Kefi Gold Regulatory News (KEFI)

9 June 2023

KEFI Gold and Copper plc

("KEFI" or the "Company")

Results for the year ended 31 December 2022

KEFI (AIM: KEFI), the gold and copper exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, is pleased to announce its audited financial results for the year ended 31 December 2022.

AGM and Annual Report

As announced on 2 June 2023 the Annual General Meeting ("AGM") of the Company will be held at 11:00 a.m. (EEST) (9:00 a.m. BST) on 30 June 2023 at Hilton Park Nicosia,1 Achaion Street, Engomi, Nicosia, 2413, Cyprus. The notice of AGM has been posted to shareholders and is available for download on the Company's website: https://www.kefi-goldandcopper.com

The Annual Report and Accounts for the year ended 31 December 2022 are also available on KEFI's website at https://www.kefi-goldandcopper.com

Market Abuse Regulation (MAR) Disclosure

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

Enquiries

Further information can be viewed at https://www.kefi-goldandcopper.com

EXECUTIVE CHAIRMAN'S REPORT

After some particularly frustrating years, the working environment in both Ethiopia (security and regulatory) and Saudi Arabia (regulatory) was transformed for the better during 2022. In Ethiopia, we are finally close to launching the Tulu Kapi Gold Project this year. And as we advance in both countries with an early-mover position, we can now expect to report an escalating stream of achievements. What a welcome outlook after years of challenge and frustration!

We now enjoy highly supportive mine-regulatory working environments in both countries which are also prioritising projects like ours across all the relevant Government agencies. Given that we have three advancing potential development projects in these jurisdictions, the Company is now in a much better risk/return position than it has ever been. It is indeed a refreshing change and an exciting opportunity.

Financial markets, and the AIM Market in particular, have shown some volatility and weakness flowing from global and UK political events. This has reinforced KEFI's strategy of sourcing predominantly project-level and subsidiary-level project financing.

At the same time, both the Saudi and Ethiopian local equity capital markets have shown particular interest in natural resources, as have the Canadian and Australian mining-focused stock markets. KEFI has appointed advisers to consider a dual-listing of the Company's shares on major regional or mining-focused stock exchanges.

Successful implementation of our plans will result in KEFI being a leader in the Arabian-Nubian Shield with projected 2027 aggregate annual production of 327,000 gold-equivalent ounces, in which KEFI will have a beneficial interest of 150,000 gold-equivalent ounces. These estimates reflect resources as they stood at 2021 and current preliminary assessments.

Our reported Mineral Resources provide a solid starting position for growth. Since mid-2020, KEFI's beneficial interest in the in-situ metal content of our three projects has grown from 1.2 million gold-equivalent ounces to approximately 2.1 million gold-equivalent ounces. KEFI's current market capitalisation of circa £40 ($50) million equates to only $24 per gold-equivalent ounce.

The growth in Mineral Resources is due to our progress in Saudi Arabia in particular, where GMCO is now well-established as a leading explorer/developer in the fast-emerging Saudi minerals sector with:

GMCO's growth has coincided with the Saudi Government's widely publicised recent initiatives to welcome international expertise and fast-track the growth of its mining sector. In the past year or so, we have been awarded 14 Exploration Licences ("ELs"), many times the number we were awarded over the previous thirteen years.

A notable reason for our solid position in the region is our alliancing strategy. Our operating alliances are with the following strong organisations:

Ethiopia - Tulu Kapi

Having essentially overcome its recent security issues, Ethiopia is demonstrating a clear determination to expedite economic recovery and once again be among the world's top 10 growth countries, as it was for nearly 20 years up to 2017. A key part of the Ethiopian Government's strategy to achieve this strong growth is for the mining sector to increase from 1% of GDP today to 10% of GDP ten years from now. The Federal Government recently deployed its world-recognized military around priority mining sites such as Tulu Kapi and announced a number of incentives such as lower royalty rates to reinforce its commitment to protect, support and encourage our industry.

Tulu Kapi will be the country's first large-scale mining project for some 30 years and is designed to the highest international standards. It therefore is imposing many demands on a regulatory system which the Ethiopian Government is upgrading.

There is significant potential to increase Tulu Kapi's current Ore Reserves of 1.05 million ounces of gold and Mineral Resources of 1.7 million ounces. Economic projections for the Tulu Kapi open pit indicate the following returns assuming a gold price of $1,815/ounce:

The assumptions underlying these projections are detailed in the footnotes to the table on page 10 of this Annual Report.

