KRPZ Kropz Plc

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2023

		Twelve months ended 31 December	Twelve months ended 31 December
		2023 Unaudited US$'000	2022 Audited US$'000
Cash flows from operating activities
Loss before taxation		(13,527)	(97,222)
Adjustments for:
Depreciation of property, plant and equipment		730	821
Amortisation of right-of-use assets		-	5
Impairment losses		-	92,661
Share-based payment		40	(222)
Interest income		(201)	(136)
Interest expense		13,474	6,496
Fair value gain from derivative liability		(15,942)	(10,807)
Debt Modification Present value adjustment		(104)	(233)
Foreign currency exchange differences		2,431	3,550
Fair value (gain) / loss on game animals		(24)	21
Operating cash flows before working capital changes		(13,123)	(5,066)
Decrease / (Increase) in trade and other receivables		(1,349)	(471)
Increase in inventories		(4,008)	(3,453)
Increase / (Decrease) in payables		2,362	(172)
Net cash flows used in operating activities		(16,118)	(9,162)
Cash flows used in investing activities
Purchase of property, plant and equipment		(4,374)	(29,215)
Exploration and evaluation expenditure		(330)	(346)
Other financial asset		(511)	427
Interest received		201	136
Transfers from restricted cash		-	4,727
Net cash flows used in investing activities		(5,014)	(24,271)
Cash flows from financing activities
Finance cost paid		(2,399)	(2,586)
Shareholder loan received		40,609	38,727
Repayment of lease liabilities		-	(6)
Repayment of Other financial liabilities		(15,040)	(3,712)
Issue of ordinary share capital		-	557
Net cash flows from financing activities		23,170	32,980
Net increase / (decrease) in cash and cash equivalents		2,038	(453)
Cash and cash equivalents at beginning of the period		2,120	2,461
Foreign currency exchange (losses) / gains on cash		(1,150)	112
Cash and cash equivalents at end of the period		3,008	2,120

 

The accompanying notes form part of the Condensed Consolidated Financial Statements.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2023

 

1.       General information

 

Kropz and its subsidiaries (together "the Group") is an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa, Elandsfontein, and a phosphate project in the RoC, Hinda. The principal activity of the Company is that of a holding company for the Group, as well as performing all administrative, corporate finance, strategic and governance functions of the Group.

 

The Company was incorporated on 10 January 2018 and is a public limited company, with its ordinary shares admitted to the AIM Market of the London Stock Exchange on 30 November 2018 trading under the symbol, "KRPZ". The Company is domiciled in England and incorporated and registered in England and Wales. The address of its registered office is 35 Verulam Road, Hitchin, SG5 1QE. The registered number of the Company is 11143400.

 

2.       Basis of preparation

 

These interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and the AIM rules and in accordance with the accounting policies of the consolidated financial statements for the year ended 31 December 2022. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2022 annual report. The statutory financial statements for the year ended 31 December 2022 were prepared in accordance with UK adopted international accounting standards and the Companies Act 2006 applicable to companies reporting under the International Financial Reporting Standards ("IFRS").

 

The interim consolidated financial statements have been prepared under the historical cost convention unless otherwise stated in the accounting policies. They are presented in United States Dollars, the presentation currency of the Group and figures have been rounded to the nearest thousand.

 

During the period, the Group changed its accounting reference date to March and consequently will report again for the 15-month period ending 31 March 2024

 

The interim financial information is unaudited and does not constitute statutory accounts as defined in the Companies Act 2006.

 

The interim financial information was approved and authorised for issue by the Board of Directors on 28 March 2024.

 

3.       Going concern

 

During the twelve months ended 31 December 2023, the Group incurred a loss of US$ 16 million (twelve months ended 31 December 2022: US$97.8 million) and experienced net cash outflows from operating activities. Cash and cash equivalents totaled US$ 3 million as at 31 December 2023 (31 December 2022: US$ 2.1 million).

 

Elandsfontein is currently the Group's only source of operating revenue. As Elandsfontein is still in process of ramping up production an operating loss is also expected in the full year 31 March 2024. The Group is consequently dependent on future fundraisings to meet any production costs, overheads, future development and exploration requirements and quarterly repayments on the BNP loan that cannot be met from existing cash resources and sales revenue in ramp-up phase.

 

The going concern assessment was performed using the Group's 15-month forecast. The Group's forecast cash flows are largely driven by Elandsfontein and are in line with the 31 December 2022 going concern assessment. The Elandsfontein Life of Mine plan ("LOM" or "mine plan") used for the going concern assessment only considers resources classified as measured and indicated, excluding any inferred resources, as per the updated Mineral Resource Estimate ("MRE") as announced on 10 January 2023. As mining activities and further drilling work progress, Elandsfontein expects to reclassify more of the resources from inferred to either measured and indicated.  An updated Mineral Resource Estimate is underway and the results of the updated Mineral Resource Estimate is expected during the second quarter of 2024.

