Ferro-alloy Re. Regulatory News (FAR)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014 (INCLUDING AS IT FORMS PART OF THE LAWS OF ENGLAND AND WALES BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR").

28 April 2023

Ferro-Alloy Resources Limited

("Ferro-Alloy" or the "Group" or the "Company")

2022 Final Results and Updated Ore-Body 1 Mineral Resource Estimate ("MRE")

Ferro-Alloy Resources Limited (LSE:FAR), the vanadium producer and developer of the large Balasausqandiq vanadium deposit in Southern Kazakhstan, announces its final results for the year ended 31 December 2022.

In addition, the Company announces that on the 27 April 2023 it received the results of the revised mineral resource estimate ("MRE") from SRK Consulting Ltd ("SRK") for Ore-Body 1 ("OB1") at the Balasausqandiq deposit. Selected highlights from the report are summarised below with a full announcement expected to be released on 2 May 2023, once management has reviewed the full report.

MRE selected highlights (post period)

· An Indicated Mineral Resource of 32.9 million tonnes for OB1 at a mean grade of 0.62% V2O5 reported at a marginal cut-off grade of 0.4% V2O5 - equating to 203,364 contained tonnes of V2O5

· An increase of 8.6 million tonnes (35.4%) of mineral resource and an increase of 38,058 tonnes (23%) of contained V2O5 by comparison to the Company's 2018 Competent Persons Report 

· The results of the previously reported infill drilling and trenching programs completed during 2021/22 have been successful in converting 100% of the Resources to Indicated for the OB1 deposit. No Measured or Inferred Resource are stated

Financial and corporate highlights

· Group revenues of US$6.27m (2021: US$4.73m), a 28% increase over the period, but slightly below market expectations

· The Group made an overall loss for the year of US$4.29m (2021: loss of US$2.83m), a greater loss than market expectations, mainly attributable to the difficulties importing raw materials during the period, increased costs of associated reagents and fuel

· Cash in the bank of US$4.33m as at 31 December 2022 (2021:US$2.81m)

· Successful equity fundraising of US$10.0m (approximately £8.6m) in September 2022 to advance the feasibility study on the Balasausqandiq deposit

· Continue to develop the Group's senior management in readiness for the main project inception with the appointment of William Callewaert as Chief Financial Officer, Baurzhan Tleulinov as Mine Project Director and Anvar Moldakhanov as Kazakhstan Finance Director

Feasibility study

The feasibility study for Stage 1 of the Balasausqandiq project is expected to be completed in the final quarter of 2023 with Stage 2 to follow in 2024. 

Work is progressing well and continues to support or exceed the results of previous company test work that was disclosed in the 2018 Competent Persons Report, which indicated a transformative vanadium project producing some 22,400 tonnes of vanadium pentoxide per annum (over 10% of current world supply), with an operating margin of almost 80% and a project Net Present Value of c.US$2 billion with relatively modest capital expenditure. 

Progress during the period includes:

· Completion of the drilling programme for Ore-Bodies 1,2,3 and 4

· Open pit geotechnical drilling for Ore-Body 1 has been completed with mechanical testing pending

· Open pit hydrogeological drilling completed

· Full site topographical survey completed

· Metallurgical testing nearing completion indicates high metallurgical recovery in line with previous Company test work

· Carbon flotation tests show that a >40% carbon concentrate can be made with good overall carbon recovery. Test work on the resulting rubber performance shows that partial substitution of this concentrate for carbon black in the production of rubber for tyres can be made without loss of performance

Existing operation

Although operations during the year were severely impacted by difficulties importing raw materials, the Group has made significant progress with the development of the existing operation.

· The planned expansion of the plant to increase production and to recover more value from each tonne treated was completed, including:

- Approximately doubling the potential maximum recovery of molybdenum from additional ion-exchange resin

- Adding a third roaster to the vanadium pentoxide line to increase maximum throughput of treatable concentrates and a fourth roaster for the nickel process

- Installation of three new press filters

- Commissioning of a new equipment to convert ammonium metavanadate to vanadium pentoxide that commands better product pricing in the market

- Implementing a plan to convert the fuel of the roasting ovens used by the plant from diesel to gas

· Increased the number of vanadium concentrate supply contracts and diversified source location in order to minimise the risk of failure of delivery of concentrates by any one supplier

· Funding from a Kazakhstan government agency was received to undertake a project leading to the production of vanadium oxides for making electrolyte for vanadium redox flow batteries

Reconciliation of year end losses

· The Company announced a preliminary unaudited loss for the year in January in the region of US$3.3m. The further losses being reported of c. US$1m incurred following the finalisation of the year end accounts and are a result of:

- c. US$210,000 of negative pricing adjustments incurred on long duration delivery sales contracts due to the falling price of vanadium between June and November

