Last checked at 30 Jun 2023 13:05
CHINA NONFERROUS GOLD LIMITED
Chief Executive Officer’s Statement (continued)
The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.
China Nonferrous Gold Limited
(“CNG” or the “Company”)
Final Results
for the twelve months ended 31 December 2022
China Nonferrous Gold Limited (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 2022.
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 now 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 Feng Zhishuo, Managing Director Tel: +86 10 8442 6627
WH Ireland Limited (NOMAD & Broker) Katy Mitchell, Andrew de Andrade Tel: 0207 220 1666
Blytheray (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 2022.
The Company made significant achievements in 2022 and became an important gold-production enterprise in Tajikistan. The Pakrut gold mine achieved its internal production targets for 2022, 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.
Chief Executive Officer’s Statement
As CEO of the board, it gives me pleasure to present the CEO’s statement of the annual report for the year ended 31 December 2022. The Pakrut gold mine has maintained normal operational capacity from financial year 2019 to date.
The Company made achievements in 2022 and in recent years has become an important gold-production enterprise in Tajikistan. The Pakrut gold mine achieved its own, internal production targets for 2022, which brings steady cash flows to support the sustainable development of the Company’s ongoing operations.
Operation
During the year ended 31 December 2022, a total of 688,232 tons of ore was extracted from the Pakrut gold mine (2021: 625,078 tons), and a total of 662,421 tons of ore were processed at a grade of 2.19 g/t (2021: 650,995 tons of ore processed at a grade of 2.29 g/t), 19,327 tons of gold concentrate were produced at a grade of 68.50 g/t (2021: 19,918 tons of gold concentrate produced at a grade of 69.22 g/t), 1,200 kg gold bullion were poured with a comprehensive recovery rate of 91.63% (2021: 1,249 kg gold bullion with a recovery rate of 91.61%). In addition, a total of 86 drill holes were completed, approximately 6,259m, with the associated assays expected back from the laboratory in due course. A further announcement will be made at that time.
COVID-19
As the impact of COVID-19 on the global economy has now significantly reduced, Pakrut has also lifted its quarantine policy. Local employees can commute to work as normal every day. The Company still pays great attention to employees’ physical health, and has provided a new equipped clinic. Currently, there are no COVID-19 cases in Tajikistan. The number of workers at the mine site remains sufficient to meet the required production targets, so the production target of 2022 was not affected by Covid. Furthermore, the suspended flights (introduced due to Covid restrictions) which could have restricted access to the site for key employees during the year, have now resumed. From November 2022, flights between China and Tajikistan were officially resumed, and the quarantine policy was also lifted, making it much easier for Chinese employees to travel back and forth.
Financial results
The development and construction work at the Pakrut Gold Project was finalised at the end of the 2018 financial year. The Company has therefore generated revenue from full operational production from the beginning of the 2019 financial year. Administration expenditure for the year under review was US$25,109,000 (2021: US$19,879,000). The main reason for the increase this year is due mainly to the increase in employee compensation in 2022. It is worth noting this year that due to indicators of impairment at the Pakrut mine, an impairment charge of US$266m has been recorded in the current year in respect of the Property, plant and equipment (including Producing mines).
The overall loss incurred by the Company was US$287,043,289 (2021: US$6,247,062). Pakrut generated revenue from gold sales in the year of US$68,524,835 (2021: US$71,991,962). The main reason for the decrease in revenue was a decrease of 49 kilograms in gold sales compared to last year which resulted from slightly decreased output levels; revenue was also impacted by the decline in average gold price from $1,800/oz during 2021 to $1,788/oz.
Financing Arrangements
In January 2022, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $34.55 million (the” CNMC Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of USD $34.55m (being USD$20m advanced in January 2021 (“First Loan”) and USD$14.55m advanced in March 2021 (“Second Loan”).
In January 2022, the Company executed a foreign currency working capital loan agreement with CITIC for a loan facility of up to US$20 million (the “new CITIC Loan”), with an annual interest at 3.00% over 6 month LIBOR, which was used to repay US$20m of the CNMC Loan. In December 2022, the Company repaid a further US$1m of the CNMC Trade loan.
The existing loan facilities from CITIC and Bank of Shanghai (“BOS”) totaled US$85 million at the year end and the CNMC and CNMIM loan facilities totaled US$294m at the year end so that, including accrued interest, the total amount of borrowings payable by the Company was US$379m at the year end (approximately US$318m without interest). The existing loans in place with the Company’s major shareholder (and its associates) were due for repayment during the 2022 financial year, although repayment has not yet been requested. Draft loan renewals for all existing loans are currently in circulation. If progressed these loans would be deemed to be related party transactions pursuant to Rule 13 of the AIM Rules for Companies, because of the size of the loans and the relationship between the providers of the loan and the Company’s major shareholder, therefore execution of these arrangements is subject to the relevant regulatory approvals and processes. At this stage the renewal of these loans cannot be guaranteed. Please refer to the ‘going concern’ disclosure below for further information of loan and financing matters.
The Company has continued production throughout 2022 despite Covid-19 in terms of ongoing travel restrictions between China and Tajikistan, enabling it to generate sufficient working capital for its daily operations. However, in order to ensure the repayment of the existing loans as detailed above, a broader refinancing will be required. The Company gradually repaid interest-bearing liabilities to reduce the asset liability ratio. The US$85 million of loans from external lenders (banks) in place at year end were refinanced through additional shareholder loans in 2023 – see Events after the Reporting period section below for further information, as well as going concern disclosure (see below). The Company will continue to engage with other commercial banks as well as with its major shareholder in order to ensure appropriate capital arrangements are in place to enable the financing costs and principal repayments of the loans to be satisfied.
Events after the Reporting Period
In January 2023, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $19.50 million (the “CNMC Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR. No extra fees were payable to CNMC Trade for this arrangement, which is repayable within 3 months from the date of drawdown. CNMC Trade has subsequently indicated it will to extend this loan for one year from the initial repayment date, although as set out above, this would be a related party transaction pursuant to Rule 13 of the AIM Rules for Companies, and is subject to relevant regulatory approvals and processes, so cannot be guaranteed. This CNMC Loan was used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of USD $20m.
In June 2023, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $65 million (the “CNMC Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR, which is repayable within 3 months from the date of drawdown. This CNMC Loan was used to repay the existing Bank of Shanghai (Hong Kong) Limited (“BOS”) loan facility of USD $65m, which was due for repayment on 9 June 2023.
In the first quarter of 2023, the Company repaid US$1.9m of the CNMC Trade Company Limited (“CNMC Trade”) loan, which was drawn on September 20, 2017.
As set out above, CNMC Trade Company Limited (CNMC Trade), CNMC International Capitals Company ⅡLimited (CNNICCⅡ) and CNMIM have indicated they will extend certain existing loans and the extension contracts are in circulation, subject to regulatory approval and processes pursuant to Rule 13 of the AIM Rules for Companies, so this cannot be guaranteed. At the date of this report, the Company had a total of US$316.07 million of debt facilities exclusive of interest (including banking facilities without interest).
The Company continues to explore a wider refinancing of its loans. Refer also to Note 28.
In February 2023, the area surrounding the mine site experienced snowfalls resulting in several avalanches and landslides. On 16 March 2023 the power supply was re-established and production has resumed at the Pakrut mine site. On 11 April 2023, the road to the mine site was repaired and re-opened, and the smelting plant resumed production. Accordingly, normal operations have resumed at site. The Directors believe that, notwithstanding this interruption, they will be able to recover gold production to similar levels to last year. Refer also to Note 28.
Outlook
The Company is maintaining its current production capacity. Whilst maintaining 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.
While we have taken big strides in the production and operation of the Pakrut gold mine and has achieved much, there are still challenges to overcome and targets to meet. It was disappointing to receive the updated SRK Report (see announcement dated 24 April 2023) which updated the JORC Compliant Resource and reduced the resource at the Company’s Pakrut project and the estimated life of mine. In addition, and as set out in the going concern statement below, the majority of the Company’s outstanding loans (approximately £387m) fall to be paid before the end of the current financial period and at this stage the Company does not have the financial resources to repay them. The Directors believe that its major shareholder and associated parties will continue to support them through the extension of existing loan agreements (subject to regulatory approval and processes) but there can be no guarantee that this will occur. The Directors continue to explore all financing opportunities and will update the market in due course as these progress.
In closing, I would like to take this opportunity to thank all our employees, management and advisers for their continued hard work in 2022. 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.
Feng Zhishuo
Chief Executive Officer
30 June 2023
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor
Auditors Opinion
We have audited the Company financial statements of China Nonferrous Gold Limited (the ‘Company’) for the year ended 31 December 2022 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 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 Company financial statements:
give a true and fair view of the state of the Company’s affairs as at 31 December 2022 and of its loss for the year then ended; and have 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 Company 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.
Material uncertainty related to going concern
We draw attention to the Going concern section within the Report of the Directors below, as well as the going concern accounting policy and Note 28 to the financial statements, which indicates that the Company’s ability to continue as a going concern is dependent on continued financial support regarding non-repayment of its current US$387 million (including accrued interest) of shareholder and related party loans. There are currently no formal agreements in place in respect of any refinancing, nor has a financial support letter been provided to the Company in the current year, and there is no guarantee that the continued financial support will be forthcoming.
As stated in the disclosures referred to above, these events or conditions, along with the other matters as set forth in those disclosures, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Company’s ability to continue to adopt the going concern basis of accounting included:
Obtaining an understanding of management’s processes for evaluating the appropriateness of the use of the going concern basis of accounting; Obtaining management’s cash flows forecasts for a period of at least 12 months from the date of expected approval of the financial statements and comparing these forecasts to the life of mine plan to ensure consistency; Holding discussions with management surrounding their expectations with regards to refinancing and their recent and ongoing communications with the lenders, and assessing the likelihood of ongoing financial support of the relevant parties in light of historic evidence; Testing the mathematical accuracy of the cashflow forecast model; Challenging and sensitising the key assumptions used in management’s base case model, in particular the forecast production volumes and costs through comparison to historical actuals and the life of mine plan within the updated Independent Technical Report, and assessing the commodity price assumptions through comparison third party forecasts and publicly available information; and Considering whether the disclosures relating to going concern are appropriate.Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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$920,000 (2021: US$3,900,000) for the Company financial statement using an average of 5% of adjusted loss before tax (adjusted for impairment charge) and 1.5% of gross assets (2021: 1% of gross assets) as a basis.
We consider gross assets to be the most relevant determinant of the Company’s financial position and performance used by shareholders, with the key financial statement balances being producing mines, other property, plant and equipment, inventory and cash. The going concern of the Company 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 Company. As the mine has been in full operational production for several years as at 31 December 2022, it is considered appropriate in the current year to use a benchmark that includes a measure of profitability together with gross assets. Given the significant impairment charge during 2022 following the revised Independent Technical Report, an adjustment to the loss before tax to exclude this charge from the calculation is considered appropriate in order to avoid any distortion to sampling and coverage, as this charge will be separately audited.
Whilst materiality for the financial statement as a whole was set a US$920,000, each significant component of the Company was audited to an overall materiality ranging between US$644,000 and US$820,000 with performance materiality set at 70% (2021: 70%). We applied the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatement.
Our approach to the 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 property, plant and equipment (including producing mines), 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 Company’s operating components located in Tajikistan, with the Company’s key accounting function for all being based in Tajikistan.
