidated financial statements were authorised for issue by the Board of Directors on 30 March 2023.

B. Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value.

The current financial year encompasses the 12 months ended 31 December 2022 while the comparative financial year represents the 12 months ended 31 December 2021.

The consolidated financial statements are presented in United States Dollars ("USD" $) compared with the prior financial statements which were presented in Great British Pounds ("GBP", £). This change in presentation currency reflects the fact that the USD is a more widely recognised currency for the mining sector in which the Group operates and that its Project Finance Debt Package, offtake agreements and mining services contract are denominated in USD. The Company considers that this change will give investors and other key stakeholders a clearer understanding of the Group's performance over time.

Following this change in accounting policy the impact was applied retrospectively and comparative amounts have been restated in United States Dollars, as required by IAS 8. The procedures used for this restatement are based on the requirements of IAS 21 as follows:

· Share capital, share premium and other reserves are translated at historic rates prevailing at the dates of transactions;

· Other assets and liabilities are translated into USD at closing rates of exchange;

· Trading results are translated into USD at the average rate for the financial period;

· Foreign exchange differences resulting between the closing balances and the results for the period have been presented in the foreign exchange reserve, a component within shareholders' equity; and

· The foreign exchange reserve was set to zero as of 30 June 2019, the earliest practical date from which to present the consolidated financial statements in USD. Cumulative currency translation adjustments are presented as if the Group had used USD as the presentation currency of its consolidated financial statements since that date.

In addition, compared with the prior year, the functional currencies of certain Group companies have changed, including the Company, which has changed from GBP to USD, and Eastern Mining d.o.o., owner of the Vares Project, which has changed from Bosnian Marks ("BAM") to USD. See note 4Ba for further details.

Unless otherwise stated, all amounts indicated by "$" represent USD.

C. Going concern

The Vares Feasibility Study was completed in August 2021 with a Project NPV of $1.1 billion and build cost of $168.2m. An equity raise was successfully closed on 29 October 2021 and Orion Debt Finance Package documents were executed to provide the Group with sufficient funds to complete the Vares Project construction and cover ongoing owner costs until production commences in Q3 FY23 and the business becomes self-sustaining from cash flows from operations.

Definitive documentation executed for the $142.5m Debt Finance Package with Orion was announced on 10 January 2022. Of this total, $30m was drawn down prior to 31 December 2022 and $52.5m was drawn down in February 2023, leaving $60m currently undrawn at the signing date of these consolidated financial statements. The Company has considered each of the conditions precedent to the remaining draw downs and is confident that it will be able to satisfy them when required for the Vares Project development.

As announced in the Company's Quarterly Activity Report for the quarter ended 31 December 2022, the Project cost estimate has increased to $183m including an unutilised contingency of $10m. Sensitivity analysis of uncommitted construction costs and potential project delay indicates that the Group and Company have sufficient cash resources to continue in operation for a period in excess of 12 months from the date of signing the consolidated and Parent Company financial statements.

A Debt-Service Coverage Ratio ("DSCR") covenant is included in the Orion Debt Finance Package, with the first DSCR testing period expected to be mid-2024. The DSCR is required to be above 1.25x and the Company's forecasts show substantial headroom above this.

The Directors therefore believe there is not a material uncertainty regarding going concern and that it is appropriate to prepare the financial statements on a going concern basis.

3.  Significant accounting policies

The preparation of consolidated financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgement in applying the Group's accounting policies. Below are the significant accounting policies applied by management. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4.

A. Basis of consolidation

Where the Company has control over an investee entity, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the Company to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

De facto control exists in situations where the Company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de facto control exists the Company considers all relevant facts and circumstances, including:

· The size of the Company's voting rights relative to both the size and dispersion of other parties who hold voting rights;

· Substantive potential voting rights held by the Company and by other parties;

· Other contractual arrangements; and

· Historic patterns in voting attendance.

The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

The consolidated financial statements comprise the financial statements of the Company and its following subsidiaries at 31 December 2022:

B. Standards, amendments and interpretations adopted

During the year, there was no material impact on the consolidated financial statements resulting from the adoption of new standards and amendments.

C. Standards, amendments and interpretations effective in future years

At the date of authorisation of these consolidated financial statements, the following amendments to existing standards had been published and had not been adopted early by the Group:

The following amendments are effective for the year 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);

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

· IFRS 17 Insurance Contracts (Amendments to IFRS 17)

The following amendments are effective for the year 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)

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

The Group anticipates that the above amendments will be adopted in its accounting policies for the first period beginning after their effective date and does not expect them to have a material impact on the consolidated financial statements.

D. Foreign currency transactions and translations

The Group determines the functional currency of each entity as set out in note 4Ba and items included in the consolidated financial statements are measured using that functional currency.

I) Transactions and balances

Transactions in foreign currencies are initially recorded using the spot exchange rates between the functional currency and the foreign currency, at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the spot rates at the reporting date.

Foreign exchange differences arising on settlement or translation of monetary items are recognised in profit or loss.

II) Group companies

On consolidation, the assets and liabilities of foreign operations are translated into USD at the rate of exchange prevailing at the reporting date and their income statements are translated at average exchange rates prevailing during the year. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. 

E. Cash and cash equivalents

Cash and cash equivalents are comprised of cash held on deposit and other short term, highly liquid investments with original maturities of three months or less. These deposits and investments are readily convertible to known amounts of cash and subject to an insignificant risk of change in value.

F. Receivables

All receivables are held at amortised cost less any provision for impairment. A loss allowance for expected credit losses is made to reflect changes in credit risk since the initial recognition.

G. Exploration and evaluation assets

Pre-licence costs

Pre-licence costs relate to costs incurred before the Group has obtained legal rights to explore in a specific area. Such costs may include the acquisition of exploration data and the associated costs of analysing that data. These costs are expensed in the year in which they are incurred.

Exploration and evaluation expenditure

Exploration and evaluation activity involves the search for mineral resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource.

Exploration and evaluation activity includes:

· licence costs paid in connection with a right to explore;

· researching and analysing historical exploration data;

· gathering exploration data through geophysical studies;

· exploratory drilling and sampling;

· determining and examining the volume and grade of the resource;

· surveying transportation and infrastructure requirements; and

· conducting market studies.