- c. US$160,000 of post year end stock provisions made against slow moving and obsolete stock lines held by the Group at the year end

- c. US$55,000 of obsolete asset write offs for Group equipment that can no longer be repaired or do not have a future useful life

- c. US$205,000 of administrative expenses incurred by the Group after the year relating to 2022 trading activity

- c. US$370,000 of foreign exchange losses incurred on finalised year end balances and transactions completed during the year

Outlook

· Positive updated MRE report on the OB1 deposit shows an increase in contained metal and the successful conversion of 100% of the Resources to Indicated - post period

· In Q1 2023 a contract was signed with a significant new ongoing supplier of raw materials to compensate for the shortfalls being experienced from existing suppliers

· The Group's assumption is for metal prices to remain at current levels of around US$9.50/lb of vanadium pentoxide and US$24.3/kg of nickel for the remainder of 2023. Molybdenum prices have come down from the exceptionally high levels of early 2023 but are expected to remain at current levels of around US$53/kg.

· With the plant now fully developed and with concentrates expected to be in good supply, the Company believes that both the production and financial results for 2023 are likely to be significantly better than 2022 and result in the Company operating profitably because of:

- increased quantity of concentrates to be treated

- increased recoveries of vanadium, molybdenum and nickel from each tonne treated

- higher prices expected for vanadium as a result of the conversion of AMV to vanadium pentoxide or other oxides

- return to more normal levels of transport, fuel and reagent costs which in 2022 were impacted by the ending of the pandemic and the commencement of the Ukrainian invasion.

Sir Mick Davis, Non-executive Chairman, commented:

 "The management team has acted to address external pressures related to the constrained raw material supply which impacted financial results during the year.

Another successful capital raise in September, followed by the endorsement of the recent mineral resource estimate, enables the Company to continue its journey towards becoming an important global vanadium producer. At the same time, it is encouraging to see continuing growth in demand for vanadium serving both the growing stainless steel and battery market segments."

Commenting on the results, Nick Bridgen, CEO of Ferro-Alloy Resources said:

"It is extremely encouraging that the feasibility study results so far have met or exceeded the Company's previous work which shows how transformative the Balasausqandiq project will be for the world's vanadium industry.

"The existing operation has been impacted by supply difficulties during 2022 but the plant is now fully developed and, with concentrates in good supply, we expect the existing plant to operate profitably from now on, producing a meaningful contribution to the development of the Balasausqandiq project.

"I am also delighted to have received the updated MRE report from SRK which has shown some encouraging results at our OB1 deposit. We are reviewing the report and will provide shareholders with an update on 2 May 2023."

Publication of Annual Report

The Company's annual report will be available shortly on the Company's website at www.ferro-alloy.com

For further information, visit www.ferro-alloy.com or contact:

Report on Operations

Strategy

Operational Review

During 2022 and the first quarter of 2023, the Group made significant progress with the ongoing feasibility study into the development of the transformative Balasausqandiq vanadium deposit as well as the expansion of the existing operations treating bought-in vanadium concentrates. 

Feasibility study

The progress made by the Group on the Stage 1 feasibility study is covered more fully by the feasibility study review.

The highlights of that review are:

- Completion of the drilling programme for Ore-Bodies 1,2,3 and 4;

- Imminent publication of the revised mineral resource estimate for Ore-Body 1 ("OB1");

- Mine planning for Stage 1 of the feasibility study to commence post publication of the OB1 mineral resource estimate;

- Open pit geotechnical drilling for OB1 has been completed with mechanical testing pending;

- A full site topography survey has been taken;

- Extraction of vanadium during acid leaching shows 94-97% vanadium extraction into solution and 95% adsorbed in ion-exchange in line with previous Group test work; and

- Flotation tests show that a >40% carbon concentrate can be made with good overall carbon recovery. Test work on the resulting rubber performance shows that partial substitution of this concentrate for carbon black in the production of rubber for tyres can be made without loss of performance.

Existing operation

The existing operation is the result of the conversion and expansion of the large scale test-plant that was constructed to pilot and test the metallurgical processes to be used in the main Balasausqandiq project. 

This operation will provide a cash flow to assist with the substantial ongoing costs of the preparation of the feasibility study and to contribute to the construction costs of the Balasausqandiq project mining operations. 

A second objective is to retain the high-quality technical and operating team that developed the metallurgical processes to be used in the main Balasausqandiq project so that they are available to assist with the feasibility study, design and future construction and operation of Stage 1 and Stage 2 of the Balasausqandiq project. As a result, the Group's work-force is experienced and will have a high level of technical and operational expertise prior to commissioning of the mine. This significantly de-risks the project.

Plant developments

The original test-plant has been adapted to treat bought-in vanadium concentrates. During 2022 and the start of 2023, the plant has been significantly expanded and equipment added to enable the full recovery of all of the components of the purchased concentrates so that a great deal more value is extracted from each tonne treated and, more importantly, no tailings or other residues are left on-site.