The Company’s Tajik operations are audited by a component auditor. The audit team discussed significant events occurring during the year and post year-end period with the component auditor and performed an onsite review of the component auditor’s working papers, including review of planning and completion stage Company reporting. The Company audit team also performed a site visit to the Pakrut gold mine and the smelting plant in Tajikistan. The Company audit team are responsible for the scope and direction of the audit process. Work on other components was performed by PKF Littlejohn LLP.
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor
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. In addition to the matter described in the material uncertainty related to going concern section, we have determined the matter described below to be the key audit matter to be communicated in our report.
Key Audit Matter | How our scope addressed this matter |
Valuation of Property, Plant and Equipment including Producing Mines (Notes 2 and 13) |
|
The Company holds Property, plant and equipment (‘PPE’) of $65m on its Consolidated statement of financial position. This is stated after an impairment charge of $266m based upon the updated Independent Technical Report produced by third party expert, SRK Consulting, which stated a significantly lower level of reserves compared to the original Technical Report issued in 2014. There is a requirement to undertake an impairment review where indicators of impairment exist. An impairment assessment has been carried out using value in use calculations across the remaining estimated mine life. Such calculations require management to exercise a significant level of judgement and estimation. There is a risk that the carrying value of mine assets is overstated and not fully recoverable, taking into consideration all relevant factors including current and future mined ore grades, production quantities, revenues, direct costs and discount rates, which all feed into the value in use calculations.
| Our work in this area included: A review of management’s impairment assessment, including consideration of any net present value (‘NPV’) calculation used. Providing challenge to the key inputs and assumptions and corroborating where possible; Undertaking sensitivity analysis on the NPV calculations to assess the impact on the headroom for reasonably possible changes to key assumptions; Ensuring valid mining licenses are held as at the year-end; Considering any potential impairment indicators through discussion with management and the onsite visit to the mine site during the audit fieldwork, as well as review of announcements to the market and board minutes for evidence of impairment; Reviewing accounting entries posted in respect of impairment of PPE to ensure appropriateness in accordance with IAS 36; Performing a review of the updated Independent Technical Report prepared by management’s expert on the Pakrut Gold Project. Obtaining an understanding of, corroborating, and providing challenge to, the key assumptions used within this report in arriving at a net present value for the Pakrut Gold Project – including forecast gold price, annual production volumes, grades, discount rate and cost inputs; Holding direct discussions with management’s expert in regard to the basis of preparation of the updated Technical Report, the rationale for key assumptions used, and interpretation of results; Assessing the independence and competence of management’s expert; and Review of disclosures relating to PPE, including disclosures relating to key sources of judgement and estimation used in management’s assessment of carrying value and impairment.
|
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 contained within the annual report. Our opinion on the Company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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 Company 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 Company financial statements, the directors are responsible for assessing the Company’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 Company 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
We obtained an understanding of the Company and the sector in which it operates to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with management, and discussions with the internal legal team in Pakrut conducted by the component auditor. We also selected a specific audit team based on experience with auditing entities within this industry facing similar audit and business risks. We determined the principal laws and regulations relevant to the Company in this regard to be those arising from: AIM Rules Mining regulations in Tajikistan Local tax and employment law in China and Tajikistan We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the Company with those laws and regulations. These procedures included, but were not limited to: Enquiries of management; Review of Board minutes; Review of legal ledger accounts; A review of RNS announcements; and A review of component auditor’s work surrounding local laws and regulations in Tajikistan, including onsite discussion with the component auditor at their offices in Tajikistan. We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management override of controls, that there is potential for management bias with regard to assessment of the carrying value and impairment of PPE including producing mines. The work performed in this area is detailed above. We addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to: the testing of journals; reviewing accounting estimates for evidence of bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: 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 20 March 2023. 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.
[Signature]
David Thompson (Engagement Partner) For and on behalf of PKF Littlejohn LLP Registered Auditor
15 Westferry Circus Canary Wharf London E14 4HD
30 June 2023
The Directors present their annual report and the audited Financial Statements of China Nonferrous Gold Limited for the year ended 31 December 2022.
Principal Activity
The principal activity of the Company is that of mineral exploitation, mine development and mining.
BUSINESS REVIEW
Introduction
China Nonferrous Gold Limited (“CNG”) is a mineral exploration, development and mining Company. The Company’s project is located in central Asia, having been discovered during the Soviet era. The principal focus of the Company is the development and exploitation of the Pakrut Gold Project in Tajikistan.
CNG, following the scheme of arrangement between Kryso Resources Limited (formerly Kryso Resources Plc) and its shareholders, was admitted to trading on AIM on 31 July 2013 in order to continue funding the development of the Pakrut Gold Deposit and the exploration of the Pakrut License Area, and to better position the Company to obtain and acquire other gold and base metal deposits in Tajikistan.
The Company’s Executive Directors have a proven track record of operating in Tajikistan and they believe CNG to be the first foreign Company to obtain a 100% interest in a mining and exploration project in the country.
A review of the activities of the Company during 2022 is provided in the CEO’s Statement.
Strategy
CNG’s strategy is to maximize shareholder value through the development of the Company’s exploration properties, proving up additional resources. CNG’s medium term objective is to become a mid-tier gold producer and maintain strategic strength, and strive to achieve the production goal of Pakrut. The directors of CNG have a track record of operating successfully in Tajikistan and believe CNG to have been the first foreign Company to obtain 100% ownership of a mining and exploration project in Tajikistan.
OPERATING REVIEW
During 2022 the Company has:
Reached production capacity of 1,886 tons per day from January 2022; Processed a total of 662,421 tons of ore at a grade of raw ore of 2.19g/t; The recovery rate of processing was 91.14% and the recovery rate of smelting was 91.63%; 19,327 tons of gold concentrate were produced at the grade of 68.50g/t, 1,200 kg gold bullion were poured with comprehensive recovery rate of 91.63%; and Generated revenue from production of US$68,524,835.Pakrut Gold Deposit and License Area
In April 2004, LLC Pakrut, a wholly owned subsidiary of the Company, was granted a license and geological lease to explore and exploit the Pakrut License Area which comprises the Pakrut gold deposit and the surrounding 6,300 hectare exploration area located in the metalliferous southern Tien-Shan Fold Belt. This belt is reputed to have the second largest known gold resource after the Witwatersrand in South Africa. The exploration license was valid for 10 years and expired on 1 April 2014. An application has been submitted in accordance with the required procedures to renew the exploration license. The renewal application is being considered by the Government of Tajikistan. Exploration and evaluation activities can be carried out at the Pakrut Gold Deposit in the area covered by the mining license.
In November 2011, the Government of the Republic of Tajikistan issued the Pakrut 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 current mining license is valid until 2 November 2030.
FINANCIAL REVIEW
The results for the year ended 31 December 2022 were as follows:
| 2022 | 2021 |
| US$000 | US$000 |
Revenue | 68,525 | 71,992 |
Cost of sales | (40,085) | (37,256) |
Impairment of Property, Plant and Equipment | (265,953) | - |
Administrative expenses | (25,109) | (19,879) |
Foreign exchange gain/(loss) | 1,075 | (1,853) |
Other operating expenses | (213) | (2,416) |
Total costs | (330,285) | 61,404 |
% Administrative expenses to total costs | 39.03%* | 32.37% |
Operating (loss)/profit | (261,760) | 10,587 |
Add: interest receivable | 2 | 6 |
Less: interest payable | (15,242) | (10,826) |
Loss on ordinary activities before taxation | (277,000) | (233) |
Earnings per share (cents) | (750.65) | (1.63) |
*Calculated excluding impairment charge as non recurring
The main financial Key Performance Indicator (‘KPI’) for the Company is administration costs as a percentage of total costs (excluding impairment charge) which continues to be at an acceptable proportion. In 2022, KPI index is at 39.03% (2021: 32.37%). The increase in administration costs is due to the scrapping of a batch of ineffective fixed assets by Pakrut last year and the increase in employee compensation in 2022. The impairment of producing mine is non-recurring and is excluded from total cost used to calculate the KPI.
Revenue is also considered to be a KPI and will be increasingly important to monitor now that the Company has entered full production. Revenue for the year was US$68.53 million (2021: US$71.99 million). Considering the decline in average gold price from $1,800/oz during 2021 to $1,788/oz during 2022, as well as slightly decreased output levels, this decrease is in line with expectations.
Corporate Responsibility
The Company seeks to build a sustainable and profitable business to maximize the return to its shareholders and in doing so will not knowingly overlook its Corporate Responsibilities.
Certain Directors also serve as Directors of other companies involved in natural resource exploration, development and mining and consequently there exists the possibility for such Directors to be in a position of conflict. Any decision made by such Directors involving the Company will be made in accordance with their duties and obligations to deal fairly and in good faith with the Company and such other companies. In addition, such Directors will declare, and refrain from voting on, any matter in which such Directors may have a conflict of interest.
People
The Company recognises that the success of its ventures is based on the well-being and health of its employees. All employees have to pass through an induction process where they are briefed on the Company’s health and safety policies. The safety of the Company’s employees is of the utmost importance and is therefore taken seriously in all areas in which the Company’s employees operate.
The Company is also committed to the development of its employees and encourages them to attend courses and programs to further develop their own skills. The Company also aims to provide a favorable working environment which will continue to draw, retain and motivate its employees so that they can reach their true potential and share in the Company’s success.
Employees are kept well informed of the performance and objectives of the Company through established methods of personal briefings and regular meetings. Employees are given the opportunity to develop and progress according to their ability. The Company has an employee share option scheme to encourage employees’ participation in the Company’s performance.
The Company has continued its policy of giving disabled full and fair consideration for all job vacancies for which they offer themselves as suitable applicants, having regard to their particular aptitudes and abilities. With regard to existing disabled employees and those who may become disabled during the year, the Company examines ways and means of providing continuing employment under normal terms and conditions and provides training, career development and promotion, where appropriate.
Social
The Company continues to have a strong relationship with the local communities in the areas in which it operates, respecting their laws and customs. The Company employs local people in all levels within the organization; this ensures a transparent and fair transfer of benefits and support to their communities where appropriate. The Company engages the local communities in all aspects of the projects it is actively involved in, from exploration through to feasibility and production, ensuring that concerns are addressed, and that support is maintained throughout the entire process.
Environment
The Company has a strict environmental code with which all its employees are well-versed during the induction process; this not only satisfies the local environmental code, but also the international code. The Company has contracted the services of a local environmental consultant who monitors its operations to ensure that any lapses are immediately brought to the attention of management.
Risk Factors
There are several principal risk factors outlined below that may affect the Company’s businesses and which may not all be within the Company’s control.
PRINCIPAL RISKS AND UNCERTAINTIES
Environmental Risk
The Company’s core operations are located in Pakrut, a mountainous area of Tajikistan. The area is remote and can be subject to adverse weather conditions which, as evidenced in the first half of 2017, can impact the ability of the Company to perform its core operations and may lead to substantial damage of the Company’s properties. The Company seeks to manage this risk by taking out appropriate insurance and carefully monitoring weather reports during the seasons when adverse conditions are most likely and ensuring that appropriate action is taken to minimise risk to life and property damage.
Production Risk
The Pakrut Gold Project is now operating at full production capacity. The Company's existing production equipment is considered to be sufficient to meet the requirements of the budgeted gold production targets. The right choice of production equipment has a major impact on productivity and costings.
The production process of the gold should be based on the specific performance requirements of the product. This requires an increase in production skills and requires training of Company technicians. Technology is changing rapidly and existing production technology may have fallen behind, therefore technicians must continue to develop their knowledge and skillset to keep up with this pace.