Exploration and evaluation costs include directly attributable employee remuneration, materials and fuel used, surveying costs, drilling costs and payments made to contractors.

In evaluating whether the expenditures meet the criteria to be capitalised, several different sources of information are used. The information that is used to determine the probability of future benefits depends on the extent of exploration and evaluation that has been performed.

Exploration and evaluation expenditure in the year for activity on licences where a JORC-compliant resource has not yet been established is expensed as incurred until sufficient evaluation has occurred to establish a JORC-compliant resource. Costs expensed during this phase are included in exploration expenses and other operating expenses in the statement of profit or loss and other comprehensive income.

Upon the establishment of a JORC-compliant resource (at which point, the Group considers it probable that economic benefits will be realised), the Group capitalises any further evaluation expenditure incurred for the licence as exploration and evaluation assets up to the point when a JORC-compliant reserve is established. Capitalised exploration and evaluation expenditure is considered to be an intangible asset and measured at cost less accumulated impairment.

Exploration and evaluation assets acquired in a business combination are initially recognised at fair value, including resources and exploration potential that is considered to represent value beyond proven and probable reserves. Similarly, the costs associated with acquiring an exploration and evaluation asset (that does not represent a business) are also capitalised and subsequently measured at cost less accumulated impairment.

Once a JORC-compliant reserve is established and development is sanctioned, exploration and evaluation assets are tested for impairment and transferred to mine under construction and amortised in line with the useful economic life of the mine or on a unit of depletion basis. Exploration and evaluation assets are not amortised during the exploration and evaluation phase and are considered to have an indefinite life until determined to be part of a mine plan.

H. Property, plant and equipment

I) Land

Land is held at cost less accumulated impairment losses. Once a JORC-compliant reserve is established and development is sanctioned, land is tested for impairment and transferred to mine under construction and depreciated in line with the useful economic life of the mine or on a unit of depletion basis. Land is not depreciated during the exploration and evaluation phase and is considered to have an indefinite life until determined to be part of a mine plan.

II) Short lived property, plant and equipment

Short lived property, plant and equipment consists of buildings, plant and machinery, office furniture and equipment, transportation assets and computer equipment. Short lived property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of short lived property, plant and equipment consists of the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for its intended use. Short-lived property, plant and equipment depreciation is provided at rates calculated to expense the cost, less estimated residual value, using the straight-line method over the estimated useful life of the asset at the following rates:

III) Mine under construction

Mine under construction includes construction costs as well as exploration and evaluation and land balances transferred as noted above once a JORC-compliant reserve is established and development is sanctioned. Expenditure which is necessarily incurred whilst commissioning the mine is also capitalised as a mine under construction cost. Development costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future economic benefit.

Mine under construction costs are amortised in line with the useful economic life of the mine or rate of depletion of resources once the mine enters into production. The method of amortisation is determined taking into account all relevant factors at the point at which the mine enters into production.

Expenditure which is necessarily incurred whilst commissioning the mine under construction, in the period prior to being capable of operating in the manner intended by management, are capitalised. Development costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future economic benefit.

IV) Depreciation and amortisation

The assets' residual values, useful lives and methods of depreciation and amortisation are reviewed at each financial year-end and adjusted prospectively if appropriate.

I. Leases

The Group assesses at contract inception whether a contract is, or contains, a lease, based on whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

I) Transition method and practical expedients applied

The Group adopted IFRS 16 using the modified retrospective approach, with recognition of transitional adjustments on the date of initial application of 1 July 2019, without restatement of comparative figures. The Group elected to apply the practical expedient to not reassess whether a contract is, or contains, a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. The definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 July 2019. IFRS 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

− apply a single discount rate to a portfolio of leases with reasonably similar characteristics;

− exclude initial direct costs from the measurement of right-of-use assets at the date of initial application for leases where the right-of-use asset was determined as if IFRS 16 had been applied since the commencement date; 

− reliance on previous assessments on whether leases are onerous as opposed to preparing an impairment review under IAS 36 at the date of initial application; and

− apply the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application. 

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases. However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset when new or for short term leases with a lease term of 12 months or less.

II) Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short term leases and leases of low-value assets which, are either expensed as incurred though the income statement or capitalised. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

II) Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date from which the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are amortised on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

The right-of-use assets are also subject to impairment.

III) Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

IV) Revision of 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 using a revised discount rate. The carrying amount of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying amount of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

J. Rehabilitation provision

The Group recognises provisions for contractual, constructive or legal obligations, including those associated with the reclamation of mineral interests and property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a provision for the rehabilitation is recognised at its present value in the period in which it is incurred. Upon initial recognition of the liability, an amount equal to the corresponding provision is added to the carrying amount of the related asset and the cost is amortised as an expense over the economic life of the asset. Following the initial recognition of the rehabilitation provision, the carrying amount of the liability is increased for the passage of time as the discount is unwound, and adjusted for changes to the current market-based discount rate and amount or timing of the underlying cash flows needed to settle the obligation. The increase in the provision due to the passage of time is recognised as interest expense.

K. Finance income and finance expense

Finance income and Finance expense are recorded on an accrual basis using the effective interest method.

L. Financial instruments

Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expired.

Except for trade and other receivables which do not contain a significant financing component, financial assets and financial liabilities are measured initially at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transactions costs that are directly attributable to the acquisition or issue of the financial instrument. Trade receivables which do not contain a significant financing component are recognised at their transaction price. Financial assets and financial liabilities are subsequently measured as described below.

i) Financial assets

A financial asset is subsequently recognised at amortised cost under IFRS 9 if it meets both the hold to collect and contractual cash flow characteristics tests. A financial asset is measured at fair value through other comprehensive income if the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

If neither of the above classifications are met the asset is classified as fair value through the profit and loss, with changes in fair value recognised in the profit and loss statement. Even if an asset meets the above two requirements to be measured at fair value through other comprehensive income, IFRS 9 contains an option to designate, at initial recognition, a financial asset as measured at fair value through the profit and loss provided the classification eliminates or significantly reduces a measurement or recognition inconsistency.