Although the plant is designed to be flexible and able to treat a variety of raw materials, the most common raw materials are the spent (charged) catalysts used to remove impurities from crude oil in refineries. These typically contain vanadium, molybdenum and nickel, all of which can now be recovered.

Specifically, the Group has completed the following installations at the plant during the year:

· Added a third roaster to the vanadium pentoxide line to increase maximum throughput of treatable concentrates;

· Added a fourth roaster to either upgrade the low-grade nickel residues to high-grade nickel concentrates, or to provide additional vanadium pentoxide throughput capacity, depending on market prices and demand;

· Procured the equipment to convert the roasting fuel used by the plant from diesel to natural gas (to be commissioned in May 2023);

· Approximately doubled the maximum recovery of molybdenum by the addition of additional ion-exchange resin tanks;

· Installed three new press filters;

· Commissioned a new dissociation oven to convert ammonium metavanadate ("AMV") to vanadium pentoxide;

· Purchased a new product drying oven; and

· Equipped a new ferro-molybdenum department to provide greater smelting capacity and better environmental control.

Together, these additions have transformed the operating capability of the Group by not only increasing throughput capacity but also maximising the value recovered from each tonne treated.

Production

During the year, production of vanadium pentoxide and molybdenum (in ferro-molybdenum) amounted to 305.5 tonnes (2021: 259.6 tonnes) and 36.0 tonnes (2021: 38.7 tonnes), respectively.

The plant also produced a nickel concentrate for sale to customers during the year.

Production during 2022 was severely disrupted by a combination of factors that affected deliveries of concentrates available for processing at the plant.

At the beginning of 2022 both concentrate supplies and transport routes continued to be adversely affected by residual Covid-19 issues as well as the piecemeal re-opening of the global economy following lockdown. Domestic riots in Kazakhstan during January caused further, albeit short-term, disruption, and then in February, the Russian invasion of Ukraine resulted in increased disruption across the Group's supply and transport networks. 

As a result, transportation prices increased dramatically and some of the usual freight routes into Kazakhstan were blocked, requiring longer and more expensive routing. Similarly, the cost and availability of reagents and, particularly, diesel, were also impacted by the geo-political disruption. Diesel prices rose significantly over the year and, at times, became unavailable.

In order to mitigate future concentrate supply issues in light of the ongoing regional geo-political disturbance and other factors, the Group has:

i. increased the number of vanadium concentrate supply contracts and diversified source location in order to minimise the risk of failure of delivery of concentrates by any one supplier; and

ii. implemented a plan to convert the fuel intake of the roasting ovens used by the plant from diesel to natural gas which will not only be cheaper, but also be more reliable and will make use of more widely available gas supplies in the region.

Product prices remained broadly stable during the year:

Development of VRFBs

Vanadium VRFBs (vanadium redox flow batteries) are a means of energy storage particularly suitable for the longer-duration storage of energy from intermittent renewable sources in order to make energy available at night and when there is no wind. VRFBs have certain advantages over lithium-ion technology, including being scalable, not degrading over time and not catching fire, which make them more suitable for bulk energy storage.

The world-wide roll-out of VRFBs appears to have started and although forecasts vary, the general expectation is for the demand for vanadium for electrolyte purposes to expand to become a significant part of overall vanadium demand.

The Group has been awarded a grant from the Kazakhstan Science Fund to produce vanadium oxides for the production of vanadium electrolyte for use in VRFBs. The grant will be used to buy additional production equipment and to modify existing equipment to produce vanadium tri-oxide, a test VRFB and some related equipment for laboratory use. After a period of testing and development, the plan is to continue to produce and market vanadium tri-oxide and, if there is demand in the local region, to supply electrolyte. The aim is to position the Group to be able to supply at a large scale into this potentially very large market when the main Balasausqandiq project is commissioned.

Production outlook

The planned expansion of the existing operation is now complete. The plant is, therefore, capable of making significant cash flows to fund the ongoing costs of completing the Stage 1 feasibility study and contribute to the funding of the future construction of the Balasausqandiq facilities.

In order to prevent the recurrence of the concentrate supply problems of 2022 and early 2023, the Group has signed additional concentrate supply contracts. Supplies under previous contracts have resumed and are expected to continue, so the board of directors ("the Directors" or "the Board") are optimistic that the historic supply problems have now been resolved.

Vanadium prices are strong, and although difficult to forecast, the Group's assumption is for them to remain at current levels of around US$9.50/lb of vanadium pentoxide and US$24.3/kg of nickel. For the remainder of 2023. Molybdenum prices have come down from the exceptionally high levels of early 2023 but are expected to remain at current levels of around US$53/kg.

