China Nonferr Regulatory News (CNG)

5 Aug 2020 09:46

 

China Nonferrous Gold Limited

(“CNG” or the “Company”)

Final Results

for the twelve months ended 31 December 2019

China Nonferrous Gold Limited 中国有色黄金有限公司 (AIM: CNG), the mineral exploration and development company currently developing the Pakrut gold project in the Republic of Tajikistan, today announces its final results for the year ended 31 December 2019.

The results below are extracted from the Company’s audited Annual Report and Financial Statements. Copies of the Annual Report have been dispatched to shareholders today and are available on the Company’s website (www.cnfgold.com).

The Company also confirms that it will post a notice convening the annual general meeting of the Company in due course. A further announcement will be made when it is dispatched.

For further information please visit the Company’s website (www.cnfgold.com) or contact:

China Nonferrous Gold Limited

Yu Lixian, Managing Director

Tel: +86 10 8442 6681

WH Ireland Limited (NOMAD & Broker)

Katy Mitchell, James Sinclair-Ford

Tel: 0207 220 1666

Blytheweigh (PR)

Tim Blythe, Camilla Horsfall

Tel: +44 (0)20 7138 3224

Project Summary

The Pakrut gold project, of which CNG has 100 per cent ownership, is situated in Tajikistan approximately 120 km northeast of the capital city Dushanbe. Pakrut is located within the Tien Shan gold belt, which extends from Uzbekistan into Tajikistan, Kyrgyzstan and Western China, and which hosts a number of multi-million ounce gold deposits.

CNG is currently progressing well in several important aspects, with the Pakrut gold mine entering normal production and achieving full operational capacity in 2019.

The Company made significant achievements in 2019 and became an important gold-production enterprise in Tajikistan. The Pakrut gold mine achieved its internal production targets for 2019, which brings steady cash flows to support the sustainable development of the company.

About Tajikistan

Tajikistan is a secular republic located in Central Asia. The country is a member of the Commonwealth of Independent States and the Shanghai Cooperation Organisation. Tajikistan hosts numerous operating precious metal mines as well as the largest aluminium smelter in Central Asia. CNG's management team has extensive experience in the mining industry in Tajikistan.

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

Chief Executive Officer’s Statement

As CEO of the board, it gives me great pleasure to present the CEO’s statement of the annual report for the year ended 31 December 2019. Following successful completion of construction work at the mine site in 2018, the Company has progressed well in several important aspects, with the Pakrut gold mine entering normal production and achieving full operational capacity in 2019.

The Company made significant achievements in 2019 and became an important gold-production enterprise in Tajikistan. The Pakrut gold mine achieved its internal production targets for 2019, which brings steady cash flows to support the sustainable development of the Company.

Operation

Through the joint efforts of staff across the Group, construction works at the Pakrut gold project were successfully completed at the end of 2018, which made it possible to commence full production in 2019.

From January to December 2019, a total of 731,600 tons of ore was extracted from the Pakrut gold mine, and a total of 690,300 tons of ore were processed at a grade of 2.15 g/t, 17,966 tons of gold concentrate were produced at a grade of 73.73 g/t, 1,168 kg gold bullion were poured with a comprehensive recovery rate of 79.6%.

Full production continued at the start of 2020 despite COVID-19, and from January to the end of June 2020, a total of 261,268 tons of ore was extracted from the Pakrut gold mine, and a total of 344,652 tons of ore were processed at a grade of 2.28 g/t, 9,979 tons of gold concentrate were produced at a grade of 72.51 g/t, 541.55 kg gold bullion were poured with a comprehensive recovery rate of 79.14%. To date, the operation at the Pakrut gold mine remains stable overall and the key technical production figures including ore grade have been increased significantly since 2019.

COVID-19

With COVID-19 spreading globally, our priority is the safety and health of our people and ensuring the Company’s operations can continue in operation as normal. Since the outbreak of COVID-19 in Tajikistan on April 30 2020, the Company has taken appropriate steps and effective measures to ensure that staff at protected at site. To date operations at the mine site at Pakrut continue as normal, and there are no confirmed or suspected cases in the Company in Tajikistan or China.

Thanks to the Chinese Government taking severe measures such as social distancing and self-isolation to reduce COVID-19 spreading and allowing healthcare systems to make critical adaptations for testing and triage capacity, there is no significant impact on working conditions in China. A tight prevention and control system involving all sectors of society has been set up. The Directors believe that Beijing has now cut all channels for the transmission of the virus and there have been no cases reported within the Company to date in the second wave of COVID-19. After the outbreak of the Tajik epidemic, flights with China have not been opened, and Chinese personnel on vacation cannot return to work. However, the mine is still in normal operation as the number of production personnel at the mine site remains sufficient to ensure normal operations continue. In addition, the Company has organised a private chartered flight to transport around 45 Chinese employees to Tajikistan from China, which is due to take off on 8 August 2020. The Directors therefore remain confident that production remains on schedule and will not be interrupted.

Financial results

The development and construction work at the Pakrut Gold Project was finalised at the end of the 2018 financial year. The Group therefore generated revenue from full operational production during 2019. The transition from trial production to full production at the beginning of 2019 has resulted in a reclassification of the mines under construction asset (2018: $399,400,000) into property, plant and equipment – producing mines. As a result of this reclassification and of the Group commencing full production, depreciation / depletion has also been charged on these assets for the full year.

Administration expenditure for the year was US$16,337,000 (2018: US$6,372,000). The main reason for this increase was due to the transition from trial production to full production at the Pakrut project in 2019 as noted above, and the associated change in classification of expenses – as a consequence of this change in status, expenditure including employment related expenses and taxes that were previously capitalised as part of the ongoing construction and development at the mine site are now reflected in the income statement.

The overall loss incurred by the Group was US$21,981,000 (2018: US$4,483,000). The increased losses are due to the non-capitalisation of administration expenditure in 2019, as set out above, as well as depreciation charged on property, plant and equipment and US$20,796,000 of finance costs in respect of loans held with related parties and banks, which was also capitalised in previous years within mines under construction during the exploration and trial production phases, but which are now charged to the income statement. During 2019, Pakrut generated gold sales revenue of US$49,157,000 (2018: US$17,926,000), a significant increase as a result of entering full operational production. In the current year other income of US$0.12 million (2018: US$2.8 million) has been generated from Pakrut’s sale of surplus stock materials (2018: US$2.8m, being compensation from the insurance provider following the snowfall disaster in early 2017).

During the course of the year, the Group did not enter into any further financing agreements with shareholders or their associates. The repayment dates in December 2019 on the loan contracts previously signed with China National Capital International Co, Ltd., China Nonferrous Metals International Mining Co., Ltd. and China Nonferrous Metals Mining Group Co., Ltd. (“CNMC” Loans) were extended to December 2020.

In July 2018, CNMC and CNMC Trade Co, Ltd. signed an agreement transferring one of the loans of US$20 million from China Nonferrous Mining Group Co, Ltd. to CNMC Trade Co., Ltd which constitutes a related party under the AIM Rules for Companies. In July 2019, the remaining $126.5 million was also transferred to the same party.

In 2019, the Group repaid a loan of US$10 million to China Construction Bank Corporation Macau Branch (“CCBC”) in respect of its existing loan agreement, of which US$75 million remains outstanding at the year end. During 2019, the Group signed a new financing agreement with CCBC for a loan of US$20 million, repayable in March 2021.

The existing CCBC loan facilities totalled US$95 million and the CNMC and CNMIM loan facilities totalled US$276 million so that, including interest, US$371 million of loans were payable as at 31 December 2019 (approximately US$344m without interest). US$267 million is payable within one year of the financial statements, which includes US$10 million due to CCBC and the remaining balance due to shareholders. The CCBC loan is due for repayment in March 2021.

Events after the Reporting Period

In April 2020, the Company drew down US$14.50 million on a new US$30 million loan facility with China Construction Bank (Asia) Corporation Limited, which is being used for general working capital purposes to fund the Pakrut gold mine.