Production risks are related to the possibility that gold production or output levels are lower than expected. The main sources of production risk are bad weather conditions and limited production capacity, such as hail, snow disasters, and limited Chinese technical staff. Despite the control measures taken, the production risk may also be due to the harsh winter weather and the breakdown of production equipment and machinery. At present, Pakrut is adopting risk prevention measures and control strategies for the above risks, including purchase of equipment spare parts and materials in advance to ensure the sufficiency of raw materials and the normal operation of the machinery at the mine site; vigorously training Tajik technical personnel, exerting local talent policies, and rationally using manpower resources; reasonably estimating the impact of severe weather to ensure the achievement of the annual output target.
COVID-19 risk
As the COVID-19 pandemic has largely drawn to a close, the impact of the epidemic on the operations of enterprises has significantly weakened, and the Tajik market has gradually begun to open to the outside world. Direct flights between China and Tajikistan have also begun to operate, two shifts per week, and there is no need for isolation, greatly shortening the journey time. Currently, market vitality has accelerated and corporate confidence has significantly increased, but at the same time, it is necessary to pay attention to the risks caused by the epidemic, and staff should wear masks in daily life to prevent viruses.
Exploration and Development Risk
The exploration for, and the development of, mineral deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties which are explored ultimately develop into producing mines. Major resources are required to establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at the Pakrut site.
There is no certainty that the exploration and development expenditures made by the Company as described in these financial statements will result in a commercially feasible mining operation. There is aggressive competition within the mining industry for the discovery and acquisition of properties considered to have commercial potential. The Company will compete with other companies, many of which have greater financial resources, for the opportunity to participate in promising projects. Significant capital investment is required to achieve commercial production from successful exploration efforts.
The commercial viability of a deposit is dependent on a number of factors. These include deposit attributes such as size, grade and proximity to infrastructure; current and future market prices which can be cyclical; government regulations including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The effect of these factors, either alone or in combination, cannot be entirely predicted, and their impact may result in the Company not receiving an adequate return on invested capital.
There is no assurance the Company will be able to adhere to the current development and production schedule or that the required capital and operating expenditure will be accurate. The Company’s development plans may be adversely affected by delays and the failure to obtain the necessary approvals, licenses or permits to commence production or technical or construction difficulties which are beyond the Company’s control. Operational risks and hazards include: unexpected maintenance, technical problems or delays in obtaining machinery and equipment, interruptions from adverse weather conditions, industrial accidents, power or fuel supply interruptions and unexpected variations in geological conditions.
Mineral geological exploration and mining is a time-consuming, profitable, and highly challenging task. Therefore, it is expected that it will take a number of years from commencement to reach full operational capacity and to realise production efficiencies. In the early stages of geological exploration, there are uncertainties inherent in the process, as a result of incomplete equipment and facilities (under construction), less advanced technical capabilities, and limited experience in the early stages of development and extraction. This lack of experience can lead to imperfect work plans.
SRK has produced a JORC compliant, independent technical report (see announcement dated 23 April 2023 for further details). The estimated Mineral Resource reported (Measured and Indicated) (as at 31 December 2022) are as follows: based on the cut-off grade of 1.0g/t, the ore tonnage is 6.7 million tonnes, the average grade is 2.1g/t, and the contained gold is about 14 tonnes. The estimated ore reserves reported (Proved and Probable) are as follows: based on the cut-off grade of 1.5g/t, the ore tonnage is 4.2 million tonnes, the average grade is 1.9g/t, and the contained gold is about 8.1 tonnes. Based on a production scale of 700,000 tonnes/yearthis production capacity is estimated based on the actual resources and mining capacity of Pakrut, and SRK has also recognized this level of production capacity based on on-site inspections), the remaining production service life of the Pakrut Gold Project is 6.3 years (calculated from 1 January 2023).
The risks inherent in developing the Company’s projects are mitigated to some extent by the strategic alliance with China Nonferrous Metals Int’l Mining Co. Ltd, which is a member of a Company with a number of active mining operations.
Regulatory and Legal Risk
Substantially all of the Company’s business and operations are governed by the laws, rules and regulations in Tajikistan which can contain inherent ambiguities, uncertainty, inconsistency and contradictions with regards to their application, interpretation, implementation and enforcement. In particular, the laws, rules and regulations which the Company is subject to, including, but not limited to, those relating to foreign investments, subsoil use, land use, licensing, customs, foreign currency, environmental protection and taxation are still evolving and remain uncertain in many respects.
In addition, the judicial system in Tajikistan may not be independent and immune from the economic, political and nationalistic influences in Tajikistan and the decisions of the courts are often not transparent and available to the public. In many circumstances there are no prior court decisions for reference and the interpretations of the laws, rules and regulations by the courts in Tajikistan remain ambiguous and it is difficult to predict or to seek effective legal redress. The regulatory authorities in Tajikistan are entrusted with a high degree of discretion and authority in the application, interpretation, implementation and enforcement of the laws, rules and regulations potentially resulting in ambiguous and inconsistent actions.
There is no assurance that the Company will be able to comply with all new laws, rules and regulations applicable to its mining operations or any changes in laws, rules and regulations. Furthermore, the legal protections available to the Company may be limited and could have a material impact on the results of the Company and the imposition of penalties and/or regulatory action. In addition, the process of obtaining, retaining or renewing licenses and permits could be time-consuming and costly and could give rise to unexpected delays and expenses. The Company seeks and obtains sufficient and appropriate legal advice where considered necessary.
The Company’s existing licenses and permits could be revoked, terminated or not extended in accordance with expectations by the Tajikistan Government, the local government or the Tajikistan courts under certain circumstances, including failure to comply with the conditions imposed by the licenses and permits, which may include the provision of regular reports to the relevant regulatory authority, obtaining sufficient insurance coverage, adherence to the permitted extraction of mineral resources or complying with the obligations relating to sustainable management, subsoil, environmental protection and health and safety regulations. Failure to obtain, retain or renew the relevant licenses and permits required at all or on a timely basis could have a material adverse effect on the Company’s financial condition. The Company works closely with the Government and local government departments on the mine project in order to ensure all parties are kept up to date on progress and closely monitors compliance with the conditions imposed under its existing licenses and permits.
Economic Risk
The profitability of the Company’s future operations may be significantly affected by changes in the market prices for the materials it may produce and is affected by numerous macroeconomic factors beyond the Company’s control. The level of interest rates, the rate of inflation, world supply, and the stability of exchange rates can all cause fluctuations in the price. Such external factors are in turn influenced by changes in international investment patterns and monetary systems and also political developments. Metal prices have fluctuated in recent years, particularly gold, and future significant price declines could cause future commercial production to be uneconomic and have a material adverse effect on the Company’s financial condition. Economic risk is continually evaluated by the Company, including expectations of future events, and action undertaken as necessary.
Certain payments, in order to earn or maintain property interests, are to be made in local currency in the jurisdiction where the applicable property is located. As a result, fluctuations in the Chinese Renminbi and the Tajik Somoni could have a material adverse effect on the Company’s financial results which are denominated and reported in US dollars. Where possible the Company maintains bank and cash balances in the same denomination as its expected liabilities. The Company does not currently hedge its exposure to foreign currencies.
The Company currently has a comprehensive program of insurance but does not carry insurance to protect against certain risks and nor can it guarantee that its level of insurance is sufficient to cover all outcomes and eventualities. As a result, the Company may become subject to liability to include environmental pollution, political risk and other hazards against which the Company cannot insure or which it may elect not to insure. The payment of such liabilities may have a material adverse effect on the Company’s financial condition.
Pakrut is located in Tajikistan, an overseas country, and the tax pressure is not insignificant. Due to the regional poverty and developing status of the host country, the Directors understand that government funds are tight, and tax has become the main source of national revenue. In 2020, Pakrut further strengthened its internal control and basic management, and has formulated tax management measures that meet the Company's management needs, that enables the team to promptly assess tax-related risks and related countermeasures in the Company's business and management processes, and is responsible for establishing and maintaining good relationships with the relevant tax authorities in order to make representations in regard to potential changes to tax law, tax planning, and tax incentives in order to safeguard the Company's overall interests.
At present, it can be seen that there are many loans and a high asset liability ratio of CNG. At present, CNG aims to reduce its asset liability ratio by gradually repaying interest bearing liabilities when it has the financial ability to do so. Pakrut will continue to take measures such as improving quality and efficiency, reducing costs where possible, and paying attention to changes in the gold price, striving to ensure that the delivery price of gold is higher than the market average, actively monitoring exchange rate changes, managing its foreign exchange risk, and other measures to improve cash flows, whilst actively exploring new paths to repay the ultimate parent company's (and related entities’) loans, and continuously and effectively reducing the asset liability ratio. See the going concern section for further explanation.
Financial Risk
The Company’s operations expose it to a number of financial risks. These are discussed under ‘Financial Risk Management’ within Note 1 of the Financial Statements.
Political and Country Risk
Substantially all of the Company’s business and operations are conducted in Tajikistan. The political, economic, legal and social situation in Tajikistan introduces a certain degree of risk with respect to the Company’s activities. The Government of Tajikistan exercises control over such matters as exploration and mining licenses, permitting, exporting and taxation, which may adversely impact the Company’s ability to carry out exploration, development and mining activities.
Government activity, which could include non-renewal of licenses, may result in any income receivable by the Company being adversely affected. In particular, changes in the application or interpretation of mining and exploration laws and/or taxation provisions in Tajikistan could adversely affect the value of the Company’s interests.
No assurance can be given that the Company will be able to maintain or obtain effective security or insurance for any of its assets or personnel at its operations in Tajikistan; this may affect the Company’s operations or plans in the future. A moderate degree of security is also currently required to mitigate the risk of loss by theft, either by the Company’s employees or by third parties, and controls are implemented where possible to minimize this risk. No assurance can be given that such factors will not have a material adverse effect on the Company’s ability to undertake exploration, development and mining activities in respect to present and future properties in Tajikistan.
Tax risk
In 2022, compared with 2021, the corporate income tax increased significantly by $4,030,795. The main reason is that the calculation criteria of income tax changed, and therefore the company has provided for additional income tax according to the tax accounting standards of Tajikistan.
The Company will further strengthen communication with the tax department in Tajikistan and actively respond to tax requirements and enquiries in order to protect the legitimate rights and interests of the enterprise.
Funding
The Company may need to secure further funding for loan repayment purposes. There is the risk that this may not be forthcoming which would impact the Company operations. The Company has numerous funding options available and remains in close contact with its controlling shareholder who have, up to now, provided economic support as required.
Since 2016, CNMC has been continuously providing financial support letters either through the provision of additional loans or not pursuing non-repayment of existing loans. Currently, due to the regulatory environment, it is difficult for CNMC to continue to issue financial support letters to the Company. The Directors do not have any reason to believe that CNMC will take any action or legal enforcement against CNG in the event of default on existing borrowings, and we draw attention to the historic (including as recently as June 2023) willingness of CNMC to provide ongoing financial support to the Company. See going concern section below for further discussion with regard to current and ongoing funding needs.
Performance of Key Personnel and Employees
The Company seeks to mitigate this risk by actively engaging with its employees and seeking to offer a secure work environment with appropriate pay levels to maintain both motivation and loyalty to the Company.
Results and Dividends
The results for the year and the Company’s financial position at the end of the year are shown in the following Financial Statements. The Directors do not recommend the payment of a dividend (2021: US$Nil).