With the plant now fully developed and with concentrates expected to be in good supply, the Group expects the existing plant to operate profitably, producing a meaningful positive cash flow, for the remainder of 2023 and beyond.

Financial Review

Earnings

The Group reported increased revenues of US$6.27m for the year compared to US$4.73m in 2021, reflecting a 33% increase in sales over the period.

Revenue is recognised at the time of transfer of control of the Group's products to the customer but, as is common in the industry, the final pricing determination is often based on assay and prices after arrival of the goods at the final port of destination. The adjustments to revenue reflect these final pricing determinations which occur after the relevant revenue is initially recognised.

Between mid-June and the end of November the market price of vanadium pentoxide fell from around US$10.50/lb to c. US$7.50/lb and, therefore, a number of the Group's sales contracts entered into before June were subject to a negative final pricing determination upon arrival at the final port of destination leading to an overall negative revenue adjustment of c. US$0.5m for the year. The price of vanadium pentoxide has subsequently risen to c. US$10/lb after the year end.

Cost of sales increased to US$7.5m from US$4.9m in 2021 primarily reflecting increases in the prices of the raw materials used in the production process of AMV and other products. In particular, as a result of the Russian invasion of Ukraine, a number of the reagents used by the plant and sourced from the CIS significantly increased in price during the year, as did the cost of diesel. The prices of reagents and diesel have both stabilised after the year end, and as noted in the Operational Review, the Group is taking steps to convert the fuel supply for the roasting ovens from diesel to natural gas which is a significantly cheaper form of fuel and more widely available in country. The largest part of the cost of sales is the purchase of raw materials, the price for which is determined as a percentage of the value of the content of vanadium at the prices prevailing at the time of purchase.

Administrative expenses of US$2.5m (2021: US$2.5m) were broadly in line with the prior year other than wages and salary costs which have increased by approximately US$0.58m as a result of the recruitment of a number of senior management employees during the year including a group finance director, mine project director and Kazakhstan finance director. The Group has not suffered any non-refundable VAT write-downs during the year as was the case in 2021 (US$0.5m).

The Group incurred other expenses during the year of US$0.43m (2021: US$0.011m) comprising currency conversion losses (representing transactional foreign exchange differences), an agreed write down of slow moving / obsolete stocks held at the existing plant and the write-off of unrepairable factory equipment.

The Group made an overall loss for the year of US$4.29m (2021: loss of US$2.83m).

Cashflow

Net cash outflows from operating activities, before changes in working capital, for the year totalled US$3.46m (2021: US$4.98m) following adjustments for depreciation, amortisation, inventory write-downs and net finance gains. Changes in trade and other receivables increased to US$1m (2021: US$0.4m) as a result of the recognition of a significant VAT refund due from the Kazakh tax authorities at the year end (received after the year end). Changes in trade payables increased to US$1.56m (2021: decrease US$ 0.85m) in light of substantial orders of concentrates for processing at the existing plant, yet to be paid for by the Group.

Net cash outflows from investing activities totalled US$4.3m (2021: US$2.5m) and included US$1.47m (2021: US$2.2m) of capital expenditure associated with the planned expansion of the processing operation's production facilities (see Operational Review) and US$2.87m (2021: US$0.33m) of expenditure on the Stage 1 feasibility study capitalised as an exploration and evaluation asset (see Note 13).

Net cash inflows from financing activities for the year were US$9.19m (2021: US$10.06m), representing the proceeds of the US$10m cash equity fundraise conducted during the year (2021: US$5.9m) less the costs of the fundraise of US$0.43m (2021: US$0.24m), repayment of a bondholder entitled to an early redemption of US$0.3m (2021: proceeds received of US$0.48m) and interest payable to the Company's residual bondholders of US$0.08m (2021: US$0.08m).

The Group held cash of US$4.33m at 31 December 2022 (2021: US$2.81m).

Balance sheet review

Total non-current assets increased to US$10.93m from US$7.25m principally due to the continued capitalisation of the feasibility study as an exploration and evaluation asset and the addition of new equipment at the production plant.

Current assets increased from US$5.7m to US$8m, reflecting a significant VAT refund due from the Kazakh tax authorities at the year end and an increase in cash from the finance raising activities completed during the year, as noted below.

Total non-current liabilities decreased by approximately US$0.9m during the year from US$0.94m to US$0.03m as a result of the Company's outstanding bond liabilities being reclassified to current liabilities to reflect their maturity in March 2023.

Current liabilities increased from US$1.34m to US$3.5m as a result of the outstanding bond reclassification noted above and the purchase of significant quantities of concentrate for the existing operation prior to the year end.

Corporate

During September 2022, the Company completed an equity fundraise by way of a placing, in addition to direct subscriptions, of ordinary shares of the Company. As a result, the Company issued 72,025,351 new ordinary shares for cash at a price of 12 pence per share raising a total of £8.64m (US$10.0m). 