The Group has continued production throughout 2020 despite the outbreak of COVID-19, enabling it to raise sufficient working capital. As announced on 15 July 2020, in order to ensure the repayment of existing loans can be made, a broader refinancing will be required. Discussions are ongoing and, with the signing of the new loan agreement, the remaining discussions are expected to be completed in the near term. The parent Company CNMC has committed to supporting the CNG group should this be required for a period of at least 12 months from the date of approval of these financial statements.

The Company extended the repayment period of loans in place with CNMC Trade Company Limited (CNMC Trade), totalling US$146.50 million, to December 2020. The Company currently has total debt facilities (including banking facilities), before interest, of c.US$353.7 million (being the US$341m announced in July 2020, plus the CNMIM loan of US$12.7m).

Outlook

The Company continues to operate at normal production and operation levels.

The Company is continuing to enhance its production capacity. Whilst improving production, the Company is also focusing on perfecting and improving the smelting process by reducing production costs, increasing recovery rates and improving competitiveness.

The Company has long been dedicated to becoming a significant gold producer in Central Asia. The Company has also established a strong relationship with the government of Tajikistan and other Central Asian countries and it will consider other appropriate acquisitions at the right time, although there can be no guarantee that any acquisition will occur.

While we have taken big strides in the production and operation of the Pakrut gold mine and achieved much, there are still challenges to overcome and targets to meet, all of which I am confident to accomplish in the coming months.

Objectively speaking, uncertainty created by the coronavirus pandemic on production and operations still exists in Tajikistan, and the long term effects are difficult to predict and estimate. The Company will make every effort to meet pandemic prevention and control requirements, as well as stabilising and expanding the production and operation of Pakrut gold mine.

I would like to take this opportunity to thank all our employees, management and advisers for their continued hard work in 2019. I would also like to extend my thanks to all our stakeholders for their continued backing over the years. I very much look forward to updating our shareholders further on the mine developments, production levels, new strategy and direction.

Lixian Yu

Chief Executive Officer

31 July 2020

Auditors Opinion

We have audited the group financial statements of China Nonferrous Gold Limited (the ‘Group’) for the year ended 31 December 2019 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the group financial statements:

give a true and fair view of the state of the group’s affairs as at 31 December 2019 and of its loss for the year then ended; andhave been properly prepared in accordance with IFRSs as adopted by the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter

We draw attention to Note 28 of the financial statements, as well as the disclosures made in the Chief Executive Officer’s Statement on p.6 and the ‘Principle Risks and Uncertainties’ and ‘Going concern’ sections in the Report of the Directors, which describe the group’s assessment of the COVID-19 impact on its ability to continue as a going concern. The group has explained that the events arising from the COVID-19 outbreak do not impact its use of the going concern basis of preparation nor do they cast significant doubt about the group’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue.

Our opinion is not modified in this respect.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; orthe directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Our application of materiality

The scope of our audit was influenced by our application of materiality. We determined materiality for the financial statements as a whole to be US$3,500,000 (2018: US$3,500,000) for the group financial statements using 2% of gross assets as a basis, whilst also taking into consideration loss before tax.

We consider gross assets to be the most relevant determinant of the group’s financial position and performance used by shareholders, with the key financial statement balances being mine assets and cash. The going concern of the group is dependent on its ability to fund operations going forward, as well as on the valuation of its assets, which represent the underlying value of the group. However, we consider that loss before tax will also be a key indicator of performance to financial statements users as the group completes its first year of full production and seeks to maximise production and operating efficiencies at the mine.

Whilst materiality for the financial statements as a whole was set a US$3,500,000 each significant component of the group was audited to an overall materiality ranging between US$12,000 and US$3,450,000 with performance materiality set at 70%. We applied the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatement.

An overview of the scope of our audit

In designing our audit we determined materiality, as above, and assessed the risk of material misstatement in the financial statements. In particular, we looked at areas requiring the directors to make subjective judgements, for example in respect of significant accounting estimates including impairment of mine assets, and considered future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represents a risk of material misstatement due to fraud.

A full scope audit was performed on the complete financial information of the group’s operating components located in Tajikistan and United Kingdom, with the group’s key accounting function for all being based in China with a local function in Tajikistan.

The group’s Tajik operations are audited by a non PKF network firm. The audit team discussed significant events occurring during the year and post year-end period with the component auditor and performed a review of the component auditor’s working papers, including review of planning and completion stage group reporting,. The group audit team are responsible for the scope and direction of the audit process. All other work was performed remotely by PKF Littlejohn LLP.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matter	How the scope of our audit responded to the key audit matter
Valuation of PPE/Producing Mines – Pakrut LLC (Note 12) Producing mines within PPE is the most material balance within the financial statements and represents the key source from which the Group generates income. The value of Producing mines, as at 31 December 2019, is $390m and was transferred into PPE from Mines under Construction at the start of the 2019 financial year. The group entered full production from 1 January 2019 after experiencing delays in achieving full production levels. As a result there is now more clarity over the forecast cashflows expected over the mine’s life as the Group now has greater visibility over actual costings. There is the risk that as a result the value of the mine is impaired.	Our work in this area included: A review of the costs transferred into PPE from Mines under construction in 2019 to ensure their appropriateness in accordance with IFRS, including a review of work performed by the component auditor.A review of management’s impairment assessment, including consideration of any NPV calculations used. We challenged the source of the inputs and obtained and reviewed the supporting evidence.Assessment of the mining licenses held by the group to confirm their validity including discussions with legal team in Pakrut.Considering whether there any potential impairment indicators through review of announcements to the market and Board minutes, as well as our discussions with management and the component auditor.
Depletion of Producing Mines (Note 12) During 2019 the Group entered full production and as a result depreciation was required to be calculated and charged for the first time in respect of Producing mine assets, previously held as Mines under construction. The calculation of this amount requires significant judgement and the use of estimates by management and represents a material charge within the financial statements. There is the risk that this has been incorrectly calculated and the relevant disclosures not made.	Our work in this area included: Verifying the mathematical accuracy of the calculations prepared by management;Reviewing the key inputs used within the calculations and challenging all estimates used (see note 2) and obtaining support; andDiscussions with management in respect of the basis for the calculation. The lifespan of the mine used in the calculation is 18 years which is 8 years more than the licence currently held by CNG permits. Based on the information available to management they currently have no reason to expect the licence extension not to be granted however if it were not then there is the risk that the key inputs into this calculation would need to be changed and this could lead to a material impact on the related charge within the financial statements.

Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the group financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of directors

As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the group financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report

This report is made solely to the Company’s members, as a body, in accordance with our engagement letter dated 10 May 2019. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Joseph Archer (Engagement Partner)

For and on behalf of PKF Littlejohn LLP

Statutory Auditor

15 Westferry Circus

Canary Wharf

London E14 4HD

31 July 2020

Consolidated Statement of Comprehensive Income, Year Ended 31 December 2019

		2019	2018
	Note	US$000	US$000
Revenue	3	49,157	17,926
Cost of sales		(32,842)	(17,926)
Gross Profit		16,315	-
Other operating income		116	2,838
Administrative expenses	6	(16,337)	(6,192)
Loss on foreign exchange		(905)	(1,873)
Other operating expenses		(136)	-
Operating Loss		(947)	(5,227)
Finance income	8	270	923
Finance costs	8	(20,796)	-
Loss before Income Tax		(21,473)	(4,304)
Income tax	7	(508)	(179)
Loss for the year attributable to owners of the parent		(21,981)	(4,483)
Total comprehensive income attributable to owners of the parent for the year		(21,981)	(4,483)
Basic and Diluted Earnings per share attributable to owners of the parent (expressed in cents per share)	9	(5.75)	(1.17)

All of the activities of the Group are classed as continuing.