Saudi Arabia - Jibal Qutman

Whilst GMCO has been on the ground since 2008, mining de-regulation was only implemented over the past two years. This has led to a surge in companies looking to enter the Saudi minerals sector and one recent entrant has announced one of the largest exploration programs ever committed anywhere - testament to the international rating of the Saudi prospectivity. KEFI's beneficial interest is planned to be 26.8% in GMCO and the shareholders' agreement provides extra flexibility on a project-by-project basis by catering for the possibility that one or other GMCO project can be sole-risked by either shareholder if one partner chooses to opt out.

Jibal Qutman was KEFI's first discovery in Saudi Arabia with Mineral Resources in excess of 700,000 ounces of gold.

In mid-2022, formal notification was received from the Saudi authorities that land access issues which halted our mine development application in 2016 were resolved. This enabled GMCO to commence the work required to complete a DFS, with site activities again being allowed only from late 2022.

The current gold price and consensus outlook is considerably higher than the $1,200/ounce used in our preliminary 2015 studies when the Company lodged its initial Mining Licence application based on mining the 200,000 ounces of oxide ore only, with a view to a low-risk start-up pending expansion of the resources to justify a larger development scenario. Another key change over the past 8 years is that recently granted ELs now cover more than 35km linear extent or 270 square kilometres of the prospective fault zone north and south of the known Jibal Qutman deposits, thus providing more opportunity to discover near-surface gold mineralisation.

Development commitments will be duly considered after completion of the DFS. And upon GMCO commitment, granting of the Mining Licence, regulatory approvals and financing, GMCO could reasonably target commissioning gold production at Jibal Qutman in 2025, coincidentally around the same time as Tulu Kapi in Ethiopia.

Saudi Arabia - Hawiah

Hawiah was discovered in September 2019 and now ranks in the:

Our drilling since 2019 has so far delineated a Mineral Resource Estimate ("MRE") of 29.0 million tonnes at 0.89% copper, 0.94% zinc, 0.67g/t gold and 10.1g/t silver. As a scale-comparison with Tulu Kapi, Hawiah's in-situ metal content is now estimated to be in the order of 2.48 million gold-equivalent ounces versus Tulu Kapi's current 1.72 million ounces of gold.

Exploration commenced at the nearby Al Godeyer Project in early 2022 and drilling quickly confirmed similar copper-gold mineralisation to the Hawiah VMS deposit. The recently announced initial Al Godeyer MRE demonstrates the potential for satellite orebodies to be discovered near the proposed Hawiah processing plant.

We are finalising the Hawiah PFS and are continuing to drill to upgrade and expand the resources within this major VMS district.

Summary and Conclusion

We all know that getting one's timing right from an investment viewpoint is an elusive task - not only are there are many company specific issues, these are entwined with external factors such as jurisdictional matters, metal prices and capital market cycles. It is perhaps fair to say that KEFI's share price has largely drifted with sectoral trends illustrated by the global Gold Junior Mining Index (MVIS sub-index MVGDXJ). Notwithstanding that this index is for much larger companies (market capitalisation ≥ $150 million) its performance pattern is similar to that of KEFI's share price to date. The index was 68% at the time of KEFI's IPO in 2006, historically peaked at 236% in 2011 when KEFI's historical share price also peaked, and has declined since then to -8% on 16 May 2023.

So - what do we have to achieve to break out - to get ahead of the pack? The fundamentals of the company have never been stronger; nor have metal prices or the local jurisdictional conditions and governmental support we are receiving. What we must do now is to go into fast forward wherever possible without compromising safety and financial commonsense. That will make our past years of frustration worthwhile. It is also my view that capital markets behave cyclically and it might be the case that we see a swing back to the mining sector for capital allocation internationally, especially directed at those companies who rank highly on ESG measures as well as the measures for discovery, development and production.

KEFI is now preparing to develop the high-grade Tulu Kapi Gold Project, completing its DFS-stage development studies on the Jibal Qutman Gold Project, finalising the PFS for the Hawiah Copper-Gold Project and prospecting exploration targets in Ethiopia and Saudi Arabia. And the timing is now proving to be on our side.