Key performance indicators

The Group is in a period of development and its current operations, the processing of bought-in secondary vanadium-containing materials for extraction of vanadium, are relatively small in comparison with the main objective of the Group to develop the Balasausqandiq deposit and processing facility. Moreover, the current operations are themselves undergoing a significant expansion which means that operations are not in a steady state capable of meaningful inter-period comparisons. The Directors are, therefore, of the opinion that key performance indicators may be misleading if not considered in the context of the development of the operation as a whole for which the information for shareholders is better given in a descriptive manner than in tabular form.

Furthermore, the existing processing business of the Group is complex and the business model has been developed to allow maximum flexibility in the type of raw materials treated so that market variations in raw material prices can be moderated by the ability to select raw materials which may be more profitable to treat notwithstanding they be of lower grade and result in a lower level of production. Nevertheless, the Directors consider that the main indicator of performance, although subject to interpretation as described above, is the level of production (refer to the Operational Review for further information).

Feasibility Study Review

The main objective of the Group is to bring into production the Balasausqandiq deposit and to build a processing plant to treat one million tonnes of ore per year (Stage 1) mined from OB1 and later increase to a total of four million tonnes per year (Stage 2) through the additional mining of Ore Bodies 2, 3 and 4 ("OB2, 3 and 4").

An initial feasibility study has been completed under Kazakhstan standards and is in the process of being upgraded and expanded to western bankable standards by the Group's appointed feasibility study consultants, SRK Consulting (Kazakhstan) Limited.

Balasausqandiq deposit

The Balasausqandiq deposit is exceptional in a number of ways. Primarily, it is not a typical vanadiferous magnetite deposit but a sedimentary deposit and is expected to have far lower capital and operating costs.

Furthermore:

· The ore is amenable to a whole-ore pressure acid leach process which gives a far higher metallurgical recovery than conventional magnetite extraction;

· Pre-concentration of the ore and high temperature roasting are not required;

· There are potentially valuable by- or co- products within the ore, principally carbon, which can be easily recovered without significant additional processing;

· Major infrastructure items of power and road and rail connections already exist on site or nearby;

· The Balasausqandiq deposit is a very large deposit and is easily mined from an open pit. Stages 1 and 2 combined envisage production of 24,000 tonnes per year of vanadium pentoxide, over 10% of known current world supply; and

· The Competent Person's Report of 2018 indicated exceptional financial characteristics, with an overall net present value ("NPV") of US$2 billion, an operating margin of nearly 80%, and low capital costs.

The development of the deposit is planned to be in two stages, Stage 1 and Stage 2. Stage 1 will involve the construction and operation of an initial process plant treating one million tonnes per year of ore, followed, as soon as commissioning has been successfully concluded, by a Stage 2 operation for a further three million tonnes per year. The staging is to allow for the reduction of engineering scale-up risk and to also allow time for the development of markets as production increases. The staged development also reduces the amount of capital that has to be raised for the initial development, with the second stage to be largely financed by the earnings of the first.

The feasibility study is also being carried out in two stages, with the results of the first stage scheduled to be announced in the fourth quarter of 2023 and those for the second stage in 2024.

Exploration

There are six known ore-bodies in the deposit which have been named OB1 - 6, and there is some evidence of a seventh. Of these, only OB1 had previously been explored sufficiently to declare a resource under the CRIRSCO approved standards.

The Group's recent drilling campaign, now completed, has included 19,720 meters of drilling on OB1, 2, 3, and 4 with a view to being able to identify CRIRSCO compliant resources and, eventually, reserves, sufficient to provide feed for two stages of development, the first involving the processing of one million tonnes per year of ore, and the second an additional three million tonnes per year. 

OB1

The exploration of OB1 during the year involved infill drilling and trenching to reduce the section spacing from around 500m to 250m, so as to be able to further define and upgrade the resource. 

Following receipt and analysis of the assaying from the updated drilling programme, a revised resource estimate for OB1 is expected by the Company imminently. 

OB2, 3 and 4

The drilling of OB2, 3 and 4 has been completed and receipt of the final assay results and corresponding mineral resource estimate is expected later in the year. Some 25% of the planned exploration area has proved to be difficult and expensive to access and as a result has not been drilled (albeit the Company does not expect the area of difficult topography to create difficulties for actual mining).

The new mineral resource estimate for these ore-bodies will exclude the area of difficult topography in the expectation that the remaining area will provide sufficient ore to feed the Stage 2 development.

Open pit geotechnical drilling

Open pit geotechnical drilling for OB1 has been completed and geotechnical sample collection and mechanical testing is currently in progress. The results of the drilling and subsequent mechanical testing programme will be used to confirm the open pit slope design.