Consolidated Statement of Financial Position

	Note	As at 31 December 2019 US$000	As at 31 December 2018 US$000
Non-Current Assets
Mines under construction	11	-	399,400
Property, plant and equipment	12	402,548	7,422
Total Non-Current Assets		402,548	406,822
Current Assets
Inventories	15	16,856	17,343
Trade and other receivables	16	4,766	3,709
Cash and cash equivalents		11,120	8,363
Total Current Assets		32,743	29,415
Non-Current Liabilities
Borrowings	17	(103,586)	(182,285)
Provisions for other liabilities and charges	19	(913)	(838)
Total Non-Current Liabilities		(104,499)	(183,122)
Current Liabilities
Borrowings	17	(267,527)	(162,724)
Trade and other payables	18	(77,050)	(82,194)
Total Current Liabilities		(344,577)	(244,918)
Net Current Liabilities		(311,843)	(215,503)
Net (Liabilities)/Assets		(13,785)	8,196
Equity attributable to the owners of the parent
Share capital	21	38	38
Share premium		65,901	65,901
Other reserve		10,175	10,175
Retained earnings		(89,899)	(67,918)
Total Equity		(13,785)	8,196

Consolidated Statement of Cash Flow

	31 December	31 December
	2019	2018
	US$000	US$000
Cash flows from Operating Activities (Note 23)	3,624	3,556
Net cash generated from Operating Activities	3,624	3,556
Cash flows from Investing Activities
Payments for mining rights and construction in progress		(48,394)
Purchase of property, plant and equipment	(5,842)	-
Interest received	270	923
Net cash used in Investing Activities	(5,572)	(47,471)
Cash flows from Financing Activities
Proceeds from borrowings (net of capitalised issue costs)	20,000	90,000
Repayment of borrowings	(10,000)	(35,000)
Interest paid	(5,295)	(14,789)
Net cash generated from Financing Activities	4,705	40,211
Net increase/(decrease) in Cash and cash equivalents	2,757	(3,704)
Cash and cash equivalents at beginning of the year	8,363	12,067
Cash and cash equivalents at end of the year	11,120	8,363

Consolidated Statement of Changes in Equity

Attributable to owners of the parent
	Share capital US$000	Share premium US$000	Other reserve US$000	Retained earnings US$000	Total US$000
Balance at 1 January 2018	38	65,901	10,175	(63,435)	12,679
Loss for the year	-	-	-	(4,483)	(4,483)
Total comprehensive loss for the year	38	65,901	10,175	(67,918)	8,196
Total transactions with owners of the parent, recognised directly in equity	-	-	-	-	-
Balance at 31 December 2018	38	65,901	10,175	(67,918)	8,196
Balance at 1 January 2019	38	65,901	10,175	(67,918)	8,196
Loss for the year				(21,981)	(21,981)
Total comprehensive loss for the year	38	65,901	10,175	(89,899)	(13,785)
Total transactions with owners of the parent, recognised directly in equity	-	-	-	-	-
Balance at 31 December 2019	38	65,901	10,175	(89,899)	(13,785)

Notes to the Financial Statements

1. Financial Risk Management

The Group’s operations expose it to a number of financial risks; principally the availability of adequate funding, movements in interest rates and fluctuations in foreign currency exchange rates. Continuous monitoring of these risks ensures that the Group is protected against any adverse effects of such risks so far as it is possible and foreseeable.

Market Risk

a) Cash Flow and Interest Rate Risk

The continued operation of the Group is dependent on the ability to raise sufficient working capital until the mine produces sufficient quantities of gold to be self-sufficient. The Group currently finances itself through the issue of equity share capital and the secured loan facilities from CNMIM, CNMC and CCB. Management monitors its cash and future funding requirements through the use of cash flow forecasts. All cash not immediately required for working capital purposes is held on short term deposit. The Group’s exposure to interest rate fluctuations on cash balances is restricted to the rate earned on these short-term deposits. The potential impact of such fluctuations is not considered material to the financial statements.

The Group’s interest rate risk arises from long-term borrowings. The Group has both variable and fixed rate borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash invested at variable rates. The annual fixed interest rate for the CNMIM loan is 9% for all USD and RMB denominated tranches. All payments of principal and interest in respect of the RMB denominated tranche are repayable at a fixed RMB: USD exchange rate. The interest rate on the CCB loan of US$75 million is 2.10% per annum over the quarterly LIBOR rate and the loan is repayable in US$. The interest rate on the new CCB loan of US$20 million is 1.20% per annum over the quarterly LIBOR rate and the loan is repayable in US$. The interest rate on the CNMC loan of US$90 million taken out in 2018 is fixed at 5.8% per annum, calculated and paid on a half yearly basis. The interest rate on CNMCTC loans totaling $146.5 million is 3.70% per annum over the six month LIBOR rate and the loan is repayable in US$.

At 31 December 2019, the potential impact of fluctuations in interest rates is not considered material to the financial statements.

b) Foreign Currency Risk

The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures. Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has cash assets denominated in UK Sterling, United States Dollars, Tajik Somoni and PRC Renminbi and incurs liabilities for its working capital expenditure in all of these denominations. Payments are made in all of these denominations at the pre-agreed price and converted (if necessary) as soon as payment needs to occur. Currency conversions and provisions for expenditure are only made as soon as debts are due and payable. The Group is therefore exposed to currency risk in so far as its liabilities are incurred in UK Sterling, PRC Renminbi and Tajik Somoni, and fluctuations occur due to changes in the exchange rates against the functional and presentational currency of US Dollar. The table below details the split of the cash held as at 31 December 2019 between the various currencies.

Somoni	GBP Sterling	US Dollar	Renminbi	Total US$000
482	35	10,461	142	11,120

Due to the different nature of assets and liabilities, changes in asset value caused by exchange rate changes have different ways of affecting a Company's free cash flow. Therefore, it must be considered separately when evaluating the value of an enterprise. The first is the monetary items in the corporate balance sheet. Typical monetary items include monetary funds, loans, accounts receivable and accounts payable. When the exchange rate changes, the above-mentioned assets or liabilities of the enterprise accounted in foreign currencies will increase or depreciate accordingly. For example, in the context of the depreciation of the Renminbi, the foreign currency deposits (Somoni/USD) held by enterprises will appreciate, which in itself has a substantial impact on the present value of cash. The foreign currency-settled bonds or other debts issued by companies can be repaid at a lower RMB cost, which can save companies more funds that can be used for free distribution, thereby promoting the enhancement of corporate value.

During 2019, the Group’s principal revenue, costs, assets and liabilities, including interCompany loans were denominated in USD. The Group manages foreign currency risk by matching receipts and payments and monitoring movements in exchange rates. The Group does not currently hedge its exposure to foreign currencies and recognises the profits and losses resulting from currency fluctuations as and when they arise. At the year end the Group did not have material exposure to foreign exchange risk relating to its non-US$ denominated bank deposits and as such this not disclosed. The year end exchange rates used in the preparation of the financial statements for 2018 and 2019 were as follows:

	Somoni to USD	GBP to USD	Renminbi to USD
31 December 2019	9.6872	1.31162	6.9762
31 December 2018	9.4210	1.2741	6.8632

1. Financial Risk Management (continued)

Liquidity Risk and Credit Risk

The continued operation of the Group is dependent on the ability to raise sufficient working capital. As noted above, the Group currently finances itself through the issue of equity and borrowings from CNMIM, CNMC and CCB. Management monitors its cash and future funding requirements through the use of cash flow forecasts. The Group enters into capital commitments to fund operations, and any surplus cash not immediately required for working capital purposes is held on short term deposit.

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.