Cash and cash equivalents and trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment, if any.

ii) Financial liabilities

Financial liabilities are subsequently measured at amortised cost using the effective interest method, except for financial liabilities designated at fair value through profit or loss, that are carried subsequently at fair value with gains and losses recognised in the profit and loss statement.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Where the movement in fair value is due to a change in the entity's credit risk, such gain or loss is recognised in other comprehensive income.

iii)  Convertible debt

The proceeds received on issue of the Group's convertible debt are allocated to their debt and derivative liability components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the debt. The remainder of the proceeds is allocated to the conversion option and is recognised as a derivative liability.

M. Impairment of assets

I) Financial assets

A financial asset that is not carried at fair value through profit or loss is assessed at each reporting date to determine a loss allowance for expected credit losses. If the credit risk on a financial instrument has increased significantly since initial recognition, the loss allowance is equal to the lifetime expected credit losses. If the credit risk has not increased significantly, the loss allowance is equal to the twelve month expected credit losses.

The expected credit losses are measured in a way that reflects the unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes, the time value of money and reasonable and supportable information that is available about past events, current conditions and forecasts of future economic conditions.

II) Non-financial assets

The carrying amounts of capitalised exploration and evaluation expenditure for undeveloped mining projects (projects for which the decision to mine has been not yet been deemed commercially viable and development has not yet been authorised) are reviewed at each reporting date for indicators of impairment in accordance with IFRS 6, and when indicators are identified are tested in accordance with IAS 36 Impairment of Assets.

Property, plant and equipment and intangible assets with finite lives are reviewed for impairment if there is an indication that the carrying amount may not be recoverable.

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that the assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate largely independent cash inflows, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The recoverable amount is the higher of fair value less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than the carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the profit and loss statement. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Where an impairment loss is subsequently reversed, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior periods. A reversal of an impairment loss is recognised in the profit and loss statement.

N. Income taxes

Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable or receivable in respect of previous years.

Deferred income taxes are calculated based on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not recognised on the initial recognition of goodwill, on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of the transaction, or on temporary differences relating to investments in subsidiaries and jointly controlled entities where the reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future.

Deferred income tax assets and liabilities are measured, without discounting, at the tax rates that are expected to apply when the assets are recovered, and the liabilities settled, based on tax rates that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to set off current tax assets against current tax liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.

The Group has not recognised any deferred tax assets or liabilities.

O. Earnings or loss per share

Basic loss per share is calculated by dividing the loss attributable to the common shareholders of the Group by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is calculated by adjusting the loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares, which comprise share options and warrants granted.

P. Share capital, share premium and merger reserve

Ordinary shares are classified as share capital. Share premium represents the excess of proceeds received over the nominal value of new shares issued.

Incremental costs directly attributable to the issuance of new shares are shown in share premium as a deduction, net of tax, from the proceeds.

Merger reserve represents the difference between the value of shares issued by the Company in exchange for the value of shares acquired in respect of the acquisition of subsidiaries. Merger reserve only arises where the issuing company takes its interest in another body corporate from below a 90% equity holding to a 90% or above equity holding.

Q. Share-based payments and warrants payments

I) Share-based payment transactions

The Company grants share options and performance rights to Directors, officers, consultants and employees ("equity-settled transactions"). The Company may grant warrants to institutions in relation to an equity raise or other transaction. The Board of Directors determines the specific grant terms within the limits set by the Company's share option plans.

II) Equity-settled transactions

The costs of equity-settled transactions are measured by reference to the fair value at the grant date and are recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the award (the "vesting date"). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the Company's best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognised at the beginning and end of that period and the corresponding amount is represented in share option reserve. No expense is recognised for awards that do not ultimately vest.

Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification.

Where equity-settled transactions are awarded to employees, the fair value of the options at the date of grant is charged to the profit and loss statement over the vesting period. Non-market performance vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of the options that will eventually vest. Market performance vesting conditions are incorporated into the fair value of the equity instrument at the grant date.

Where equity-settled transactions are entered into with non-employees and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at the fair value of the equity instruments issued. Otherwise equity-settled transactions with non-employees are measured at the fair value of the goods or services received.

Upon exercise of share options or warrants, the proceeds received are allocated to share capital, and share premium if applicable, and any associated balance in share-based payments reserve is transferred to retained earnings. The dilutive effect of outstanding options is reflected as additional dilution in the computation of diluted earnings per share.

The Group utilises the Black-Scholes option pricing model to estimate the fair value of share options and performance rights granted to Directors, officers and employees. The use of this model requires management to make various estimates and assumptions that impact the value assigned to the share options and performance rights including the forecast future volatility of the share price, the risk-free interest rate, dividend yield, the expected life of the share options and performance rights and the expected number of options and performance rights which will vest. See note 14f for further details regarding these inputs.

III) STIP equity scheme

The Group operates an STIP scheme which runs on a calendar year basis, with employees receiving either cash or shares subsequent to year end based on to their performance during the year. An option pricing model is used to measure the Group's liability at each reporting date, taking into account the terms and conditions on which the bonus is awarded and the extent to which employees have rendered their service. Movements in the liability (other than cash payments) are recognised in the consolidated statement of comprehensive income.

R. Non-controlling interest

The Group has the choice, on a transaction-by-transaction basis, to initially recognise any non-controlling interest in the acquiree which is a present ownership interest and entitles its holders to a proportionate share of the entity's net assets in the event of liquidation either at acquisition date fair value or at the present ownership instruments' proportionate share in the recognised amounts of the acquiree's identifiable net assets. Other components of non-controlling interest such as outstanding share options are generally measured at fair value.

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.

On the creation of a non-controlling interest, the Group recognises an other equity account for the deferred consideration payable under any option agreements.

S. Other reserve accounts

Foreign currency translation reserve include gains or losses arising on retranslating the net assets of entities from their functional currencies into the Group presentation currency.

Retained earnings include all other net gains and losses and transactions with owners, including dividends, not recognised elsewhere.