Simultaneous with the triggering of full development at Tulu Kapi, we intend to re-commence exploration programs in Ethiopia and intensify our exploration program in Saudi Arabia. In Ethiopia, the initial focus will be underneath the planned open pit where we already have established an initial resource for underground mining at an average grade of 5.7g/t gold. We also intend to follow-up drilling which indicated good potential for nearby satellite gold deposits in the Tulu Kapi District. In Saudi Arabia, further drilling is being undertaken during 2023 at Hawiah, Jibal Qutman and surrounding ELs. Regional prospecting programs will also elevate as we are blessed with many other walk-up drill targets.

Along with my fellow Directors, I am dedicated to the generation of returns on investment. It has been frustrating that the working environments of both Ethiopia and Saudi Arabia in recent years have not allowed us to achieve targeted progress. However, I believe that both situations have turned for the better and we are now pushing forward. 

By emphasising conventional project-level development financing, we will reduce the pressure on KEFI shareholders and its foundation partners to provide all the funding. In fact, at Tulu Kapi more than 90% of the development capital is planned at the project or subsidiary level from newly introduced regional investors, bankers, contractors, and other syndicate parties. However, exploration and other pre-development funding will likely continue to rely exclusively on equity funding by KEFI and its foundation partners in-country.

Going forward, one would normally expect that as milestones are achieved, the Company's share price should naturally narrow the gap between the Company's market capitalisation and what we believe to be the significantly higher fundamental valuations of the Company's projects using conventional measures such as NPV.

We are indeed at an opportune moment, created by our team's hard work, your support and patience as shareholders and now metal prices strengthening as we launch our projects within improved political and regulatory environments. The Directors are deeply appreciative of all personnel's tenacity, tireless efforts and steadfast dedication together with the support the Company receives from shareholders, our families and other stakeholders. Let us now see some of the success the Company has worked for.

Recent developments have also triggered the next chapter of our organisational development with several appointments having been made, including Mr. Eddy Solbrandt as Group Chief Operating Officer ("COO") and Mr. Gareth Taylor as GMCO's COO along with several other additions to the senior management team in both Ethiopia and Saudi Arabia. The Board of Directors is also adjusting its composition to handle approaching retirements and to add to the range of skills and appropriate board expertise in preparation for the substantial changes as KEFI moves into its exciting next stage with the development of our projects.

Executive Chairman

Harry Anagnostaras-Adams

8 June 2023

FINANCE DIRECTOR'S REPORT

Financing Working Capital for KEFI's Activities to Date

KEFI has funded all activities to date with approximately £80 million equity capital raised at then prevailing share market prices. This avoided superimposing debt-repayment risk onto exploration, permitting and other risks that always exist during the early phases of project exploration and development in mining-frontier markets. We do however avail ourselves of short-term unsecured advances from time to time as arranged by our Corporate Broker to provide working capital pending the achievement of a short-term business objectives.

The risks of management of working capital in the context of such high-growth and high-risk exploration ventures is a matter which is highlighted by the Directors in the Going Concern Note of the Financial Statements which shareholders should refer to.

Financing Tulu Kapi Project Development

The current cost (including finance costs and working capital) to develop Tulu Kapi is estimated to be c. $320 million, which was last updated in late 2022. Our financing plans absorbed significant cost-inflation at that time due to global supply chain strains for the mining sector exacerbated by the COVID pandemic and the Ukraine war. Whilst cost-inflation appears to have abated, pricing will be updated again as at project launch and final finance arrangements will be refined accordingly.

The various funding offers and commitments are made on a non-binding basis for finalisation as we move to project launch. The financing syndicate has expressed willingness to adjust and refine amongst itself in line with final procurement and budget prices.

The $320 million funding package is now expected to be sourced from $190 million debt (senior and subordinated) and $130 million equity-risk capital (from Government $30 million, Regional Investors $80 million and from KEFI's public shareholders $20 million). Over the course of the past year, we have materially reduced (to $15 million) the portion of Regional Investors' equity funding convertible into KEFI shares (as from Year 4 after investment at then market prices, if not repaid by KEFI in cash in the interim) by agreeing within the syndicate that a large component of the investment by Regional Investors be in the form of Equity-Risk Ranking Notes to be issued by TKGM (non-convertible into shares).