	Less than 1 Year US$000	Between 1 and 2 Years US$000	Between 2 and 5 Years US$000	Over 5 Years US$000	Total US$000	Carrying amount US$000
Year ended 31 December 2019
Interest-bearing borrowings	267,527	103,586	-	-	371,113	371,113
Trade and other payables	77,050	-	-	-	77,050	77,050
Provisions for other liabilities	-	-	-	2,481	2,481	913
	344,577	103,586	-	2,481	450,644	449,076

Year ended 31 December 2018
Interest-bearing borrowings	162,724	117,285	65,000	-	345,010	345,010
Trade and other payables	82,194	-	-	-	82,194	82,194
Provisions for other liabilities	-	-	-	2,481	2,481	837
	244,918	117,285	65,000	2,481	429,685	428,041

The Group holds bank accounts with banks in the UK, PRC and Tajikistan with the following credit ratings:

Credit rating	2019 US$000	2018 US$000
A	5,314	7,216
No independent credit rating available	5,806	992
	11,120	8,208

If a bank has no credit rating, the Group assesses the credit quality through local knowledge and past experience in the particular jurisdiction.

Capital Risk Management

The Group consider equity to be their capital. The Group’s objective when managing their capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to enable the Group to continue its exploration, evaluation and mine construction. The Group holds debt in the form of both shareholder and external loans and defines capital based on the total equity of the Company. Except for the secured loan facilities from CNMIM, CNMC and CCB, the Group’s current policy for raising capital is through equity issues and debt financing. The Group is not currently required to monitor its gearing ratio and is not exposed to any externally imposed capital requirements.

2. Critical Accounting Estimates, Assumptions and Judgments

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are set out below. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets and liabilities affected in future periods.

The Group has identified the following areas where significant estimates, assumptions and judgments are required. The most significant judgment for the Group is the assumption that exploration and development at its sites will ultimately lead to a commercial mining operation. Failure to do so could lead to impairment of the mine.

Estimated impairment of Producing mines (Note 12)

The Group tests annually whether exploration, evaluation and licensing assets and producing mines have suffered any impairment. The recoverable amounts of the cash generating units (“CGUs”) have been determined based on value in use calculations which require the use of estimates and assumptions such as long-term commodity prices, gold recovery rates, discount rates, operating costs and therefore expected margins, future capital requirements and mineral resource estimates (see below). These estimates and assumptions are subject to risk and uncertainty and therefore there is a possibility that changes in circumstances will impact the recoverable amount. Management has assessed its CGUs as being individual exploration and mine sites, which is the lowest level for which cash inflows are independent of those of other assets or CGUs.

In assessing the carrying amounts of its exploration, evaluation and licensing assets and producing mines at Pakrut, the Directors have used an independently prepared and Director approved bankable feasibility study (http://www.cnfgold.com/projects/pakrut-gold-project). The period used in management’s assessment is the anticipated life of the mine to the expiration of the license in 2030 with revenues being generated from full production from January 2019.

The calculation assumes a mining capacity of 2,000 tonnes of ore daily increasing to 4,000 tonnes per day. Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the mines 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. Gold revenues have been estimated over that period at a price of US$1,600 based on management’s estimates, which are derived from forward price curves and long-term views of global supply and demand, building on past experience of the industry and consistent with external sources.

The total cost per ounce is estimated to be around US$780 with a gross margin of circa 60%. Royalties have been calculated at 6% of sales revenues and corporate income tax at 15%, according to the relevant laws in Tajikistan. A discount rate of 10% has been utilised.

The calculations have been tested for sensitivity to changes in the key assumptions. The most sensitive inputs in the calculation of the value in use are operating and direct costs, the gold price, and the discount rate. An impairment to the mine value would occur if the discount rate were to increase to 17%, gold prices fell by 14% or direct costs were to increase by 43%.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Approval of Pakrut reserves by Tajik Department of Geology

In November 2011, the Government of the Republic of Tajikistan issued the Pakrut Gold Project mining license to LLC Pakrut. According to the terms of the license, the amount of ore that can be mined is variable depending upon the mine plan. The plan submitted by the Group envisages an initial processing capacity of 660,000 tons of ore per annum, increasing to 1,320,000 tons per annum. The mining license is valid until 2 November 2030.

The mining license issued in November 2011 currently entitles the Group to mine JORC compliant resources (measured, indicated and inferred) of 904,000 ounces out of total JORC compliant resources of 4,383,000 ounces at Pakrut, excluding the Eastern Pakrut, Rufigar and Sulfidnoye ore zones. The JORC compliant resources include the results from the Group’s exploration and evaluation work subsequent to the mining license issue date.

LLC Pakrut has sought approval of the increased JORC compliant resources from the Tajik Department of Geology and the Scientific and Technical Counsel which includes the results of all exploration and evaluation activities undertaken by the Group between 2009 and 2013. The application is currently subject to that approval process and the Directors are not aware of any legal or other impediments which would prevent approval of their application and therefore permit the Group to mine the increased resources. However, the approval process currently remains incomplete.

The mine design and construction work undertaken to date, together with the assessment of the recoverable amount of ‘Producing mines’ (see below), is based upon the total quantity of JORC compliant resources of which part falls outside the area covered by the mining license and still subject to formal approval, as noted above. Failure to obtain this approval would lead to an impairment of ‘Mines under Construction’, together with inventories, and also impact the going concern basis of preparation of the Financial Statements. The Group has made the judgement that this approval will be forthcoming. No provision for impairment has been recognised in these Financial Statements relating to this uncertainty.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Mineral resource and reserve estimates

Reserves are estimates of the amount of resources that can be economically and legally extracted from the Group’s mining properties. The Group estimates its mineral resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. This analysis requires complex geological judgments to interpret the data. The estimation of the recoverable amount is based upon factors such as estimates of commodity prices, future capital expenditure and production costs along with geological assumptions made in estimating the size and grade of the resources. Details of the mineral resources and reserve estimates can be found on www.cnfgold.com.

The Group estimates and reports mineral resource estimates in line with the principles contained in the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (December 2004), which is prepared by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia, known as the “JORC Code”. The determination of a JORC resource is itself an estimation process that involves varying degrees of uncertainty depending on how the resources are classified (i.e. measured, indicated or inferred).

As additional geological information is produced during the operation of a mine and through additional exploration activity, mineral resource estimates may change. Such changes may impact on the Group’s reported financial position which includes the carrying value of property, plant and equipment and inventories.

Estimated economically recoverable reserves are used in determining the depreciation and/or amortisation of mine-specific assets. This results in a depreciation/amortisation charge proportional to the depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves and estimates of future capital expenditure. The calculation of the UOP rate of depreciation/amortisation could be impacted to the extent that actual production in the future is different from current forecast production based on economically recoverable reserves, or if future capital expenditure estimates change. Changes to economically recoverable reserves could arise due to changes in the factors or assumptions used in estimating reserves, including:

The effect on economically recoverable reserves of differences between actual commodity prices and commodity price assumptions;Unforeseen operational issues.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Depreciation/Amortisation (Note 12)

As the mine entered full production during the period, 2019 was the first period for which depreciation / amortisation was charged in respect of the producing mine assets. As mentioned in the judgement above judgement is required in the calculation of this amount with the key estimates considered to be surrounding the amount of economically recoverable resources and the lifespan of the asset. The economically recoverable reserves are considered to be those detailed out on the website (see above for link) and the lifespan of the mine is considered to be 18 years. As mentioned above the Group currently only has a mining license that is valid until November 2030 which is less than the 18 year period used within the depreciation/amortisation calculation. After considering the information available to them which includes discussions with Tajik officials and the required timing for extending the mining licence, management have made the judgement that they will be able to secure the necessary extensions and therefore continue to the mine for a period of 18 years. If a 10 year licence period were to be used then depreciation for 2019 would be approximately $17.6 million.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Production start date

Estimations are made in the determination of the point at which development ceases and production commences for a mine development project. This point determines the cut-off between pre-production and production accounting. The group ceases to capitalise pre-production costs and begins depreciation and amortisation of mine assets at the point at which the mine’s plant becomes available for use as intended by management. Determining when this is achieved is an assessment made by the group’s management and includes the following factors:

The level of development expenditure compared to project cost estimates.Completion of a reasonable period of testing of the mine plant and equipment.Achieved mineral recoveries, plant availability and throughput levels are at or near expected / budgeted levels.The ability to produce gold into a saleable form.The achievement of continuous production.