T. Segmental reporting

The reportable segments represent all of the Group's activities. The reportable segments are an aggregation of the operating segments within the Group as prescribed by IFRS 8. The reportable segments are based on the Group's management structures and the consequent reporting to the chief operating decision maker, the Board of Directors. These reportable segments also correspond to geographical locations such that each reportable segment is in a separate geographic location. Income and expenses included in profit or loss for the period are allocated directly or indirectly to the reportable segments.

The Group's operating segments are as follows:

· Bosnia and Herzegovina (principally the Vares Project);

· Serbia (principally the Raska Project); and

· Corporate (which supports the activities of the other two segments, principally the UK).

The Vares and Raska Projects operate in two separate distinct jurisdictions and are at different points in their respective project life cycles.

Segment assets are those used directly for segment operations. Inter-company balances comprise transactions between operating segments making up the reportable segments. These balances are eliminated to arrive at the figures in the consolidated financial statements.

U. Adriatic Foundation

The Adriatic Foundation (the "Foundation") is a not-for-profit trust which was created in Bosnia and Herzegovina with the objective of supporting the communities around the Vares Project. The Company provided the initial funding required for the formation of the Foundation.

The Company has the ability to appoint the Board of Trustees of the Foundation and hence transactions between the Company and the Foundation have been classified as related party on the basis of the company yielding significant influence.

An assessment has been performed to determine whether the Company controls the Adriatic Foundation in accordance with IFRS 10. The conclusion of this assessment is that whilst the company is able to yield significant administrative influence over the Foundation, it is not able to affect returns to the Company. The Foundation statute prevents the Company as the founder, and any other person associated with the Foundation, from directly or indirectly deriving profit, or any other material or financial benefit, from the activities of the Foundation. For the purposes of IFRS 10, the Directors have therefore concluded that the Company does not control the Foundation and as a result the Foundation is not included in the consolidated financial statements of the Group.

4.  Critical accounting estimates and judgements

The preparation of the consolidated financial statements in accordance with IFRS requires management to make certain judgements, estimates, and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results are likely to differ from these estimates. The significant judgements, estimates, and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses are highlighted below.

A. Estimates

a Exploration and evaluation asset impairment testing

The Group reviews and tests the carrying amount of assets when its judges that an indicator of impairment has occurred, including events or changes in circumstances that suggest that the carrying amount may not be recoverable.

When such indicators exist, management determines the recoverable amount by performing value in use and fair value calculations. These calculations require the use of estimates and assumptions. When it is not possible to determine the recoverable amount for an individual asset, management assesses the recoverable amount for the cash generating unit to which the asset belongs. The key estimates include discount rates, including the Group's weighted average cost of capital, future prices, future exploration and evaluation costs, production levels and foreign currency exchange rates.

Exploration and evaluation assets at 31 December 2021 comprised the Raska Project of $31,901,708, at a value based on consideration paid for the combined Tethyan group.

In late 2022 the Company carried out a strategic review of the Raska Project which resulted in an impairment of $23,186,959, reducing the project's carrying amount to $8,500,000 at 31 December 2022. See note 8 for details of the estimates made in establishing the revised carrying value.

b Mine under construction impairment testing

The mine under construction asset refers to the Vares Project in Bosnia and Herzegovina.

Property, plant and equipment and intangible assets with finite lives are reviewed for impairment if there is an indication that the carrying amount may not be recoverable. No changes in circumstances or other indicators of impairment occurred during the year in respect of the Vares Project mine under construction and therefore no impairment review or estimates of value in use and fair value were required.

c Deferred consideration

The Group accounts for deferred consideration within financial liabilities at fair value through profit and loss. See note 9 for further details of the deferred consideration in respect of the acquisition of Tethyan Resource Corp.

d Convertible debt

The Group issued $20m 8.5% convertible debt through a deed of covenant dated 30 November 2020. The debt is convertible into fully paid equity securities in the share capital of the issuer, subject to and in accordance with the conditions and the deed of covenant. The valuation of the debt holder's call option embedded within this agreement is carried out by a third party expert using management's estimates and assumptions. See note 6 for further details.

B. Judgements

a 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 in which each entity operates.

The Group first considers the currency that mainly influences sales prices for its concentrates, goods and services, and the currency that mainly influences labour, materials 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.

When there is a change in functional currency, the Group exercises judgement in determining the date of change. This assessment is driven by the primary economic environment of each entity including products, labour, materials and professional services and the currency in which they are primarily transacted.

The Group undertook a review on an entity-by-entity basis to determine the impact of the anticipated debt financing as well as commencement of the construction phase of the Vares Project. The results of this review determined that the functional currency of each of Adriatic Metals plc, Eastern Mining d.o.o. and Adriatic Metals Jersey Ltd should be changed to USD based on the primary economic environment in which they operate. The Group exercised judgement in determining the date of change to be 1 January 2022 to coincide with the start of the year, as well as the imminent signing of the Orion Debt Finance Package and the mining services contract, which are both based in USD.

b Capitalisation of exploration costs

The Group uses its judgement to determine whether costs meet the capitalisation requirements in accordance with IFRS 6 and its accounting policy on exploration and evaluation assets, including whether the activities performed are directly attributable to increasing the value of the project.

Upon the establishment of a JORC-compliant resource (at which point, the Group considers it probable that economic benefits will be realised), the Group capitalises any further evaluation expenditure incurred for the licence as exploration and evaluation assets. There is an element of judgement involved by management as to which costs are directly attributable to increasing the value of the project. Broadly, activities in relation to scoping, exploration and development are deemed directly attributable, whilst activities in relation to supporting and administrative duties are deemed not to be directly attributable.

c Indicators of impairment

The Group uses its judgement in assessing whether indicators of impairment have occurred.

The Group reviews and tests the carrying amount of exploration and evaluation assets when events or changes in circumstances suggest that the carrying amount may not be recoverable in accordance with IFRS 6. Indicators of impairment are as follows:

i) the period for which the entity has the right to explore in the specific area has expired or will expire in the near future, and is not expected to be renewed;

ii) substantive expenditure on further exploration for, and evaluation of, mineral resources in the specific area is neither budgeted nor planned;

iii) exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; and

iv) sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

The Group also reviews property, plant and equipment and intangible assets with finite lives for impairment if there is an indication that the carrying amount may not be recoverable.