 

Elandsfontein's forecast cashflows were estimated using market-based commodity prices, exchange rate assumptions, estimated quantities of recoverable minerals, production levels, operating costs and capital requirements over a 15-month period.

 

The forecast cashflows include a number of estimates which if the actual outcome were different could have a significant impact on the financial outcome of the Elandsfontein mine operations and the Group's funding needs.

 

The 15-month forecast assumes a refinancing by June 2024 to repay the BNP loan facility and provide working capital.  There is no guarantee that the refinancing can be raised.

 

Phosphate rock prices and grade: Forecast phosphate rock prices are based on management's estimates of quality of production. The forecast selling prices are derived from forward price curves and long-term views of global supply and demand in a changing environment, particularly with respect to climate risk, building on past experience of the industry and consistent with external sources.

 

A total of 262,703 tonnes of phosphate concentrate trial sales were achieved in the 12 months ending 31 December 2023 from Kropz Elandsfontein. Elandsfontein is a new entrant to the phosphate market and has to date produced variable grade. As a result, Elandsfontein has sold its shipments at a discount to prevailing market prices., Elandsfontein has managed to achieve better prices in the market as quality and market reputation improves and expects this trend to continue of the forecast period. The cashflow model assumes a discount to the prevailing market price for 31% P₂O₅ phosphate concentrate for the period up to December 2024 largely due to variability in the grade of Elandsfontein's product being produced during its ramp-up phase and considering that Elandsfontein is a new market entrant.  The mine plan forecasts market related prices for all shipments from the end of 2024. The ability to achieve market rates on sales is largely dependent on Elandsfontein's ability to consistently produce 31% P₂O₅ concentrate. Failing this, the Group may continue to suffer a discount to market rates.

 

Phosphate recoveries: Estimated production volumes are based on detailed LOM plans of the measured and indicated resource as defined in the MRE and take into account development plans for the mine agreed by management as part of the long-term planning process. Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the development of the infrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted.

 

Estimated production volumes are subject to significant uncertainty given the ongoing ramp up.  The actual trial production volumes achieved in 2023 were below forecast.  The production ramp-up has been delayed largely by the need to re-engineer parts of the fine flotation circuit proposed by the vendor. Mining and processing have also been affected by early unpredicted ore variability, wet mining conditions and lack of operator experience. The Company is in the process of analyzing the hard bank and other challenging ore variants within the ore body to identify the appropriate method of mining and processing to extract phosphate. The Western Cape has experienced unprecedented rain this season which has led to severely wet mining conditions during the period under review which has hindered ore delivery to the plant and concentrate production during the year.  This is being addressed by increased in-pit drainage. Production throughput is also being limited by the nature and excessive amount of slimes material encountered in the ore deposit. The Company is investing in new equipment to improve Elandsfontein's ability to handle the slimes material and aims to increase production throughput by more than 40% following its commissioning.

 

Reserves and resources: The LOM plan used for the going concern assessment only includes the measured and indicated resources as defined in the MRE. Excluding inferred resources limits the forecast production to only around 4 years. There was a significant reduction in the measured and indicated resource in the MRE issued in January 2023 as set out in the Strategic report in the Annual Report for the year ended 31 December 2022.  As drilling operations continue, and confidence improves, Management expects more of the total resource will be reclassified to measured and indicated.

 

Exchange rates: Foreign exchange rates are estimated with reference to external market forecasts. The assumed average long-term US Dollar/ZAR exchange rate over LOM and for the forecast cashflows is ZAR18.50/USD.

 

Operating cost: Operating costs are estimated with reference to contractual and actual current costs adjusted for inflation.  Key operating cost estimates are mine and plant operating costs and transportation and port costs.  The forecast mine and plant costs were based on the contracted rates with the current mine and plant operators. Production cost per tonne currently is higher than sales per tonne as full production volumes have not been reached to date, leading to a gross loss per tonne. The forecast assumes that as production volumes increase the average cost per tonne of phosphate will decrease with economies of scale and further efficiency gains.

 

Transportation costs: Port authorities in South Africa have informed the Group that it may have to export some of Elandsfontein's shipments through the port of Cape Town in 2023 and 2024 instead of through the port of Saldanha, which would lead to a higher transportation cost.  The transportation costs in the cashflows assume that 10% of 2024 shipments will be through Cape Town at the higher logistic cost. To date, all sales have been exported through the port of Saldanha Bay. As production is still ramping up and the port access agreement with Transnet has not yet been formally concluded, the actual operating costs may be higher than the estimates in the discounted cash flows.

 

The Group is dependent on future fundraisings to meet any production costs, overheads, future development and exploration requirements and quarterly repayments on the BNP loan that cannot be met from existing cash resources and sales revenue.