In December 2018, the construction and infrastructure projects at the mine site were completed and production levels began to ramp up. However, management have assessed that it was not until the beginning of 2019 that the mine’s plant was available for use as intended by management, as it was at the end of 2018 that production levels were stable, process technologies improved to ensure target mineral recoveries of reliable and high-quality gold were achieved in line with budgeted levels.

Therefore, in the 2019 financial year, the mine assets in the consolidated financial statements have been presented as producing mines.

Changes in estimates are accounted for prospectively.

3. Segment Information

The following segments are based on the management reports received by the Executive Directors, who are the chief operating decision makers. The Group operates principally in three geographical areas, UK, PRC and Tajikistan, with operations managed on a project by project basis within Tajikistan. For segment reporting purposes, the operations of the Cayman Islands registered parent Company are included in the UK and PRC segment as these segments are jointly managed

The Group’s mining activities are located in Tajikistan, principally within the Pakrut Gold Project. Support and administration services are provided from the UK and PRC. Inter-segment revenue is eliminated on consolidation and is conducted on mutually agreed terms between Group companies.

2019	UK and PRC US$000	Tajikistan Pakrut US$000	Total US$000
Revenue	-	49,157	49,157
Cost of sales	-	(32,842)	(32,842)
Administrative expenses (including foreign exchange)	(4,536)	(12,705)	(17,241)
Other operating expenses		(136)	(136)
Impairment	-	-	-
Other operating income	-	116	116
Operating profit/(loss)	(4,536)	3,590	(947)
Finance costs	(20,796)	-	(20,796)
Finance income	270	-	270
Income tax	-	(508)	(508)
Loss for the year	(25,062)	3,082	(21,981)
Total assets	8,787	426,504	435,291
Total liabilities	414,609	34,467	449,076
Depreciation	22	2,544	2,566
Additions to property, plant and equipment	-	5,842	5,842

Revenue of Pakrut generated in the period was from two customers, the government of Tajikistan and an independent bank. The revenue from this party during the year was TJS 463,551 (USD 47,841).

2018	UK and PRC US$000	Tajikistan Pakrut US$000	Total US$000
Revenue	-	17,926	17,926
Cost of sales	-	(17,926)	(17,926)
Administrative expenses (including foreign exchange)	(3,257)	(4,808)	(8,065)
Impairment	-	-	-
Other operating income	-	2,838	2,838
Operating loss	(3,257)	(1,970)	(5,227)
Finance income	923	-	923
Income tax	-	(179)	(179)
Loss for the year	(2,334)	(2,149)	(4,483)
Total assets	10,375	425,862	436,237
Total liabilities	394,784	33,257	428,041
Depreciation	23	50	73
Additions to property, plant and equipment	-	-	-
Additions to mines under construction	-	66,717	66,717

4. Particulars of Employees

The average number of staff employed by the Group during the financial year amounted to:

	2019 No.	2018 No.
Administrative and management	129	121
Operational staff	574	375
	703	496
The aggregate costs of the above were:
	2019 US$000	2018 US$000
Wages and salaries	4,721	3,380
Social security costs	861	693
	5,582	4,072

As the mine was in full production for whole of 2019 no staff costs have been capitalised. US$ 2.045m of staff costs were capitalised in 2018 within mines under construction.

5. Directors’ Emoluments

The Directors’ emoluments in respect of qualifying services were:

	Salary and fees	Bonus and holiday pay	Other benefits	Termination fees	Total
2019	US$	US$	US$	US$	US$
Mr Boyi Liang****	49,360	-	-	-	49,360
Mr Xiang Wu**	17,953	-	-	-	17,953
Mr Yong Li	22,853	-	-	-	22,853
Mr Lixian Yu	227,754	-	-	-	227,754
Mr Delin Feng***	140,340	-	-	-	140,340
Mr Xiuzhi Shi	22,989	-	-	-	22,989
	481,249	-	-	-	481,249

	Salary and fees	Bonus and holiday pay	Other benefits	Termination fees	Total
2018	US$	US$	US$	US$	US$
Mr Xiang Wu	31,950	-	-	-	31,950
Mr Lixian Yu	296,148	-	-	-	296,148
Mr Yong Li	23,737	-	-	-	23,737
Mr Xiuzhi Shi	23,620	-	-	-	23,620
Mr Hao Zhang*	246,812	-	-	-	246,812
	622,267	-	-	-	622,267

Key management comprises Executive and Non-Executive Directors and all emoluments are short term in nature.

5. Directors’ Emoluments

The following amounts were payable to Directors as at 31 December 2019 (2018: $Nil):

Mr Lixian Yu - $56,507

Mr Boyi Liang - $25,112

Mr Delin Feng - $47,081

* Mr Hao Zhang resigned on 22 November 2018.

** Mr Xiang Wu resigned on 30 July 2019.

*** Mr Delin Feng was appointed on 21 March 2019.

**** Mr Boyi Liang was appointed on 30 July 2019.

6. Expenses by nature

	2019	2018
	US$000	US$000
Employee benefit expenses	6,057	2,530
Operating lease expenses	186	94
Depreciation	2,566	3,526
Less transfer to mines under construction	-	(3,453)
Legal, professional and regulatory costs	338	911
Travel and entertaining	232	289
Social & other taxes	5,721	1,232,354
Other Expenses	159	922
Commission/bank fees	1,077	142
Total administrative expenses	16,337	6,192

6. Expenses by nature (continued)

	2019 US$000	2018 US$000
Fees payable to the Company’s auditor for the audit of the consolidated financial statements	104	110
Fees payable to the Company’s auditor for other services: Tax compliance services	-	3
	104	113

7. Income Tax

a) Analysis of Charge in the Year

	2019	2018
	US$000	US$000
Current tax:
Current tax	508	179
Deferred tax	-	-
Total	508	179

No provision for income taxes arose in the Cayman Islands, the UK, British Virgin Islands. A current income tax expense arose in Tajikistan during the year as LLC Pakrut sold gold in the amount of TJS 469,386,040 – equivalent to US$ 49,156,539 (2018: TJS 164,152,371 – equivalent to US$ 17,926,000). Thereby, the Company paid the amount of advance payments of income tax according to the Tax Code of the Republic of Tajikistan, being 1% of revenue.

7. Income Tax (continued)

Factors Affecting Current Tax Charge

The tax assessed on the loss for the year is higher than the weighted average standard rate of corporation tax of 20% (2018 – 20%).

	2019 US$000	2018 US$000
Loss before income tax	(21,473)	(4,304)
Loss on ordinary activities by weighted average rate of tax at 20% (2018 – 20%)	(4,295)	(861)
Expenses not deductible for tax purposes	513	73
Tax losses for which no deferred income tax asset was recognised	4,289	967
	508	179

The Group did not recognise deferred income tax assets of approximately US$4,289,000 (2018: US$967,000). Unused Tajik tax losses amounting to approx. US$16,772,000 at 31 December 2018 can be carried forward for three years from the year incurred and used against future taxable income at 15%.

8. Finance Income and Costs

	2019	2018
	US$000	US$000
Finance Income
Interest income on short term bank deposits	270	923
Finance Costs
Interest expense on shareholder’s loans wholly repayable within five years	16,304	11,871
Interest expense on bank borrowings wholly repayable within five years	4,493	4,522
Less: Borrowing costs capitalised in qualifying assets	-	(16,393)
Finance costs	20,797	-

9. Earnings per Share

	2019	2018
	US$	US$
Basic and diluted earnings per share (cents)	(5.75)	(1.17)

The basic earnings per share is calculated by dividing the loss attributable to equity holders after tax of US$21,981,000 (2018: loss $4,483,000) by the weighted average number of shares in issue and carrying the right to receive dividend. For the year ended 31 December 2019 this was 382,392,292 (2018– 382,392,292) shares.