In assessing whether an indicator of impairment has occurred, the Group considers external sources of information including observable indications of decline in market value, actual or expected negative changes in the technological, market, economic or legal environment, changes in market interest rates or other market rates of return on investments, and whether the carrying amount of its net assets is greater than its market capitalisation. As external sources of information will typically be broader and less clearly linked to a specific asset or cash generating unit, for example, a decline in market capitalisation below the carrying value of the entity's net assets. This may then require the use of judgement to determine which assets or cash generating unit should be tested in response to an external source of information.

The Group also considers internal sources of information including changes in planned development of the assets, evidence of obsolescence or damage, changes in the expected use or life of an asset, and evidence from internal reporting that an asset's economic performance is, or will be, worse than expected.

In late 2022 the Company carried out a strategic review of the Raska Project involving changes in the project's development plan that the Group judged to be an indicator of impairment. See note 8 for details of the resulting impairment of $23,186,959, reducing the project's carrying amount to $8,500,000 at 31 December 2022.

No changes in circumstances or other indicators of impairment occurred during the year in respect of the Vares Project mine under construction.

d Rehabilitation Provision

The Group recognises provisions for contractual, constructive or legal obligations, including those associated with the reclamation of mineral interests and property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a provision for the rehabilitation is recognised at its present value in the period in which it is incurred. Upon initial recognition of the liability, an amount equal to the liability is added to the carrying amount of the related asset and this amount is amortised as an expense over the economic life of the asset. Following the initial recognition of the rehabilitation provision, the carrying amount of the liability is increased for the passage of time by unwinding the discount, and adjusted for changes to the current market-based discount rate and to the amount or timing of the underlying cash flows needed to settle the obligation.

Management uses its judgement and experience to determine the potential scope of closure rehabilitation work required to meet the Group's legal, statutory and constructive obligations, and any other commitments made to stakeholders, and the options and techniques available to meet those obligations and estimate the associated costs and the likely timing of those costs.

Significant judgement is also required to determine both the costs associated with that work and the other assumptions used to calculate the provision. External experts support the cost estimation process where appropriate but there remains significant estimation uncertainty. The key judgement in applying this accounting policy is determining when an estimate is sufficiently reliable to make or adjust a closure provision.

Management engaged with experts Ausenco and Wardell Armstrong as part of the feasibility study to determine total costs of closure, restoration and environmental costs over the life of the mine. Management applied judgement to determine the impact of activity on the Vares Project in the year ended 31 December 2022, which is a key factor in calculating the provision, and the Group recorded a provision based on the discounted value of the expected cashflows. See note 23 for further details.

e Entities not consolidated

The Adriatic Foundation has not been consolidated, for reasons set out in note 3u.

Deep Research d.o.o. (DR) is determined to be outside of the control of the Group because although Adriatic Metals Jersey Ltd (the option agreement holder) has the ability to control DR via exercise of the option it does not have the intent to do so at present until further exploration work has been completed to determine the economic value of DR to the Group relative to the consideration that would be payable on exercise of the option.

5.  Receivables and prepayments

Accrued interest income relates to interest earned on cash holdings. Of the total interest income recognised during the year to 31 December 2022 of $334,497, $277,383 was received in cash during the year and the remaining $57,114 is recognised as accrued interest income.

Vares Project prepayments and deposits represent advance payments in respect of equipment purchases, as well as mobilisation costs paid in respect of the mining services contractor equipment that had not reached site prior to 31 December 2022.

The debt issuance costs prepayment in the Prior year reflected legal and other transaction fees incurred by the Group while the Senior Secured Debt facility remained subject to conditions precedent, and forms part of the $2,056,040 fees recognised at 31 December 2022 as a deduction from the value of borrowings in accordance with IFRS 9, as set out in note 6.

The segmental analysis of receivables and prepayments is as follows:

31 December 2022

31 December 2021

6.  Borrowings and Derivative Liability

a) Total borrowings and derivative liability

Year end balances are analysed below:

b) Orion Senior Secured Debt

On 10 January 2022, the Group announced the completion of a $142.5m debt financing package ("Orion Debt Finance Package"), with Orion Resource Partners (UK) LLP ("Orion") comprising:

• $120m Senior Secured Debt; and• $22.5m Copper Stream

The Senior Secured Debt maturity date is 30 June 2027. Interest accrues daily at an annual rate equal to a margin of 7.5% plus the greater of (i) a floor of 0.26161% plus the CME Term SOFR for a period equal to three months and (ii) the floor of 0.26161%.

Secured Overnight Financing Rate ("SOFR") is a secured interbank overnight interest rate used as a reference rate by parties in commercial contracts, as an alternative to LIBOR which was discontinued in 2021. The CME SOFR is administered by the CME Group. At 31 December 2022 the applicable CME Term SOFR was 4.560740%, meaning that the total interest rate applicable was 12.32235% for the few days of interest following the first draw down funds being drawn.

The First Repayment Date is the earlier of the Project Completion Longstop Date being 30 June 2024 and the last business day of the quarter following the quarter in which the Project Completion Date falls.

The repayment schedule provides for the repayment of the loan in 10 equal quarterly installments in each of the 10 successive quarters, with the first such quarterly repayment occurring on the First Repayment Date and the repayment in each successive quarter occurring on the last Business Day of the relevant quarter.

Interest accrues daily and is payable on each interest repayment date, on the final maturity date, and on any earlier date on which a loan is prepaid in full or in part.

The Orion Debt Finance Package contains covenants and restrictive covenants typical for a project financing, including in relation to financial reporting. It also contains security customary for a project financing, principally security over the assets of Eastern Mining and material project-related contracts held by the Adriatic Group.

A Debt-Service Coverage Ratio ("DSCR") covenant is included in the Orion Debt Finance Package, with the first DSCR testing period expected to be mid-2024, and six monthly thereafter. The DSCR is required to be above 1.25x and the Company's forecasts show substantial headroom above this.