Future Developments
Future prospects are set out in the CEO’s Statement on page 9 under ‘Outlook’.
Directors and their Interests
The Directors who served the Company during the year do not hold any beneficial interests in the shares of the Company (2021: None).
No Director who served during the period held any share options in the Company.
Remuneration of the Directors is disclosed in Note 5.
Substantial shareholdings
As at the date of these financial statements, the Directors were aware of the following shareholdings in excess of 3% of the Company’s issued share capital.
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| Number of ordinary shares | Percentage of issued share capital | |
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| |
China Nonferrous Metals Int’l Mining Co Ltd | 146,666,667 | 38.36 | |
Zhao Bin | 50,090,304 | 13.10 | |
Golden Max Company | 33,823,113 | 8.85 | |
Huang Lihou | 33,068,430 | 8.65 | |
BOCOM International | 16,500,000 | 4.31 | |
Rainbow Bridge Investment Fund | 12,335,489 | 3.23 | |
Going Concern
The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the CEO’s Statement on pages 6 to 9. Note 1 to the financial statements includes the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposures to credit risk and liquidity risk.
The Company financial statements are prepared on a going concern basis and the Company’s current and forecast cash position and working capital shows that for the period up to 31 December 2025 the Company will have sufficient funds on hand to realise its assets and meet its obligations as they fall due, excluding loan financing costs and repayment of loans, for a minimum of 12 months following the date of approval of these financial statements.
In making their assessment, the Directors also have considered the level of production and operations at the mine site, in conjunction with the updated resource and reserve estimates as per the revised Independent Technical Report produced by SRK Consulting (see Note 2), and how the Company will be able to use the cash inflows from these operations to support its working capital position and repay loans when they fall due. As all shareholder loan extensions are provided on a one-year basis, the cCmpany applies to its ultimate controlling party, CNMC, each year in advance of the loan repayment date falling due, following the application process that has been in place for a number of years. As at the current date, following post year end refinancing of the two external bank loans with Bank of Shanghai and China CITIC Bank (See Note 28), the Company has the following loans payable:
Lender | Amount (principal) at the date of this report | Amount (interest accrued) at the date of this report | Total | Repayment date |
CNMC Trade Company Ltd | 123,600,000.00 | 39,707,401.87 | 282,357,401.87 | 20/12/2022 |
CNMC Trade Company Ltd | 20,000,000.00 | 26/11/2022 | ||
CNMC Trade Company Ltd | 14,550,000.00 | 31/12/2022 | ||
CNMC Trade Company Ltd | 19,500,000.00 | 19/04/2023 | ||
CNMC Trade Company Ltd | 65,000,000.00 | 06/09/2023 | ||
CNMICC | 60,744,168.83 | 21,260,359.47 | 82,004,528.30 | 08/12/2022 |
CNMIM | 12,683,598.78 | 10,075,085.73 | 22,758,684.51 | 31/05/2022 |
Total shareholder loans repayable in year to 30 June 2024 | 316,077,767.61 | 71,042,847.07 | 387,120,614.67 |
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The Company is currently in the process of finalizing extension agreements for all of the above loans – the agreements are as yet unsigned by both parties and also remain subject to regulatory approvals and processes as detailed in the CEO’s statement. Other than the $19.5 million of CNMC loans, that will expire on 19 April 2024, and $12,683,599 of CNMIM loan, that will expire on 31 May 2024, other loans are all to be due within 12 months from 31 December 2022 as per the draft loan renewal agreements. In previous financial years, the Company’s ultimate controlling party, CNMC, has provided a letter of financial support to the Company confirming its intentions to continue to support the Company as and when required. In the current year, this letter of support could not be obtained. In relation to the provision of financial support, it is difficult for the ultimate controlling party, and related entities, to continue issuing a support letter in advance of the loan repayment date.
So far, the Company has not received any information in written form or otherwise to indicate changes to the intentions of the Company's ultimate major shareholder, CNMC Company, which is currently the Company's key creditor. The Company's management has continued to maintain open communication with its ultimate major shareholder.
CNMC has historically renewed the shareholder loans on an annual basis with no issues, and the Directors are not aware of any reason why these renewals would not continue to be forthcoming upon application by the Company. Most recently, in June 2023, CNMC issued a new shareholder loan of $65m to enable the company to repay its outstanding loan to Bank of Shanghai.
In terms of security against the loans, the following is in place per the loan agreements:
CNG has pledged 100% of its equity interest in Kryso Resources (BVI) Limited, which owns 100% of the Pakrut Gold Project, as security for repayment of the $120m CNMC Trade loan disclosed in the above table; and CNG has pledged 100% of its equity interest in Pakrut LLC to major shareholder, CNMIM, in respect of the $12.7m CNMIM loan disclosed in the above table.Other than the above, the remaining loans are unsecured and there is not any legal action or contractual recourse that can be taken against the Company in the event of default or late repayment of these loans. Management do not have reason to believe that any action will be taken in respect of the securities noted above based on communications with these parties and historic evidence of financial support as noted above. Other than the two external bank loans which were refinanced through shareholder loans post year end, the remaining shareholder loans are past due at the year end. The lenders, CNMIM and CNMC, have indicated they will extend the loans by 1 year from the repayment dates shown in the table above in all cases other than the $65m short term loan due to CNMC, as this is not yet due for repayment and therefore the application will be made at that time. The extension agreements are due to be signed soon although they remain subject to regulatory processes and procedures pursuant to Rule 13 of the AIM Rules for Companies as detailed in the CEO’s statement. The expectation is that the CNMIM Loan will be extended to 31 May 2024. Meanwhile the Company will continue to hold open communication with these parties, as well as external lenders, in seeking further refinancing options ahead of these renewal dates falling due. There is no expectation that this will not be possible. However, as at the date of this report there are no binding agreements in place and there is no guarantee that the facilities will be renewed, and therefore a material uncertainty exists with regard to going concern.
The Directors have also considered the Company’s daily working capital requirements in order to continue its operations and remain in business. This assessment includes a detailed cash flow forecast for the financial years 2023-2025, based on the following key assumptions:
- Gold price of US$/oz 1,750 in 2023, falling to US$/oz 1,430 after 2025
- Life of mine is 6.3 years, with production expected to cease in 2029
- Gold recovery rate of 81.9% from processing and metallurgy
- The latest resource evaluation data of SRK based on on-site surveys and current metallurgical recovery rates (as per updated Technical Report)
From this assessment, it can be concluded that the current level of working capital, as well as the cash inflows over the next 12 months to 30 June 2024 from the activities at the mine site, will be sufficient to meet these working capital requirements and any committed and contractual expenditure over this period, excluding loan financing costs and repayment of loans as discussed above. The daily operating conditions and the basic conditions of cash flows of the Pakrut Gold mine have not undergone any fundamental change at the end of 2022 compared with previous years. After making due enquiries the Directors have a reasonable expectation that the Company and Company have access to adequate resources to continue in operational existence for the foreseeable future which is considered to be at least 12 months from the date of the signing of these financial statements. Based on the facts above, a material uncertainty exists in relation to obtaining formal loan refinancing both now and in the future, and the auditor has made reference to this in their audit opinion. The Company continues to adopt the going concern basis in preparing the annual report and financial statements.
Events after the Reporting Period
Details of events after the reporting period are set out in the Chief Executive Officer’s Statement and in Note 28 to the Financial Statements.
Relevant Audit Information
The Directors who held office at the date of approval of this Report of the Directors confirm that, so far as they are individually aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that they ought reasonably to have taken as a Director to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.
Auditor
PKF Littlejohn LLP has signified its willingness to continue in office as auditor.
Signed by order of the Director
Mr Feng Zhishuo
30 June 2023
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| 2022 | 2021 |
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| US$000 | US$000 |
Revenue | 3 | 68,525 | 71,992 |
Cost of sales |
| (40,085) | (37,256) |
Gross Profit |
| 28,440 | 34,736 |
Impairment of Property, plant and equipment | 13 | (265,953) | - |
Administrative expenses | 6 | (25,109) | (19,879) |
Gain/(Loss) on foreign exchange |
| 1,075 | (1,855) |
Other operating expenses | 7 | (213) | (2,416) |
Operating (Loss)/Profit |
| (261,760) | 10,585 |
Finance income | 9 | 2 | 6 |
Finance costs | 9 | (15,242) | (10,826) |
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Loss before Income Tax |
| (277,000) | (235) |
Income tax | 8 | (10,043) | (6,012) |
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Loss for the year attributable to owners of the parent |
| (287,043) | (6,247) |
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Total comprehensive income attributable to owners of the parent for the year |
| (287,043) | (6,247) |
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Basic and Diluted Earnings per share attributable to owners of the parent (expressed in cents per share) | 10 | (750.65) | (1.63) |
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All of the activities of the Company are classed as continuing.
The accounting policies and notes on pages 48 to 110 form part of these Financial Statements.
CHINA NONFERROUS GOLD LIMITED
Consolidation statement of Financial Position
| Note | As at 31 December 2022 US$000 | As at 31 December 2021 US$000 |
Non-Current Assets |
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Property, plant and equipment | 13 | 65,074 | 364,337 |
Total Non-Current Assets |
| 65,074 | 364,337 |
Current Assets |
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Inventories | 16 | 16,709 | 17,334 |
Trade and other receivables | 17 | 2,514 | 4,202 |
Cash and cash equivalents |
| 4,544 | 7,472 |
Total Current Assets |
| 23,767 | 29,008 |
Non-Current Liabilities |
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Other payables | 19 | (1,235) | - |
Borrowings | 18 | - | (65,000) |
Provisions for other liabilities and charges | 20 | (2,658) | (1,084) |
Total Non-Current Liabilities |
| (3,893) | (66,084) |
Current Liabilities |
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Borrowings | 18 | (379,368) | (303,953) |
Trade and other payables | 19 | (19,011) | (49,696) |
Total Current Liabilities |
| (398,379) | (353,649) |
Net Current Liabilities |
| (374,612) | (324,841) |
Net Liabilities |
| (313,431) | (26,388) |
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Equity attributable to the owners of the parent |
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Share capital | 22 | 38 | 38 |
Share premium |
| 65,901 | 65,901 |
Other reserve |
| 10,175 | 10,175 |
Retained earnings |
| (389,545) | (102,502) |
Total Equity |
| (313,431) | (26,388) |
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These Financial Statements were approved and authorised for issue by the Directors on 30 June 2023 and are signed on their behalf by:
Mr Zhishuo Feng
Managing Director
The accounting policies and notes on pages 48 to 110 form part of these Financial Statements.