Open pit hydrogeological drilling

Open pit hydrogeological drilling for OB1 has commenced and is expected to finish on schedule during July 2023. The results of the drilling will determine potential water inflows and pore pressures in the pit walls, providing inputs to the geotechnical and mine planning studies. 

Water supply hydrogeological drilling

A geophysical survey of the water supply bore field area has been completed. The results of the survey will be used to define the fieldwork and drilling programme required to define the water extraction bore field required to support the project's water needs.

Site topography survey

A full topography survey of the deposit utilising both aerial drone footage and satellite imagery has been completed to identify the sites most suitable for the location of the process plant and planned tailing storage facility.

Processing

Metallurgy

Extraction of vanadium during acid leaching, following initial pilot and subsequent testing, continues to be above Group expectations with 94-97% vanadium extraction into solution.

Metallurgical testing including ore body variability tests, solid liquid separation tests and ion exchange testing continues at SGS Canada Inc ("SGS") supervised and managed by Tetra Tech Limited ("Tetra Tech").

Testing of the carbon element of the ore has been added to the scope of work at SGS targeting a

minimum 40% carbon grade product with carbon flotation optimisation work continuing contemporaneously. Testing of the product for use in making rubber by substitution for carbon black has been successfully completed and a further test programme to produce tyre industry normative data has been commissioned.

Process design

The process plant design by Tetra Tech is focussed on employing the results of the SGS laboratory

test work to initially design the comminution, leaching circuit and full process design criteria for the Stage 1 plant.

Carbon

Test work on the extraction of a carbon concentrate and on its use as a substitute for carbon black has been included within the scope of the Stage 1 feasibility study. Flotation tests show that the necessary >40% concentrate can be made with good overall carbon recovery. Test work on the resulting rubber performance shows that partial substitution of this concentrate for carbon black in the production of rubber for tyres can be made without loss of performance. A further programme aimed at facilitating marketing is planned. Test work on an alternative use for the carbon-rich tailings for use in the smelting of ferro-silicon is ongoing.

Conclusion

The results of the feasibility study for Stage 1 so far support or exceed the results indicated in the Company's 2018 Competent Person's Report which indicated a project (combined Stage 1 and Stage 2) NPV of some US$2 billion.

The Company expects the publication of the Stage 1 feasibility study in the fourth quarter this year to significantly raise awareness of the emergence of this transformational addition to the global vanadium market. 

Discussions with various potential investors and debt funders have already been initiated but the publication of the study will be the trigger for the finalisation of these plans.

Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2022

These consolidated financial statements were approved by the Board of Directors on 27 April 2023 and were signed on its behalf by:

William Callewaert

Director

The notes form part of these consolidated financial statements.

3 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by Group entities, except for the implementation of new standards and interpretations.

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

(ii) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date.

Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising in translation are recognised in profit or loss.

(ii) Presentation currency

The assets and liabilities of foreign operations are translated to US$ at the exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to US$ at the average exchange rate for the period, which approximates the exchange rates at the dates of the transactions. Where specific material transactions occur, such as impairments or reversals of impairments, the daily exchange rate is applied when the impact is material.

Foreign currency differences are recognised in other comprehensive income and are presented within the foreign currency translation reserve in equity.

Foreign currency differences arising on intercompany loans, where the loans are not planned to be repaid within the foreseeable future and form part of a net investment, are recorded within other comprehensive income and are presented within the foreign currency translation reserve in equity.

(c) Financial instruments

Financial assets and financial liabilities are recognised in the Group's consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

(i) Financial assets

Financial assets are classified as either financial assets at amortised cost, at fair value through other comprehensive income ("FVTOCI") or at FVTPL depending upon the business model for managing the financial assets and the nature of the contractual cash flow characteristics of the financial asset.

A loss allowance for expected credit losses is determined for all financial assets, other than those at FVTPL, at the end of each reporting period. The Group applies a simplified approach to measure the credit loss allowance for trade receivables using the lifetime expected credit loss provision. The lifetime expected credit loss is evaluated for each trade receivable taking into account payment history, payments made subsequent to year end and prior to reporting, past default experience and the impact of any other relevant and current observable data. The Group applies a general approach on all other receivables classified as financial assets. The general approach recognises lifetime expected credit losses when there has been a significant increase in credit risk since initial recognition.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. The Group derecognises financial liabilities when the Group's obligations are discharged, cancelled or have expired.

(ii) Customer contracts

Under some of its customer sale arrangements, the Group receives a provisional payment upon satisfaction of its performance obligations based on the spot price at that date, which occurs prior to the final price determination, with the Group then subsequently receiving or paying the difference between the final price and quantity and the provisional payment. As a result of the pricing structure, the instrument is classified at FVTPL and measured at fair value with changes in fair value recorded as other revenue.

(iii) Other receivables

Other receivables are accounted for at amortised cost. Other receivables do not carry any interest and are stated at their nominal value as reduced by appropriate expected credit loss allowances for estimated recoverable amounts as the interest that would be recognised from discounting future cash payments over the short payment period is not considered to be material.