The Orion Senior Secured Debt first tranche of $30,000,000 was drawn net of associated $1,767,075 legal and other fees incurred by Orion as lender, with a net amount of $28,232,925 received. At 31 December 2022, these Orion fees and a further amount of transaction fees totalling $2,056,040 incurred by the Group have been recognised as a deduction from the value of borrowings in accordance with IFRS 9, on the basis that they represent transaction costs directly attributable to the acquisition of the borrowings. As a result of the total IFRS 9 deduction of $3,823,115, which will be amortised over the life of the facility using the effective interest rate method, the Orion Senior Secured Debt balance is reduced from $30,000,000 drawn down to $26,176,885. This impact will be reversed over the life of the facility as the deduction is unwound through amortisation of the deduction.

The Group is entitled to deduct the amount of any payment it makes to the Adriatic Foundation on behalf of the Lenders from any interest accrued in the last quarter of each year.

c) QRC convertible debt

The Group issued $20m 8.5% convertible debt through a deed of covenant dated 30 November 2020. The debt is convertible into fully paid equity securities in the share capital of the issuer, subject to the conditions of the debt issue.

Modification

In December 2022, concurrently with the first draw down of the Orion Senior Secured Debt, Adriatic and QRC executed an amendment to the 30 November 2020 deed of covenant, advising that the cash coupon has been increased from 8.5% to 9.5% per annum effective from 10 January 2023. The amendment also confirmed that Adriatic was not required to redeem the debt following completion of the Orion project financing. This is a change from the original conditions of the debt issue which stated that where the Company secures a project financing before the final maturity date of the debt, the bondholder can require the issuer to redeem the debt at its principal amount together with the accrued but unpaid interest to such date. All other terms of the original deed remain unchanged.

Management considered the quantitative and qualitative nature of the amendment and concluded the changes constituted a non-substantial modification under IFRS 9 accounting standards.

The carrying amount of the liability was adjusted to the present value of the modified cashflows and a loss was recognised in the profit or loss in the year ended 31 December 2022. Subsequent interest expense will be calculated based on the updated internal rate of return.

Key terms and conditions of the debt agreement dated 30 November 2020 between the Company and Queens Road Capital ("QRC") are provided below.

Voluntary conversion

The debt shall be convertible into equity securities of the Company at the option of the bondholder at any time from the issue date 1 December 2020 until 30 November 2024. The number of equity securities to be issued will be determined by the conversion price in effect on the relevant conversion date. The initial conversion price is AUD 2.7976 per ordinary share.

Redemption and Purchase

a) Final redemption: Where the debt is not converted, redeemed, purchased, or cancelled by the Company prior to the final maturity date, the debt shall be redeemed by the Company at its principal amount;

b) Redemption at the option of the issuer: Option to the issuer to redeem all the debt outstanding, prior to the final maturity date, at its principal amount together with accrued but unpaid interest to such date if:

- At any time prior to maturity date, the volume weighted average price of the equity securities for 20 consecutive days has exceeded 125% of the conversion price; or

- The issuer delivers an optional redemption notice that contains an optional redemption date which falls on or after the third anniversary of the issue date;

c) Redemption at the option of bondholder if a change of control event occurs: the bondholder receives an option to require the issuer to redeem the debt prior to the final maturity date. In the event of a change of control, the debt shall be redeemed at:

- 130% of the principal amount, if the change of control event occurs on or prior to the second anniversary of the issuance date, together with accrued and unpaid interest till such date. This redemption ratio is no longer applicable as no change of control event occurred on or prior to the second anniversary of the issuance date; or

- 115% of the principal amount, if the change of control event occurs after the second anniversary of issuance date, together with accrued and unpaid interest till such date

d) Redemption at the option of the debt holder in the event of project financing: In any event where the Company secures a project financing before the final maturity date of the debt, the debt holder can require the issuer to redeem the debt at its principal amount together with the accrued but unpaid interest to such date. The amendment in December 2022 removed this option.

d) Derivative liability on QRC convertible debt

QRC's option to convert the debt into equity and the associated potential issue of shares give rise to a variable amount of cash receivable by the Company and therefore the debt fails to meet the requirements to be classified as equity. The conversion feature of the debt has therefore been accounted for as a derivative liability, with the value of the conversion feature dependent on factors as set out below.

Management engaged external experts to review the terms of the agreement and perform a valuation. It was concluded that the call option in the hands of the bondholder satisfied the conditions stipulated by IFRS 9 Financial Instrument - Recognition and Measurement for the recognition of a derivative liability in the Group and Company accounts and required a separate fair valuation.

The redemption options in the hands of the bondholder were concluded to fall outside the exemptions of IFRS 9 and to be closely related to the debt host contract. Therefore, the redemption options need not be separated from the debt host contract and hence need not be valued separately. The Group has elected to account for both the embedded option and debt liability at amortised cost.

Valuation Model

The Black Scholes model was chosen as the most appropriate pricing model to value QRC's option to convert the debt into equity and the valuation was updated at 31 December 2022. The main assumptions and inputs used in the options pricing model were as follows:

− Dividend yield - assumed to be nil because the Company has not declared or paid any dividends in prior years on ordinary shares.

− Strike price - The initial conversion price of AUD 2.7976 per ordinary share.

− Expected term - Judgement applied to assign probability to the various redemption and put options in the contract. Expected term of redemption calculated as 1.23 years from the valuation date.

− Expected volatility - Weekly volatility over the 1.23 years (64 weeks) was calculated as 49.88% prevailing on ASX as of the valuation date.

− Risk-free rate - Risk free yield obtained from Australian Treasury bond issues converted into continuous compound yields.

− Value of underlying common stock price - The closing price of ordinary shares AUD 3.15 on the valuation date on the ASX.

Using the assumptions set out above, the Black Scholes value of the call option in the hands of the debt holder is $6,369,219.

Sensitivity Analysis

Inputs to the Black Scholes model are based on management estimates regarding probabilities of future events. The results are sensitive to changes in key assumptions, namely the expected term of the debt and the volatility of the Company's share price.