Attributable to owners of the parent |
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| Share capital US$000 | Share premium US$000 | Other reserve US$000 | Retained earnings US$000 | Total US$000 |
Balance at 1 January 2021 | 38 | 65,901 | 10,175 | (96,255) | (20,141) |
Loss for the year | - | - | - | (6,247) | (6,247) |
Total comprehensive income for the year | - | - | - | (6,247) | (6,247) |
Total transactions with owners of the parent, recognised directly in equity | - | - | - | - | - |
Balance at 31 December 2021 | 38 | 65,901 | 10,175 | (102,502) | (26,388) |
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Balance at 1 January 2022 | 38 | 65,901 | 10,175 | (102,502) | (26,388) |
Loss for the year | - | - | - | (287,043) | (287,043) |
Total comprehensive income for the year | - | - | - | (287,043) | (287,043) |
Total transactions with owners of the parent, recognised directly in equity | - | - | - | - | - |
Balance at 31 December 2022 | 38 | 65,901 | 10,175 | (389,545) | (313,431) |
Description and purpose of reserves:
Share capital: share capital consists of amounts subscribed for share capital at nominal value. Share premium: share premium consists of amounts subscribed for share capital in excess of nominal value. Other reserve: other reserve comprises the capital re-organisation reserve under the scheme of arrangement. Retained earnings: cumulative net gains and losses recognised in the consolidated statement of comprehensive income. Also included in this figure is the share options and warrants reserve established in 2013 as part of the capital restructuring program. This reserve holds a $Nil balance and has been recycled in full through retained earnings as all options and warrants have expired (see Note 23).The accounting policies and notes on pages 48 to 110 form part of these Financial Statements.
| 31 December | 31 December |
| 2022 | 2021 |
| US$000 | US$000 |
Cash flows from Operating Activities (Note 24) | 8,865 | 13,904 |
Net cash generated from Operating Activities | 8,865 | 13,904 |
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Cash flows from Investing Activities |
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Purchase of property, plant and equipment | (7,625) | (994) |
Interest received | 2 | 6 |
Net cash used in Investing Activities | (7,623) | (988) |
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Cash flows from Financing Activities |
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Proceeds from borrowings (net of capitalised issue costs) | 54,550 | 99,550 |
Repayment of borrowings | (55,550) | (128,806) |
Interest paid | (3,170) | (3,384) |
Net cash generated from Financing Activities | (4,170) | (32,640) |
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Net decrease in Cash and cash equivalents | (2,928) | (19,724) |
Cash and cash equivalents at beginning of the year | 7,472 | 27,196 |
Cash and cash equivalents at end of the year | 4,544 | 7,472 |
The accounting policies and notes on pages 48 to 110 form part of these Financial Statements.
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
Notes to the Financial Statements
1. Financial Risk Management
The Company’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 Company 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 Company is dependent on the ability to raise sufficient working capital until the mine produces sufficient quantities of gold to be self-sufficient. The Company currently finances itself through the issue of equity share capital and the secured loan facilities from CNMIM and CNMC. 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 Company’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 Company’ s interest rate risk arises from long-term borrowings. The Company has both variable and fixed rate borrowings. Borrowings issued at variable rates expose the Company 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 BOS loan of US$65 million is 1.50% per annum over the quarterly LIBOR rate and the loan is repayable in US$. The interest rate on the CITIC loan of US$20 million is 3.00% per annum over the 6 month LIBOR rate and the loan is repayable in US$. The interest rate on the CNMC loan of US$206.24million is 3.25% per annum over the quarterly LIBOR rate, and of US$14.55million is 3%.
1. Financial Risk Management (continued)
At 31 December 2022, the potential impact of fluctuations in interest rates is considered material to the financial statements.
b. Foreign Currency Risk
The Company 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 Company 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 Company 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 2022 between the various currencies.
Somoni | GBP Sterling | US Dollar | Renminbi | Total US$000 |
1,763 | 5 | 2,363 | 413 | 4,544 |
Due to the different nature of assets and liabilities, changes in asset value caused by exchange rate changes have different ways of affecting a Company's free cash flow. Therefore, it must be considered separately when evaluating the value of an enterprise. The first is the monetary items in the corporate balance sheet. Typical monetary items include monetary funds, loans, accounts receivable and accounts payable. When the exchange rate changes, the above-mentioned assets or liabilities of the enterprise accounted in foreign currencies will increase or depreciate accordingly. For example, in the context of the depreciation of the Renminbi, the foreign currency deposits (Somoni/USD) held by enterprises will appreciate, which in itself has a substantial impact on the present value of cash. The foreign currency-settled bonds or other debts issued by companies can be repaid at a lower RMB cost, which can save companies more funds that can be used for free distribution, thereby promoting the enhancement of corporate value.
1. Financial Risk Management (continued)
During 2022, the Company’s principal revenue, costs, assets and liabilities, including intercompany loans were denominated in USD. The Company manages foreign currency risk by matching receipts and payments and monitoring movements in exchange rates. The Company does not currently hedge its exposure to foreign currencies and recognises the profits and losses resulting from currency fluctuations as and when they arise. At the year end the Company did not have material exposure to foreign exchange risk relating to its non-US$ denominated bank deposits and as such this not disclosed. The year-end exchange rates used in the preparation of the financial statements for 2022 and 2021 were as follows:
| Somoni to USD | GBP to USD | Renminbi to USD |
31 December 2022 | 10.2024 | 1.2053 | 6.9646 |
31 December 2021 | 11.3000 | 1.3499 | 6.3757 |
Liquidity Risk and Credit Risk
The continued operation of the Company is dependent on the ability to raise sufficient working capital. As noted above, the Company currently finances itself through the issue of equity and borrowings from CNMIM, CNMC, CITIC and Bank of Shanghai. Management monitors its cash and future funding requirements through the use of cash flow forecasts. The Company enters into capital commitments to fund operations, and any surplus cash not immediately required for working capital purposes is held on short term deposit.
1. Financial Risk Management (continued)
The table below summarises the maturity profile of the Company’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 2022 |
|
|
|
|
|
|
Interest-bearing borrowings | 379,368 | - | - | - | 379,368 | 379,368 |
Trade and other payables | 19,011 | - | 1,235 | - | 20,246 | 20,246 |
Provisions for other liabilities | - | - | - | 5,180 | 5,180 | 5,180 |
| 398,379 | - | 1,235 | 5,180 | 404,794 | 404,794 |
|
|
|
|
|
|
|
1. Financial Risk Management (continued)
Year ended 31 December 2021 |
|
|
|
|
|
|
Interest-bearing borrowings | 303,953 | 65,000 | - | - | 368,953 | 368,953 |
Trade and other payables | 49,696 | - | - | - | 49,696 | 49,696 |
Provisions for other liabilities | - | - | - | 4,988 | 4,988 | 4,988 |
| 353,649 | 65,000 | - | 4,988 | 423,637 | 423,637 |
|
|
|
|
|
|
|
The Company holds bank accounts with banks in the UK, PRC and Tajikistan with the following credit ratings:
Credit rating | 2022 US$000 | 2021 US$000 |
|
|
|
A | 1,964 | 3,229 |
No independent credit rating available | 2,580 | 4,243 |
| 4,544 | 7,472 |
If a bank has no credit rating, the Company assesses the credit quality through local knowledge and past experience in the particular jurisdiction.
1. Financial Risk Management (continued)
Capital Risk Management
The Company consider equity to be their capital. The Company’s objective when managing their capital is to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and to enable the Company to continue its exploration, evaluation and mine construction. The Company 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, the Company’s current policy for raising capital is through equity issues and debt financing. The Company 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 Company has identified the following areas where significant estimates, assumptions and judgments are required. The most significant judgment for the Company 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 further impairment of the mine.
Estimated impairment of Property, Plant and Equipment including Producing Mines (Note 13)
The Company 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.
Whilst gold production at Pakrut initially commenced in the second half of 2015, the ramp-up of mining and processing was achieved from late 2018 onwards, with production capacity of 2,000 tonnes per day reached in early 2020. The Company has reported an operating profit from mining activities since 2020.
The value in use calculations up to the year ended 31 December 2021 were based on the following key assumptions:
SRK’s previous technical report in 2014, together with the feasibility study undertaken by Beijing General Research Institute of Mining and Metallurgy (“BGRIMM”) in 2015; Total expected JORC compliant resources of 4,383,000 ounces, of which 904,000 ounces was covered by the mining license issued in November 2011. The higher JORC resource figure at Pakrut, including the Eastern Pakrut ore zone, but excluding the Rufigar and Sulfidnoye ore zones, includes the results of all exploration and evaluation activities to 2013 and therefore to a date subsequent to the mining license application and award. The exploration license expired on 1 April 2014; The intention was to seek approval from the Tajik authorities of the enlarged JORC resource, and ultimately seek an extension to the mining license which expires on 2 November 2030.Based on the above assumptions, the value in use exceeded the carrying value of the Producing Mine Asset, and no impairment was recognised in the financial statements as at 31 December 2021.
Key assumptions in the Updated Technical Report prepared by SRK Consulting as at 31 December 2022
SRK was engaged to complete an updated Mineral Resources and Ore Reserves estimate, as well as a technical review of production operations of the Pakrut Project as at 31 December 2022, taking into consideration the “reasonable prospect of eventual economic extraction”.
A comparison of the SRK results as at 2022 compared to 2013 at the resources and reserves level highlights the key differences in the results between the two dates. Only the Pakrut and Eastern Pakrut ore zones are included in the tables below. The revised ore reserve estimates reported by SRK as at 31 December 2022 reflect actual production data collated since 2018 and the change in strategy to continue with the existing capacity of 2,000 tpd rather than ramp up capacity to 4,000 tpd.
Resources – Pakrut @ 1g/t cut-off:
2013 | Category | Mt | Au (g/t) | Au (koz) | Au (kg) |
| Measured | 18.06 | 3.23 | 1,874 | 58,280 |
| Indicated | 7.91 | 2.39 | 608 | 18,915 |
| M&I | 25.97 | 5.62 | 2,482 | 77,195 |
| Inferred | 24.96 | 1.98 | 1,586 | 49,322 |
2022 | Category | Mt | Au (g/t) | Au (koz) | Au (kg) |
| Measured | 2.08 | 2.02 | 135 | 4,193 |
| Indicated | 4.64 | 2.07 | 308 | 9,590 |
| M&I | 6.71 | 4.09 | 443 | 13,873 |
| Inferred | 7.82 | 2.21 | 556 | 17,289 |
Reserves – Pakrut @ 1.5&1.6g/t cut-off (Zone 1):
2013 | Category | Mt | Au (g/t) | Au (koz) | Au (kg) |
| Proved | 11.81 | 3.60 | 1,370 | 42,623 |
| Probable | 2.16 | 2.80 | 196 | 6,106 |
| Total | 13.97 | 6.40 | 1,567 | 48,729 |
2022 | Category | Mt | Au (g/t) | Au (koz) | Au (kg) |
| Proved | 1.33 | 2.01 | 86 | 2,676 |
| Probable | 2.91 | 1.87 | 175 | 5,443 |
| Total | 4.24 | 3.88 | 261 | 8,119 |
The above tables show significant differences in resources and reserves between the two reports, the key reasons being:
the new Mineral Resource Estimate, is exclusive of all mined-out materials since the Company commenced operations in 2015, whereas at the time of the previous resource estimated the materials were in-situ without depletion (mining at site had not commenced). 172,200 oz of gold have been extracted to date. a total of five gold mineralization zones (“GMZs”) are delineated at Pakrut. Namely GMZ 1, 3, 5, 6 and 7. The Measured and Indicated Mineral Resources are situated in GMZ 1 and GMZ 3. Previous resource estimates have included GMZ 3 (Eastern Pakrut), but operating practices indicate that the gold grade in this GMZ 3 is less than 1.5g/t and therefore not currently economic. Accordingly, this Mineral Resource Estimate only incorporates GMZ 1 (Pakrut) and LLC Pakrut intends to exploit just GMZ 1 in the future. the Cut-off grade of gold has increased from 0.5 g/t used in previous Mineral Resource Estimates to 1.0 g/t for this Mineral Resource Statement, reducing the amount of material that is included in the Mineral Resource Estimate because operational performance shows that mining dilution is higher than previously estimated. A considerable amount of data from new boreholes and channels has been added to the database originally used in previous Mineral Resource Estimates, following actual operational and further exploration activities, which has increased the awareness and knowledge of the geometry of the Pakrut Deposit. The Pakrut gold mineralisation is associated with structural alteration and is of vein type deposit, which can make the geological interpretation of the ore body more complicated when compared to other deposit types. This can be particularly challenging for the resource estimation at the exploration stage (the previous Mineral Resource Estimates were prepared at an exploration stage). However, the use of underground drilling and channeling activities during the construction and production stage has enabled a more comprehensive understanding and interpretation of local geology of the deposit.The revised value in use (discounted cash flow) as at 31 December 2022 of $62.4millon was calculated by SRK using the data per the above tables and the following assumptions, and the Board, in considering the impairment to the mine asset, have also carefully considered and are in agreement with these assumptions:
- 10% discount rate (the discount rate is selected by SRK according to industry experience and benchmarking)
- Gold price of US$/oz 1,750 in 2023, falling to US$/oz 1,430 after 2025 (SRK uses the CMF--China Macroeconomy forum prediction method to search for the highest, lowest, and middle prices in the economic database from 2023 to 2036)
- Life of mine is 6.3 years, with production expected to cease in 2029 (SRK has obtained the latest resource evaluation data based on on-site surveys and current metallurgical recovery rates; 2023-2027:700,000t/year 2028:526,572.60t/y 2029:210,588.97t/y)
- Gold recovery rate of 81.9% from processing and metallurgy
Sensitivity analysis was conducted based on the base scenario against the changes of capital expenditure (“CAPEX”), operating expenditure (“OPEX”), and production income. The analysis shows that changes in metal prices have the most significant effect on the NPV. A 0.5% change in the gold price used in the base case model would result in a change in the NPV of approximately $900k. A 1% change in the discount rate used would result in an increase / decrease of $1.6m / $1.5m respectively.
Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the development of the infrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted. Estimated remaining life of mine for the project based on current Ore Reserve estimates is now 6.3 years, producing on average 43,000 ounces from 700,000 tonnes of ores per annum until 2029.
All the ore mined is assumed to be fed to the processing plant. The Operating expenses forecasts which were estimated based on last three years (2020 - 2022) actual Operating expenses. Depreciation and amortization have been excluded in the operating cost estimates. Royalty tax is approximately 6% of sale revenues. The corporate income tax is the maximum of 18% of taxable revenues and 1% of sales revenues. Other taxes are minor.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
As there is no significant expansion for the Pakrut project planned, the additional capital expenditure relates only to mine closure costs estimated by SRK to be approximately USD 5,180,000 (2.5% of total Operating expenses) – these amounts are excluded from the NPV calculated by SRK and have therefore been added to the carrying value of mine assets at present value of $2.7m. These costs are not expected to be incurred before financial year 2029, which is the revised end of mine life per the revised technical report. There is a need to consider also any potential residual value of assets including plants and smelters which may be realized at the time of mine closure through sale of these assets – in order to be prudent, however, management have not reduced the estimated closure costs by any potential value in these assets as this is uncertain at the current time. The net present value ("NPV") calculated by SRK based upon the above is US$62.4m, which gives rise to an impairment charge in the 2022 financial statements of approximately US$266m.
Based on the latest SRK evaluation report and net present value calculation, management have considered it appropriate to record this impairment charge in the 2022 financial statements in order to fairly present the carrying value of the mine asset. This NPV does not however include the present value of the revised rehabilitation provision estimates, totalling $2.7m at the year end, as detailed below.
Rehabilitation provision (Note 20)
An enterprise shall, in accordance with the provisions of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, calculate and determine the amount of costs expected to be incurred at the end of the mine life in respect of reclamation and rehabilitation of the mine site and surrounding areas, in accordance with the provisions of the license agreement and relevant mining legislation in Tajikistan. It is the Company's understanding that the reclamation and greening work of tailings ponds and waste disposal sites in mining enterprises is to be funded by the company during the closure of the mine, and to be inspected and accepted by government departments.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
In the 2022 Technical Report, SRK Consulting estimated a total undiscounted rehabilitation provision of $5.18 million (2.5% of the operating cost of $207.21 million from 2023 to 2029), discounted at year end using a 10% discount rate to $2.7 million, as an additional cost to be incurred relating to the closure of the mine site, including the tailings dam and smelting facilities. This is a revised estimate compared with the Company’s previous estimates (2021:undiscounted rehabilitation provision of $4.99 million) and this results from the much more advanced current stage of operations when compared with the previous technical report from 2013. Additional knowledge is now available to the company, as well as additional construction and development work having been carried out since that time meaning that additional costs will need to be incurred at the time of mine closure, hence the increase in provision which can be seen in Note 20.
Management believes that this is a reasonable basis for estimating future liabilities and will conduct regular reviews to consider any significant changes in assumptions. The actual costs will ultimately depend on the future market price of the necessary rehabilitation and closure works, changes in future regulatory requirements, and other uncertainties at the time of ceasing commercial operation.
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 mining license issued in November 2011 currently entitles the Company 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 Company’s exploration and evaluation work subsequent to the mining license issue date.
At present, LLC Pakrut does not intend to seek the approval from the Tajik government for the updated resources and reserves.
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 Company’s mining properties. The Company 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 Company 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 2012), 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 Company’s reported financial position which includes the carrying value of property, plant and equipment and inventories.
SRK was engaged to complete an updated Mineral Resource and Ore Reserve estimate as of 31 December 2022.
A comparison of the SRK results as at 2022 compared to 2013 at the resources and reserves level highlights the key differences in the results between the two dates. The revised ore reserve estimates reported by SRK as at 31 December 2022 reflect actual production data collated since 2018 and the change in strategy to continue with the existing capacity of 2,000 tpd rather than ramp up capacity to 4,000 tpd. The significant differences between the 2013 and 2022 reports are disclosed in the Impairment section above.
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
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.Depreciation/Amortisation (Note 13)
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 6.3 years.
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 Company 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.
2022 | UK and PRC US$000 | Tajikistan Pakrut US$000 | Total US$000 |
|
|
|
|
Revenue | - | 68,525 | 68,525 |
Cost of sales | - | (40,085) | (40,085) |
Impairment of producing mine |
| (265,953) | (265,953) |
Administrative expenses | (1,785) | (23,324) | (25,109) |
Foreign exchange |
| 1,075 | 1,075 |
Other operating expenses | - | (213) | (213) |
Operating loss | (1,785) | (259,975) | (261,760) |
Finance costs | (15,243) | - | (15,243) |
Finance income | 2 | - | 2 |
Income tax | - | (10,043) | (10,043) |
Loss for the year | (17,026) | (270,018) | (287,044) |
|
|
|
|
Total assets | - | 88,841 | 88,841 |
Total liabilities | - | 402,272 | 402,272 |
Additions to property, plant and equipment | - | 7,625 | 7,625 |
3. Segment Information (continued)
The Company’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 Company companies.
All revenue generated in the period was from the government of Tajikistan.
2021 | UK and PRC US$000 | Tajikistan Pakrut US$000 | Total US$000 |
|
|
|
|
Revenue | - | 71,992 | 71,992 |
Cost of sales | - | (37,256) | (37,256) |
Administrative expenses (including foreign exchange) | (9,454) | (12,280) | (21,734) |
Other operating expenses | 2,117 | (4,534) | (2,416) |
Operating profit/(loss) | (9,454) | 20,039 | 10,585 |
Finance costs | (10,825) | - | (10,825) |
Finance income | 6 | - | 6 |
Income tax | - | (6,012) | (6,012) |
(Loss)/profit for the year | (20,273) | 14,027 | (6,247) |
|
|
|
|
Total assets | 3,101 | 390,246 | 393,347 |
Total liabilities | 383,777 | 35,957 | 419,734 |
Additions to property, plant and equipment | - | 994 | 994
|
4. Particulars of Employees
The average number of staff employed by the Company during the financial year amounted to:
| 2022 No. | 2021 No. |
|
|
|
Administrative and management | 113 | 116 |
Operational staff | 588 | 590 |
| 701 | 706 |
The aggregate costs of the above were: |
|
|
| 2022 US$000 | 2021 US$000 |
|
|
|
Wages and salaries | 5,277 | 4,575 |
Basic pension cost | 989 | 1,036 |
| 6,266 | 5,611 |
5. Directors’ Emoluments
The Directors’ emoluments in respect of qualifying services were:
| Salary and fees | Total | |||
2022 | US$ | US$ | |||
Mr Wang Xiaohua | 187,082 | 187,082 | |||
Mr Yong Li | 22,685 | 22,685 | |||
Mr Lixian Yu | 99,787 | 99,787 | |||
Mr Xiuzhi Shi | 22,566 | 22,566 | |||
Mr Hui Zhang | 224,516 | 224,516 | |||
| 556,636 | 556,636 | |||
|
|
|
|
|
|
| Salary and fees | Total |
2021 | US$ | US$ |
Mr Wang Xiaohua* | 50,850 | 50,850 |
Mr Yong Li | 24,905 | 24,905 |
Mr Lixian Yu | 109,475 | 109,475 |
Mr Delin Feng** | 124,946 | 124,946 |
Mr Xiuzhi Shi | 24,971 | 24,971 |
Mr Hui Zhang | 246,324 | 246,324 |
| 581,471 | 581,471 |
|
|
|
*Mr Xiaohua Wang was appointed in November 2021
**Mr Delin Feng resigned in November 2021
Key management comprises Executive and Non-Executive Directors and all emoluments are short term in nature.
6. Expenses by nature
| 2022 | 2021 |
| US$000 | US$000 |
|
|
|
Employee benefit expenses | 7,147 | 6,758 |
Operating lease expenses | 3 | 50 |
Depreciation | 2,732 | 3,023 |
Legal, professional and regulatory costs | 398 | 515 |
Travel and entertaining | 650 | 521 |
Social & other taxes | 10,674 | 6,609 |
Other expenses | 2,505 | 1,067 |
Commission/bank fees | 1,000 | 1,336 |
Total administrative expenses | 25,109 | 19,879 |
6. Expenses by nature (continued)
| 2022 US$000 | 2021 US$000 |
Fees payable to the Company’s auditor for the audit of the consolidated financial statements | 133 | 119 |
Fees payable to the Company’s auditor for other services: Tax compliance services | - | - |
| 133 | 119 |
7. Other operating expenses
| 2022 US$000 | 2021 US$000 |
Loss on disposal of fixed assets | - | 2,307 |
Public welfare donation expenditure | 213 | 2,227 |
Gain on dissolution of subsidiaries | - | (2,118) |
| 213 | 2,416 |
Total other expenses in 2022 were US$213,013 (2021: US$2,416,000), which comprises of Pakrut's local donation expenditure. According to local regulations of the Tajik government, Chinese enterprises make donations to the local area every year. The main reason for the significant decrease in donation expenditure in 2022 is that the Tajik government requested to fulfill the investment agreement last year, resulting in a significant amount of donation expenditure.
Kryso Resources Limited (UK) and International Mining Supplies & Services Limited were struck off and dissolved in October 2021. Kryso Resources Limited (BVI) Beijing Representative Office was dissolved in August 2021. All the assets and liabilities of these three companies have been transferred to Kryso Resources Limited (BVI), another subsidiary company within the Company which resulted in the loss of CNG on dissolution of subsidiaries.