(iv) Cash and cash equivalents

Cash and cash equivalents comprise cash balances in banks, call deposits and highly liquid investments with maturities of three months or less from the acquisition date that are subject to insignificant risk of changes in their fair value, and petty cash.

(v) Financial liabilities

The Group has the following non-derivative financial liabilities: borrowings and trade and other payables. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

(vi) Long-term borrowings

After initial recognition, interest-bearing borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the statement of profit or loss.

(vii) Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

(d) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Land is measured at cost.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset into a working condition for its intended use, the costs of dismantling and removing the items and restoring the site on which they are located.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net within other income/other expenses in profit or loss.

 (ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation

Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and prior periods are as follows:

· Buildings 10-50 years;

· Plant and equipment 4-20 years;

· Vehicles 4-7 years;

· Computers 3-6 years; and

· Other 3-10 years.

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted prospectively if appropriate.

Assets under construction are not depreciated and begin being depreciated once they are ready and available for use in the manner intended by management.

(e) Exploration and evaluation assets

Exploration and evaluation expenditure for each area of interest once the legal right to explore has been acquired, other than that acquired through a purchase transaction, is carried forward as an asset provided that one of the following conditions is met.

· Such costs are expected to be recouped through successful exploration and development of the area of interest or, alternatively, by its sale; or

· Exploration and evaluation activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in relation to the area are continuing.

Exploration and evaluation costs are capitalised as incurred. Exploration and evaluation assets are classified as tangible or intangible based on their nature. Exploration expenditure which fails to meet at least one of the conditions outlined above is written off. Administrative and general expenses relating to exploration and evaluation activities are expensed as incurred.

The exploration and evaluation assets shall no longer be classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. This includes consideration of a variety of factors such as whether the requisite permits have been awarded, whether funding required for development is sufficiently certain of being secured, whether an appropriate mining method and mine development plan is established and the results of exploration data including internal and external assessments.

Exploration and evaluation assets will be reclassified either as tangible or intangible development assets and amortised on a unit-of-production method based on proved reserves.

Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of exploration and evaluation assets may exceed their recoverable amount, which is the case when: the period of exploration license has expired and it is not expected to be renewed; substantial expenditure on further exploration is not planned; exploration has not led to the discovery of commercially viable reserves; or indications exist that exploration and evaluation assets will not be recovered in full from successful development or by sale.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

(f) Intangible assets

(i) Intangible assets with finite useful lives

Intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses.

(ii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

(iii) Amortisation

Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use since this most closely reflects the expected pattern of consumption of future economic benefits embodied in the asset.

The estimated useful lives for the current and comparative periods are as follows:

· Patents 10-20 years; and

· Mineral rights 20 years.

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(g) Leased assets

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: fixed payments (including in-substance fixed payments), less any lease incentives receivable and variable payments based on index or rate amounts expected to be payable by the Group under residual value guarantees, payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have To pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

(h) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on first-in first-out method, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(i) Impairment

(i) Non-financial assets

The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit ("CGU") exceeds its estimated recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell (otherwise referred to as fair value less cost to develop in the industry). Fair value less costs to sell is determined by discounting the post-tax cash flows expected to be generated by the cash-generating unit, net of associated selling costs, and takes into account assumptions market participants would use in estimating fair value. In assessing the value in use, the estimated future cash flows are adjusted for the risks specific to the asset/cash-generating unit and are discounted to their present value that reflects the current market indicators. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.

The Group's corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the cash generating unit to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 (j) Employee benefits

(i) Defined contribution plans

The Group does not incur any expenses in relation to the provision of pensions or other post-employment benefits to its employees. In accordance with Kazakhstan state pension social insurance regulations, the Group withholds pension contributions from Kazakhstan based employee salaries and transfers them into State operated pension funds. Once the contributions have been paid, the Group has no further pension obligations. Upon retirement of employees, all pension payments are administered by the pension funds directly.

(ii) Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(k) Provisions

(i) Recognition and measurement

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.

(ii) Site restoration

In accordance with the Group's environmental policy and applicable legal requirements, a provision for site restoration is recognised when the land is disturbed as a result of pit development and plant decommissioning with a corresponding increase in exploration and evaluation costs or property, plant and equipment. Subsequent changes in the provision due to estimates are recorded as a change in the relevant asset. The provision is discounted at a risk-free rate with the costs incorporating risks relevant to the site restoration and an unwinding charge is recognised within finance costs for the unwinding of the discount.

 (l) Revenue

(i) Goods sold

Revenue from customers comprises the sale of vanadium and molybdenum products with other revenues from gravel and waste rock being non-significant. Revenue from vanadium products is recognised at a point in time when the customer has a legally binding obligation to settle under the terms of the contract and when the performance obligations have been satisfied, which is once control of the goods has transferred to the buyer at a designated delivery point at which point possession, title and risk transfers.