Also, the conditionality of the finance closing process has now been significantly de-risked. When I wrote to you last year, the top three conditions precedent required for final bank credit approvals were dependent on Government and were as follows:

The resolution of the remaining (the third matter listed above) critical condition will therefore facilitate final credit approvals and signing of definitive documentation between the respective syndicate members, which we still target to achieve in June 2023. We are confident of these approvals from our long-standing and hard-working syndicate but, of course, we must emphasise that the pace of our progress overall is now essentially subject to the pace of administrative progress with the relevant Government agencies. Be that as it may, all parties are pushing and I am highly confident of the outcome.

KEFI and the Project syndicate remain focused on achieving Project launch as soon as practicable, commencing full construction in Q4-2023, having by then triggered procurement and community resettlement, and leading to gold production from open pit ore in 2025.

Ownership Value and Ownership Dilution

The £6.4 million Placing currently being completed (subject to shareholder approval) will mainly be used to fund:

In announcing the Placing, we also foreshadowed an intention for Directors and management to be offered the opportunity to participate in the Placing at the same price and subject to shareholder approval.

We strive to minimise ownership dilution by sourcing nearly all development capital at the project or subsidiary level.

In respect of the Tulu Kapi Project, the $15 million portion of the overall $320 million funding package which is planned to involve future KEFI share issues (unless KEFI chooses to repay in cash) will be via instruments convertible at prices prevailing during the fourth year after settlement, when Tulu Kapi is in production. In the shorter term, part of the finance plan is that the successful launch of the Project will hopefully facilitate the exercise of warrants currently on issue and exercisable at 1.6 pence per share, the proceeds of which are up to £14 million ($18 million). Alternatives are also planned.

From an ownership value perspective and measuring the Company's underlying assets on an NPV basis, this approach has already contributed to the indicative value of KEFI's share of its three main assets having more or less tripled from $153 million in June 2020 to c.$352 million (£281 million¹) in May 2023. The basis for these estimates is KEFI's estimated beneficial interest, post-financing, of the NPV of cash flows to shareholders as derived using consensus forecast metal prices and other explanations provided in the footnotes below.

Project Development Finance Risk Management

In designing the level of balance sheet debt gearing at the operating joint-venture company level, the senior and subordinated debt to equity ratio for TKGM is:

Also, for structuring the TKGM project finance, several key parameters had a driving influence on our approach:

We have conditionally assembled all the development finance, mostly at the project level from the work of our strong but small, efficient and economical corporate office in Nicosia, Cyprus. Other than our Nicosia-based group management, financial control/corporate governance team, all operational staff are usually based at the sites for project work. This hands-on culture increases efficiency at a lower cost for corporate overhead - critical at this early stage.

Accounting Policy

KEFI writes off all exploration expenditure in Saudi Arabia but we will review this upon completion of Board-approved DFS studies. KEFI's carrying value of the investment in KME, which holds the Company's share of Tulu Kapi is only £15.6 million as at 31 December 2022. It is important to note KEFI's planned circa.70% beneficial interest in the underlying valuation of Tulu Kapi is c.£125 ($156) million based on project NPV at a gold price of $1,815/ounce and including the underground mine.

In addition, the balance sheet of TKGM at full closing of all project funding will reflect (in Ethiopian Birr) all its fully capitalised pre-development costs as well as its project finance development package.

John Leach

Finance Director

8 June 2023

Footnotes:

Consolidated statement of comprehensive income

Year ended 31 December 2022

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

Statements of financial position

31 December 2022

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

The Company has taken advantage of the exemption conferred by section 408 of Companies Act 2006 from presenting its own statement of comprehensive income. Loss after taxation amounting to £6.1 million (2021: £6.8 million) has been included in the financial statements of the parent company.

On the 8 June 2023, the Board of Directors of KEFI Gold and Copper PLC authorised these financial statements for issue.

Harry Anagnostaras-Adams John Edward Leach

Executive Director- Chairman Finance Director

Consolidated statement of changes in equity

Year ended 31 December 2022

The following describes the nature and purpose of each reserve within owner's equity:

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

Company statement of changes in equity

Year ended 31 December 2022

The following describes the nature and purpose of each reserve within owner's equity:

Reserve Description and purpose

Share capital (Note 17) Amount subscribed for ordinary share capital at nominal value

Deferred shares: (Note 17) Under the restructuring of share capital, ordinary shares of in the capital of the Company were sub-divided into deferred share (Note 17).