 

The ARC Fund, on various occasions in the past, provided funding to support the Group's operations. In March 2023, Kropz, Kropz Elandsfontein and the ARC Fund agreed to further ZAR 285 million (approximately US$ 15.5 million) bridge loan facilities to meet immediate cash requirements at Kropz Elandsfontein.  In September 2023, Kropz Elandsfontein and the ARC Fund signed a further ZAR 250 million (approximately US$ 13.2 million) bridge loan facility to meet immediate cash requirements. In December 2023, Kropz Elandsfontein and the ARC Fund signed a further ZAR 115 million (approximately US$ 6 million) bridge loan facility to meet immediate cash requirements. In March 2024, Kropz Elandsfontein and the ARC Fund signed a further ZAR 170 million (approximately US$ 9 million) bridge loan facility to meet immediate cash requirements.  Management has confirmed with the ARC Fund that they have no intention to call any outstanding loans for cash repayment over the next 12-months.

 

Management engages frequently with BNP regarding the capital repayment and refinancing of the BNP debt facility. The Company did not reach project completion as stipulated in the BNP facility agreement by 31 December 2022. Considering the delay in achieving sales, the Company also failed to fund the debt service reserve account as required. BNP have, to date, waived these requirements, preventing the Company from falling into default of its loan terms.

 

At the end of the waiver period, BNP has the contractual right to request the immediate repayment of the outstanding loan amount of US$ 11,250,000. BNP has indicated their willingness to extend the waivers from 31 March 2024 to June 2024. Kropz Elandsfontein has made all the capital and interest payments to BNP as required to the date of this report.

 

Based on the current cashflow forecast prepared based on the January 2023 MRE additional funding will be required over the 15-month forecast period. 

 

Given that BNP Paribas is exiting South Africa, the Group was unable to refinance the existing loan with them.  At the date of this report, the Company is in continued discussions with a number of potential lenders to provide the required funding to repay the BNP debt facility and provide working capital. The discussions have extended over several months being a lengthy process and technical in nature.

 

Based on the Group's current available reserves, recent operational performance, forecast production and sales and anticipated new borrowing based on discussions with a potential lenders, coupled with Management's track record to successfully raise additional funds as and when required, to meet its working capital and capital expenditure requirements, the Board have concluded that they have a reasonable expectation that the Group will continue in operational existence for the foreseeable future.

 

For these reasons, the financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business.

 

As there can be no guarantee that the required future funding can be raised in the necessary timeframe, a material uncertainty exists that may cast significant doubt on the Group'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.

 

The financial report does not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.

 

4.      Significant accounting policies

 

The Company has applied the same accounting policies, presentation, methods of computation, significant judgements and the key sources of estimation uncertainties in its interim consolidated financial statements as in its audited financial statements for the year ended 31 December 2022, except for the following amendments and revenue recognition and production start date which apply for the first time in 2023. However, none of the recent amendments to IFRS are expected to materially impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

 

The following new standards and amendments are effective for the period beginning 1 January 2023:

 

·      Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2);

·      Definition of Accounting Estimates (Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors);

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

·      International Tax Reform - Pillar Two Model Rules (Amendment to IAS 12 Income Taxes).

 

5.       Revenue recognition

 

The Group is principally engaged in the business of producing phosphate concentrate. Revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods.

 

The Group has concluded that it is the principal in its revenue contracts because it typically controls the goods or services before transferring them to the customer.

 

6.       Production start date

 

The Group assesses the stage of each mine under development/construction to determine when a mine moves into the production phase, this being when the mine is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of the mine development. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. At this point, all related amounts are reclassified from "trial production" to "steady state production".

 

Some of the criteria used to identify the production start date include, but are not limited to:

•     The percentage grade (phosphate concentrate) and volume of ore being mined is sufficiently economic and consistent with the plant design specifications;

•     Ability to produce phosphate in saleable form (within specifications); and

•     Ability to sustain ongoing production of phosphate.

 

When the mine moves into the steady state production, the capitalisation of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for the costs that qualify for capitalisation relating to mining asset additions or improvements, or mineable reserve development. It is also at this point that depreciation/amortisation commences. Refer note 8.

 

7.      Segmental information

 

Operating segments

The Board of Directors consider that the Group has one operating segment, being that of phosphate mining and exploration. Accordingly, all revenues, operating results, assets and liabilities are allocated to this activity.

 

Geographical segments

The Group operates in two principal geographical areas - South Africa and the RoC.

 

The Group's revenues and non-current assets by location of assets are detailed below.