8. Income Tax
a. Analysis of Charge in the Year
| 2022 | 2021 |
| US$000 | US$000 |
Current tax: |
|
|
Current tax | 10,043 | 6,012 |
Deferred tax | - | - |
Total | 10,043 | 6,012 |
|
|
|
No provision for income taxes arose in the Cayman Islands, the UK, British Virgin Islands. A current income tax expense arose in Tajikistan during the year as LLC Pakrut sold gold in the amount of TJS 755,867,248 – equivalent to US$ 68,524,835 (2021: TJS 814,171,620 – equivalent to US$ 71,991,962). Thereby, the Company paid the amount of advance payments of income tax according to the Tax Code of the Republic of Tajikistan, being 1.00% of revenue.
The main reasons for the substantial increase in income tax compared with last year are as follows: The calculation criteria of income tax was amended during 2022 which resulted in additional income tax payable of $4.03million in respect of income tax.
The company has continued to strengthen the study and research on the tax law of Tajikistan to reduce tax losses; secondly, strengthen the visit and communication with the tax bureau and the Tax Committee, maintain good relations, and continue to reduce the prepaid tax.
8. 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 18% (2021 – 20%).
| 2022 US$000 | 2021 US$000 |
Loss before income tax | (278,085) | (235) |
|
|
|
Loss on ordinary activities by weighted average rate of tax at 18% (2021: 20%) | (50,055)) | (47) |
Expenses not deductible for tax purposes | 544 | 630 |
Tax losses for which no deferred income tax asset was recognized/(Utilisation of tax losses) | 49,511 | (611) |
Pakrut income tax | 10,043 | 6,012 |
Current tax payable | 10,043 | 6,012 |
The Company did not recognise deferred tax assets of approximately US$Nil (2021:$Nil). Unused Tajik tax losses amounting to approx Nill at 31 December 2022 can be carried forward for three years from the year incurred and used against future taxable income at 15%
9. Finance Income and Costs
| 2022 | 2021 |
|
| US$000 | US$000 |
|
Finance Income |
|
|
|
Interest income on short term bank deposits | 2 | 6 |
|
|
|
|
|
Finance Costs |
|
|
|
Interest expense on shareholder’s loans wholly repayable within five years | 12,340 | 7,315 |
|
Interest expense on bank borrowings wholly repayable within five years | 2,902 | 3,510 |
|
Finance costs | 15,242 | 10,825 |
|
10. Earnings per Share
| 2022 | 2021 |
|
| US$ | US$ |
|
Basic and diluted earnings per share (cents) | (757.60) | (1.63) |
|
The basic earnings per share is calculated by dividing the loss attributable to equity holders after tax of US$289,701,494 (2021: US$6,245,000) by the weighted average number of shares in issue and carrying the right to receive dividend. For the year ended 31 December 2022 this was 382,392,292 (2021: 382,392,292) shares.
As the Company 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 (2021: nil) share options outstanding that are potentially dilutive in the future.
11. Intangible Assets
The exploration and evaluation assets represent internally generated costs in connection with the Company’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 Company 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.
12. Mines under Construction
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 Company. It also included the borrowing costs associated with the loan to finance the mine, construction from China Nonferrous Metals Intl Mining Co. Limited (“CNMIM”), 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 operational at the start of the 2019 financial year and all accumulated capitalised costs were transferred into Property, Plant and Equipment at 1 January 2019.
Construction in progress during the year ended 31 December 2022 comprises the commencement of construction of an additional tailings facility at the Pakrut mine site.
13. 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 |
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|
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At 1 January 2021 | 32 | 693 | 8,698 | 23,277 | 378,425 | - | 411,125 |
Additions | - | - | 190 | 805 | - | - | 994 |
Disposals | - | (90) | (3,465) | (2,639) | - | - | (6,193) |
Settlement of amount of historic liabilities to contractors | - | - | - | - | 4,307 | - | 4,307 |
At 31 December 2021 | 32 | 602 | 5,423 | 21,443 | 382,732 | - | 410,233 |
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|
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Additions | - | 36 | 92 | 1,475 | - | 6,022 | 7,625 |
Transfer from Assets under Construction |
|
|
|
| 812 | (812) |
|
Settlement of amount of historic liabilities to contractors | - | - | - | - | (29,904) | - | (29,904) |
Impairment | - | - | - | - | (265,953) | - | (265,953) |
At 31 December 2022 | 32 | 638 | 5,515 | 22,918 | 87,687 | 5,210 | 122,000 |
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13. Property, Plant and Equipment (continued)
Accumulated Depreciation |
|
|
|
|
|
|
|
At 1 January 2021 | - | 354 | 6,641 | 14,056 | 16,873 | - | 37,924 |
Charge for the year | - | - | 319 | 2,521 | 9,026 | - | 11,866 |
Disposals | - | (90) | (2,112) | (1,690) | - | - | (3,892) |
At 31 December 2021 | - | 264 | 4,847 | 14,888 | 25,899 | - | 45,898 |
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|
|
|
|
|
Charge for the year | - | 35 | 157 | 2,341 | 8,496 | - | 11,028 |
|
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|
|
|
|
|
|
At 31 December 2022 | - | 299 | 5,005 | 17,228 | 34,395 | - | 59,926 |
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|
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|
|
Net Book Value |
|
|
|
|
|
|
|
At 31 December 2022 | 32 | 339 | 510 | 5,690 | 53,292 | 5,210 | 65,074 |
At 31 December 2021 | 32 | 341 | 575 | 6,555 | 356,833 | - | 364,377 |
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 estimate
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
14. Subsidiary Undertakings
The Company had the following subsidiary undertakings as at 31 December 2022:
Name of Company | Holding | Country of Incorporation | Proportion of Voting Rights held | Nature of Business | Registered addresses | ||||||||||||
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Directly held |
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Kryso Resources (BVI) Limited | Ordinary shares (CNG) | British Virgin Islands | 100% | Holding Company | 190 Elgin Avenue, Grand Cayman, KY1-9005, Cayman Islands | ||||||||||||
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Indirectly held |
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LLC Pakrut (BVI holds 100% share) | Ordinary shares (BVI) | Tajikistan | 100% | Mineral exploitation, development and mining | Bahor district, Vahdat, Tajikistan | ||||||||||||
15. Financial Instruments by category
| Financial assets at amortised cost |
| US$000 |
31 December 2022 Assets per Statement of Financial Position |
|
Trade and other receivables, excluding prepayments | 1,291 |
Cash and cash equivalents | 4,544 |
Total | 5,835 |
|
|
| Financial liabilities at |
| amortised |
| cost |
| US$000 |
31 December 2022 Liabilities per Statement of Financial Position |
|
Borrowings | 379,368 |
Provisions for other liabilities and charges | 2,658 |
Long term liabilities | 1,235 |
Trade and other payables, excluding non-financial liabilities | 19,011 |
Total | 402,272 |
15. Financial Instruments by category (continued)
| Financial assets at amortised cost |
| US$000 |
31 December 2021 Assets per Statement of Financial Position |
|
Trade and other receivables, excluding prepayments | 3,565 |
Cash and cash equivalents | 7,472 |
Total | 11,037 |
|
|
| Financial liabilities at amortised cost |
| US$000 |
31 December 2021 Liabilities per Statement of Financial Position |
|
Borrowings | 368,953 |
Provisions for other liabilities and charges | 1,084 |
Trade and other payables, excluding non-financial liabilities | 49,696 |
Total | 419,733 |
16. Inventories
| 2022 | 2021 |
|
| US$000 | US$000 |
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|
|
|
|
Construction materials and processing equipment | 16,709 | 17,334 |
|
| 16,709 | 17,334 |
|
Construction materials and processing equipment relates to raw materials and semi-finished products used in gold production.
17. Trade and Other Receivables
| Company | Company |
| 2022 | 2021 |
| US$000 | US$000 |
Other receivables | 1,291
| 3,565 |
Prepayments and deposits | 1,223 | 638 |
Total | 2,514 | 4,203 |
None of the receivables are past due. The fair values are equal to the carrying amounts.
18. Borrowings
| 2022 | 2021 |
|
| US$000 | US$000 |
|
|
|
|
|
Bank borrowings | 85,000 | 99,550 |
|
Other loans | 294,368 | 269,403 |
|
Total | 379,368 | 368,953 |
|
|
|
|
|
Non-current portion | - | 65,000 |
|
|
|
|
|
Current portion | 379,368 | 303,953 |
|
The fair value of borrowings equals their carrying amounts, as the impact of discounting is not significant.
CNMIM loan
The USD tranche of the loan has been settled in full and US$Nil was outstanding as at 31 December 2022 (2021: US$Nil). The amount outstanding on the RMB tranche of the loan as at 31 December 2022 was US$12,683,599 (2021: US$12,683,599).
CNMC loans
The loan agreement between CNMC International Capitals Company Limited and CNG was signed on 20 September 2017. Under this agreement, CNMC International Capitals Company Limited provided a loan facility of US$6,500,000 to CNG. 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 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 CNMC International Capitals Company Limited to another member of the Company, CNMC Trade. 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%.
On 26 March 2021, a loan extension agreement was signed, extending the repayment date until 20 December 2022. The extension agreement incurs interest at a rate of 3 months LIBOR + 3.25%.
A loan agreement between CNMC International Capitals Company Limited and CNG was signed on 27 April 2016. Under this agreement, CNMC International Capitals Company Limited provided a loan facility of US$120,000,000 to CNG. 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 CNMC International Capitals Company Limited to another member of the Company, CNMC Trade. On 26 March 2021, a loan extension agreement was signed extending the repayment date until 20 December 2022. The extension agreement incurs interest at a rate of 3 months LIBOR + 3.25%.
The Company 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 CNG 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 Company, CNMC Trade. A further extension has been signed extending the repayment date until 26 November 2020. On 26 March 2021, a loan extension agreement was signed extending the repayment date until 2022. The extension agreement incurs interest at a rate of 3 months LIBOR + 3.25%.
In January 2022, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of US $34.55 million (the “CNMC Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of US $34.55m.
In January 2022, the Company executed a foreign currency working capital loan agreement with China CITIC Bank Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of US$20 million , with an annual interest at 3.00% over 6 month LIBOR, which was used to repay US$20m of the CNMC Loan.
In January 2023, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of US $19.50 million (the“CNMC Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR. This CNMC Loan has been used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of USD $20m.
In June 2023, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of USD$65 million (the “CNMC Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR.
In December 2022 ,the Company repaid US$1m of the CNMC Trade. And In the first quarter of 2023 ,the Company repaid US$1.9m of the CNMC Trade.
A loan agreement between CNMC International Capitals Company Ⅱ Limited (CNMC International) and CNG 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 annually 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. On 8 February 2021 US$20,000,000 was repaid, and on 26 March 2021, a loan extension agreement was signed extending the repayment date of US$70,000,000 until 8 December 2022,and the extension agreement incurs interest at a rate of 3 months LIBOR + 3.25%.In June 2021, the Company repaid US$9.26m¥60millionof its outstanding loan.
CITIC loans
In 2022, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $34.55 million (the“CNMC Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of USD $34.55m (being USD20m advanced in January 2021 (“First Loan”) and USD $14.55m advanced in March 2021 (“Second Loan”).
In January 2021, the Company executed an agreement with China CITIC Bank Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to CNY300million which is equivalent to US$46.37m. The CITIC Loan facility is for a maximum of 12 months and is repayable 12 months from first drawdown. US$20m of the CITIC Loan was drawn down in January 2021 including an annual interest rate at 2.7% plus 6 month LIBOR. It had been repaid on 20 January 2022.