The Group commonly receives a provisional payment at the date control passes with reference to spot prices at that date. The final consideration is subject to quantity / quality adjustments and final pricing based on market prices determined after the product reaches its port of destination. The quantity / quality adjustments represent a form of variable consideration and revenue is constrained to record amounts for which it is highly probable no reversal will be required. However, given the short period to delivery post year end the final quantity / quality adjustments are known and revenue for the period is adjusted to reflect the final quantity / quality occurring subsequent to year end if material.

Changes in final consideration due to market prices is not determined to qualify as variable consideration within the scope of the IFRS 15 "Revenue from Customers". Changes in fair value as a result of market prices are recorded within revenue as other revenue.

(m) Finance costs

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions for historical costs and site restoration and foreign currency losses. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements result in a net gain or loss, this includes exchange gains and losses that arise on trade and other receivables and trade and other payables in foreign currency.

(n) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(o) Earnings per share

The Company presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares.

(p) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses related to transactions with other components of the same Group); whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

(q) Share-based payments

(i) Share-based payment transactions

The Company grants share options to certain Directors and Group employees ("Equity-Settled Transactions") under the Company's share option plan. The Directors determine the specific grant terms within the limits set by the Company's share option plan.

(ii) Equity-settled transactions

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

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

Where Equity-Settled Transactions are awarded to Directors or Group employees, the fair value of the share options at the date of grant is charged to the profit and loss statement over the vesting period. Non-market performance vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount

recognised over the vesting period is based on the number of the options that will eventually vest. Market performance vesting conditions are incorporated into the fair value of the equity instrument at the grant date.

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

The Company utilises the Black-Scholes option pricing model to estimate the fair value of share options granted to Directors and Group employees. The use of this model requires management to make various estimates and assumptions that impact the value assigned to the share options including the forecast future volatility of the share price, the risk-free interest rate, dividend yield, the expected life of the share options and the expected number of shares which will vest. See Note 20 for further details.

(r) New and amended standards adopted

No new standards and interpretations issued by the IASB have had a significant impact on the consolidated financial statements.

4 Revenue

Vanadium and molybdenum products

Under certain sales contracts the single performance obligation is the delivery of AMV to the designated delivery point at which point possession, title and risk on the product transfers to the buyer. The buyer makes an initial provisional payment based on volumes and quantities assessed by the Company and market spot prices of vanadium pentoxide for AMV at the date of shipment. The final payment is received once the product has reached its final destination with adjustments for quality / quantity and pricing. The final pricing is based on the historical average market prices during a quotation period based on the date the product reaches the port of destination and an adjusting payment or receipt will be made to the revenue initially received. Where the final payment for a shipment made prior to the end of an accounting period has not been determined before the end of that period, the revenue is recognised based on the spot price that prevails at the end of the accounting period.

Other revenue related to the change in the fair value of amounts receivable and payable under the sales contracts between the date of initial recognition and the period end resulting from market prices are recorded as other revenue.

5 Cost of sales

6 Other income

7 Administrative expenses

8 Other expenses

9 Personnel costs

During 2022 personnel costs of US$937,000 (2021: US$630,000) have been charged to cost of sales, US$1,619,000 (2021: US$1,035,000) to administrative expenses and US$43,000 (2021: US$46,000) were charged to cost of inventories which were not yet sold as at the year end.

10 Finance costs

11 Income tax

The Group's applicable tax rates in 2022 are an income tax rate of 20% for Kazakhstan registered subsidiaries (2021: 20%) and 0% (2021: 0%) for Guernsey registered companies. The Kazakh tax rate has been applied below as this is most reflective of the Group's trading operations and tax profile.

During the years ended 31 December 2022 and 2021 the Group incurred tax losses and, therefore, did not recognise any current income tax expense.

Unrecognised deferred tax assets are described in Note 15.

12 Property, plant and equipment

During 2022 a depreciation expense of US$406,000 (2021: US$424,000) has been charged to cost of sales, excluding cost of finished goods that were not sold at year end, US$98,000 (2021: US$30,000) to administrative expenses, and US$4,000 has been charged to cost of finished goods that were not sold at the year end (2021: US$1,000). Construction in progress relates to upgrades to the processing plant associated with the expansion of the facility.

13 Exploration and evaluation assets

The Group's exploration and evaluation assets ("E&EA") relate to the Balasausqandiq deposit. During the year, the Group capitalised the cost of geological and geotechnical drilling work, technical design, sample assaying and project management costs, all relating to the Company's Stage 1 feasibility study. As at 31 December 2022 the carrying value of exploration and evaluation assets was US$4.2m (2021: US$1.43m).

14 Intangible assets