 

31 December 2023		Revenues US$'000	Non-Current Assets US$'000
South Africa		30,246	69,571
Republic of Congo		-	44,360
		30,246	113,931

 

31 December 2022		Revenues US$'000	Non-Current Assets US$'000
South Africa		-	69,795
Republic of Congo		-	42,415
		-	112,240

 

8.      Tangible assets - Property, plant, equipment and mine development

 

	31 Dec 2023	31 Dec 2023	31 Dec 2023	31 Dec 2022	31 Dec 2022	31 Dec 2022
	Cost	Accumulated depreciation and impairment	Carrying value	Cost	Accumulated depreciation and impairment	Carrying value
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Buildings and infrastructure
Land	1,319	(795)	524	1,418	(795)	623
Buildings	9,548	(5,208)	4,0	9,840	(5,597)	4,243
Capitalised road costs	7,070	(5,763)	1,307	7,600	(5,709)	1,891
Capitalised electrical sub-station costs	3,067	(2,470)	597	3,297	(2,445)	852
Machinery, plant and equipment
Critical spare parts	1,907	(924)	983	1,786	(1,002)	784
Plant and machinery	89,967	(49,322)	40,645	95,061	(53,486)	41,575
Water treatment plant	2,517	(1,207)	1,310	2,333	(1,308)	1,025
Furniture and fittings	52	(41)	11	56	(41)	15
Geological equipment	74	(52)	22	79	(48)	31
Office equipment	28	(28)	-	30	(28)	2
Other fixed assets	1	(1)	-	1	(1)	-
Motor vehicles	90	(72)	18	93	(93)	-
Computer equipment	79	(58)	21	79	(45)	34
Mine development	17,985	(9,016)	8,969	17,724	(9,788)	7,936
Stripping activity costs	21,056	(11,514)	9,542	22,257	(12,485)	9,772
Game animals	194	-	194	182	-	182
Total	154,954	(86,471)	68,483	161,836	(92,871)	68,965

 

Reconciliation of property, plant, equipment and mine development - Period ended 31 December 2023

	Opening Balance US$'000	Additions US$'000	Fair value gain US$'000	Deprecia-tion charge US$'000	Foreign exchange loss US$'000	Closing balance US$'000
Buildings and infrastructure
Land	623	-	-	-	(99)	524
Buildings	4,243	392	-	(29)	(266)	4,340
Capitalised road costs	1,891	-	-	(474)	(110)	1,307
Capitalised electrical sub-station costs	852	-	-	(201)	(54)	597
Machinery, plant and equipment
Critical spare parts	784	243	-	-	(44)	983
Plant and machinery	41,575	1,349	-	(3)	(2,276)	40,645
Water treatment plant	1,025	345	-	-	(60)	1,310
Furniture and fittings	15	-	-	(3)	(1)	11
Geological equipment	31	-	-	(7)	(2)	22
Office equipment	2	-	-	(2)	-	-
Other fixed assets	-	-	-	-	-	-
Motor vehicles	-	19	-	(1)	-	18
Computer equipment	34	5	-	(16)	(2)	21
				-
Mine development	7,936	1,485	-	-	(452)	8,969
				-
Stripping activity costs	9,772	349	-	-	(579)	9,542
Game animals	182	-	24	-	(12)	194
Total	68,965	4,187	24	(736)	(3,957)	68,483

 

Reconciliation of property, plant, equipment and mine development - Year ended 31 December 2022

 

	Opening Balance US$'000	Additions US$'000	Fair value loss US$'000	Impair- ment US$'000	Deprecia-tion charge US$'000	Foreign exchange loss US$'000	Closing balance US$'000
Buildings and infrastructure
Land	1,515	-	-	(795)	-	(97)	623
Buildings	10,458	-	-	(5,747)	(33)	(435)	4,243
Capitalised road costs	5,143	-	-	(2,522)	(527)	(203)	1,891
Capitalised electrical sub-station costs	2,310	-	-	(1,137)	(229)	(92)	852
Machinery, plant and equipment
Critical spare parts	1,713	190	-	(1,046)	-	(73)	784
Plant and machinery	86,180	14,911	-	(55,775)	(1)	(3,740)	41,575
Water treatment plant	2,435	56	-	(1,366)	-	(100)	1,025
Furniture and fittings	9	10	-	-	(4)	-	15
Geological equipment	20	18	-	-	(6)	(1)	31
Office equipment	11	-	-	-	(9)	-	2
Other fixed assets	-	-	-	-	-	-	-
Motor vehicles	-	-	-	-	-	-	-
Computer equipment	24	24	-	-	(12)	(2)	34
Mine development	18,938	-	-	(10,227)	-	(775)	7,936
Stripping activity costs	6,126	17,178	-	(13,035)	-	(497)	9,772
Game animals	217	-	(21)	-	-	(14)	182
Total	135,099	32,387	(21)	(91,650)	(821)	(6,029)	68,965

 

Kropz Elandsfontein has a fully drawn down project financing facility with BNP Paribas for US$ 30 million, outstanding balance as at 31 December 2023: $11 250 000 (see Note 11). BNP has an extensive security package over all the assets of Kropz Elandsfontein and Elandsfontein Land Holdings (Pty) Ltd ("Elandsfontein Land Holdings") as well as the share investments in those respective companies owned by Kropz SA (Pty) Ltd ("Kropz SA").