Another US$14.55m of the CITIC Loan was drawn down in March 2021 including an annual interest rate at 2.71% plus 12 month LIBOR. It had been repaid on 26 January 2022.
In January 2022, the Company executed a foreign currency working capital loan agreement with China CITIC Bank Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to US$20 million , with an annual interest at 3.00% over 6 month LIBOR, which was used to repay US$20m of the CNMC Loan. It has been repaid on 24 January 2023.
Bank of Shanghai loan
The Company executed an agreement with Bank of Shanghai (Hong Kong) Limited (“BOS”) for a loan facility of up to US$65 million (the “BOS Loan”). The Loan facility is for a maximum of 24 months and is repayable 24 months from the drawdown. The total amount of US$65m of the BOS Loan was drawn down on 28 June 2021 in order to repay the CCBC Macau loan. The loan is secured by Standby Letter(s) of Credit to be issued by Bank of Shanghai, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$66,000,000, with validity of not less than 24 months in favor of BOS. The loan has been repaid in full on 9 June 2023.
19. Trade and other payables
| 2022 | 2021 |
| US$000 | US$000 |
Trade and other payables – non-current |
|
|
Other payables | 1,235 | - |
Total non-current liabilities | 1,235 | - |
|
|
|
Trade and other payables – current |
|
|
Trade and other payables | 19,011 | 49,696 |
Total current liabilities | 19,011 | 49,696 |
Total trade and other payables | 20,246 | 49,696 |
The significant decrease relates to adjustments made on the settlement of final amounts payable to contractors during the year for historic construction work at the mine site.
The long term liabilities represent amounts owed to contractor company Zhejiang Wenjian. Agreement regarding the balance payable was signed pre-year end and is now repayable in full in 5 years.
20. Provisions for Other Liabilities and Charges
| Rehabilitation US$000 | Total US$000 |
|
|
|
At 1 January 2022 | 1,085 | 1,085 |
Unwinding of discount | 90 | 90 |
Add: increase in provision | 1,483 | 1,483 |
|
|
|
At 31 December 2022 | 2,658 | 2,658 |
All provisions are non-current.
The Company 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 2029, which is the revised mine life based on the resource estimates per the SRK Consulting updated technical report. As part of the latest resource assessment report issued by SKR for the Pakrut mine in 2022, new estimated liabilities were calculated based on the revised expectation of mine closure costs at 31 December 2022.
The discount rate used in the calculation of the provision as at 31 December 2022 year end was 10% (2021 - 9%) per annum. The value of the undiscounted provision is US$5,180,167 (2021: US$2,481,000).
21. Treasury Policy and Financial Instruments
The Company 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 Company. The Company 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.
22. Share Capital
| 2022 | 2022 | 2021 | 2021 | ||
| No. of | Share | No. of | Share | ||
| ordinary | Capital | ordinary | Capital | ||
| shares | US$000 | shares | US$000 | ||
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|
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|
| ||
At 1 January (Ordinary shares of $0.0001) each | 382,392,292 | 38 | 382,392,292 | 38 | ||
Issued during the year | - | - | - | - | ||
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|
| ||
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.
23. Share Based payments
Options can be granted to any employee of the Company in accordance with the rules of the Company 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 Company he or she will have a set period in which to exercise those options (depending on the reasons for leaving), falling which, the options will lapse.
There were no share options outstanding at the year end.
24. Cash flow information
|
| 31 December 2022 | 31 December 2021 |
|
| US$000 | US$000 |
Cash flows from Operating Activities |
|
|
|
|
|
|
|
Loss before income tax |
| (288,128) | (235) |
Adjustments for: |
|
|
|
Impairment charge |
| 265,953 | - |
Finance income |
| 2 | (6) |
Finance costs |
| 15,242 | 10,826 |
Depreciation |
| 18,685 | 7,972 |
Foreign exchange loss |
| (1,075) | 1,853 |
Change in working capital: |
|
|
|
Inventory |
| 625 | (1,423) |
Trade and other receivables |
| (1,689) | (1,869) |
Trade and other payables |
| 3,467 | 3,222 |
Other current assets |
| (2,928) | (549) |
Other current liabilities |
| (1,290) | (5,890) |
Net Cash generated from Operating Activities |
| 8,865 | 13,904 |
24. Cash flow information (continued)
Net debt reconciliation
| 31 December 2022 US$000 | 31 December 2021 US$000 |
Cash and cash equivalents | 4,544 | 7,472 |
Borrowings – repayable within one year | (379,368) | (303,953) |
Borrowing – repayable after one year | - | (65,000) |
Net debt | (374,824) | (361,481) |
| 31 December 2022 US$000 | 31 December 2021 US$000 |
Cash and cash equivalents | 4,544 | 7,472 |
Borrowings – fixed interest rates | (22,466) | (117,664) |
Borrowings – variable interest rates | (356,902) | (251,289) |
Net debt | (374,824) | (361,481) |
24. 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 2021 | 27,196 | (368,919) | (19,822) | (361,545) |
Cash flows | (19,724) | 30,613 | - | 10,889 |
Interest accrued | - | - | (10,825) | (10,825) |
Movement between current and non-current | - | 34,353 | (34,353) | - |
Net debt as at 31 December 2021 | 7,472 | (303,953) | (65,000) | (361,481) |
|
|
|
|
|
Cash flows | (2,928) | - | - | (2,928) |
Interest accrued | - | (10,415) | - | (10,415) |
Movement between current and non-current | - | (65,000) | 65,000 | - |
Net debt as at 31 December 2022 | 4,544 | (379,368) | - | (374,824) |
25. Controlling Party
The Directors consider China Nonferrous Metals Mining (Company) Co. Limited (“CNMC”) to be the ultimate controlling party, by virtue of their shareholding and representation on the Board of Directors.
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 2022 amounted to US$Nil (2021:US$Nil). The amount payable by the Company to CNMIM for interest on the loan in 2022 amounted to US$1,275,337 (2021: US$1,257,032). CNMIM is a significant shareholder of China Nonferrous Gold Limited.
The amount payable by the Company to CNMC Trade for interest on the loans in 2022 amounted to US$7,944,521 (2021: US$5,062,816). The amount payable by the Company to CNMC International Capitals Company Ⅱ for interest on the loans in 2022 amounted to US$3,119,918 (2021: US$2,207,276). CNMC is the ultimate parent of China Nonferrous Gold Limited.
During the year of 2022, CNMC guaranteed the Company's loan to China CITIC Bank with a total amount of US$20 million.
During 2022, 15MCC (a related party to CNG through being a subsidiary of CNMC, the Company’s ultimate controlling party) provided equipment and materials, together with installation and construction work to the Company amounting to US$Nil (2021: $Nil) and the Company advanced payments to 15MCC amounting to US$Nil in 2022 (2021:Nill). As at 31 December 2022, the total liability due to 15MCC was US$10,949,107 (2021: US$11,819,082 ).
In 2015 the Company 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 Company 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$2.8) per gram of finished gold once the Project commences the 12-month production period. Prior to this period the Company will cover the labour and associated costs of CNFMG. Once in production, in the event the recovery of the plant is above the Beijing General Research Institute of Mining and Metallurgy forecast rate over the life of production of 82.99 percent, CNHFMG will share 40 percent of the profits from the upside directly due to the increased recovery. In the event recovery is below 75 percent, CNHFMG will bear 20 per cent of any loss incurred by the Company from the Project due to directly to recovery levels.
During 2022, CNHFMG provided equipment and materials, together with installation and construction work to the Company amounting to US$Nil (2021:US$Nil) and the Company advanced payments to CNHFMG amounting of 2022 was US$375,141.69(2021:US$Nill). As at 31 December 2022, the total liability due to CNHFMG was Nill (the arrears have been paid off in January 2022). As of January 2022, the project funds between the company and CNHFMG have been fully settled.
As of December 31, 2022, Pakrut still has gold sales business with Daye Nonferrous Metals. In December 2022, a total of 200.509 kg of gold were sold in related party transactions, with an amount of $12,424,619.54, which has been received. However, in 2023, according to the currently signed gold sales contract, as the Tajik government does not agree to export the gold for sale, the gold will not be exported for sale and will no longer be sold to Daye Nonferrous Metals.
28. Events after the Reporting Period
Loans and financing
In January 2023, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $19.50 million (the“CNMC Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR and no extra fees payable to CNMC Trade for this arrangement, which is repayable within 3 months from the date of drawdown. CNMC Trade has indicated it will extend this loan for one year from the initial repayment date, and subject to regulatory approval and processes pursuant to AIM Rule 13 of the AIM Rules for Companies the extension contract should be signed soon. This CNMC Loan has been used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of USD $20m.
In June 2023, the Company executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $65 million (the“CNMC Loan”) including an annual interest rate at 0.5% plus 3 month LIBOR, which is repayable within 3 months from the date of drawdown. This CNMC Loan has been used to repay the existing Bank of Shanghai (Hong Kong) Limited (“BOS”) loan facility of USD $65m, which was due for repayment on 9 June 2023.
In the first quarter of 2023, the Company repaid US$1.9m of the CNMC Trade Company Limited (“CNMC Trade”) loan, which was drawn on September 20, 2017.
Both CNMC Trade Company Limited (CNMC Trade) and CNMC International Capitals Company ⅡLimited (CNNICCⅡ) have indicated they will extend the expired loans for one year from the previous due date, and subject to regulatory approvals and processes, the results of which cannot be guaranteed, the extension contracts should be signed soon. CNMIM has also agreed to extend the expired loan with CNG to 31 May 2024 subject to regulatory approvals. At this stage there can be no guarantee that these loans will be extended. The Company at the date of this report has total of US$316.07 million of debt facilities (including banking facilities without interest).
Snowfall at Pakrut Gold Mine
In February 2023, the area surrounding the Pakrut gold mine site experienced high levels of snowfall resulting in several avalanches and landslides. There were no casualties at site and the Pakrut site itself remained undamaged. However, the avalanches did damage one electric power transmission tower that supplies the mine resulting in a consequential interruption of the power supply. In addition, the roads to the site were damaged. The lack of power meant that the underground mining and the processing plant were suspended with immediate effect. The smelting plant was suspended from 28 February 2023 until the power issue was resolved. Accordingly, there was no production at site for at least one month with a consequential impact on revenues and financial results. The Company deployed emergency maintenance teams to the area to urgently carry out repair work on the road and to recover the power supply facilities. On 16 March 2023the power supply was re-established and production resumed at the Pakrut mine site. On 11 April 2023 the road to the mine site was repaired and is now open, and the smelting plant has resumed production. Accordingly, normal operations have resumed at site according schedule.
SRK report
The Company signed a service agreement with SRK (SRK Consulting China Co., Ltd.) to review the resource estimation of the Pakrut gold mine to update the latest resource data. The Technical Report (“ITR”) was completed by SRK Consulting China Limited (“SRK”) and Company released an update to it Mineral Resource and Ore Reserve estimates for Pakrut in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”, 2012 edition as current effective edition). The update reflects a substantial reduction in the Mineral Resource Estimate released by the Company (under its previous name of Kryso Resources plc) on 17 June 2013, and reflects the Company’s increasing knowledge and access to the underground ore body as operational work has progressed.
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Change of Board
On 30 May 2023, Mr. Zhang has tendered his resignation as managing director with immediate effect. At the same time, Mr. Feng Zhishuo was appointed as managing director of the Company and an Executive Director of the Company with immediate effect.
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