Share premium: (Note 17) Amount subscribed for share capital in excess of nominal value, net of issue costs

Share options reserve: (Note 18) Reserve for share options and warrants granted but not exercised or lapsed

Accumulated losses Cumulative net gains and losses recognized in the statement of comprehensive income

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

Consolidated statement of cash flows

Year ended 31 December 2022

Cash and cash equivalents in the Consolidated Statement of Financial Position includes restricted cash of £nil (2021: £20,000).

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

Company statement of cash flows

Year ended 31 December 2022

Cash and cash equivalents in the Company Statement of Financial Position includes restricted cash of £nil (2021: £20,000).

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

Notes to the consolidated financial statements

Year ended 31 December 2022

1. Incorporation and principal activities

Country of incorporation

KEFI Gold and Copper PLC (the "Company") was incorporated in United Kingdom as a public limited company on 24 October 2006. Its registered office is at 27/28, Eastcastle Street, London W1W 8DH.The principal place of business is Cyprus.

Principal activities

The principal activities of the Group for the year were:

2. Accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied throughout both periods presented in these financial statements unless otherwise stated.

Basis of preparation and consolidation

The Company and the consolidated financial statements have been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006. They comprise the accounts of KEFI Gold and Copper PLC and all its subsidiaries made up to 31 December 2022. The Company and the consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments.

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date. Subsidiaries are all entities over which the Group has power to direct relevant activities and an exposure to variable returns. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

When the excess is positive, goodwill is recognised in the statement of financial position, if the excess is negative, a bargain purchase price is recognised in profit or loss.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured, and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries have been included in the consolidated financial statements from the date that control commences until the date that control ceases.

An investor controls an investee if and only if the investor has all the following:

An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

(a) power over the investee;

(b) exposure, or rights, to variable returns from its involvement with the investee; and

(c) the ability to use its power over the investee to affect the amount of the investor's returns.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

Going concern

The assessment of the Group's ability to continue as a going concern involves judgment regarding future funding available for the development of the Tulu Kapi Gold project, advancement of the Saudi Arabia exploration properties and for working capital requirements. As part of this assessment, management have considered funds on hand at the date of approval of the financial statements, planned expenditures covering a period of at least 12 months from the date of approving these financial statements and its suitability in the context of the Group's long term strategic objectives. The Group also recognises that within the going concern consideration period it will require funding for its share of the construction development costs of the Tulu Kapi mine (Further details on project financing plan are summarised in the Finance Director's Report).

TKGM reactivated Tulu Kapi project launch preparations in June-2022 with the signing of an initial Umbrella Agreement. This was followed by a final Umbrella Agreement in April 2023. However, funding requirements and project timing could still be impacted by security concerns or other factors in Ethiopia. The Ministry of Mines in Ethiopia has received official notification that the project is currently progressing according to the planned timetable and will continue to do so, provided that the security situation remains satisfactory. There are a few remaining tasks that need to be addressed, including the government's completion of necessary regulatory requirements and the successful and timely finalization of project financing. The Company maintains a close watch on the condition of security and uses an independent security specialist to provide ongoing situational assessments and reports. (Refer to "Security Risk" section of the Principal Risks and Uncertainties Report for additional details).The Tulu Kapi project financing syndicate's arrangements with project lenders AFC and TDB for $190 million project loan facilities [has received approval of their respective credit committees subject to normal conditions precedent including KEFI raising additional equity (refer to "Financing Risk" of the Principal Risks and Uncertainties Report for more details)], are being formalised and definitive agreements are in preparation.

In May 2023, the Company announced the successful completion of an unconditional placement of £5.5 million and, subject to shareholder approval at the annual general meeting on 30 June 2023, a further placement of £0.9 million. As of the date of this financial report, £5.1 million has been utilised by the Company to bring creditors into normal trading terms, repay its debts and increase working capital. The balance of the placements will be received subject to shareholder approval and share placement settlement terms. Forecasts show that the Group will require additional funding in Q3 2023 to meet project development, working capital needs and other planned expenditures. Should funding be required before financial close (ie full funding) of the Tulu Kapi Gold Project, the Company has potential access to short term funding from shareholders and other alternatives on offer, but currently not committed, as has been the case in the past.