 

9.      Intangible assets - exploration and evaluation costs

 

	31 December 2023 US$'000	31 December 2022 US$'000
Capitalised exploration costs
Cost	44,133	42,415
Amortisation	-	-
Carrying value	44,133	42,415

 

 

Reconciliation of exploration assets

	Opening Balance US$'000	Additions US$'000	Disposals US$'000	Foreign exchange Gain US$'000	Closing balance US$'000
Period ended 31 December 2023
Capitalised exploration costs	42,415	347	-	1,371	44,133

 

Reconciliation of exploration assets

	Opening Balance US$'000	Additions US$'000	Disposals US$'000	Foreign exchange loss US$'000	Closing balance US$'000
Year ended 31 December 2022
Capitalised exploration costs	44,631	346	-	(2,562)	42,415

 

The costs of mineral resources acquired and associated exploration and evaluation costs are not subject to amortisation until they are included in the life-of-the-mine plan full scale production has commenced.

 

Where assets are dedicated to a mine, the useful lives are subject to the lesser of the asset category's useful life and the life of the mine, unless those assets are readily transferable to another productive mine. In accordance with the requirements of IFRS 6, the Board of Directors assessed whether there were any indicators of impairment. No indicators were identified (refer to Note 16).

 

10.     Shareholder loans and derivative liability

 

	31 December 2023 US$'000	31 December 2022 US$'000
Shareholder loans - ARC Fund	18,441	17,010
Demand Loan facility - ARC Fund	35,106	-
Convertible debt - ARC Fund	26,006	15,055
Derivative liability	10,994	23,037
	90,547	55,102

 

Maturity
Non-current	18,441	55,102
Current	72,106	-
Total	90,547	55,102

 

Shareholder loans - ARC Fund

The loans are: (i) US$ denominated, but any repayments will be made in ZAR at the then prevailing ZAR/US$ exchange rate; (ii) carry interest at monthly LIBOR plus 3%; and (iii) are repayable by no later than 1 January 2035 (or such earlier date as agreed between the parties to the shareholder agreements).

 

Demand Loan facility - ARC Fund

The loans are unsecured, repayable on demand, and interest accruing at SA prime overdraft rate plus 6%, if not repaid within 6 months from first utilisation date rate increases by 2%. ARC have no intention to call any outstanding loans over the next 12 months for cash repayment.

 

Convertible debt - ARC Fund

On 20 October 2021, the Company entered into a new convertible equity facility of up to ZAR 200 million ("ZAR 200 Million Equity Facility") with ARC, the Company's major shareholder. Interest is payable at 14% nominal, compounded monthly. At any time during the term of the ZAR 200 Million Equity Facility, repayment of the ZAR 200 Million Equity Facility capital amount will, at the election of ARC, either be in the form of the conversion into ordinary shares of 0.1 pence each ("Ordinary Shares") in the Company and issued to ARC, at a conversion price of 4.5058 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21 September 2021, and at fixed exchange rate of GBP 1 = ZAR 20.24 ("Conversion"), or payable in cash by the Company at the end of the term of the ZAR 200 Million Equity Facility which is 27 October 2026.  The ZAR 200 Million Equity Facility is fully drawn at the date of this report.

 

As announced on 11 May 2022, the Company entered into a new conditional convertible equity facility of up to ZAR 177 million ("ZAR 177 Million Equity Facility") with ARC.  Interest is payable at 14% nominal, compounded monthly. At any time during the term of the ZAR 177 Million Equity Facility, repayment of the ZAR 177 Million Equity Facility capital amount will, at the election of ARC, either be in the form of the conversion into Ordinary Shares in the Company and issued to ARC, at a conversion price of 9.256 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 4 May 2022, and at fixed exchange rate of ZAR 1 = GBP 0.0504 ("Conversion"), or payable in cash by the Company at the end of the term of the ZAR 177 Million Equity Facility which is 2 June 2027.  The ZAR 177 Million Equity Facility is fully drawn at the date of this report.

 

As announced on 14 November 2022, the Company entered into a new conditional convertible equity facility of up to ZAR 550 million ("ZAR 550 Million Equity Facility") with ARC. Interest is payable at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly. At any time during the term of the ZAR 550 Million Equity Facility, repayment of the ZAR 550 Million Equity Facility capital amount will, at the election of ARC, either be in the form of the conversion into Ordinary Shares in the Company and issued to ARC, at a conversion price of 4.579 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21 October 2022 and at fixed exchange rate of ZAR 1 = GBP 0.048824 ("Conversion"), or payable in cash by the Company at the end of the term of the ZAR 550 Million Equity Facility which is 30 November 2027. The Company drew down a further ZAR 107.5 million during the 12-month period and is fully drawn as at 31 December 2023.

 

Derivative liability

It was determined that the conversion option embedded in the convertible debt equity facility be accounted for separately as a derivative liability.  Although the amount to be settled is fixed in ZAR, when converted back to Kropz's functional currency will result in a variable amount of cash based on the exchange rate at the date of conversion. The value of the liability component and the derivative conversion component were determined at the date of draw down using a Monte Carlo simulation. The debt host liability was bifurcated based on the determined value of the option.  Subsequently, the embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value recorded in profit and loss (refer to Note 21).

 

Fair value of shareholder loans

The carrying value of the loans approximates their fair value.