As the Group has incurred a loss for the year, no option or warrant is potentially dilutive, and hence the basic and diluted earnings per share are the same. At the year end, there were nil (2018: nil) share options outstanding that are potentially dilutive in the future.

10. Intangible Assets

		Exploration and evaluation assets US$000
Cost
At 1 January 2018, 31 December 2018 and 31 December 2019		9,941
Impairment
At 1 January 2018, 31 December 2018 and 31 December 2019		(9,941)
Net Book Value
At 31 December 2018 and 31 December 2019		-

The exploration and evaluation assets represent internally generated costs in connection with the Group’s exploration and evaluation activities. Expenditure is transferred from exploration and evaluation assets to mines under construction once the work completed to date supports the future development of the property and such development receives appropriate approvals.

The rights of LLC Pakrut to carry out exploration and evaluation activity at the Pakrut deposit expired on 1 April 2014. The renewal application by the Group to extend the exploration license is being considered by the Government of Tajikistan. Although the Directors are not aware of any legal or other impediments which would ultimately prevent approval of the license extension, the Directors fully impaired the carrying value of the exploration and evaluation assets during 2014 due to non-renewal of the Exploration License. Exploration and evaluation activities can continue at the Pakrut Gold Deposit in the area covered by the mining license. Currently, staff members of Pakrut are coordinating with the local government for exploration licenses.

11. Mines under Construction

Cost	Mining rights US$000	Construction in progress US$000	Total US$000
At 1 January 2018	35,022	296,138	331,160
Additions	-	68,240	68,240
At 31 December 2018 and 1 January 2019	35,022	364,378	399,400
Additions
Transfer to PPE	(35,022)	(364,378)	(399,400)
At 31 December 2019	-	-	-

Mining rights comprised of exploration and evaluation assets up to the date the Pakrut Gold Project was determined to be technically feasible and commercially viable. All subsequent exploration and evaluation expenditure at this site was capitalised within mining rights. Mining rights also included the subsoil contract signature bonus and payments to obtain land use rights.

Construction in progress comprised the mine, smelting plant, tailings pond, power lines and road construction work carried out at the Pakrut Gold Project by contractors and directly by the Group. It also included the borrowing costs associated with the loan to finance the mine, construction from China Nonferrous Metals Intl Mining Co. Limited (“CNMIM”) and China Construction Bank (“CCB”), together with associated legal, professional and consultancy costs.

Mines under construction are not depreciated until construction is completed and the assets are available for their intended use and signified by the formal commissioning of the mine for production. Construction was completed at the end of the 2018 financial year with the mine being deemed to be fully operation at the start of the 2019 financial year and therefore in the current accounting period all accumulated capitalised costs have been transferred into Property, Plant and Equipment.

In 2018, the additions figure is stated net of costs relating to depletion of mine assets as a result of trial production of US$17,925,914. In 2019, the entire CIP amount of USD 399,400 has been transferred to PPE.

12. Property, Plant and Equipment

	Land US$000	Office furniture and equipment US$000	Motor vehicles US$000	Plant and machinery US$000	Producing mines US$000	Assets under construction US$000	Total US$000
Cost
At 1 January 2018	32	851	8,868	14,817	-	-	24,567
Additions		114	1,904	242	-	-	2,260
Transfer from MUC	-	-	-	-			-
Disposals	-	(209)	-	(68)	-	-	(278)
At 31 December 2018	32	755	10,772	14,990	-	-	26,549
Additions	-	152	-	2,129	-	3,561	5,842
Transfer from MUC	-	-	-	-	398,639	761	399,400
Disposals	-	(320)	(2,074)	-	-	-	(2,394)
At 31 December 2019	32	587	8,698	17,119	398,639	4,322	429,396

12. Property, Plant and Equipment (continued)

Accumulated Depreciation
At 1 January 2018	-	524	4,675	10,402	-	-	15,601
Charge for the year	-	87	3,234	205	-	-	3,526
At 31 December 2018	-	611	7,909	10,607	-	-	19,127
Charge for the year	-	31	392	869	8,823	-	10,116
Disposal	-	(320)	(2,074)	-	-	-	(2,394)
At 31 December 2019	-	322	6,227	11,476	8,823	-	26,849
Net Book Value
At 31 December 2019	32	265	2,471	5,643	389,816	4,322	402,548
At 31 December 2018	32	144	2,862	4,384	-	-	7,422

Depreciation of US$3,453,000 was capitalised within mines under construction in 2018.

In 2019 as the mine entered full production, mines under construction were transferred into Property, Plant & Equipment under the sub-category of Producing mines as presented above, and depreciation/depletion charged as per the accounting policies.

The carrying value of the PPE, most notably producing mines, and the depreciation / depletion methodology used, are both considered to be key accounting judgements. Detail of these are disclosed in Note 2 along with the related key estimates.

13. Subsidiary Undertakings

The Group had the following subsidiary undertakings as at 31 December 2019:

Name of Company	Holding	Country of Incorporation	Proportion of Voting Rights held	Nature of Business	Registered addresses
Directly held
Kryso Resources (BVI) Limited	Ordinary shares (CNG)	British Virgin Islands	100%	Holding Company	190 Elgin Avenue, Grand Cayman, KY1-9005, Cayman Islands
Kryso Resources Limited	Ordinary shares (CNG)	UK	100%	Holding Company	Unit 2.24, the Plaza 535 Kings Road
Indirectly held
International Mining Supplies and Services Limited (BVI holds 100% share)	Ordinary shares (BVI)	UK	100%	Service Company	Unit 2.24, the Plaza 535 Kings Road
LLC Pakrut (BVI holds 100% share)	Ordinary shares (BVI)	Tajikistan	100%	Mineral exploitation, development and mining	Bahor district, Vahdat, Tajikistan

14. Financial Instruments by category

		Financial assets at amortised cost
		US$000
31 December 2019 Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments		4,766
Cash and cash equivalents		11,120
Total		15,886
		Financial liabilities at
		amortised
		cost
		US$000
31 December 2019 Liabilities per Statement of Financial Position
Borrowings		371,113
Provisions for other liabilities and charges		913
Trade and other payables, excluding non-financial liabilities		77,050
Total		449,076

14. Financial Instruments by category (continued)

		Financial assets at amortised cost
		US$000
31 December 2018 Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments		3,709
Cash and cash equivalents		8,363
Total		12,072
		Financial liabilities at amortised cost
		US$000
31 December 2018 Liabilities per Statement of Financial Position
Borrowings		345,010
Provisions for other liabilities and charges		838
Trade and other payables, excluding non-financial liabilities		82,194
Total		428,041

15. Inventories

	2019	2018
	US$000	US$000
Gold	-	49
Construction materials and processing equipment	16,856	17,294
	16,856	17,343

The inventory balance in 2019 relates to raw materials and semi-finished products used in gold production.

16. Trade and Other Receivables

	Group	Group
	2019	2018
	US$000	US$000
Other receivables	3,137	2,984
Prepayments and deposits	1,629	725
Total	4,766	3,709

None of the receivables are past due. The fair values are equal to the carrying amounts.

Other receivables includes $2,758,418 due from related party CNMIM in relation to funds received from the insurance provider after the snowfall disaster, which were received on behalf of CNG.

17. Borrowings

	2019	2018
	US$000	US$000
Bank borrowings	95,000	85,000
Other loans	276,113	260,010
Total	371,113	345,010
Non-current portion	103,586	182,285
Current portion	267,527	162,724

The fair value of borrowings equals their carrying amounts, as the impact of discounting is not significant.

CNMIM loan

In accordance with the terms of the Subscription Agreement and Warrant Instrument dated 27 July 2010 between Kryso Resources Limited (formerly Kryso Resources Plc) and CNMIM, a subsidiary Company of significant shareholder China Nonferrous Metals Mining (Group) Co. Limited (“China Nonferrous”), CNMIM was required to use its best endeavors to secure mine funding for the construction and development of the Pakrut Gold Project.