Accordingly, and as set out above, this indicates the existence of a material uncertainty which may cast significant doubt over the Group and Company's ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. Based on historical experience and current ongoing proactive discussions with stakeholders, the Board has a reasonable expectation that definitive binding agreements will be signed. Accordingly, the Board has a reasonable expectation that the Group will be able to continue to raise funds to meet its objectives and obligations.

The financial statements therefore do not include the adjustments that would result if the Group was unable to continue as a going concern.

Functional and presentation currency

The individual financial statements of each Group entity are measured and presented in the currency of the primary economic environment in which the entity operates. The consolidated financial statements of the Group and the statement of financial position and equity of the Company are in British Pounds ("GBP") which is the functional currency of the Company and the presentation currency for the consolidated financial statements. Functional currency is also determined for each of the Company's subsidiaries, and items included in the financial statements of the subsidiary are measured using that functional currency. GBP is the functional currency of all subsidiaries.

1) Foreign currency translation

Foreign currency transactions are translated into the presentational currency using the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss in the statement of comprehensive income.

2) Foreign operations

On consolidation, the assets and liabilities of the consolidated entity's foreign operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly in which case they are recorded at the actual rate. Exchange differences arising, if any, are recognized in the foreign currency translation reserve and as a component of other comprehensive income, and recognized in profit or loss on disposal of the foreign operation.

Revenue recognition

The Group had no sales or revenue during the year ended 31 December 2022 (2021: Nil).

Property plant and equipment

Property plant and equipment are stated at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition less depreciation.

Depreciation is calculated using the straight-line method to write off the cost of each asset to their residual values over their estimated useful life.

The annual depreciation rates used are as follows:

Intangible Assets

Cost of licenses to mines are capitalised as intangible assets which relate to projects that are at the pre-development stage. No amortisation charge is recognised in respect of these intangible assets. Once the Group starts production these intangible assets relating to license to mine will be depreciated over life of mine.

Interest in jointly controlled entities

The group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the group and at least one other party. Joint control exists where unanimous consent is required over relevant decisions.

The group classifies its interests in joint arrangements as either:

In assessing the classification of interests in joint arrangements, the Group considers:

The Group accounts for its interests in joint ventures using the equity method. The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, and expenses in accordance with its contractually conferred rights and obligations.

Finance costs

Interest expense and other borrowing costs are charged to the statement of comprehensive income as incurred and is recognised using the effective interest method.

Tax

The tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Tax is payable in the relevant jurisdiction at the rates described in note 9.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognized for all taxable differences and deferred tax assets are recognized to the extent that taxable profits will be available against which deductible temporary differences can be utilized. The amount of deferred tax is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off deferred tax assets against deferred tax liabilities and when the deferred taxes relate to the same fiscal authority.

Investments

Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognized as an expense in the period in which the impairment is identified, in the Company accounts.

Exploration costs

The Group has adopted the provisions of IFRS 6 "Exploration for and Evaluation of Mineral Resources". The company still applies IFRS 6 until the project financing is secured. Once financing is secured the project moves to the development stage.

Exploration and evaluation expenditure, including acquisition costs of licences, in respect of each identifiable area of interest is expensed to the statement of comprehensive income as incurred, until the point at which development of a mineral deposit is considered economically viable and the formal definitive feasibility study is completed. At this point costs incurred are capitalised under IFRS 6 because these costs are necessary to bring the resource to commercial production.

Exploration expenditures typically include costs associated with prospecting, sampling, mapping, diamond drilling and other work involved in searching for ore. Evaluation expenditures are the costs incurred to establish the technical and commercial viability of developing mineral deposits identified through exploration activities. Evaluation expenditures include the cost of directly attributable employee costs and economic evaluations to determine whether development of the mineralized material is commercially justified, including definitive feasibility and final feasibility studies.

Impairment reviews for deferred exploration and evaluation expenditure are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise such as: (i) unexpected geological occurrences that render the resource uneconomic; (ii) title to the asset is compromised; (iii) variations in mineral prices that render the project uneconomic; (iv) substantive expenditure on further exploration and evaluation of mineral resources is neither budgeted nor planned; and (v) the period for which the Group has the right to explore has expired and is not expected to be renewed.

On commencement of development, Exploration and evaluation expenditure are reclassified to development assets, following assessment for any impairment.