 

11.     Other financial liabilities

 

	31 December 2023 US$'000	31 December 2022 US$'000
BNP Paribas ("BNP")	11,269	26,298
Greenheart Foundation	474	510
Total	11,743	26,808

 

BNP

A US$ 30,000,000 facility was made available by BNP Paribas to Kropz Elandsfontein in September 2016.

 

In May 2020, Kropz Elandsfontein and BNP Paribas agreed to amend and restate the term loan facility agreement entered into on or about 13 September 2016 (as amended from time to time). The BNP Paribas facility amendment agreement extends inter alia the final capital repayment date to Q3 2024, with eight equal capital repayments to commence in Q4 2022 and an interest rate of 6.5% plus LIBOR, up to project completion and 4.5% plus LIBOR thereafter.

 

BNP Paribas has an extensive security package over all the assets of Kropz Elandsfontein and Elandsfontein Land Holdings as well as the share investments in those respective companies owned by Kropz SA.

 

The BNP loan is subject to covenant clauses. Kropz Elandsfontein did not reach project completion as stipulated in the agreement to be 31 December 2022 and failed to fund the Debt Service Reserve Account, however BNP Paribas has provided, a waiver to 31 March 2024. The outstanding balance is therefore presented as a current liability.

 

Greenheart Foundation

A loan has been made to the Group by Greenheart Foundation which is interest-free and repayable on demand. Louis Loubser, a Director of Kropz plc, is a Director of Greenheart Foundation.

 

Fair value of other financial liabilities

The carrying value of the loans approximate their fair value.

 

12.     Revenue

 

	Twelve months ended 31 December 2023 US$'000	Twelve months ended 31 December 2022 US$'000
Sales to region/country
South Africa	1,840	-
Australia	5,414	-
Brazil	4,869	-
New Zealand	1,942	-
South Korea	16,181	-
	30,246	-
Timing of transfer of Goods
Delivery to port of departure	30,246	-
	30,246	-

 

All 2023 revenue from phosphate is trial revenue. All 2023 revenue from phosphate is recognised at a point in time when control transfers.

 

13.     Finance income

 

	Twelve months ended 31 December 2023 US$'000	Twelve months ended 31 December 2022 US$'000
Interest income	201	136
Total	201	136

 

14.     Finance expense

 

	Twelve months ended 31 December 2023 US$'000	Twelve months ended 31 December 2022 US$'000
Shareholder loans	10,862	3,407
Foreign exchange losses	2,431	3,550
Bank debt	2,380	2,576
BNP Paribas - Debt modification present value adjustment amortisation	(207)	(233)
BNP Paribas amendment fee amortisation	181	205
Other	154	307
Total	15,801	9,812

 

15.     Fair value gain / (loss) from derivative liability

 

	Twelve months ended 31 December 2023 US$'000	Twelve months ended 31 December 2022 US$'000
Fair value gain from derivative liability	15,942	10,807
Total	15,942	10,807

 

The Company has entered into three convertible equity facilities with the ARC Fund. On 20 October 2021, the Company entered into the first a convertible equity facility of up to ZAR 200 million ("ZAR 200 Million Equity Facility"). The second convertible equity facility was entered into on 11 May 2022 of up to ZAR 177 million ("ZAR 177 Million Equity Facility"). On 14 November 2022, the Company entered into its third conditional convertible equity facility of up to ZAR 550 million ("ZAR 550 Million Equity Facility.") (refer to Note 10). 

 

It was determined that the conversion option embedded in the convertible debt equity facility be accounted for separately as a derivative liability.  Although the amount to be settled is fixed in ZAR, when converted back to Kropz's functional currency will result in a variable amount of cash based on the exchange rate at the date of conversion. The value of the liability component and the derivative conversion component was determined at the date of draw down using a Monte Carlo simulation. The debt host liability was bifurcated based on the determined value of the option.  Subsequently, the embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value recorded in profit and loss (refer to Note 21).

 

16.     Impairment losses

 

The following impairment loss was recognised in the twelve-month period ended 31 December 2023:

 

	Twelve months ended 31 December 2023 US$'000	Twelve months ended 31 December 2022 US$'000
Property, plant, equipment and mine development assets	-	91,650
Inventory		1,011
Total	-	92,661

 

An impairment assessment was performed and it was determined that there were no indicators of impairment or indicators of reversal of impairment in the period and therefore no adjustment to the impairment provision for the period to 31 December 2023 is required. The impairment loss for the period to 31 December 2022 was recognised in relation to the Elandsfontein mine. The triggers for the impairment test were primarily related to the hard bank that was encountered in the pit, which necessitated further drilling and the effect of changes to the mine plan resulting from the updated MRE and downgrading of the measured and indicated resource. An updated Mineral Resource Estimate is underway and the results of the update are expected during the second quarter of 2024. More detail was provided in Note 25 of the 2022 Annual Report.