Sensitivity of the debt value to reasonably possible changes in the assumptions of expected term and volatility of the Company's share price are as follows:

7.  Property, plant and equipment

Additions of $43,767,569 include creditor balances of $1,535,702 at 31 December 2022 (31 December 2021: nil). The investment in purchase of property, plant and equipment of $42,231,895 in the consolidated statement of cash flows excludes these creditor balances.

Mine under construction amounts relate to the Vares Project, located in Bosnia and Herzegovina. The balance of exploration and evaluation asset was transferred to mine under construction at the completion of the Feasibility Study in 2021.

The segmental analysis of property, plant and equipment net book value is as follows:

The sensitivity of the Vares Project to key project inputs is considered within the Feasibility Study, which showed a post-tax NPV8 of $1,062m. The chart below includes sensitivities to key inputs, demonstrating that significant headroom exists over the $71,611,788 net book value of the Vares Project mine under construction:

8.  Exploration and evaluation assets

Exploration and evaluation assets relate to the Vares Project, prior to its transfer to mine under construction in 2021, and the Raska Project in Serbia.

The Raska exploration and evaluation balance at 31 December 2021 of $31,901,709 mainly reflects the $31,804,990 value recorded on the acquisition of the Tethyan group, by which the Company acquired the Kremice, Kizevak and Sastavci licences (see note 9 for further details).

In late 2022 the Company carried out a strategic review of the Raska Project which resulted in changes to the development plan for the project. Focusing its resources on Vares Project construction and on exploration at Rupice and Rupice NW means that resources available for exploration in Serbia will be more focused and limited in the coming year. The Company therefore plans to develop the Raska Project over a longer horizon, including advancing new prospects in the Company's tenement area during 2023 to complement Kremice, Kizevak and Sastavci. Although the Company remains positive about the future prospects for Raska, it has determined that the longer development horizon now envisaged makes it appropriate at this time to recognise an impairment of $23,186,959 against the project's carrying amount, resulting in a carrying amount of $8,500,000 at 31 December 2022. The recoverable amount has been determined by a benchmarking exercise using industry standard valuation measures to determine a fair value less cost to dispose in line with the requirements of IAS 36. The benchmarking involved value analysis of more than twenty single project listed mining companies with similar project attributes (silver-zinc-lead) to derive an appropriate value for the estimated Raska Project resource. This is considered to be a Level 3 valuation approach.

The Raska Project is managed as a single project and if advanced to the production stage, it is anticipated that there would be a single processing plant. The project is therefore treated as a single cash generating unit, with the post-impairment value of $8,500,000 attributed to the Raska Project as a whole instead of to specific tenements.

9.  Acquisition note

On 8 October 2020 the Company finalised the acquisition of Tethyan Resource Corp. ("Tethyan"). Prior to its acquisition Tethyan entered into an option agreement with EFPP d.o.o. the holder of the Kizevak and Sastavci licences in Serbia, with first closing completed on 14 May 2020 to acquire 10% equity in EFPP d.o.o. Immediately prior to the completion of the acquisition of Tethyan by the Company the Kizevak and Sastavci licences were spun out to a newly formed company called Ras Metals d.o.o. ("Ras") in which Tethyan also held a 10% equity interest. The spin out was a condition precedent to closing of the Tethyan acquisition. 

At any time within 12 months of the Ras transaction first closing, the Company was able to acquire the remaining 90% ownership stake in Ras by:

• making a payment of €1,365k to the sellers of Ras;

• granting a 2% NSR over the licences

• issuing 664,000 shares of the Company to the sellers in four equal tranches every six months commencing on second closing; and

• making a €0.5m payment on the two-year anniversary of the first closing.

With the exception of the 2% NSR grant over the licences which could not be reliably estimated at that time, the fair value of remaining consideration payable under the Ras Option agreement was estimated at $3,436,991 at 31 December 2020.

On 23 February 2021, the Company completed the acquisition of the remaining issued share capital of Ras making payment of €1,365k to the sellers and issuing the first tranche of 166,000 shares. Upon the acquisition of the remaining 90% of the shares in Ras that the Company did not already hold on 23 February 2021 the balance of the non-controlling interest was transferred to Retained Earnings.

On 24 August 2021 the second tranche of 166,000 shares was issued in line with the agreement. The third tranche of 166,000 shares was issued on 2 March 2022 and €0.5m was also paid to sellers on 11 May 2022. The fourth and final tranche of 166,000 shares was issued on 22 August 2022.

The fair value of the 2% NSR over the licences, which is the remaining element of deferred consideration, continues to be estimated at the balance sheet date to be nil, on the basis that it will not be possible to make a reliable estimate until a feasibility study has been prepared. The Company has not yet defined a JORC-compliant resource.

Measurement of assets and liabilities at acquisition

IFRS 10 requires assets acquired to be recorded at cost, with cost allocated over the group of assets at relative fair value. Consideration above the historical book value of assets should be recognised as an exploration and evaluation asset (representing the value of the rights contained within licences acquired).

The Kremice licence was historically accounted for as an asset acquisition by Tethyan when originally acquired. The fair value of the consideration paid was determined and allocated to exploration and evaluation assets as €250,000 cash plus 12,000,000 shares issued in Tethyan, equating to £1,587,934 ($2,051,262). The net liability position of 100% owned Tethyan companies when acquired was $227,002 which includes the aforementioned exploration and evaluation assets.

The Kizevask and Sastavci licences held by Ras were assigned a value equal to the total consideration payable of $29,753,728 less Tethyan net liabilities of $227,002, being $29,526,726.

As part of the agreement to acquire Tethyan Group, the Company provided a convertible loan facility to Tethyan and had advanced €1.8m under the facility to the date of acquisition on 8 October 2020. Effective the same date this loan was amended, removing the convertible option from the loan and the conversion value $426,425 was released to the profit and loss in the period to 31 December 2020. At 31 December 2020, this financial instrument was eliminated on consolidation for the Group.