Development expenditure

Once the Board decides that it intends to develop a project, development expenditure is capitalized as incurred, but only where it meets criteria for recognition as an intangible under IAS 38 or a tangible asset under IAS 16 and then amortized over the estimated useful life of the area according to the rate of depletion of the economically recoverable reserves or over the estimated useful life of the mine, if shorter.

Share based compensation benefits

IFRS 2 "Share based Payment" requires the recognition of equity settled share-based payments at fair value at the date of grant and the recognition of liabilities for cash settled share based payments at the current fair value at each statement of financial position date. The total amount expensed is recognized over the vesting period, which is the period over which performance conditions are to be satisfied. The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management's best estimate, including consideration of the effects of non-transferability, exercise restrictions and behavioural considerations.

Where the Group issues equity instruments to persons other than employees, the statement of comprehensive income is charged with the fair value of goods and services received.

Convertible loan notes

Convertible loan notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis until extinguished upon conversion or at the instrument's maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently remeasured.

When the terms of a new convertible loan arrangement are such that the option will not be settled by the Company in exchange for a fixed number of its own equity instruments for a fixed amount of cash, the convertible loan (the host contract) is either accounted for as a hybrid financial instrument and the option to convert is an embedded derivative or the whole instrument is designated at fair value through profit and loss. Where the instrument is bifurcated, the embedded derivative, where material, is separated from the host contract as its risks and characteristics are not closely related to those of the host contract. At each reporting date, the embedded derivative is measured at fair value with changes in fair value recognised in the income statement as they arise. The host contract carrying value on initial recognition is based on the net proceeds of issuance of the convertible loan reduced by the fair value of the embedded derivative and is subsequently carried at each reporting date at amortised cost.

Prior to conversion the embedded derivative or fair value through profit and loss instrument is revalued at fair value. Upon conversion of the loan, the liability, including the derivative liability where applicable, is derecognised in the statement of financial position. At the same time, an amount equal to the redemption value is recognised within equity. Any resulting difference is recognised in retained earnings. Where the Company enters equity drawdown facilities, whereby funds are drawn down initially and settled in shares at a later date, those shares are recorded initially as issued at fair value based on management's best estimation, with a subsequent revaluation recorded based on the final value of the instrument at the date the shares are issued or allocated. Where the value of the shares is fixed but the amount is determined later, the fair value of the shares to be issued is deemed to be the value of the amount drawn down, less any transaction and listing costs.

Warrants

Warrants issued are recognised at fair value at the date of grant. The charge is expensed on a straight-line basis over the vesting period. The fair value is measured using the Trinomial Model. Where warrants are considered to represent a transaction cost attributable to a share placement, the fair value is recorded in the warrant reserve and deducted from the share premium.

Financial instruments

Non-derivative financial assets

The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired.

Amortised cost: These are financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Trade and other receivables, as well as cash are classified as amortised cost.

Financial asset at fair value through other comprehensive income: Financial assets (debt) which are held with the objective as above but which maybe intended to be sold before maturity and also includes strategic equity investments (that are not subsidiaries, joint ventures or associates) which would be normally held at fair value through profit or loss, could on irrevocable election be measured with fair value changes flow through OCI. On disposal, the gain or loss will not be recycled to P&L.

Financial asset at fair value through profit and loss: Financial assets not meeting the criteria above and derivatives.

Impairment of financial assets: Financial assets at amortised cost consist of trade receivables, loans, cash and cash equivalents and debt instruments. Impairment losses are assessed using the forward-looking Expected Credit Loss (ECL) approach. Trade receivable loss allowances are measured at an amount equal to lifetime ECL's. Loss allowances are deducted from the gross carrying amount of the assets

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Group in the management of its short-term commitments.

Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The Group classifies non-derivative financial liabilities as other financial liabilities. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. After initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

Other financial liabilities comprise trade and other payables and borrowings.

Financial assets and liabilities at fair value through the profit or loss

Financial assets and liabilities at fair value through the profit or loss comprise derivative financial instruments. After initial recognition, financial assets at fair value through the profit or loss are stated at fair value. Movements in fair values are recognised in profit or loss unless they relate to derivatives designated and effective as hedging instrument, in which event the timing of the recognition in the profit or loss depends on the nature of the hedging relationship. The Group does not currently have any such hedging instruments.