The USD tranche of the loan has been settled in full and US$Nil was outstanding as at 31 December 2019 (2018: US$Nil). The amount outstanding on the RMB tranche of the loan as at 31 December 2019 was US$12,683,599 (2018: US$12,683,599).

CNMC loans

The loan agreement between CNMC International Capitals Company Limited (“CNMICC”) and China Nonferrous Gold Limited was signed on 20 September 2017. Under this agreement, CNMICC provided a loan facility of US$6,500,000 to China Nonferrous Gold Limited. This loan was used to improve the daily business operations of China Nonferrous Gold Limited.

The full amount of the loan was drawn down on the 20 September 2017. The loan contains annual fixed interest at 4%, however where the loan is used for a purpose other than that stated in the contract (see comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum. Payment of interest is made quarterly.

During 2019, the loan was transferred from CNMICC to another member of the group, CNMCTC. On 15 July 2020, a loan extension agreement was signed extending the repayment date until 20 December 2020. The extension agreement incurs interest at a rate of 6 months LIBOR + 3.7%.

A loan agreement between CNMC International Capitals Company Limited (“CNMICC”) and China Nonferrous Gold Limited was signed on 27 April 2016. Under this agreement, CNMICC provided a loan facility of US$120,000,000 to China Nonferrous Gold Limited. This loan was used to refinance the previous ICBC loan of the same amount, and the purpose of these funds was for development, operations and management of the Pakrut Gold Project, including operating and related expenses.

The full amount of the loan was drawn down on the 27 April 2016. The loan contains annual fixed interest at 4%, however where the loan is used for a purpose other than that stated in the contract (Pakrut Mine – see comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum. Payment of interest will be made biannually in June and December.

During 2019, the loan was transferred from CNMICC to another member of the group, CNMCTC. On 15 July 2020, a loan extension agreement was signed extending the repayment date until 20 December 2020. The extension agreement incurs interest at a rate of 6 months LIBOR + 3.7%.

The Group has pledged its 100% equity interest in China Nonferrous Gold Limited to CNMC as security for repayment of the loan.

A loan agreement between CNMC and China Nonferrous Gold Limited was signed on 27 May 2016 for a total amount of US$20,000,000, which was drawn down in full on 27 June 2016. The loan period per the contract was 6 months, from 27 May 2016 to 26 November 2016. The loan contains a fixed interest rate of 4% per annum, which is calculated on a monthly basis from the 21st of the month to the 20 of the following month.

During 2018, the loan was transferred from CNMC to another member of the group, CNMCTC. A further extension has been signed extending the repayment date until 26 November 2020.

A loan agreement between CNMC and China Nonferrous Gold Limited was signed on 8 February 2018 for a total amount of US$90,000,000, which was drawn down in full on 9 February 2018. The loan was provided for the purposes of the construction, operations and management of the Pakrut Gold Project, including operating and related expenses. This use is in line with the terms of the agreement. The loan period per the contract was from 9 February 2018 to 8 December 2020.

The loan contains a fixed interest rate of 5.8% per annum, which is calculated on a half yearly basis from the 21st of December to the 20th June, and from the 21st June to 20th December. Payment of interest will be made biannually in June and December of each year. Where the loan is used for a purpose other than that stated in the contract (see comments above), the proportion of the loan used will incur interest at a fixed rate of 11.6% per annum. At the repayment date, interest will be charged at 8.7% on any unpaid balance.

CCB loans

The first loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited was signed on 14 June 2016. Under this agreement CCB provided a loan facility of US$100,000,000 to China Nonferrous Gold Limited. This loan was used to refinance a previous loan from CNMC of US$55,000,000, with the remainder used for development, operations and management of the Pakrut Gold Project, including operating and related expenses. This use is in line with the terms of the agreement.

The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$103,092,783.51, with validity of not less than 60 months in favor of CCB.

The full amount of the loan was drawn down on 30 June 2016. The loan incurs interest at a rate of 3 months LIBOR + 2.1% and is payable in arrears at the end of each applicable interest period.

The loan is repayable in 8 installments commencing 18 months from drawdown date and every 6 months thereafter as follows:

31/12/17 – US$5,000,000

30/06/18– US$5,000,000

31/12/18 – US$5,000,000

30/06/19 – US$5,000,000

31/12/19 – US$5,000,000

30/06/20 – US$5,000,000

31/12/20 – US$5,000,000

30/06/21 (or 14 working days prior to expiry date of relevant Standby Letter(s) of Credit – whichever is earlier) – Balance of loan

The second loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited was signed on 29 January 2019. Under this agreement CCB provided a loan facility of US$20,000,000 to China Nonferrous Gold Limited. This loan was used for the purpose of working capital for Pakrut Gold Project. This use is in line with the terms of the agreement.

The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$20,620,000, with validity of not less than 12 months in favor of CCB.

The full amount of the loan was drawn down on 29 January 2019. The loan incurs interest at a rate of 3 months LIBOR + 1.2% and is payable quarterly in arrears.

18. Trade and other payables

	2019	2018
	US$000	US$000
Trade and other payables	77,050	82,194
	77,050	82,194

Trade and other payables include amounts due of US$61,010,581 (2018: US$65,906,519) in relation to mine development.

19. Provisions for Other Liabilities and Charges

	Rehabilitation US$000	Total US$000
At 1 January 2019	838	838
Unwinding of discount	75	75
At 31 December 2019	913	913

All provisions are non-current.

19. Provisions for Other Liabilities and Charges (continued)

The Group makes full provision for the future cost of rehabilitating the mine site and associated production facilities on a discounted basis at the time of constructing the mine and installing those facilities.

The rehabilitation provision represents the present value of rehabilitation costs relating to the Pakrut mine site, which are expected to be incurred up to 2030, which is the expiration date of the mining license. The provision has been created based upon the feasibility study. Assumptions based upon the current economic environment within Tajikistan have been made, which management believes are a reasonable basis upon which to estimate the future liability and will be reviewed regularly to take into account any material changes to the assumptions. The actual rehabilitation costs and works required will ultimately depend upon future market prices for the necessary rehabilitation works required, changes in future regulatory requirements and the timing on when the mine ceases to operate commercially.

The discount rate used in the calculation of the provision as at 31 December 2019 is 9% per annum. The value of the undiscounted provision is US$2,481,000 (2018: US$2,481,000 ).

20. Treasury Policy and Financial Instruments

The Group operates informal treasury policies which include ongoing assessments of interest rate management and borrowing policy. The Board approves all decisions on treasury policy.

Facilities are arranged, based on criteria determined by the Board, as required to finance the long-term requirements of the Group. The Group has financed its activities by the raising of funds through the placing of shares and through the issue and subsequent exercise of options and warrants.

There are no material differences between the book value and fair value of the financial assets at the year end. Except for the impact of discounting on the provisions for liabilities and other charges, there are no material differences between the book value and fair value of financial liabilities at the year end.

21. Share Capital

	2019	2019	2018	2018
	No. of	Share	No. of	Share
	ordinary	Capital	ordinary	Capital
	shares	US$000	shares	US$000
At 1 January (Ordinary shares of $0.0001) each	382,392,292	38	382,392,292	38
Issued during the year	-	-	-	-
At 31 December (Ordinary shares of US$0.0001 each)	382,392,292	38	382,392,292	38

All shares are authorised for issue and fully paid.

22. Share Based Payments

Options can be granted to any employee of the Group in accordance with the rules of the Unapproved Share Option Scheme. The option price is not to be less than the initial Placing Price or the price on the day of issue. The options cannot be exercised for a period of at least one year from the date of grant. In the event of any employee to whom options have been granted ceasing to be an employee of the Group he or she will have a set period in which to exercise those options (depending on the reasons for leaving), failing which, the options will lapse.