 

17.     Taxation

 

Major components of tax charge	Twelve months ended 31 December 2023 US$'000	Twelve months ended 31 December 2022 US$'000
Deferred
Originating and reversing temporary differences	-	-
Current tax
UK tax in respect of the current period	-	(602)
Total	-	(602)

 

The Group had losses for tax purposes of approximately US$ 70.9 million (31 December 2022: US$ 57.5 million) which, subject to agreement with taxation authorities, are available to carry forward against future profits. A net deferred tax asset arising from these losses has not been recognised as steady state production has not been reached and therefore the reversal of any potential deferred tax asset remains uncertain.

 

18.     Earnings per share

 

The calculations of basic and diluted earnings per share have been based on the following loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding:

 

	Twelve months ended 31 December 2023 US$'000	Twelve months ended 31 December 2022 US$'000
Profit / (Loss) attributable to ordinary shareholders	(4,163)	(66,639)
Weighted average number of ordinary shares in Kropz plc	926,718,223	921,908,785
Basic and diluted profit / (loss) per share (US cents)	(0.45)	(7.23)

 

19.     Related party transactions

 

Details of share issues and shareholder and related party loans are explained in Notes 10 and 11. In addition, the following transactions were carried out with related parties:

 

Related party balances

Loan accounts - Owed to related parties

 

	31 December 2023 US$'000	31 December 2022 US$'000
Shareholder loans - ARC Fund	18,441	17,010
Demand Loan facility - ARC Fund	35,106	-
Convertible debt - ARC Fund	26,006	15,055
Derivative liability	10,994	23,037
Greenheart Foundation	474	510
Total	91,021	55,612

 

Related party balances

Interest accrued to related parties

 

	Twelve months ended 31 December 2023 US$'000	Twelve months ended 31 December 2022 US$'000
ARC Fund	10,862	3,407
Total	10,862	3,407

 

20.     Seasonality of the Group's business

 

With the unexpected record rainfall experienced in the Western Cape the mining plan was amended to consider higher rainfall in winter periods to minimise the effects of wet mining conditions. There are no other seasonal factors which materially affect the operations of any company in the Group.

 

21.     Fair value

 

The following table compares the carrying amounts and fair values of the Group's financial assets and financial liabilities as at 31 December 2023.

 

The Group considers that the carrying amount of the following financial assets and financial liabilities are a reasonable approximation of their fair value:

·      Trade receivables;

·      Trade payables;

·      Restricted cash; and

·      Cash and cash equivalents.

 

	As at 31 December 2023			As at 31 December 2022
	Carrying amount US$'000	Fair value US$'000		Carrying amount US$'000	Fair value US$'000
Financial Assets
Other financial assets	1,315	1,315		860	860
Total	1,315	1,315		860	860
Financial Liabilities
Shareholder loans	79,553	79,553		32,065	32,065
Derivative liability	10,994	10,994		23,037	23,037
Other financial liabilities	11,743	11,753		26,808	26,808
Total	102,290	102,290		81,910	81,910

This note provides an update on the judgements and estimates made by the Group in determining the fair values of the financial instruments.

 

(i)         Financial instruments Measured at Fair Value

The financial instruments recognised at fair value in the Statement of Financial Position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements.

 

(ii)         Fair value hierarchy

The fair value hierarchy consists of the following levels

•     Quoted prices in active markets for identical assets and liabilities (Level 1);

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

•     Inputs for the asset and liability that are not based on observable market date (unobservable inputs) (Level 3).

 

	Level 1 US$'000	Level 2 US$'000	Level 3 US$'000	Total US$'000
31 December 2023
Derivative liability	-	-	10,994	10,994
31 December 2022
Derivative liability	-	-	23,037	23,037

 

There were no transfers between levels for recurring fair value measurements during the year. 

 

(iii)        Reconciliation:  Level 3 fair value measurement

 

	Twelve months ended 31 December 2023 US$'000	Year ended 31 December 2022 US$'000
Derivative liability
Opening balance	(23,037)	(2,656)
Fair value at initial recognition	(3,089)	(31,852)
Fair value gain recognised in profit and loss	15,942	10,807
Foreign exchange	(810)	664
Closing balance	(10,994)	(23,037)

 

(iv)        Valuation technique used to determine fair value

Derivative liability:

The fair value is calculated with reference to market rates using industry valuation techniques and appropriate models from a third-party provider. The Monte-Carlo model utilised includes a high level of complexity and the main inputs are share price volatility, risk margin, foreign exchange volatility and UK risk-free rate. A number of factors are considered in determining these inputs, including assessing historical experience but also considering future expectations. The determined fair value of the option is multiplied by the number of shares available for issue pursuant to the ZAR 200 Million Equity Facility, ZAR 177 Million Equity Facility and the ZAR 550 Million Equity Facility (refer to Note 10).