Asset Acquisition

The net book value of assets acquired and liabilities assumed on the acquisition date is detailed below:

Management determined there was no present access to returns in Ras owing to the variable consideration included in the exercise price at 31 December 2020. The Group therefore recognised a 90% non-controlling interest in Ras totaling $3,436,991 measured as the balancing figure between the fair value of the acquisition, fair value of Tethyan assets acquired, and the investment recognised in the Company accounts. Other Equity balance of $3,436,991 was recognised. The fair value of the remaining consideration to be paid of $3,436,991 was recognised as deferred consideration, which has reduced as amounts have been settled and any difference arising from changes in the fair value of the deferred consideration has been recognised in the profit & loss. 

The total loss attributable to the non-controlling interest between the 8 October 2020 acquisition and 31 December 2020 was $696,676, which, combined with the amount recognised on acquisition of $3,436,991, resulted in a balance of non-controlling interest at 31 December 2020 of $2,740,315.

Further losses of $267,936 were incurred by Ras Metals under the option agreement, reducing the non-controlling interest to $2,472,379. Upon the acquisition of the remaining share capital on 23 February 2021, this balance of the non-controlling interest and other equity was transferred to Retained Earnings.

Movements in the deferred consideration and non-controlling interest are shown below:

10. Accounts payable and accrued liabilities

Other payables include amounts payable in relation to PAYE, prior year balance of $1,022,722 includes amounts in relation to performance right exercises in December 2021, with resulting PAYE settled in January 2022.

11. Right-of-use assets and lease liabilities

Set out below are the carrying amounts of right-of-use assets accounted for in accordance with IFRS 16 and the movements during the year:

The largest right-of-use asset relates to mining equipment delivered prior to 31 December 2022 under a five year mining services contract with Nova Mining & Construction d.o.o. Remaining leases relate to administrative buildings and coresheds for the Group.

Modification during the year relates to updated terms in respect of Serbia administrative lease, additional $26,404 recognised as right-of-use asset.

Set out below are the carrying amounts of lease liabilities and the movements during the year:

Of the total amount at 31 December 2022, $2,379,000 (prior year; $141,674) is recognised as a current liability and the remainder $5,807,741 is shown within non-current liabilities (prior year; $625,424). See maturity analysis in note 15b.

Modification during the year relates to updated terms in respect of Serbia administrative lease, additional $16,850 recognised as right-of-use liability.

The following are the amounts recognised in statement of comprehensive income:

The following are the amounts recognised in statement of cashflow:

12. Financial instruments

IFRS 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy, depending on whether the fair value measurements are derived from:

· quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

· inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); or

· inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction. Set out below are the financial instruments held at amortised cost and fair value through profit or loss and their fair value measurement hierarchy.

See note referenced for further detail on inputs to fair value for each financial instrument.

13. Financial risk management

a. Credit risk

Credit risk arises from the risk that a counter party will fail to perform its obligations. Financial instruments that potentially subject the Group to concentrations of credit risk consist of cash and cash equivalents and receivables (excluding prepayments).

Due to the nature of the business, the Group's exposure to credit risk arising from routine operating activities is currently inherently low. However, the Audit & Risk Committee considers the risks associated with new material counterparties where applicable to ensure the associated credit risk is of an acceptable level.

The total carrying amount of cash and cash equivalents and receivables represents the Group's maximum credit exposure.

The Group's cash is held in major UK, Jersey, Australian, Serbian and Bosnian financial institutions, and as such the Group is exposed to credit risks of those financial institutions. The Group's main cash holdings are located in UK and Jersey A1 or A2 rated institutions and as such are considered to have low credit risk.

The Group's receivables primarily relate to value added tax receivables due from governments in the UK and Bosnia and Herzegovina. These amounts are excluded from the definition of financial instruments in the accounts and in any event are considered to have low credit risk. Of the remaining receivables and prepayments, any changes in management's estimate of the recoverability of the amount due will be recognised in the period of determination and any adjustment may be significant.

The Board of Directors, with input from the Audit & Risk Committee, is ultimately responsible for monitoring exposure to credit risk on an ongoing basis and does not consider such risk to be significant at this time. As such, the Group considers all of its financial assets to be fully collectible.

b. Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they become due. The Group's approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses.

The following table illustrates the maturity analysis of the Group's contractual gross financial liabilities based on exchange rates at the reporting date. The contractual gross financial liabilities shown below are undiscounted estimated cash outflows which, where applicable, include estimated future interest payments, and certain amounts therefore differ from the amounts presented in the consolidated financial statements and elsewhere in the accompanying notes.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect the value of the Group's financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximising long term returns.

The Group conducts development and exploration projects in Bosnia and Herzegovina and in Serbia. As a result, a portion of the Group's expenditures, receivables, cash and cash equivalents, accounts payable and accrued liabilities are denominated in Bosnian Marks, Serbian Dinar, Great Britain Pounds, Australian Dollars, and Euros and are therefore subject to fluctuation in exchange rates.

At 31 December 2022, a 10% change in the exchange rate between USD and the Euro, Bosnian Mark and Serbian Dinar, which is a reasonable estimation of volatility in exchange rates, would have an impact of approximately $0.7m on the Group's total comprehensive loss, and approximately $0.8m on the balance of cash and cash equivalents.

c. Fair values

The fair value of cash, receivables, accounts payable and accrued liabilities approximate their carrying amounts due to the short term nature of the instruments.

As set out in note 12, fair value measurements recognised in the consolidated statement of financial position subsequent to their initial fair value recognition can be classified into Levels 1 to 3 based on the degree to which fair value is observable.

There were no transfers between any levels of the fair value hierarchy in the current or prior years.

d. Capital management

The Group's objectives in managing capital are to safeguard its ability to operate as a going concern while pursuing exploration and development and opportunities for growth through identifying and evaluating potential acquisitions of assets or businesses. The Company defines capital as the equity attributable to equity shareholders of the Company which at 31 December 2022 was $107,903,026 (31 December 2021: $152,418,109).

The Group sets the amount of capital in proportion to its risk and corporate growth objectives. The Group manages its capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets.

See note 6 for details of the Group's borrowings and derivative liability.

14. Equity

A. Authorised share capital

The authorised share capital of the Company consists of an unlimited number of voting ordinary shares with a nominal value of £0.013355.

B. Common shares issued