Details of share options granted by the Company were as follows:

	2019		2018
		Weighted		Weighted
	No. of	average	No. of	average
	share	exercise	share	exercise
	options	price	options	price
Share Option Scheme		(pence)		(pence)
Outstanding at beginning of year	-	-	50,000	30.00
Expired during the year	-	-	50,000	30.00
Outstanding at end of year	-	-	-	-
Exercisable at 31 December	-	-	-	-

There were no share options outstanding at the year end.

23. Cash flow information

	31 December 2019	31 December 2018
	US$000	US$000
Cash flows from Operating Activities
Loss before income tax	(21,473)	(4,304)
Adjustments for:
Finance income	(270)	(923)
Finance costs	20,796	-
Depreciation	7,722	73
Foreign exchange loss	905	-
Change in working capital:
Inventory	487	873
Trade and other receivables	(904)	(172)
Trade and other payables	(7,039)	(766)
Other current assets	(154)	(2,908)
Other current liabilities	3,554	11,684
Net Cash generated from Operating Activities	3,624	3,556

23. Cash flow information (continued)

Net debt reconciliation

	31 December 2019 US$000	31 December 2018 US$000
Cash and cash equivalents	11,120	8,363
Borrowings – repayable within one year	(267,527)	(162,724)
Borrowing – repayable after one year	(103,586)	(182,285)
Net debt	(359,993)	(336,646)

	31 December 2019 US$000	31 December 2018 US$000
Cash and cash equivalents	11,120	8,363
Borrowings – fixed interest rates	(116,685)	(260,010)
Borrowings – variable interest rates	(254,429)	(85,000)
Net debt	(359,993)	(336,647)

23. Cash flow information (continued)

	Cash at bank US$000	Borrowings due within 1 year US$000	Borrowings due after 1 year US$000	Total US$000
Net debt as at 1 January 2018	12,067	(172,684)	(106,500)	(267,117)
Cash flows	(3,703)	9,960	(75,785)	(69,528)
Net debt as at 31 December 2018	8,363	(162,724)	(182,285)	(336,645)
Cash flows	2,757	10,000	(14,705)	(1,948)
Interest accrued	-	-	(21,400)	(21,400)
Movement between current and non-current	-	(114,803)	114,803	-
Net debt as at 31 December 2019	11,120	(267,527)	(103,586)	(359,993)

24. Controlling Party

The Directors consider China Nonferrous Metals Mining (Group) Co. Limited (“CNMC”) to be the ultimate controlling party, by virtue of their shareholding and representation on the Board of Directors.

25. Capital Commitments – Pakrut Gold Project

Capital commitments contracted for at the end of the reporting period but not yet incurred is as follows:

	2019 US$000	2018 US$000
Capital expenditure contracted for but not provided for in respect of new treatment facilities, electrical upgrades and construction design fees (2018: acquisition of mines under construction and
property, plant and equipment)	-	5,029

Capital commitments categorised within mines under construction relate to construction of the Pakrut gold mine.

26. Contingent Liabilities

During 2018, a contract was entered into between LLC Pakrut & LLC WenJian, a Company set up by a former employee of Pakrut (Dept. 2), to provide outsourced services including the extraction of ore, delivery of ore to smelting plant, cleaning of mine, mine development and construction works. LLC WenJian is not considered to be a related party.

Although LLC WenJian hold the relevant license for the construction works, the Company does not hold a license in accordance with the laws of Tajikistan “On subsoil” and “On licensing of certain types of activities” for implementing the other services they have been contracted to perform. This is a breach of Tajik laws and regulations which could result in penalties being imposed on both parties to the contract. The outcome of this situation is unclear and could result in fines imposed with the worst-case scenario being that Pakrut could have their own license rescinded by the Tajik government. There is no visibility surrounding the value or nature of any penalty at this time.

27. Related Party Transactions

The amount paid by the Company and Kryso Resources Limited to CNMIM for interest on the loan in 2019 amounted to US$Nil (2018:US$Nil). The amount due to CNMIM as at 31 December 2019 was US$18,586,242 (2018: US$17,299,431). CNMIM is a significant shareholder of China Nonferrous Gold Limited and Boyi Liang and Lixian Yu are CEO and President of CNMIM respectively. During 2019, CNG did not pay any interest to CNMC.

The amount payable by the Company to CNMC for interest on the loans in 2019 amounted to US$5,989,013 (2018: US$9,857,378). The amount due to CNMC as at 31 December 2019 was US$101,402,291 (2018: US$221,913,278). CNMC is the ultimate parent of China Nonferrous Gold Limited and Feng Delin is Chief Accountant of CNMC.

During the year, the loan amount of US$126,500,000 and interest payable of US$7,761,698.75 due to CNMC was transferred to CNMCTC, a related party to China Nonferrous Gold Limited through being a subsidiary of CNMC, the Company’s ultimate controlling party.

During 2019, 15MCC (a related party to CNG through being a subsidiary of CNMC, the Company’s ultimate controlling party) provided equipment and materials, together with installation and construction work to the Group amounting to US$Nil (2018: $20,462,214) and the Group advanced payments to 15MCC amounting to US$3,945,580 (2018: $20,462,214). As at 31 December 2019, the total liability due to 15MCC was $28,541,552 (2018: US$33,976,176).

In 2015 the Group entered into an additional consultancy contract with CNMC Hongtoushan Fushun Mining Co Ltd., through CNMIM as agent as follows:

Smelting and Processing Agreement

CNMC Hongtoushan Fushun Mining Co Ltd. (CNHFMG) is a copper mine and processing operation owned by CNMC. On 7th of September 2015, the Group entered into a smelting and processing agreement with CNHFMG.

Under the terms of the Agreement, CNG will pay to CNHFMG an amount of RMB 17.99 (approximately US$2.8) per gram of finished gold once the Project commences the 12-month production period. Prior to this period the Company will cover the labour and associated costs of CNFMG. Once in production, in the event the recovery of the plant is above the Beijing General Research Institute of Mining and Metallurgy forecast rate over the life of production of 82.99 percent, CNHFMG will share 40 percent of the profits from the upside directly due to the increased recovery. In the event recovery is below 75 percent, CNHFMG will bear 20 per cent of any loss incurred by the Company from the Project due to directly to recovery levels.

During the year of 2019 CNMC provided a guarantee for standby letters of credit amounting to US$134,020,629 as security for the Group’s bank loan facility with China Construction Bank. During the year of 2018, CNMC provided a guarantee from standby letters of credit amounting to US$103,092,784 as security for the Group’s bank loan facility with China Construction Bank.

During 2019, there is a total receivable amount of $2,739,702 (2018: US$2,739,702) owed by CNMIM for the insurance claim on the 2017 snowfall disaster which is held on the Group’s behalf. There is also a total amount of US$25,079 payable by the entities within the group owed to CNMIM as at 31 December 2019 (2018: US$25,079).

As at 31 December 2019, there is a total payable amount of $226,080 (2018: $Nil) owed to Daye Nonferrous Metal Group Holding Co., Ltd, a subsidiary of the ultimate controlling party, CNMC.

28. Events after the Reporting Period

In April 2020, the Company drew down US$14.50 million on a new US$30 million loan facility with China Construction Bank (Asia) Corporation Limited, which is being used for general working capital purposes to fund the Pakrut gold mine.

The Group has continued production throughout 2020 despite the outbreak of COVID-19, enabling it to raise sufficient working capital. As announced on 15 July 2020, in order to ensure the repayment of existing loans can be made, a broader refinancing will be required. Discussions are ongoing and, with the signing of the new loan agreement, the remaining discussions are expected to be completed in the near term. The parent Company CNMC has committed to supporting the CNG group should this be required for a period of at least 12 months from the date of approval of these financial statements.

The Company extended the repayment period of loans in place with CNMC Trade Company Limited (CNMC Trade), totalling US$146.50 million, to December 2020. The Company currently has total debt facilities (including banking facilities), before interest, of c.US$353.7 million (being the US$341m announced in July 2020, plus the CNMIM loan of US$12.7m).

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