 

Valuation results (as at 31 December 2023)

	Total loan amount	Value per	Number of	Total Value
Facility	(ZAR)	share (p)	Shares	(GBP)
ZAR200m facility	200,000,000	1.18	219,272,938	1,627,431
ZAR177m facility	177,000,000	0.65	96,378,566	496,895
ZAR550m facility	550,000,000	1.51	586,442,455	6,510.899
Total			902,093,959	8,635,225

 

Sensitivity Valuation results (as at 31 December 2023) - Volatility

		Total Value
		(GBP) - 75%	Total Value
		historical	(GBP) - 50%
	Base volatility	volatility	historical
Facility	assumption	(66%)	volatility (44%)
ZAR200m facility	87%	729,265	151,877
ZAR177m facility	87%	150,519	11,482
ZAR550m facility	87%	2,982,464	724,776
Total		3,861,249	888,134

 

Sensitivity Valuation results (as at 31 December 2023) - Risk Margin

		Total Value	Total Value
	Base risk margin	(GBP) - 7%	(GBP) - 3%
Facility	assumption	risk margin	risk margin
ZAR200m facility	5%	1,632,349	1,622,282
ZAR177m facility	5%	498,586	495,113
ZAR550m facility	5%	6,538,094	6,482205
Total		8,669,029	8,599,600

 

Sensitivity Valuation results (as at 31 December 2023) - FX volatility

		Total Value	Total Value
		(GBP) - 20%	(GBP) - 10%
Facility	Base FX volatility	FX volatility	FX volatility
ZAR200m facility	14%	1,481,814	1,722,048
ZAR177m facility	14%	432,128	540,193
ZAR550m facility	14%	5,983,992	6,851,592
Total		7,897,934	9,113,833

 

Sensitivity Valuation results (as at 31 December 2023) - UK risk-free rate

		Total Value	Total Value
		(GBP) - UK rf	(GBP) - UK rf
Facility	Base UK risk-free rate	+ 2%	-2%
ZAR200m facility	3.9%	1,544,596	1,714,784
ZAR177m facility	3.9%	466,130	529,665
zAR550m facility	3.9%	6,082315	6,970,764
Total		8,093,041	9,215,213

 

22.     Events after the reporting period

 

Further shipments and sales of 33,000 tonnes of phosphate concentrate from Kropz Elandsfontein were recorded in January 2024, 8,000 tonnes in February 2024 and a further 36,000 tonnes in March 2024.

 

The second and final drawdown on the ZAR 115 million bridging facility of ZAR 52.50 million was made on 17 January 2024.

 

As announced on 27 March 2024, Kropz, Kropz Elandsfontein and ARC Fund agreed to further ZAR 170 million (approximately US$ 9 million) bridge loan facilities ("Loan 4") to meet immediate cash requirements at Kropz Elandsfontein. The loan is unsecured, repayable on demand, with no fixed repayment terms and is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable on the Loan at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly. In the event that any amounts outstanding under the Loan, together with interest thereon, is not repaid within 6 months from the first utilisation date, the interest rate will be increased by an additional 2%.

 

 

Company information

 

Directors

Lord Robin William Renwick of Clifton, Non-executive Chairman

Louis Ronald Loubser, Chief Executive Officer

Michael (Mike) John Nunn, Non-executive Director

Gerrit Jacobus Duminy, Non-executive Director

Michael (Mike) Albert Daigle, Independent Non-executive Director

Linda Janice Beal, Independent Non-executive Director

 

Company secretary

Fusion Corporate Secretarial Service (Pty) Ltd

 

Company number

11143400

 

Registered address

35 Verulam Road

Hitchin

SG5 1QE

 

Independent auditors

PKF Littlejohn LLP

15 Westferry Circus

London E14 4HD

 

Nominated adviser

Grant Thornton UK LLP

30 Finsbury Square

London EC2A 1AG

 

Broker

H&P Advisory Limited

2 Park Street

Mayfair

London W1K 2HX

 

Legal advisers as to English Law

Memery Crystal Limited

165 Fleet Street

London EC4A 2DY

 

Legal advisers as to South African Law

Werksmans Attorneys

The Central, 96 Rivonia Road

Sandton 2196

Johannesburg

South Africa 

 

Bowmans

22 Bree Street

Cape Town 8000

South Africa

 

Legal advisers as to the laws of Republic of Congo

PricewaterhouseCoopers Tax & Legal

88 Avenue du General de Gaulle

B.P. 1306

Pointe-Noire

Congo

 

 

Legal advisers as to the laws of the British Virgin Islands

Harney Westwood & Riegels LP

Craigmuir Chambers

PO Box 71,

Road Town

Tortola VG1110

British Virgin Islands

 

Registrars

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol

BS13 8AE

 

Principal bankers

Barclays

One Churchill Place

London E14 5HP

 

ABSA

7th Floor, Absa Towers West

15 Troye Street

Johannesburg

2001

 

Financial PR

Tavistock Communications Limited

1 Cornhill

London EC3V 3ND

 

Market consultant

CRU Consulting

Chancery House

53-64 Chancery Lane

London WC2A 1QS

 

Company's website: www.kropz.com