New standards and interpretations applied

The following new standards and interpretations became effective on 1 January 2022 and have been adopted by the Group.

¹Not yet endorsed. 

These amendments had no impact on the interim condensed consolidated financial statements of the Group. The Group intends to use the practical expedients in future periods if they become applicable.

New standards, amendments and interpretations that are not yet effective and have not been early adopted.

· Revisions to the Conceptual Framework for Financial Reporting.

The principal accounting policies adopted are set out above.

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early.

The Group is currently assessing the impact of these new accounting standards and amendments.

The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the group.

3. Financial risk management

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand with an original maturity date of less than three months. To mitigate our inherent exposure to credit risk we maintain policies to limit the concentration of credit risk and ensure liquidity of available funds. We also invest our cash and equivalents in rated financial institutions, primarily within the United Kingdom and other investment grade countries, which are countries rated BBB- or higher by S&P the Group does not have a significant concentration of credit risk arising from its bank holdings of cash and cash equivalents.

Financial risk factors

The Group is exposed to market risk (interest rate risk and currency risk), liquidity risk and capital risk management arising from the financial instruments it holds. The risk management policies employed by the

Group to manage these risks are discussed below:

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group does not consider this risk to be significant.

The Company has borrowings outstanding from its subsidiaries, the ultimate realisation of which depends on the successful exploration and realization of the Group's intangible exploration assets. This in turn is subject to the availability of financing to maintain the ongoing operations of the business. The Group manages its financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.

Market risk - Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group's operating cash flows are substantially independent of changes in market interest rates as the interest rates on cash balances are very low at this time. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.

At the reporting date the interest rate profile of interest-bearing financial instruments was:

Sensitivity analysis

An increase of 100 basis points in interest rates at 31 December 2022 would have increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Given current interest rate levels, a decrease of 25 basis points has been considered, with the impact on profit and equity shown below. 

Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the functional currency of the entity.

The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Australian Dollar, Euro, Turkish Lira, US Dollar, CHF, Ethiopian Birr and Saudi Arabian Riyal. Since 1986 the Saudi Arabian Riyal has been pegged to the US Dollar, it is fixed at USD/SAR 3.75. The Group's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows; with the Saudi Arabian Riyal exposure being included in the USD amounts.

Sensitivity analysis continued

A 10% strengthening of the British Pound against the following currencies at 31 December 2022 would have increased/(decreased) equity and profit or loss by the amounts shown in the table below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the British Pound against the relevant currency, there would be an equal and opposite impact on the loss and equity.

Liquidity risk

The Group and Companies raise funds as required on the basis of projected expenditure for the next 6 months, depending on prevailing factors. Funds are generally raised on AIM from eligible investors. The success or otherwise of such capital raisings is dependent upon a variety of factors including general equities and metals mark sentiment, macro-economic outlook and other factors. When funds are sought, the Group balances the costs and benefits of equity and other financing options. Funds are provided to projects based on the projected expenditure.

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefit for other stakeholders and to maintain an optimal capital structure to reduce the costs of capital. This is done through the close monitoring of cash flows.

The capital structure of the Group consists of cash and cash equivalents of £220,000 (2021: £394,000) and equity attributable to equity of the parent, comprising issued capital and deferred shares of £27,267,000 (2021: £25,895,000), other reserves of £46,934,000, (2021: £37,775,000) and accumulated losses of £48,781,000 (2021: £42,731,000). The Group has no long-term debt facilities.

Fair value estimation

The Group has certain financial assets and liabilities that are held at fair value. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques to measure fair value:

Classification of financial assets and liabilities

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

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

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

Fair value estimation

The fair value of trade and other receivables is estimated as the present value of future cash flows discounted at the market rate of interest at the reporting date. For receivables and payables with a remaining life of less than one year, the notional amount is deemed to reflect fair value. All other receivables and payables are, where material, discounted to determine the fair value.

Differences arising between the carrying and fair value are considered not significant and no-adjustment is made in these accounts. The carrying and fair values of intercompany balances are the same as if they are repayable on demand.

The fair values of the Group's loans and other borrowings are considered equal to the book value as the effect of discounting on these financial instruments is not considered to be material.

As at each of December 31, 2022 and December 31, 2021, the levels in the fair value hierarchy into which the Group's financial assets and liabilities measured and recognized in the statement of financial position at fair value are categorized are as follows: