TIDMCNG
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulation (EU) No. 596/2014.
China Nonferrous Gold Limited
("CNG" or the "Company")
Final Results
for the twelve months ended 31 December 2021
China Nonferrous Gold Limited (AIM: CNG), the mineral
exploration and development company currently developing the Pakrut
gold project in the Republic of Tajikistan, today announces its
final results for the year ended 31 December 2021.
The results below are extracted from the Company's audited
Annual Report and Financial Statements. Copies of the Annual Report
have been dispatched to shareholders today and are now available on
the Company's website (www.cnfgold.com).
The Company also confirms that it will post a notice convening
the annual general meeting of the Company in due course. A further
announcement will be made when it is dispatched.
For further information please visit the Company's website
(www.cnfgold.com) or contact:
China Nonferrous Gold Limited
Zhang Hui, Managing Director
Tel: +86 10 8442 6662
WH Ireland Limited (NOMAD & Broker)
Katy Mitchell, Andrew de Andrade
Tel: 0207 220 1666
BlytheRay (PR)
Tim Blythe, Megan Ray
Tel: +44 (0)20 7138 3224
Project Summary
The Pakrut gold project, of which CNG has 100 per cent
ownership, is situated in Tajikistan approximately 120 km northeast
of the capital city Dushanbe. Pakrut is located within the Tien
Shan gold belt, which extends from Uzbekistan into Tajikistan,
Kyrgyzstan and Western China, and which hosts a number of
multi-million ounce gold deposits.
CNG is currently progressing well in several important aspects,
with the Pakrut gold mine entering normal production and achieving
full operational capacity in 2021.
The Company made significant achievements in 2021 and became an
important gold-production enterprise in Tajikistan. The Pakrut gold
mine achieved its internal production targets for 2021, which
brings steady cash flows to support the sustainable development of
the company.
About Tajikistan
Tajikistan is a secular republic located in Central Asia. The
country is a member of the Commonwealth of Independent States and
the Shanghai Cooperation Organisation. Tajikistan hosts numerous
operating precious metal mines as well as the largest aluminium
smelter in Central Asia. CNG's management team has extensive
experience in the mining industry in Tajikistan.
Chief Executive Officer's Statement
As CEO of the board, it gives me great pleasure to present the
CEO's statement of the annual report for the year ended 31 December
2021. Following the first successful normal production in 2019, the
Company has progressed well in several important aspects, with the
Pakrut gold mine entering formal production and achieving full
operational capacity in 2020.
The Company made significant achievements in 2021 and became an
important gold-production enterprise in Tajikistan. The Pakrut gold
mine achieved its internal production targets for 2021, which
brings steady cash flows to support the sustainable development of
the Company.
Operation
From January to December 2021, a total of 625,078 tons of ore
was extracted from the Pakrut gold mine (2020: 640,036 tons), and a
total of 650,995 tons of ore were processed at a grade of 2.29 g/t,
19,918 tons of gold concentrate were produced at a grade of 69.22
g/t,(2020: 640,035 tons of ore were processed at a grade of 2.04
g/t, 19,416 tons of gold concentrate were produced at a grade of
65.04g/t), 1,249 kg gold bullion were poured with a comprehensive
recovery rate of 91.61% (2020: 1,126 kg gold bullion with a
recovery rate of 92.94%).
COVID-19
With COVID-19 continuing to have a significant impact on the
global economy, our priority is the safety and health of our people
and ensuring the Company's operations can continue in operation as
normal. Since the outbreak of COVID-19 in Tajikistan on 30 April
2020, the Company has taken appropriate steps and effective
measures to ensure that staff are protected at the mine site. To
date operations at the mine site at Pakrut continue as normal, and
there are no confirmed or suspected cases in the Company in
Tajikistan or China.
The impact on working conditions has been reduced as much as is
practical. Beijing has sought to reduce channels for the
transmission of the virus and there have been no cases reported
within the Company to date. The mine is still in normal operation.
The amount of production personnel at the mine site remains
sufficient to meet the required production level, so production is
still progressing well at site in spite of COVID-19 and the targets
for 2021 were not affected by the suspended flights. Since
COVID-19, direct flights from Tajik to China via Urumqi have been
stopped. The Company has ensured the mobility of employees through
multiple channels, such as returning through Dubai or Iran. It is
gratifying that the Tajik government has issued an official
statement that direct flights back to China may be opened in June
2022, which will greatly reduce ticket costs and travel time. The
government of Tajikistan announced in early 2021 that 91% of the
local adults had been vaccinated against the new variant, and all
the staff of the Company have now been vaccinated with third
vaccines to further guard against COVID-19. Moreover, the Tajik
government has also lifted all entry-exit restrictions at the land
ports between Uzbekistan and Tajikistan, facilitating the purchase
of materials by the Company.
Financial results
The development and construction work at the Pakrut Gold Project
was finalised at the end of the 2018 financial year. The Group
therefore generated revenue from full operational production from
the beginning of the 2019 financial year.
Administration expenditure for the year under review was
US$19,878,782 (2020: US$17,827,290). The main reason for the
increase this year is due to pandemic isolation costs for employees
and the increase of pandemic subsidies for employees due to the
pandemic, as well as road tax calculated by 70% of the income. The
advance receipts of suppliers cannot be collected due to the
bankruptcy of suppliers, resulting in bad debts of $370,000.
The overall loss incurred by the Group was US$6,245,062 (2020:
US$6,357,743). Pakrut generated gold sales revenue of US$71,991,962
(2020: US$64,516,000), a significant increase as a result of
entering full operational production and gold prices rose sharply
due to Covid-19.
During the course of the year, the Group did not enter into any
new financing agreements with shareholders or their associates.
Instead, the original repayment dates in December 2020 on the loan
contracts previously signed with China Nonferrous Metals
International Mining Co., Ltd. and China Nonferrous Metals Mining
Group Co., Ltd. ("CNMC Loans") were extended once more and are now
repayable in December 2022.
In February 2021, the Group repaid US$20m of the CNMC
International Capitals Company Limited. And in June 2021, the Group
repaid another US$9.26 million(Yen60million).
In June 2021, the Group repaid the remaining US$65 million to
China Construction Bank Corporation Macau Branch ("CCBC") in
respect of its existing loan agreement, which was signed in 2016.
In January 2021, the Group repaid a loan of US$20 million from
Construction Bank Corporation Macau Branch ("CCBC"), which was
signed in 2019. In March 2021, the Group repaid a loan of US$14.55
million from China Construction Bank (Asia) Corporation Limited
("CCBC"), which was signed in 2020.
In January 2021, the Group executed an agreement with China
CITIC Bank Corporation Limited (Zhuhai Branch) ("CITIC") for a loan
facility of up to CNY 300million which is equivalent to
US$46.37million. The CITIC Loan facility is for a maximum of 12
months and is repayable 12 months from first drawdown. US$20million
of the CITIC Loan was drawn down in January 2021 to replace the
China Construction Bank (CCB) Macau loan of US$20million which fell
due in January 2021. A second drawdown of US$14.55m in March 2021
was used to repay the CCB Asia loan of US$14.55m.
In June 2021, the Group executed an agreement with Bank of
Shanghai (Hong Kong) Limited ("BOS") for a loan facility of up to
US $65 million (the "BOS Loan"). The Loan facility is for a maximum
of 24 months and is repayable 24 months from the drawdown. The
total amount of US$65m of the BOS Loan had been drawn down in June
2021 to repay the CCBC Macau loan of US$65m.
The existing loan facilities from CITIC and BOS totaled US$99.55
million and the CNMC and CNMIM loan facilities totaled US$269
million so that, including interest, the total amount of loans
drawn down by the Company was US$369 million (approximately US$319m
without interest). As the major shareholder and ultimate beneficial
owner, CNMIM and CNMC have confirmed they will continue to support
the Company. The existing loans in place with the Company's
shareholder (or its associates) were extended again once again in
2021 and now fall due for repayment in 2022.
The Group has continued production throughout 2021 despite the
outbreak of COVID-19, enabling it to generate sufficient working
capital for operations. However, in order to ensure the repayment
of the existing loans detailed above a broader refinancing will be
required. At the same time, for short-term loans from external
banks, it will continue to communicate with multiple banks and make
capital arrangements in advance (where necessary) to raise
sufficient working capital to be able to continue the normal
operations of the Group. In order to ensure the repayment of
existing loans a broader refinancing will be required. Some
refinancing has been completed post-year end and is disclosed in
the following section. The ultimate parent Company CNMC has
committed to support the CNG group should this be required for a
period of at least 12 months from the date of approval of these
financial statements.
Events after the Reporting Period
In January 2022, the Group executed a loan agreement with CNMC
Trade Company Limited ("CNMC Trade") for a loan of up to USD $34.55
million (the"CNMC Loan"). This CNMC Loan has been used to repay the
existing China CITIC Bank Corporation Limited ("CITIC") bank
facilities of USD $34.55m (being USD20m advanced in January 2021
("First Loan") and USD14.55m advanced in March 2021 ("Second
Loan")).
In addition, in April 2022, the Group executed a foreign
currency working capital loan agreement with China CITIC Bank
Corporation Limited (Zhuhai Branch) ("CITIC") for a loan facility
of up to US$20 million with an annual interest at 3.00% over 6
month LIBOR, which was used to repay US$20m of the CNMC Loan.
The Company continues to explore a wider refinancing of its
loans.
Outlook
The Company is continuing to enhance its production capacity.
Whilst improving production, the Company is also focusing on
perfecting and improving the smelting process by reducing
production costs, increasing recovery rates and improving
competitiveness.
The Company has long been dedicated to becoming a significant
gold producer in Central Asia. The Company has also established a
strong relationship with the government of Tajikistan and other
Central Asian countries, and it will consider other appropriate
acquisitions at the right time, although there can be no guarantee
that any acquisition will occur.
While we have taken big strides in the production and operation
of the Pakrut gold mine and achieved much, there are still
challenges to overcome and targets to meet, all of which I am
confident to accomplish in the coming months.
Uncertainty created by the coronavirus pandemic on production
and operations still exists in Tajikistan, and the long term
effects are difficult to predict and estimate. The Company will
make every effort to meet pandemic prevention and control
requirements, as well as stabilizing and expanding the production
and operation of Pakrut gold mine.
I would like to take this opportunity to thank all our
employees, management and advisers for their continued hard work in
2021. I would also like to extend my thanks to all our stakeholders
for their continued backing over the years. I very much look
forward to updating our shareholders further on the mine
developments, production levels, new strategy and direction.
Zhang Hui
Chief Executive Officer
30 June 2022
CHINA NONFERROUS GOLD LIMITED
Report of the Directors
Auditors Opinion
We have audited the group financial statements of China
Nonferrous Gold Limited (the 'group') for the year ended 31
December 2021 which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Financial
Position, the Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows and Notes to the Financial
Statements, including significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
In our opinion, the group financial statements:
-- give a true and fair view of the state of the group's affairs
as at 31 December 2021 and of its loss for the year then ended;
and
-- have been properly prepared in accordance with IFRSs as
adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors' assessment of the group's ability to
continue to adopt the going concern basis of accounting included an
analysis of qualitative and quantitative aspects within
management's forecast financial information up to the 31 December
2024, as well as obtaining a letter of support from the group's
ultimate parent as well as the latest financial information of this
entity.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
group's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
Our application of materiality
The scope of our audit was influenced by our application of
materiality. We determined materiality for the financial statements
as a whole to be US$3,900,000 (2020: US$4,478,000) for the group
financial statement using 1% of gross assets as a basis.
We consider gross assets to be the most relevant determinant of
the group's financial position and performance used by
shareholders, with the key financial statement balances being
producing mines, other property, plant and equipment, inventory and
cash. The going concern of the group is dependent on its ability to
fund operations going forward, as well as on the valuation of its
assets, which represent the underlying value of the group. However,
we consider that loss before tax will also be a key indicator of
performance to financial statements users as the group is still in
the early stages of its production cycle and continues to seek to
maximise production and operating efficiencies at the mine.
Whilst materiality for the financial statement as a whole was
set a US$3,900,000, each significant component of the group was
audited to an overall materiality ranging between US$75,000 and
US$3,800,000 with performance materiality set at 70%. We applied
the concept of materiality both in planning and performing our
audit, and in evaluating the effect of misstatement.
Our approach to the audit
In designing our audit we determined materiality, as above, and
assessed the risk of material misstatement in the financial
statements. In particular, we looked at areas requiring the
directors to make subjective judgements, for example in respect of
significant accounting estimates including impairment of producing
mines, and considered future events that are inherently uncertain.
We also addressed the risk of management override of internal
controls, including evaluating whether there was evidence of bias
by the directors that represents a risk of material misstatement
due to fraud.
A full scope audit was performed on the complete financial
information of the group's operating components located in
Tajikistan, with the group's key accounting function for all being
based in China with a local finance function in Tajikistan.
The group's Tajikistan operations are audited by a component
auditor. The audit team discussed significant events occurring
during the year and post year-end period with the component auditor
and performed a review of the component auditor's working papers,
including review of planning and completion stage group reporting.
The group audit team are responsible for the scope and direction of
the audit process. All other work was performed remotely by PKF
Littlejohn LLP.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Key Audit Matter How our scope addressed this matter
Revenue recognition (Accounting
Policies and Note 3)
The group records revenues from the Our work in this area included:
sale of gold generated by the Pakrut Reviewing component auditor's working
Gold Project in Tajikistan. There is papers in respect of revenue which
the risk that the revenues associated included the following: Obtaining and
with gold sales have not been reviewing the sales contract and
recognised and disclosed appropriately relevant documentation during the
in the financial year, and that period to support the revenue
revenue cut-off has not been recognised; Review of the gold price
appropriately accounted for. used with reference to the London
Bullion market price on the date of
sale and ensure that the invoice was
accurate; Review of post year end
receipts to ensure completeness of
income recorded in the accounting
period; Testing revenue cut-off to
ensure completeness of income recorded
in the accounting period; and
Obtaining the contracts signed between
Pakrut LLC and other parties to which
gold was sold during the year, and the
associated approval from the National
Bank of Tajikistan regarding the sale
of gold. Understanding the revenue
recognition policy and reviewing for
compliance with International
Financial Reporting Standard (IFRS)
15.
Settlement of contractor balances
(Note 19)
Following the completion of all Our work in this area included:
construction work at the Pakrut mine Obtaining all available correspondence
site by the end of 2018, the balances and agreements between the
payable to the contractors 15MCC, contractors, the group and the
Wenxhou and Shanxi were due to be independent consultant relating to the
settled before the 31 December 2020. settlement of the balances; Obtaining
The carrying value of contractor the third party consultant's final
balances, as at 31 December 2021, is settlement certificates or reports and
US$24.7m (2020: US$22.7m). There is a vouched the final payable balances;
risk that the final net payable Agreeing payments made during the year
balance has not been correctly to bank statements and the nominal
adjusted and accounted for in the ledger; and Reviewing adjustments
financial statements as the final posted by management regarding the
settlement agreements have not yet contractors balance settlement in the
been reached with all parties, nominal ledger to ensure these have
particularly given there are multiple been correctly accounted for.
factors involved in reaching the final
net payable balance for each
contractor including pre-settlement
amount, retentions, local equipment
and local project expenditures in
Tajikistan.
Valuation of PPE/Producing Mines (Note
13)
Producing Mines within PPE is the most Our work in this area included: A
material balance with the financial review of management's impairment
statement and represents the key assessment, including consideration of
source from which the group generates net present value ('NPV') calculations
income. The carrying value of used and providing challenge to the
Producing Mines, as at 31 December source of the inputs, obtaining
2021, is US$357m (2020: US$362m). support where possible; and
There is the risk that the value of Undertaking a sensitivity analysis on
the mine is impaired. the NPV calculations to assess the
impact on the headroom for possible
changes to key assumptions; and
Ensuring valid mining licenses are
held; and Considering any potential
impairment indicators through
discussion with management and the
component auditor, who has visited the
mine site as part of their audit, as
well as review of announcements to the
market and Board minutes for evidence
of impairment; and Reviewing
management's assessment of the impact
of COVID-19 on operations at the mine
site as well as external macroeconomic
factors, and consider whether there is
evidence to suggest the mine asset
should be impaired. We noted that the
lifespan of the mine used in the
depletion calculation is 18 years
which is 8 years more than the licence
currently held by CNG permits. Based
on the information available to
management there is currently no
reason to expect the licence extension
will not be granted however if it were
not then there is the risk that the
key inputs into this calculation would
need to be amended. This could lead to
a material impact on the related
charge within the financial statements
and therefore on the carrying value of
Producing Mine.
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report. Our opinion
on the group financial statements does not cover the other
information and, we do not express any form of assurance conclusion
thereon. Our responsibility is to read the other information and,
in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the Statement of Directors'
Responsibilities, the directors are responsible for the preparation
of the group financial statements and for being satisfied that they
give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the group financial statements, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
-- We obtained an understanding of the group and the sector in which it
operates to identify laws and regulations that could reasonably be
expected to have a direct effect on the financial statements. We obtained
our understanding in this regard through discussions with management, and
discussions with the internal legal team in Pakrut conducted by the
component auditor. We also selected a specific audit team based on
experience with auditing entities within this industry facing similar
audit and business risks.
-- We determined the principal laws and regulations relevant to the group in
this regard to be those arising from:
-- AIM Rules
-- Local industry regulations in Tajikistan
-- Local tax and employment law in China and Tajikistan
-- We designed our audit procedures to ensure the audit team considered
whether there were any indications of non-compliance by the group with
those laws and regulations. These procedures included, but were not
limited to:
-- Enquiries of management;
-- Review of Board minutes;
-- Review of legal ledger accounts;
-- A review of RNS announcements; and
-- A review of component auditor's work surrounding local law and
regulation in Tajikistan.
-- We also identified the risks of material misstatement of the financial
statements due to fraud. We considered, in addition to the non-rebuttable
presumption of a risk of fraud arising from management override of
controls, we did not identify any significant fraud risks.
-- As in all of our audits, we addressed the risk of fraud arising from
management override of controls by performing audit procedures which
included, but were not limited to: the testing of journals; reviewing
accounting estimates for evidence of bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business.
Because of the inherent limitations of an audit, there is a risk
that we will not detect all irregularities, including those leading
to a material misstatement in the financial statements or
non-compliance with regulation. This risk increases the more that
compliance with a law or regulation is removed from the events and
transactions reflected in the financial statements, as we will be
less likely to become aware of instances of non-compliance. The
risk is also greater regarding irregularities occurring due to
fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with our engagement letter dated 10 May 2021. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone, other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
David Thompson (Engagement Partner)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
30 June 2022
The Directors present their annual report and the audited
Financial Statements of China Nonferrous Gold Limited for the year
ended 31 December 2021.
Principal Activity
The principal activity of the Group is that of mineral
exploitation, mine development and mining.
BUSINESS REVIEW
Introduction
China Nonferrous Gold Limited ("CNG") is a mineral exploration,
development and mining Company. The Group's project is located in
central Asia, having been discovered during the Soviet era. The
principal focus of the Group is the development and exploitation of
the Pakrut Gold Project in Tajikistan.
CNG, following the scheme of arrangement between Kryso Resources
Limited (formerly Kryso Resources Plc) and its shareholders, was
admitted to trading on AIM on 31 July 2013 in order to continue
funding the development of the Pakrut Gold Deposit and the
exploration of the Pakrut License Area, and to better position the
Group to obtain and acquire other gold and base metal deposits in
Tajikistan.
The Group's Executive Directors have a proven track record of
operating in Tajikistan and they believe CNG to be the first
foreign Company to obtain a 100% interest in a mining and
exploration project in the country.
A review of the activities of the Group during 2021 is provided
in the CEO's Statement.
Strategy
CNG's strategy is to maximize shareholder value through the
development of the Group's exploration properties, proving up
additional resources. CNG's medium term objective is to become a
mid-tier gold producer and keep in mind the mission of state-owned
enterprises, maintain strategic strength, and strive to achieve the
production goal of Pakrut. The directors of CNG have a track record
of operating successfully in Tajikistan and believe CNG to have
been the first foreign Company to obtain 100% ownership of a mining
and exploration project in Tajikistan.
OPERATING REVIEW
During 2021 the Group has:
-- Reached production capacity of 1,713 tons per day from January 2021;
-- Processed a total of 650,995 tons of ore at a grade of raw ore of
2.29g/t;
-- The recovery rate of processing was 92.68% and the recovery rate of
smelting was 91.61%;
-- 19,909 tons of gold concentrate were produced at the grade of 69.22g/t,
1,249 kg gold bullion were poured; and
-- Generated revenue from production of US$71,991,962.
Pakrut Gold Deposit and License Area
In April 2004, LLC Pakrut, a wholly owned subsidiary of the
Group, was granted a license and geological lease to explore and
exploit the Pakrut License Area which comprises the Pakrut gold
deposit and the surrounding 6,300 hectare exploration area located
in the metalliferous southern Tien-Shan Fold Belt. This belt is
reputed to have the second largest known gold resource after the
Witwatersrand in South Africa. The exploration license was valid
for 10 years and expired on 1 April 2014. An application has been
submitted in accordance with the required procedures to renew the
exploration license. The renewal application is being considered by
the Government of Tajikistan and the Group is working with the
Government to ensure it is renewed as soon as possible. Exploration
and evaluation activities can continue at the Pakrut Gold Deposit
in the area covered by the mining license.
In November 2011, the Government of the Republic of Tajikistan
issued the Pakrut Project mining license to LLC Pakrut. According
to the terms of the license, the amount of ore that can be mined is
variable depending upon the mine plan. The plan submitted by the
Group envisages an initial processing capacity of 660,000 tons of
ore per annum, increasing to 1,320,000 tons per annum. The mining
license is valid until 2 November 2030. An application has been
submitted in accordance with the required procedures to obtain
approval to mine all JORC compliant reserves arising from
exploration and evaluation activities undertaken by the Group
between 2009 and 2013. The application is currently being
considered by the Tajik Department of Geology, following which
approval is required by the Scientific and Technical Counsel. It is
the current intention of the Group to seek an extension to the
mining license to ensure maximum exploitation of the resources
available and this is permissible under the current terms of the
arrangements in place.
FINANCIAL REVIEW
The results for the year ended 31 December 2021 were as
follows:
2021 2020
US$000 US$000
Revenue 71,992 64,516
Cost of sales (37,256) (35,297)
Administrative expenses (19,879) (17,827)
Foreign exchange loss (1,853) (1,076)
Other operating expenses (2,416) (46)
Total costs 61,405 54,247
% Administrative expenses to total costs 32.37% 32.86%
Operating profit/(loss) 10,587 10,268
Less: interest receivable (6) (196)
Add: interest payable 10,826 15,999
Loss on ordinary activities before taxation (235) (5,532)
Earnings per share (cents) (1.63) (1.64)
The main financial Key Performance Indicator ('KPI') for the
Group is administration costs as a percentage of total costs which
continues to be at an acceptable proportion. In 2021, KPI index is
at 32.37% (2020: 32.86%).
Revenue is also considered to be a KPI and will be increasingly
important to monitor now that the Group has entered full
production. Revenue for the year was US$71.99 million (2020:
US$64.52 million). This significant increase is in line with
expectations given the increased production levels and increased
price of gold at the mine site since 2019 now the mine operations
are operating at full production capacity.
Corporate Responsibility
The Group seeks to build a sustainable and profitable business
to maximize the return to its shareholders and in doing so will not
knowingly overlook its Corporate Responsibilities.
Certain Directors also serve as Directors of other companies
involved in natural resource exploration, development and mining
and consequently there exists the possibility for such Directors to
be in a position of conflict. Any decision made by such Directors
involving the Group will be made in accordance with their duties
and obligations to deal fairly and in good faith with the Group and
such other companies. In addition, such Directors will declare, and
refrain from voting on, any matter in which such Directors may have
a conflict of interest.
People
The Group recognises that the success of its ventures is based
on the well-being and health of its employees. All employees have
to pass through an induction process where they are briefed on the
Group's health and safety policies. The safety of the Group's
employees is of the utmost importance and is therefore taken
seriously in all areas in which the Group's employees operate.
The Group is also committed to the development of its employees
and encourages them to attend courses and programs to further
develop their own skills. The Group also aims to provide a
favorable working environment which will continue to draw, retain
and motivate its employees so that they can reach their true
potential and share in the Group's success.
Employees are kept well informed of the performance and
objectives of the Group through established methods of personal
briefings and regular meetings. Employees are given the opportunity
to develop and progress according to their ability. The Group has
an employee share option scheme to encourage employees'
participation in the Group's performance.
The Group has continued its policy of giving the disabled full
and fair consideration for all job vacancies for which they offer
themselves as suitable applicants, having regard to their
particular aptitudes and abilities. With regard to existing
disabled employees and those who may become disabled during the
year, the Group examines ways and means of providing continuing
employment under normal terms and conditions and provides training,
career development and promotion, where appropriate.
Social
The Group continues to have a strong relationship with the local
communities in the areas in which it operates, respecting their
laws and customs. The Group employs local people in all levels
within the organization; this ensures a transparent and fair
transfer of benefits and support to their communities where
appropriate. The Group engages the local communities in all aspects
of the projects it is actively involved in, from exploration
through to feasibility and production, ensuring that concerns are
addressed, and that support is maintained throughout the entire
process.
Environment
The Group has a strict environmental code with which all its
employees are well-versed during the induction process; this not
only satisfies the local environmental code, but also the
international code. The Group has contracted the services of a
local environmental consultant who monitors its operations to
ensure that any lapses are immediately brought to the attention of
management.
Risk Factors
There are several principal risk factors outlined below that may
affect the Group's businesses and which may not all be within the
Group's control.
PRINCIPAL RISKS AND UNCERTAINTIES
Environmental Risk
The Group's core operations are located in Pakrut, a mountainous
area of Tajikistan. The area is remote and can be subject to
adverse weather conditions which, as evidenced in the first half of
2017, can impact the ability of the Group to perform its core
operations and may lead to substantial damage of the Group's
properties. The Group seeks to manage this risk by taking out
appropriate insurance and carefully monitoring weather reports
during the seasons when adverse conditions are most likely and
ensuring that appropriate action is taken to minimise risk to life
and property damage.
Production Risk
The Pakrut Gold Project is now operating at full production
capacity. The Company's existing production equipment is considered
to be sufficient to meet the requirements of the budgeted gold
production targets. The right choice of production equipment has a
major impact on productivity and costings.
The production process of the gold should be based on the
specific performance requirements of the product. This requires an
increase in production skills and requires training of Company
technicians. Technology is changing rapidly and existing production
technology may have fallen behind, therefore technicians must
continue to develop their knowledge and skillset to keep up with
this pace.
At present, CNG is in a stable production and operation stage.
The Company will need to manage change and innovation and
accumulate valuable experience and systems as production levels
continue to ramp up. A key factor will be the continuous
technological innovations and developments in the industry. To
become an industry leader, CNG must adhere to the technology
innovation strategy and seek innovative methods to achieve a
comprehensive transformation.
Production risks are related to the possibility that gold
production or output levels are lower than expected. The main
sources of production risk are bad weather conditions and limited
production capacity, such as hail, snow disasters, and limited
Chinese technical staff. Despite the control measures taken, the
production risk may also be due to the harsh winter weather and the
breakdown of production equipment and machinery. At present, Pakrut
is adopting corresponding risk prevention and control strategies
for the above risks, including purchase of equipment spare parts
and materials in advance to ensure the sufficiency of raw materials
and the normal operation of the machinery at the mine site;
vigorously training Tajik technical personnel, exerting local
talent policies, and rationally using manpower resources;
reasonably estimate the impact of severe weather to ensure the
achievement of the annual output target.
COVID-19 risk
Affected by the COVID-19, global gold price is still subject to
some fluctuations. However, from the current situation, the average
delivery price of gold for the first five months of 2022 was
US$1,881.58 per ounce, and the average delivery price of gold for
the whole year of 2021 was US$1,808.72 (2020:US$1,798.81) . From
the above data, it can be concluded that the company's average
delivery price of gold is stable.
Secondly, the technicians of Shenyang Institute of Technology
have come to Tajikistan in 2022 to guide local production, conduct
field exploration, and further improve ore production and grade.
Relevant technical innovations were discussed with the company's
personnel and returned to China smoothly.
The pandemic situation in Tajikistan seems to have stabilize in
2022, no official numbers on infection and confirmed cases have
been released since the beginning of this year. On March 15, 2022,
the government of Tajikistan announced that all restrictive
measures against the pandemic would be abolished in Tajikistan, and
the local residents would fully return to normal life and work.
In addition, the Company has also arranged for Chinese employees
to return home for vaccination. The good news is that by March
2022, Tajikistan and other transit third countries have liberalized
the return policy,and Chinese residents can return home as long as
the nucleic acid (covid test) is negative, which will greatly
improve the mobility of returning personnel. So far, 100% of
Chinese employees have been vaccinated with the three doses. The
Company aims to minimize the risk of illness of employees and
maximize the health level of employees.
Exploration and Development Risk
The exploration for, and the development of, mineral deposits
involves significant risks, which even a combination of careful
evaluation, experience and knowledge may not eliminate. While the
discovery of an ore body may result in substantial rewards, few
properties which are explored ultimately develop into producing
mines. Major resources are required to establish ore reserves, to
develop metallurgical processes and to construct mining and
processing facilities at the Pakrut site.
There is no certainty that the exploration and development
expenditures made by the Group as described in these financial
statements will result in a commercially feasible mining operation.
There is aggressive competition within the mining industry for the
discovery and acquisition of properties considered to have
commercial potential. The Group will compete with other companies,
many of which have greater financial resources, for the opportunity
to participate in promising projects. Significant capital
investment is required to achieve commercial production from
successful exploration efforts.
The commercial viability of a deposit is dependent on a number
of factors. These include deposit attributes such as size, grade
and proximity to infrastructure; current and future market prices
which can be cyclical; government regulations including those
relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals and environmental protection.
The effect of these factors, either alone or in combination, cannot
be entirely predicted, and their impact may result in the Group not
receiving an adequate return on invested capital.
There is no assurance the Group will be able to adhere to the
current development and production schedule or that the required
capital and operating expenditure will be accurate. The Group's
development plans may be adversely affected by delays and the
failure to obtain the necessary approvals, licenses or permits to
commence production or technical or construction difficulties which
are beyond the Group's control. Operational risks and hazards
include: unexpected maintenance, technical problems or delays in
obtaining machinery and equipment, interruptions from adverse
weather conditions, industrial accidents, power or fuel supply
interruptions and unexpected variations in geological
conditions.
The risks inherent in developing the Group's projects are
mitigated to some extent by the strategic alliance with China
Nonferrous Metals Int'l Mining Co. Ltd, which is a member of a
group with a number of active mining operations.
Regulatory and Legal Risk
Substantially all of the Group's business and operations are
governed by the laws, rules and regulations in Tajikistan which can
contain inherent ambiguities, uncertainty, inconsistency and
contradictions with regards to their application, interpretation,
implementation and enforcement. In particular, the laws, rules and
regulations which the Group is subject to, including, but not
limited to, those relating to foreign investments, subsoil use,
land use, licensing, customs, foreign currency, environmental
protection and taxation are still evolving and remain uncertain in
many respects.
In addition, the judicial system in Tajikistan may not be
independent and immune from the economic, political and
nationalistic influences in Tajikistan and the decisions of the
courts are often not transparent and available to the public. In
many circumstances there are no prior court decisions for reference
and the interpretations of the laws, rules and regulations by the
courts in Tajikistan remain ambiguous and it is difficult to
predict or to seek effective legal redress. The regulatory
authorities in Tajikistan are entrusted with a high degree of
discretion and authority in the application, interpretation,
implementation and enforcement of the laws, rules and regulations
potentially resulting in ambiguous and inconsistent actions.
There is no assurance that the Group will be able to comply with
all new laws, rules and regulations applicable to its mining
operations or any changes in laws, rules and regulations.
Furthermore, the legal protections available to the Group may be
limited and could have a material impact on the results of the
Group and the imposition of penalties and/or regulatory action. In
addition, the process of obtaining, retaining or renewing licenses
and permits could be time-consuming and costly and could give rise
to unexpected delays and expenses. The Group seeks and obtains
sufficient and appropriate legal advice where considered
necessary.
The Group's existing licenses and permits could be revoked,
terminated or not extended in accordance with expectations by the
Tajikistan Government, the local government or the Tajikistan
courts under certain circumstances, including failure to comply
with the conditions imposed by the licenses and permits, which may
include the provision of regular reports to the relevant regulatory
authority, obtaining sufficient insurance coverage, adherence to
the permitted extraction of mineral resources or complying with the
obligations relating to sustainable management, subsoil,
environmental protection and health and safety regulations. Failure
to obtain, retain or renew the relevant licenses and permits
required at all or on a timely basis could have a material adverse
effect on the Group's financial condition. The Group works closely
with the Government and local government departments on the mine
project in order to ensure all parties are kept up to date on
progress and closely monitors compliance with the conditions
imposed under its existing licenses and permits.
Economic Risk
The profitability of the Group's future operations may be
significantly affected by changes in the market prices for the
materials it may produce and is affected by numerous macroeconomic
factors beyond the Group's control. The level of interest rates,
the rate of inflation, world supply, and the stability of exchange
rates can all cause fluctuations in the price. Such external
factors are in turn influenced by changes in international
investment patterns and monetary systems and also political
developments. Metal prices have fluctuated in recent years,
particularly gold, and future significant price declines could
cause future commercial production to be uneconomic and have a
material adverse effect on the Group's financial condition.
Economic risk is continually evaluated by the Group, including
expectations of future events, and action undertaken as
necessary.
Certain payments, in order to earn or maintain property
interests, are to be made in local currency in the jurisdiction
where the applicable property is located. As a result, fluctuations
in the Chinese Renminbi and the Tajik Somoni could have a material
adverse effect on the Group's financial results which are
denominated and reported in US dollars. Where possible the Group
maintains bank and cash balances in the same denomination as its
expected liabilities. The Group does not currently hedge its
exposure to foreign currencies.
The Group currently has a comprehensive program of insurance but
does not carry insurance to protect against certain risks and nor
can it guarantee that its level of insurance is sufficient to cover
all outcomes and eventualities. As a result, the Group may become
subject to liability to include environmental pollution, political
risk and other hazards against which the Group cannot insure or
which it may elect not to insure. The payment of such liabilities
may have a material adverse effect on the Group's financial
condition.
Pakrut is located in Tajikistan, an overseas country, and the
tax pressure is not insignificant. Due to the regional poverty and
developing status of the host country, the Directors understand
that government funds are tight, and that tax has become the main
source of national revenue. The taxation bureau has threatened that
enterprises will be required to pay more taxes, although to date
there has been no local taxation policy change. In 2020, Pakrut
further strengthened its internal control and basic management, and
has formulated tax management measures that meet the Company's
management needs, that enables the team to promptly assess
tax-related risks and related countermeasures in the Company's
business and management processes, and is responsible for
establishing and maintaining good relationships with the relevant
tax authorities in order to make representations in regard to
potential changes to tax law, tax planning, and tax incentives in
order to safeguard the Company's overall interests.
Financial Risk
The Group's operations expose it to a number of financial risks.
These are discussed under 'Financial Risk Management' within Note 1
of the Financial Statements.
Political and Country Risk
Substantially all of the Group's business and operations are
conducted in Tajikistan. The political, economic, legal and social
situation in Tajikistan introduces a certain degree of risk with
respect to the Group's activities. The Government of Tajikistan
exercises control over such matters as exploration and mining
licenses, permitting, exporting and taxation, which may adversely
impact the Group's ability to carry out exploration, development
and mining activities.
Government activity, which could include non-renewal of
licenses, may result in any income receivable by the Group being
adversely affected. In particular, changes in the application or
interpretation of mining and exploration laws and/or taxation
provisions in Tajikistan could adversely affect the value of the
Group's interests.
No assurance can be given that the Group will be able to
maintain or obtain effective security or insurance for any of its
assets or personnel at its operations in Tajikistan; this may
affect the Group's operations or plans in the future. A moderate
degree of security is also currently required to mitigate the risk
of loss by theft, either by the Group's employees or by third
parties, and controls are implemented where possible to minimize
this risk. No assurance can be given that such factors will not
have a material adverse effect on the Group's ability to undertake
exploration, development and mining activities in respect to
present and future properties in Tajikistan.
The Group's controlling shareholder is a People's Republic of
China ("PRC") state-owned enterprise. Any adverse changes to Sino
-- Tajikistan diplomatic relations could affect the policies and
regulations of the Tajikistan Government towards foreign investment
and foreign exchange, which could adversely affect the Group's
business, financial conditions and prospects.
Tax risk
Tajikistan's poor tax environment, excessive discretion in tax
collection and high tax risk could have an adverse impact on the
normal production and operation of enterprises.
In 2021, compared with 2020, the corporate income tax increased
significantly by $5,187,869. The main reason is that the Tajik
Local Taxation Committee conducted a routine tax inspection on the
Pakrut company. The Tax Committee does not recognise some of the
expenses that the Company considered deductible which lead to an
additional tax charge. This is the first inspection of the Pakrut
company since commencing full production two years after the
issuance of the presidential decree (an exemption from tax
inspections).
The Company will further strengthen communication with the tax
department and actively respond to tax requirements and proposed
changes in order to protect the legitimate rights and interests of
the enterprise.
Funding
The Group may need to secure further funding for working capital
and other purposes and in addition it will need to renegotiate its
current funding in the short-medium term. There is the risk that
this may not be forthcoming which would impact the Group
operations. The Group has numerous funding options available and
remains in close contact with its controlling shareholder who have,
up to now, continued to provide economic support as required.
Performance of Key Personnel and Employees
The Group is dependent on a relatively small number of key
employees, the loss of any of whom could have an adverse effect on
the Group.
There has been a steady emigration of skilled personnel from
Tajikistan in recent years that could adversely affect the Group's
ability to retain its employees.
The Group seeks to mitigate this risk by actively engaging with
its employees and seeking to offer a secure work environment with
appropriate pay levels to maintain both motivation and loyalty to
the Group.
Results and Dividends
The results for the year and the Group's financial position at
the end of the year are shown in the following Financial
Statements. The Directors do not recommend the payment of a
dividend (2020: US$Nil).
Future Developments
Future prospects are set out in the CEO's Statement on page 8
under 'Outlook'.
Directors and their Interests
The Directors who served the Group during the year do not hold
any beneficial interests in the shares of the Group (2020:
None).
No Director who served during the period held any share options
in the Company.
Remuneration of the Directors is disclosed in Note 5.
Substantial shareholdings
As at the date of these financial statements, the Directors were
aware of the following shareholdings in excess of 3% of the
Company's issued share capital.
Number of ordinary Percentage of issued
shares share capital
China Nonferrous Metals
Int'l Mining Co Ltd 146,666,667 38.36
Zhao Bin 50,090,304 13.10
Golden Max Group 33,823,113 8.85
Huang Lihuo 33,068,430 8.65
BOCOM International 16,500,000 4.31
Rainbow Bridge
Investment Fund 12,335,489 3.23
Going Concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the CEO's Statement on pages 6 to 9. Note 1 to the
financial statements includes the Company's objectives, policies
and processes for managing its capital; its financial risk
management objectives; and its exposures to credit risk and
liquidity risk.
The Directors have prepared the Group financial statements on a
going concern basis after reviewing the Group's forecast cash
position and working capital requirements for the period to 31
December 2024 and satisfying themselves that the Group will have
sufficient funds on hand to realise its assets and meet its
obligations as they fall due.
In making their assessment, the Directors have considered the
level of production and operation at the mine site and how the
Group will be able to use the cash inflows from these operations to
support its working capital position and repay loans when they fall
due. The Directors have considered the importance of working
closely with its lenders, some of whom are related parties, and
they have obtained appropriate assurances from them regarding their
continued support. The Directors have also considered the ongoing
COVID-19 pandemic and, although the extent of the global impact is
as yet uncertain, the Group believes there are sufficient measures
in place at the mine site in Tajikistan and in the Beijing head
office to mitigate any potential risks presented and enable
operations to continue as normal.
After making the due enquiries the Directors have a reasonable
expectation that the Company and Group have access to adequate
resources to continue in operational existence for the foreseeable
future which is considered to be at least 12 months from the date
of the signing of these financial statements. Accordingly, the
Group continues to adopt the going concern basis in preparing the
annual report and financial statements.
Events after the Reporting Period
Details of events after the reporting period are set out in the
Chief Executive Officer's Statement and in Note 28 to the Financial
Statements.
Relevant Audit Information
The Directors who held office at the date of approval of this
Report of the Directors confirm that, so far as they are
individually aware, there is no relevant audit information of which
the Company's auditor is unaware; and each Director has taken all
the steps that they ought reasonably to have taken as a Director to
make themselves aware of any relevant audit information and to
establish that the auditor is aware of that information.
Auditor
PKF Littlejohn LLP has signified its willingness to continue in
office as auditor.
Signed by order of the Director
Mr Hui Zhang
30 June 2022
Consolidated Statement of Comprehensive Income, Year Ended 31
December 2021
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements
2021 2020
US$000 US$000
Revenue 3 71,992 64,516
Cost of sales (37,256) (35,297)
Gross Profit 34,736 29,219
Other operating income - 1
Administrative expenses 6 (19,879) (17,827)
Loss on foreign exchange (1,855) (1,076)
Other operating expenses 7 (2,416) (46)
Operating Profit 10,585 10,271
Finance income 9 6 196
Finance costs 9 (10,826) (15,999)
Loss before Income Tax (235) (5,532)
Income tax 8 (6,012) (824)
Loss for the year attributable to owners of the parent (6,247) (6,356)
Total comprehensive income attributable to owners of
the parent for the year (6,247) (6,356)
Basic and Diluted Earnings per share attributable to
owners of the parent (expressed in cents per share) 10 (1.63) (1.66)
All of the activities of the Group are classed as
continuing.
Consolidated Statement of Financial Position
As at As at
31 December 2021 31 December 2020
Note US$000 US$000
Non-Current Assets
Property, plant and equipment 13 364,337 373,201
Total Non-Current Assets 364,337 373,201
Current Assets
Inventories 16 17,334 15,911
Trade and other receivables 17 4,202 5,649
Cash and cash equivalents 7,472 27,196
Total Current Assets 29,008 48,756
Non-Current Liabilities
Borrowings 18 (65,000) (19,822)
Provisions for other liabilities
and charges 20 (1,084) (995)
Total Non-Current Liabilities (66,084) (20,817)
Current Liabilities
Borrowings 18 (303,953) (368,919)
Trade and other payables 19 (49,696) (52,363)
Total Current Liabilities (353,649) (421,282)
Net Current Liabilities (324,841) (372,526)
Net Liabilities (26,388) (20,143)
Consolidated Statement of Cash Flow
31 December 31 December
2021 2020
US$000 US$000
Cash flows from Operating Activities (Note 24) 13,904 17,137
Net cash generated from Operating Activities 13,904 17,137
Cash flows from Investing Activities
Purchase of property, plant and equipment (994) (1,942)
Interest received 6 196
Net cash used in Investing Activities (989) (1,746)
Cash flows from Financing Activities
Proceeds from borrowings (net of capitalised issue
costs) 99,550 14,550
Repayment of borrowings (128,806) (10,000)
Interest paid (3,384) (3,866)
Net cash generated from Financing Activities (32,640) 684
Net increase in Cash and cash equivalents (19,724) 16,075
Cash and cash equivalents at beginning of the year 27,196 11,120
Cash and cash equivalents at end of the year 7,472 27,196
Equity attributable to the owners of the parent
Share capital 22 38 38
Share premium 65,901 65,901
Other reserve 10,175 10,175
Retained earnings (102,502) (96,257)
Total Equity (26,388) (20,143)
Consolidated Statement of Changes in Equity
Attributable
to owners of
the parent
Share Share Other Retained
capital premium reserve earnings Total
US$000 US$000 US$000 US$000 US$000
Balance at 1
January 2020 38 65,901 10,175 (89,899) (13,785)
Loss for the
year - - - (6,356) (6,356)
Total
comprehensive
income for
the year - - - (6,356) (6,356)
Total
transactions
with owners of
the parent,
recognised
directly in
equity - - - - -
Balance at 31
December
2020 38 65,901 10,175 (96,255) (20,141)
Balance at 1
January 2021 38 65,901 10,175 (96,255) (20,141)
Loss for the
year - - - (6,247) (6,247)
Total
comprehensive
income for
the year - - - (6,247) (6,247)
Total
transactions
with owners of
the parent,
recognised
directly in
equity - - - - -
Balance at 31
December
2021 38 65,901 10,175 (102,502) (26,388)
Notes to the Financial Statements
1. Financial Risk Management
The Group's operations expose it to a number of financial risks;
principally the availability of adequate funding, movements in
interest rates and fluctuations in foreign currency exchange rates.
Continuous monitoring of these risks ensures that the Group is
protected against any adverse effects of such risks so far as it is
possible and foreseeable.
Market Risk
a) Cash Flow and Interest Rate Risk
The continued operation of the Group is dependent on the ability
to raise sufficient working capital until the mine produces
sufficient quantities of gold to be self-sufficient. The Group
currently finances itself through the issue of equity share capital
and the secured loan facilities from CNMIM, CNMC and CCB.
Management monitors its cash and future funding requirements
through the use of cash flow forecasts. All cash not immediately
required for working capital purposes is held on short term
deposit. The Group's exposure to interest rate fluctuations on cash
balances is restricted to the rate earned on these short-term
deposits. The potential impact of such fluctuations is not
considered material to the financial statements.
The Group's interest rate risk arises from long-term borrowings.
The Group has both variable and fixed rate borrowings. Borrowings
issued at variable rates expose the Group to cash flow interest
rate risk which is partially offset by cash invested at variable
rates. The annual fixed interest rate for the CNMIM loan is 9% for
all USD and RMB denominated tranches. All payments of principal and
interest in respect of the RMB denominated tranche are repayable at
a fixed RMB: USD exchange rate. The interest rate on the BOS loan
of US$65 million is 1.50% per annum over the quarterly LIBOR rate
and the loan is repayable in US$. The interest rate on the CITIC
loan of US$20 million is 2.70% per annum over the 6 month LIBOR
rate and the loan is repayable in US$. The interest rate on the
CITIC loan of US$14.55 million is 2.71% per annum over the 12 month
LIBOR rate and the loan is repayable in US$. The interest rate on
the CNMC loan of US$207.24million is 3.25% per annum over the
quarterly LIBOR rate .
1. Financial Risk Management (continued)
At 31 December 2021, the potential impact of fluctuations in
interest rates is considered material to the financial
statements.
b) Foreign Currency Risk
The Group operates internationally and is exposed to foreign
exchange risk arising from currency exposures. Currency risk is the
risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange
rates. The Group has cash assets denominated in UK Sterling, United
States Dollars, Tajik Somoni and PRC Renminbi and incurs
liabilities for its working capital expenditure in all of these
denominations. Payments are made in all of these denominations at
the pre-agreed price and converted (if necessary) as soon as
payment needs to occur. Currency conversions and provisions for
expenditure are only made as soon as debts are due and payable. The
Group is therefore exposed to currency risk in so far as its
liabilities are incurred in UK Sterling, PRC Renminbi and Tajik
Somoni, and fluctuations occur due to changes in the exchange rates
against the functional and presentational currency of US Dollar.
The table below details the split of the cash held as at 31
December 2021 between the various currencies.
Somoni GBP Sterling US Dollar Renminbi Total US$000
3,342 4 3,869 257 7,472
Due to the different nature of assets and liabilities, changes
in asset value caused by exchange rate changes have different ways
of affecting a Company's free cash flow. Therefore, it must be
considered separately when evaluating the value of an enterprise.
The first is the monetary items in the corporate balance sheet.
Typical monetary items include monetary funds, loans, accounts
receivable and accounts payable. When the exchange rate changes,
the above-mentioned assets or liabilities of the enterprise
accounted in foreign currencies will increase or depreciate
accordingly. For example, in the context of the depreciation of the
Renminbi, the foreign currency deposits (Somoni/USD) held by
enterprises will appreciate, which in itself has a substantial
impact on the present value of cash. The foreign currency-settled
bonds or other debts issued by companies can be repaid at a lower
RMB cost, which can save companies more funds that can be used for
free distribution, thereby promoting the enhancement of corporate
value.
1. Financial Risk Management (continued)
During 2021, the Group's principal revenue, costs, assets and
liabilities, including intercompany loans were denominated in USD.
The Group manages foreign currency risk by matching receipts and
payments and monitoring movements in exchange rates. The Group does
not currently hedge its exposure to foreign currencies and
recognises the profits and losses resulting from currency
fluctuations as and when they arise. At the year end the Group did
not have material exposure to foreign exchange risk relating to its
non-US$ denominated bank deposits and as such this not disclosed.
The year-end exchange rates used in the preparation of the
financial statements for 2021 and 2020 were as follows:
Somoni to USD GBP to USD Renminbi to USD
31 December 2021 11.30 1.3499 6.3757
31 December 2020 11.30 1.3625 6.5250
Liquidity Risk and Credit Risk
The continued operation of the Group is dependent on the ability
to raise sufficient working capital. As noted above, the Group
currently finances itself through the issue of equity and
borrowings from CNMIM, CNMC, CCB, CITIC and Bank of Shanghai.
Management monitors its cash and future funding requirements
through the use of cash flow forecasts. The Group enters into
capital commitments to fund operations, and any surplus cash not
immediately required for working capital purposes is held on short
term deposit.
1. Financial Risk Management (continued)
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Less Between Between
than 1 1 and 2 2 and 5 Over Carrying
Year Years Years 5 Years Total amount
US$000 US$000 US$000 US$000 US$000 US$000
Year ended
31 December 2021
Interest-bearing
borrowings 303,953 65,000 - - 368,953 368,953
Trade and other
payables 49,696 - - - 49,696 49,696
Provisions for
other
liabilities - - - 1,085 1,085 1,085
353,649 65,000 - 1,085 419,734 419,734
1. Financial Risk Management (continued)
Year ended
31 December 2020
Interest-bearing borrowings 368,919 19,822 -- 388,741 388,741
Trade and other payables 52,363 - -- 52,363 52,363
Provisions for other liabilities - - -2,481 2,481 995
421,453 19,822 -2,481 443,585 442,099
The Group holds bank accounts with banks in the UK, PRC and
Tajikistan with the following credit ratings:
2021 2020
Credit rating US$000 US$000
A 3,229 21,212
No independent credit rating available 4,243 5,984
7,472 27,196
If a bank has no credit rating, the Group assesses the credit
quality through local knowledge and past experience in the
particular jurisdiction.
1. Financial Risk Management (continued)
Capital Risk Management
The Group consider equity to be their capital. The Group's
objective when managing their capital is to safeguard the Group's
ability to continue as a going concern in order to provide returns
for shareholders and to enable the Group to continue its
exploration, evaluation and mine construction. The Group holds debt
in the form of both shareholder and external loans and defines
capital based on the total equity of the Company. Except for the
secured loan facilities from CNMIM, CNMC and CCB, the Group's
current policy for raising capital is through equity issues and
debt financing. The Group is not currently required to monitor its
gearing ratio and is not exposed to any externally imposed capital
requirements.
2. Critical Accounting Estimates, Assumptions and Judgments
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amount of assets and
liabilities are set out below. Estimates and assumptions are
continually evaluated and are based on management's experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Uncertainty
about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of assets and
liabilities affected in future periods.
The Group has identified the following areas where significant
estimates, assumptions and judgments are required. The most
significant judgment for the Group is the assumption that
exploration and development at its sites will ultimately lead to a
commercial mining operation. Failure to do so could lead to
impairment of the mine.
Estimated impairment of Producing mines (Note 13)
The Group tests annually whether exploration, evaluation and
licensing assets and producing mines have suffered any impairment.
The recoverable amounts of the cash generating units ("CGUs") have
been determined based on value in use calculations which require
the use of estimates and assumptions such as long-term commodity
prices, gold recovery rates, discount rates, operating costs and
therefore expected margins, future capital requirements and mineral
resource estimates (see below). These estimates and assumptions are
subject to risk and uncertainty and therefore there is a
possibility that changes in circumstances will impact the
recoverable amount. Management has assessed its CGUs as being
individual exploration and mine sites, which is the lowest level
for which cash inflows are independent of those of other assets or
CGUs.
2. Critical Accounting Estimates, Assumptions and Judgments
(continued)
In assessing the carrying amounts of its exploration, evaluation
and licensing assets and producing mines at Pakrut, the Directors
have used an independently prepared and Director approved bankable
feasibility study
(http://www.cnfgold.com/projects/pakrut-gold-project). The period
used in management's assessment is the anticipated life of the mine
to the expiration of the license in 2030 with revenues being
generated from full production from January 2019.
The calculation assumes a gradual increase in mining capacity of
2,000 tonnes of ore daily. Estimated production volumes are based
on detailed life-of-mine plans and take into account development
plans for the mines agreed by management as part of the long-term
planning process. Production volumes are dependent on a number of
variables, such as: the recoverable quantities; the production
profile; the cost of the development of the infrastructure
necessary to extract the reserves; the production costs; the
contractual duration of mining rights; and the selling price of the
commodities extracted. Gold revenues have been estimated over that
period at a price of US$1,820 based on management's estimates,
which are derived from forward price curves and long-term views of
global supply and demand, building on past experience of the
industry and consistent with external sources.
The total cost per ounce is estimated to be around US$780 with a
gross margin of circa 57%. Royalties have been calculated at 6% of
sales revenues and corporate income tax at 13%, according to the
relevant laws in Tajikistan. A discount rate of 10% has been
utilised.
The calculations have been tested for sensitivity to changes in
the key assumptions. The most sensitive inputs in the calculation
of the value in use are operating and direct costs, the gold price,
and the discount rate. An impairment to the mine value would occur
if, compared to the base case scenario, the discount rate were to
increase to 13%, gold prices fell by 5%, or direct costs were to
increase by 25%.
2. Critical Accounting Estimates, Assumptions and Judgments
(continued)
Approval of Pakrut reserves by Tajik Department of Geology
In November 2011, the Government of the Republic of Tajikistan
issued the Pakrut Gold Project mining license to LLC Pakrut.
According to the terms of the license, the amount of ore that can
be mined is variable depending upon the mine plan. The plan
submitted by the Group envisages an initial processing capacity of
760,000 tons of ore per annum, increasing to 800,000 tons per
annum. The mining license is valid until 2 November 2030.
The mining license issued in November 2011 currently entitles
the Group to mine JORC compliant resources (measured, indicated and
inferred) of 904,000 ounces out of total JORC compliant resources
of 4,383,000 ounces at Pakrut, excluding the Eastern Pakrut,
Rufigar and Sulfidnoye ore zones. The JORC compliant resources
include the results from the Group's exploration and evaluation
work subsequent to the mining license issue date.
LLC Pakrut has sought approval of the increased JORC compliant
resources from the Tajik Department of Geology and the Scientific
and Technical Counsel which includes the results of all exploration
and evaluation activities undertaken by the Group between 2009 and
2013. The application is currently subject to that approval process
and the Directors are not aware of any legal or other impediments
which would prevent approval of their application and therefore
permit the Group to mine the increased resources. However, the
approval process currently remains incomplete.
The mine design and construction work undertaken to date,
together with the assessment of the recoverable amount of
'Producing mines' (see below), is based upon the total quantity of
JORC compliant resources of which part falls outside the area
covered by the mining license and still subject to formal approval,
as noted above. Failure to obtain this approval would lead to an
impairment of 'Mines under Construction', together with
inventories, and also impact the going concern basis of preparation
of the Financial Statements. The Group has made the judgement that
this approval will be forthcoming. No provision for impairment has
been recognised in these Financial Statements relating to this
uncertainty.
2. Critical Accounting Estimates, Assumptions and Judgments
(continued)
Mineral resource and reserve estimates
Reserves are estimates of the amount of resources that can be
economically and legally extracted from the Group's mining
properties. The Group estimates its mineral resources based on
information compiled by appropriately qualified persons relating to
the geological and technical data on the size, depth, shape and
grade of the ore body and suitable production techniques and
recovery rates. This analysis requires complex geological judgments
to interpret the data. The estimation of the recoverable amount is
based upon factors such as estimates of commodity prices, future
capital expenditure and production costs along with geological
assumptions made in estimating the size and grade of the resources.
Details of the mineral resources and reserve estimates can be found
on www.cnfgold.com.
The Group estimates and reports mineral resource estimates in
line with the principles contained in the Australasian Code for
Reporting Exploration Results, Mineral Resources and Ore Reserves
(December 2004), which is prepared by the Joint Ore Reserves
Committee (JORC) of the Australasian Institute of Mining and
Metallurgy, Australian Institute of Geoscientists and Minerals
Council of Australia, known as the "JORC Code". The determination
of a JORC resource is itself an estimation process that involves
varying degrees of uncertainty depending on how the resources are
classified (i.e. measured, indicated or inferred).
As additional geological information is produced during the
operation of a mine and through additional exploration activity,
mineral resource estimates may change. Such changes may impact on
the Group's reported financial position which includes the carrying
value of property, plant and equipment and inventories.
2. Critical Accounting Estimates, Assumptions and Judgments
(continued)
Estimated economically recoverable reserves are used in
determining the depreciation and/or amortisation of mine-specific
assets. This results in a depreciation/amortisation charge
proportional to the depletion of the anticipated remaining
life-of-mine production. The life of each item, which is assessed
at least annually, has regard to both its physical life limitations
and present assessments of economically recoverable reserves of the
mine property at which the asset is located. These calculations
require the use of estimates and assumptions, including the amount
of recoverable reserves and estimates of future capital
expenditure. The calculation of the UOP rate of
depreciation/amortisation could be impacted to the extent that
actual production in the future is different from current forecast
production based on economically recoverable reserves, or if future
capital expenditure estimates change. Changes to economically
recoverable reserves could arise due to changes in the factors or
assumptions used in estimating reserves, including:
-- The effect on economically recoverable reserves of differences between
actual commodity prices and commodity price assumptions;
-- Unforeseen operational issues.
Depreciation/Amortisation (Note 13)
As the mine entered full production during the period, 2019 was
the first period for which depreciation / amortisation was charged
in respect of the producing mine assets. As mentioned in the
judgement above judgement is required in the calculation of this
amount with the key estimates considered to be surrounding the
amount of economically recoverable resources and the lifespan of
the asset. The economically recoverable reserves are considered to
be those detailed out on the website (see above for link) and the
lifespan of the mine is considered to be 18 years. As mentioned
above the Group currently only has a mining license that is valid
until November 2030 which is less than the 18 year period used
within the depreciation/amortisation calculation. After considering
the information available to them which includes discussions with
Tajik officials and the required timing for extending the mining
license, management have made the judgement that they will be able
to secure the necessary extensions and therefore continue to the
mine for a period of 18 years. If a 10 year license period were to
be used then depreciation for 2021 would be approximately $15
million.
3. Segment Information
The following segments are based on the management reports
received by the Executive Directors, who are the chief operating
decision makers. The Group operates principally in three
geographical areas, UK, PRC and Tajikistan, with operations managed
on a project by project basis within Tajikistan. For segment
reporting purposes, the operations of the Cayman Islands registered
parent Company are included in the UK and PRC segment as these
segments are jointly managed.
UK and PRC Tajikistan Pakrut Total
2021 US$000 US$000 US$000
Revenue - 71,992 71,992
Cost of sales - (37,256) (37,256)
Administrative expenses (including
foreign exchange) (9,454) (12,280) (21,734)
Other operating expenses 2,117 (4,534) (2,416)
Operating profit/(loss) (9,454) 20,039 10,585
Finance costs (10,825) - (10,825)
Finance income 6 - 6
Income tax - (6,012) (6,012)
(Loss)/profit for the year (20,273) 14,027 (6,247)
Total assets 3,101 390,246 393,347
Total liabilities 383,777 35,957 419,734
Additions to property, plant and
equipment - 994 994
3. Segment Information (continued)
The Group's mining activities are located in Tajikistan,
principally within the Pakrut Gold Project. Support and
administration services are provided from the UK and PRC.
Inter-segment revenue is eliminated on consolidation and is
conducted on mutually agreed terms between Group companies.
All revenue generated in the period was from the government of
Tajikistan.
UK and PRC Tajikistan Pakrut Total
2020 US$000 US$000 US$000
Revenue - 64,516 64,516
Cost of sales - (35,297) (35,297)
Administrative expenses (including
foreign exchange) (2,313) (16,591) (18,904)
Other operating expenses - (46) (46)
Impairment - - -
Other operating income - 1 1
Operating profit/(loss) (2,313) 12,583 10,270
Finance costs (15,999) - (15,999)
Finance income 151 45 196
Income tax - (824) (824)
Loss for the year (18,115) 11,804 (6,357)
Total assets 24,472 397,567 422,039
Total liabilities 418,203 23,898 442,099
Additions to property, plant and
equipment - 1,942 1,942
4. Particulars of Employees
The average number of staff employed by the Group during the
financial year amounted to:
2021 2020
No. No.
Administrative and management 116 125
Operational staff 590 607
706 732
The aggregate costs of the above were:
2021 2020
US$000 US$000
Wages and salaries 4,575 4,379
Basic pension cost 1,036 885
5,611 5,265
No staff costs were capitalised as the Group entered into full
production from January 2019.
5. Directors' Emoluments
The Directors' emoluments in respect of qualifying services
were:
Salary and fees Total
2021 US$ US$
Mr Wang Xiaohua** 37,500 37,500
Mr Yong Li 18,000 18,000
Mr Lixian Yu 80,000 80,000
Mr Delin Feng* 91,027 91,027
Mr Xiuzhi Shi 18,000 18,000
Mr Hui Zhang 18,000 18,000
262,527 262,527
Salary and fees Total
2020 US$ US$
Mr Boyi Liang 76,797 76,797
Mr Yong Li 23,088 23,088
Mr Lixian Yu 197,131 197,131
Mr Delin Feng 194,921 194,921
Mr Xiuzhi Shi 22,233 22,233
Mr Hui Zhang 61,142 61,142
575,312 575,312
Key management comprises Executive and Non-Executive Directors
and all emoluments are short term in nature.
*Mr Delin Feng resigned on November 2021
**Mr Xiaohua Wang appointed on November 2021
6. Expenses by nature
2021 2020
US$000 US$000
Employee benefit expenses 6,758 6,617
Operating lease expenses 50 145
Depreciation 3,023 3,200
Legal, professional and regulatory costs 515 170
Travel and entertaining 521 125
Social & other taxes 6,609 6,287
Other Expenses 1,067 258
Commission/bank fees 1,336 1,025
Total administrative expenses 19,879 17,827
6. Expenses by nature (continued)
2021 2020
US$000 US$000
Fees payable to the Company's auditor for the audit of the
consolidated financial statements 119 114
Fees payable to the Company's auditor for other services:
Tax compliance services - 3
119 117
7. Other operating expenses
2021 2020
US$000 US$000
Impairment loss of fixed assets 2,307 -
Public welfare donation expenditure 2,227 46
Gain on dissolution of subsidiaries (2,118) -
2,416 46
Total other expenses in 2021 were US$2,416,000 (2020:US$46,312),
net of gain on dissolution of subsidiaries IMSS and Kryso Resources
Ltd during the year of US$2,118,000. The main reason for the
increase compared to 2020 is that at the request of the Tajik
government, the donation expenditure increased compared with last
year; secondly, a number of fixed assets of Pakrut have incurred
physical wear and tear as a result of long-term use and cannot be
repaired for further use, so they were scrapped.
8. Income Tax
a) Analysis of Charge in the Year
2021 2020
US$000 US$000
Current tax:
Current tax 6,012 824
Deferred tax - -
Total 6,012 824
No provision for income taxes arose in the Cayman Islands, the
UK, British Virgin Islands. A current income tax expense arose in
Tajikistan during the year as LLC Pakrut sold gold in the amount of
TJS 814,171,620 -- equivalent to US$ 71,991,962 (2020: TJS
671,738,902 -- equivalent to US$ 64,515,782). Thereby, the Company
paid the amount of advance payments of income tax according to the
Tax Code of the Republic of Tajikistan, being 1.00% of revenue.
The main reasons for the substantial increase in income tax
compared with last year are as follows: Pakrut was subject to a tax
inspection by the local tax Commission during 2021; secondly, the
increase in sales revenue this year resulted in a corresponding
increase in corporate income tax.
Faced with the harsh tax environment in Tajikistan, the company
has continued to strengthen the study and research on the tax law
of Tajikistan to reduce tax losses; secondly, strengthen the visit
and communication with the tax bureau and the Tax Committee,
maintain good relations, and continue to reduce the prepaid
tax.
8. Income Tax (continued)
Factors Affecting Current Tax Charge
The tax assessed on the loss for the year is higher than the
weighted average standard rate of corporation tax of 20% (2020 --
20%).
2021 2020
US$000 US$000
Loss before income tax (235) (5,451)
Loss on ordinary activities by weighted average rate of tax
at 20% (2020: 20%) (47) (1,090)
Expenses not deductible for tax purposes 630 875
(Utilisation of tax losses)/Tax losses for which no deferred
income tax asset was recognised (611) 215
Pakrut income tax 6,012 824
Current tax payable 6,012 824
The Group did not recognise deferred tax assets of approximately
US$Nil (2020: $215,000). Unused Tajik tax losses amounting to
approx. US$14,027,000 at 31 December 2021 can be carried forward
for three years from the year incurred and used against future
taxable income at 15%.
9. Finance Income and Costs
2021 2020
US$000 US$000
Finance Income
Interest income on short term bank deposits 6 196
Finance Costs
Interest expense on shareholder's loans wholly repayable
within five years 7,315 13,111
Interest expense on bank borrowings wholly repayable within
five years 3,510 2,888
Finance costs 10,825 15,999
10. Earnings per Share
2021 2020
US$ US$
Basic and diluted earnings per share (cents) (1.63) (1.66)
The basic earnings per share is calculated by dividing the loss
attributable to equity holders after tax of US$6,245,000 (2020:
6,357,000) by the weighted average number of shares in issue and
carrying the right to receive dividend. For the year ended 31
December 2021 this was 382,392,292 (2020: 382,392,292) shares.
As the Group has incurred a loss for the year, no option or
warrant is potentially dilutive, and hence the basic and diluted
earnings per share are the same. At the year end, there were nil
(2020: nil) share options outstanding that are potentially dilutive
in the future.
11. Intangible Assets
Exploration and evaluation assets
US$000
Cost
At 1 January 2019, 31 December 2019, 31 -
December 2020 and 31 December 2021
Impairment
At 1 January 2019, 31 December 2019, 31 -
December 2020 and 31 December 2021
Net Book Value
At 31 December 2019, 31 December 2020 and -
31 December 2021
The exploration and evaluation assets represent internally
generated costs in connection with the Group's exploration and
evaluation activities. Expenditure is transferred from exploration
and evaluation assets to mines under construction once the work
completed to date supports the future development of the property
and such development receives appropriate approvals.
The rights of LLC Pakrut to carry out exploration and evaluation
activity at the Pakrut deposit expired on 1 April 2014. The renewal
application by the Group to extend the exploration license is being
considered by the Government of Tajikistan. Although the Directors
are not aware of any legal or other impediments which would
ultimately prevent approval of the license extension, the Directors
fully impaired the carrying value of the exploration and evaluation
assets during 2014 due to non-renewal of the Exploration License.
Exploration and evaluation activities can continue at the Pakrut
Gold Deposit in the area covered by the mining license. Currently,
staff members of Pakrut are coordinating with the local government
for exploration licenses.
12. Mines under Construction
Mining rights comprised of exploration and evaluation assets up
to the date the Pakrut Gold Project was determined to be
technically feasible and commercially viable. All subsequent
exploration and evaluation expenditure at this site was capitalised
within mining rights. Mining rights also included the subsoil
contract signature bonus and payments to obtain land use
rights.
Construction in progress comprised the mine, smelting plant,
tailings pond, power lines and road construction work carried out
at the Pakrut Gold Project by contractors and directly by the
Group. It also included the borrowing costs associated with the
loan to finance the mine, construction from China Nonferrous Metals
Intl Mining Co. Limited ("CNMIM") and China Construction Bank
("CCB"), together with associated legal, professional and
consultancy costs.
Mines under construction are not depreciated until construction
is completed and the assets are available for their intended use
and signified by the formal commissioning of the mine for
production. Construction was completed at the end of the 2018
financial year with the mine being deemed to be fully operational
at the start of the 2019 financial year and all accumulated
capitalised costs were transferred into Property, Plant and
Equipment at 1 January 2019.
13. Property, Plant and Equipment
Office
furniture
and Motor Plant and Producing Assets under
Land equipment vehicles machinery mines construction Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
Cost
At 1 January
2020 32 587 8,698 17,119 398,639 4,322 429,396
Additions - 106 - 1,836 - - 1,942
Transfer from
Assets under
construction - - - 4,322 - (4,322) -
Settlement of
historic
liabilities - - - - (20,214) - (20,214)
At 31
December
2020 32 693 8,698 23,277 378,425 - 411,125
Additions - - 190 805 - - 994
Disposals - (90) (3,465) (2,639) - - (6,193)
Settlement of
historical
liabilities - - - - 4,307 - 4,307
At 31
December
2021 32 602 5,423 21,443 382,732 - 410,233
13. Property, Plant and Equipment (continued)
Accumulated Depreciation
At 1 January 2020 - 322 6,227 11,476 8,823 -26,849
Charge for the year - 32 414 2,580 8,050 -11,076
Disposals - - - - - --
At 31 December 2020 - 354 6,641 14,056 16,873 -37,924
Charge for the year - - 319 2,521 9,026 -11,866
Disposals - (90) (2,112) (1,690) - -(3,892)
At 31 December 2021 - 264 4,847 14,888 25,899 -45,898
Net Book Value
At 31 December 2021 32 341 575 6,555 356,833 -364,377
At 31 December 2020 32 339 2,057 9,221 361,552 -373,201
In 2019 as the mine entered full production, mines under
construction were transferred into Property, Plant & Equipment
under the sub-category of Producing mines as presented above, and
depreciation/depletion charged as per the accounting policies.
The carrying value of the PPE, most notably producing mines, and
the depreciation/depletion methodology used, are both considered to
be key accounting judgements. Detail of these are disclosed in Note
2 along with the related key estimate.
14. Subsidiary Undertakings
The Group had the following subsidiary undertakings as at 31
December 2021:
Name of Company Holding Country of Proportion Nature of Registered
Incorporation of Voting Business addresses
Rights held
Directly held
Kryso Resources Ordinary shares British Virgin 100% Holding Company 190 Elgin
(BVI) Limited (CNG) Islands Avenue, Grand
Cayman,
KY1-9005,
Cayman
Islands
Indirectly held
LLC Pakrut (BVI Ordinary shares Tajikistan 100% Mineral Bahor
holds 100% share) (BVI) exploitation, district,
development and Vahdat,
mining Tajikistan
15. Financial Instruments by category
Financial assets at amortised cost
US$000
31 December 2021 Assets per Statement of
Financial Position
Trade and other receivables, excluding
prepayments 3,565
Cash and cash equivalents 7,472
Total 11,037
Financial liabilities at
amortised
cost
US$000
31 December 2021 Liabilities per Statement
of Financial Position
Borrowings 368,953
Provisions for other liabilities and
charges 1,084
Trade and other payables, excluding
non-financial liabilities 49,696
Total 419,733
15. Financial Instruments by category (continued)
Financial assets at amortised cost
US$000
31 December 2020 Assets per Statement
of Financial Position
Trade and other receivables, excluding
prepayments 3,016
Cash and cash equivalents 27,196
Total 30,212
Financial liabilities at amortised
cost
US$000
31 December 2020 Liabilities per
Statement of Financial Position
Borrowings 388,741
Provisions for other liabilities and
charges 995
Trade and other payables, excluding
non-financial liabilities 52,363
Total 442,099
16. Inventories
2021 2020
US$000 US$000
Gold - -
Construction materials and processing equipment 17,334 15,911
17,334 15,911
Construction materials and processing equipment relates to raw
materials and semi-finished products used in gold production.
17. Trade and Other Receivables
Group Group
2021 2020
US$000 US$000
Other receivables 3,565 3,016
Prepayments and deposits 638 2,633
Total 4,203 5,649
None of the receivables are past due. The fair values are equal
to the carrying amounts.
Other receivables include $2,758,418 due from related party
CNMIM in relation to funds received from the insurance provider
after the snowfall disaster, which were received on behalf of
CNG.
18. Borrowings
2021 2020
US$000 US$000
Bank borrowings 99,550 99,550
Other loans 269,403 289,191
Total 368,953 388,741
Non-current portion 65,000 19,822
Current portion 303,953 368,919
The fair value of borrowings equals their carrying amounts, as
the impact of discounting is not significant.
LIBOR is relied on the inherently subjective expert judgement of
the panel of submitting banks, such rates are prone to manipulation
and are no longer truly reflective of how banks fund in practice.
Following the announcement by Financial Conduct Authority (FCA) on
5 March 2021, the panel bank submissions for all LIBOR have ceased
or are no longer representative. As such, LIBOR rates were no
longer available. The implications of the reform were that: 1)
lenders were no longer able to issue loans based on LIBOR from 1
April 2021, therefore new loans must reference a 'risk free rate'
or alternative non-LIBOR rate and 2) any existing contracts based
on LIBOR should have been switched to an alternate reference rate
before 31 December 2021. The new interest rate benchmark reforms
have been considered, the impact is not material in the current
year and an appropriate rate will be reflected in next year's
financial statements.
CNMIM loan
In accordance with the terms of the Subscription Agreement and
Warrant Instrument dated 27 July 2010 between Kryso Resources
Limited (formerly Kryso Resources Plc) and CNMIM, a subsidiary
Company of significant shareholder China Nonferrous Metals Mining
(Group) Co. Limited ("China Nonferrous"), CNMIM was required to use
its best endeavors to secure mine funding for the construction and
development of the Pakrut Gold Project.
The USD tranche of the loan has been settled in full and US$Nil
was outstanding as at 31 December 2021 (2020: US$Nil). The amount
outstanding on the RMB tranche of the loan as at 31 December 2021
was US$12,683,599 (2020: US$12,683,599).
CNMC loans
The loan agreement between CNMC International Capitals Company
Limited and CNG was signed on 20 September 2017. Under this
agreement, CNMC International Capitals Company Limited provided a
loan facility of US$6,500,000 to CNG. This loan was used to improve
the daily business operations of China Nonferrous Gold Limited.
The full amount of the loan was drawn down on 20 September 2017.
The loan contains annual fixed interest at 4%, however where the
loan is used for a purpose other than that stated in the contract
(see comments above), the proportion of the loan used will incur
interest at a fixed rate of 8% per annum. Payment of interest is
made quarterly.
During 2019, the loan was transferred from CNMC International
Capitals Company Limited to another member of the group, CNMC
Trade. On 15 July 2020, a loan extension agreement was signed,
extending the repayment date until 20 December 2020. The extension
agreement incurs interest at a rate of 6 months LIBOR + 3.7%.
On 26 March 2021, a loan extension agreement was signed,
extending the repayment date until 20 December 2022. The extension
agreement incurs interest at a rate of 3 months LIBOR + 3.25%.
A loan agreement between CNMC International Capitals Company
Limited and CNG was signed on 27 April 2016. Under this agreement,
CNMC International Capitals Company Limited provided a loan
facility of US$120,000,000 to CNG. This loan was used to refinance
the previous ICBC loan of the same amount, and the purpose of these
funds was for development, operations and management of the Pakrut
Gold Project, including operating and related expenses.
The full amount of the loan was drawn down on the 27 April 2016.
The loan contains annual fixed interest at 4%, however where the
loan is used for a purpose other than that stated in the contract
(Pakrut Mine -- see comments above), the proportion of the loan
used will incur interest at a fixed rate of 8% per annum. Payment
of interest will be made biannually in June and December.
During 2019, the loan was transferred from CNMC International
Capitals Company Limited to another member of the group, CNMC
Trade. On 26 March 2021, a loan extension agreement was signed
extending the repayment date until 20 December 2022. The extension
agreement incurs interest at a rate of 3 months LIBOR + 3.25%.
The Group has pledged its 100% equity interest in China
Nonferrous Gold Limited to CNMC as security for repayment of the
loan.
A loan agreement between CNMC and CNG was signed on 27 May 2016
for a total amount of US$20,000,000, which was drawn down in full
on 27 June 2016. The loan period per the contract was 6 months,
from 27 May 2016 to 26 November 2016. The loan contains a fixed
interest rate of 4% per annum, which is calculated on a monthly
basis from the 21st of the month to the 20 of the following
month.
During 2018, the loan was transferred from CNMC to another
member of the group, CNMC Trade. A further extension has been
signed extending the repayment date until 26 November 2020. On 26
March 2021, a loan extension agreement was signed extending the
repayment date until 2022. The extension agreement incurs interest
at a rate of 3 months LIBOR + 3.25%.
A loan agreement between CNMC International Capitals Company
Limited (CNMC International) and CNG was signed on 8 February 2018
for a total amount of US$90,000,000, which was drawn down in full
on 9 February 2018. The loan was provided for the purposes of the
construction, operations and management of the Pakrut Gold Project,
including operating and related expenses. This use is in line with
the terms of the agreement. The loan period per the contract was
from 9 February 2018 to 8 December 2020.
The loan contains a fixed interest rate of 5.8% per annum, which
is calculated on a half yearly basis from the 21st of December to
the 20th June, and from the 21st June to 20th December. Payment of
interest will be made annually in June and December of each year.
Where the loan is used for a purpose other than that stated in the
contract (see comments above), the proportion of the loan used will
incur interest at a fixed rate of 11.6% per annum. At the repayment
date, interest will be charged at 8.7% on any unpaid balance. On 8
February 2021 US$20,000,000 was repaid, and on 26 March 2021, a
loan extension agreement was signed extending the repayment date of
US$70,000,000 until 8 December 2022, and the extension agreement
incurs interest at a rate of 3 months LIBOR + 3.25%. In June 2021,
the Company repaid US$9.26m Yen60million of its outstanding
loan.
CCB loans
The first loan agreement between China Construction Bank ("CCB")
and China Nonferrous Gold Limited was signed on 14 June 2016. Under
this agreement CCB provided a loan facility of US$100,000,000 to
China Nonferrous Gold Limited. This loan was used to refinance a
previous loan from CNMC of US$55,000,000, with the remainder used
for development, operations and management of the Pakrut Gold
Project, including operating and related expenses. This use is in
line with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued
by China Construction Bank Corporation, Beijing Branch, and
guaranteed by CNMC under the terms of the loan agreement, for an
aggregate amount of not less than US$103,092,783.51, with validity
of not less than 60 months in favor of CCB.
The full amount of the loan was drawn down on 30 June 2016. The
loan incurs interest at a rate of 3 months LIBOR + 2.1% and is
payable in arrears at the end of each applicable interest
period.
The loan is repayable in 8 installments commencing 18 months
from drawdown date and every 6 months thereafter as follows:
31/12/17 -- US$5,000,000
30/06/18-- US$5,000,000
31/12/18 -- US$5,000,000
30/06/19 -- US$5,000,000
31/12/19 -- US$5,000,000
30/06/20 -- US$5,000,000
31/12/20 -- US$5,000,000
30/06/21 -- Balance of loan
The second loan agreement between China Construction Bank
("CCB") and China Nonferrous Gold Limited was signed on 29 January
2019. Under this agreement CCB provided a loan facility of
US$20,000,000 to China Nonferrous Gold Limited. This loan was used
for the purpose of working capital for Pakrut Gold Project. This
use is in line with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued
by China Construction Bank Corporation, Beijing Branch, and
guaranteed by CNMC under the terms of the loan agreement, for an
aggregate amount of not less than US$20,620,000, with validity of
not less than 12 months in favor of CCB.
The full amount of the loan was drawn down on 29 January 2019.
The loan incurs interest at a rate of 3 months LIBOR + 1.2% and is
payable quarterly in arrears. It has been repaid on 29 January
2021.
The third loan agreement between China Construction Bank ("CCB")
and China Nonferrous Gold Limited was signed on 9 March 2020. Under
this agreement CCB provided a loan facility of US$14,550,000 to
China Nonferrous Gold Limited. This loan was used for the purpose
of working capital for Pakrut Gold Project. This use is in line
with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued
by China Construction Bank Corporation, Beijing Branch, and
guaranteed by CNMC under the terms of the loan agreement, for an
aggregate amount of not less than US$30,000,000, with validity of
not less than 12 months in favor of CCB.
The full amount of the loan was drawn down on 13 April 2020. The
loan incurs interest at a rate of 3 months LIBOR + 1.15% and is
payable quarterly in arrears. It was repaid on 16 March 2021.
CITIC loans
In 2022, the Group executed a loan agreement with CNMC Trade
Company Limited ("CNMC Trade") for a loan of up to USD $34.55
million (the"CNMC Loan"). This CNMC Loan has been used to repay the
existing China CITIC Bank Corporation Limited ("CITIC") bank
facilities of USD $34.55m (being USD20m advanced in January 2021
("First Loan") and USD14.55m advanced in March 2021 ("Second
Loan").
In January 2021, the Company executed an agreement with China
CITIC Bank Corporation Limited (Zhuhai Branch) ("CITIC") for a loan
facility of up to CNY 300million which is equivalent to US$46.37m.
The CITIC Loan facility is for a maximum of 12 months and is
repayable 12 months from first drawdown. US$20m of the CITIC Loan
was drawn down in January 2021 including an annual interest rate at
2.7% plus 6 month LIBOR. It has been repaid on 20 January 2022.
Another US$14.55m of the CITIC Loan was drawn down in March 2021
including an annual interest rate at 2.71% plus 12 month LIBOR. It
has been repaid on 26 January 2022.
Bank of Shanghai loan
The Company executed an agreement with Bank of Shanghai (Hong
Kong) Limited ("BOS") for a loan facility of up to US $65 million
(the "BOS Loan"). The Loan facility is for a maximum of 24 months
and is repayable 24 months from the drawdown. The total amount of
US$65m of the BOS Loan was drawn down on 28 June 2021 in order to
repay the CCBC Macau loan. The loan is secured by Standby Letter(s)
of Credit to be issued by Bank of Shanghai, Beijing Branch, and
guaranteed by CNMC under the terms of the loan agreement, for an
aggregate amount of not less than US$66,000,000, with validity of
not less than 24 months in favor of BOS.
19. Trade and other payables
2021 2020
US$000 US$000
Trade and other payables 49,696 52,363
49,696 52,363
Trade and other payables include amounts due of US$44.3m (2020:
US$42.4m) in relation to mine development.
20. Provisions for Other Liabilities and Charges
Rehabilitation Total
US$000 US$000
At 1 January 2021 995 995
Unwinding of discount 90 90
At 31 December 2021 1,085 1,085
All provisions are non-current.
The Group makes full provision for the future cost of
rehabilitating the mine site and associated production facilities
on a discounted basis at the time of constructing the mine and
installing those facilities.
The rehabilitation provision represents the present value of
rehabilitation costs relating to the Pakrut mine site, which are
expected to be incurred up to 2030, which is the expiration date of
the mining license. The provision has been created based upon the
feasibility study. Assumptions based upon the current economic
environment within Tajikistan have been made, which management
believes are a reasonable basis upon which to estimate the future
liability and will be reviewed regularly to take into account any
material changes to the assumptions. The actual rehabilitation
costs and works required will ultimately depend upon future market
prices for the necessary rehabilitation works required, changes in
future regulatory requirements and the timing on when the mine
ceases to operate commercially.
The discount rate used in the calculation of the provision as at
31 December 2021 is 9% per annum. The value of the undiscounted
provision is US$2,481,000 (2020: US$2,481,000).
21. Treasury Policy and Financial Instruments
The Group operates informal treasury policies which include
ongoing assessments of interest rate management and borrowing
policy. The Board approves all decisions on treasury policy.
Facilities are arranged, based on criteria determined by the
Board, as required to finance the long-term requirements of the
Group. The Group has financed its activities by the raising of
funds through the placing of shares and through the issue and
subsequent exercise of options and warrants.
There are no material differences between the book value and
fair value of the financial assets at the year end. Except for the
impact of discounting on the provisions for liabilities and other
charges, there are no material differences between the book value
and fair value of financial liabilities at the year end.
22. Share Capital
2021 2021 2020 2020
No. of Share No. of Share
ordinary Capital ordinary Capital
shares US$000 shares US$000
At 1 January (Ordinary shares of
$0.0001) each 382,392,292 38 382,392,292 38
Issued during the year - - - -
At 31 December (Ordinary shares of
US$0.0001 each) 382,392,292 38 382,392,292 38
All shares are authorised for issue and fully paid.
23. Share Based payments
Options can be granted to any employee of the Group in
accordance with the rules of the Group in accordance with the rules
of the Unapproved Share Option Scheme. The option price is not to
be less than the initial Placing Price or the price on the day of
issue. The options cannot be exercised for a period of at least one
year from the date of grant. In the event of any employee to whom
options have been granted ceasing to be an employee of the Group he
or she will have a set period in which to exercise those options
(depending on the reasons for leaving), falling which, the options
will lapse.
There were no share options outstanding at the year end.
24. Cash flow information
31 December 2021 31 December 2020
US$000 US$000
Cash flows from Operating Activities
Loss before income tax (235) (5,451)
Adjustments for:
Finance income (6) (196)
Finance costs 10,826 15,999
Depreciation 7,972 11,072
Foreign exchange loss 1,853 1,076
Change in working capital:
Inventory (1,423) 945
Trade and other receivables (1,869) (1,004)
Trade and other payables 3,222 (5,405)
Other current assets (549) 121
Other current liabilities (5,890) (19)
Net Cash generated from Operating
Activities 13,904 17,137
24. Cash flow information (continued)
Net debt reconciliation
31 December 2021 31 December 2020
US$000 US$000
Cash and cash equivalents 7,472 27,196
Borrowings -- repayable within one year (303,953) (368,919)
Borrowing -- repayable after one year (65,000) (19,822)
Net debt (361,481) (361,545)
31 December 2021 31 December 2020
US$000 US$000
Cash and cash equivalents 7,472 21,196
Borrowings -- fixed interest rates (117,664) (126,538)
Borrowings -- variable interest rates (251,289) (262,204)
Net debt (361,481) (361,545)
24. Cash flow information (continued)
Borrowings due Borrowings due
Cash at bank within 1 year after 1 year Total
US$000 US$000 US$000 US$000
Net debt as at 1
January 2020 11,120 (267,527) (103,586) (359,993)
Cash flows 16,076 (677) - 15,392
Interest accrued - - (16,950) (16,950)
Movement between
current and
non-current - (100,715) 100,715 -
Net debt as at
31 December
2020 27,196 (368,919) (19,822) (361,545)
Cash flows (19,724) 30,613 - 10,889
Interest accrued - - (10,825) (10,825)
Movement between
current and
non-current - 34,353 (34,353) -
Net debt as at
31 December
2021 7,472 (303,953) (65,000) (361,481)
25. Controlling Party
The Directors consider China Nonferrous Metals Mining (Group)
Co. Limited ("CNMC") to be the ultimate controlling party, by
virtue of their shareholding and representation on the Board of
Directors.
26. Contingent Liabilities
During 2018, a contract was entered into between LLC Pakrut
& LLC WenJian, a Company set up by a former employee of Pakrut
(Dept. 2), to provide outsourced services including the extraction
of ore, delivery of ore to smelting plant, cleaning of mine, mine
development and construction works. LLC WenJian is not considered
to be a related party.
Although LLC WenJian hold the relevant license for the
construction works, the Company does not hold a license in
accordance with the laws of Tajikistan "On subsoil" and "On
licensing of certain types of activities" for implementing the
other services they have been contracted to perform. This is a
breach of Tajik laws and regulations which could result in
penalties being imposed on both parties to the contract. The
outcome of this situation is unclear and could result in fines
imposed with the worst-case scenario being that Pakrut could have
their own license rescinded by the Tajik government. There is no
visibility surrounding the value or nature of any penalty at this
time.
27. Related Party Transactions
The amount paid by the Company and Kryso Resources Limited to
CNMIM for interest on the loan in 2021 amounted to US$Nil
(2019:US$Nil). The amount of loan interest accrued by the company
to CNMIM in 2021 was US$1,257,032 (2020: US$1,242,352). CNMIM is a
significant shareholder of China Nonferrous Gold Limited and Lixian
Yu and Hui Zhang are President and CEO of CNMIM respectively.
During 2021, CNG did not pay any interest to CNMIM.
The amount of loan interest accrued by the Company to CNMC Trade
in 2021 was US$5,062,816 (2020: US$6,561,195). The amount of loan
interest accrued by the Company to CNMC International Capitals
Company in 2021 was US$2,207,276 (2020: US$5,307,000). CNMC is the
ultimate parent of China Nonferrous Gold Limited.
27. Related Party Transactions (continued)
During 2021, 15MCC (a related party to CNG through being a
subsidiary of CNMC, the Company's ultimate controlling party)
provided equipment and materials, together with installation and
construction work to the Group amounting to US$Nil (2020: $Nil) and
the Group advanced payments to 15MCC amounting to US$Nil in 2021
(2020:$ 1,524,503). As at 31 December 2021, the total liability due
to 15MCC was US$11,819,082 (2020: US$15,917,473).
In 2015 the Group entered into an additional consultancy
contract with CNMC Hongtoushan Fushun Mining Co Ltd., through CNMIM
as agent as follows:
Smelting and Processing Agreement
CNMC Hongtoushan Fushun Mining Co Ltd. (CNHFMG) is a copper mine
and processing operation owned by CNMC. On 7th of September 2015,
the Group entered into a smelting and processing agreement with
CNHFMG.
Under the terms of the Agreement, CNG will pay to CNHFMG an
amount of RMB 17.99 (approximately US$2.8) per gram of finished
gold once the Project commences the 12-month production period.
Prior to this period the Company will cover the labour and
associated costs of CNFMG. Once in production, in the event the
recovery of the plant is above the Beijing General Research
Institute of Mining and Metallurgy forecast rate over the life of
production of 82.99 percent, CNHFMG will share 40 percent of the
profits from the upside directly due to the increased recovery. In
the event recovery is below 75 percent, CNHFMG will bear 20 per
cent of any loss incurred by the Company from the Project due to
directly to recovery levels.
During 2021, CNHFMG provided equipment and materials, together
with installation and construction work to the Group amounting to
US$Nil (2020:US$Nil) and the Group advanced payments to CNHFMG
amounting of 2021 was Nill(2020: US$304,887). As at 31 December
2021, the total liability due to CNHFMG was US$370,859 (the arrears
have been paid off in January 2022).As of June 2022, the project
funds between the company and CNHFMG have been fully settled.
27. Related Party Transactions (continued)
During the year of 2021 CNMC provided a guarantee for standby
letters of credit amounting to US$66,000,000 as security for the
Group's bank loan facility with Bank of Shanghai.
During the year of 2021 CNMC guaranteed the Company's loan to
China CITIC Bank with a total amount of US$3.455 million.
As at 31 December 2021, PAKRUT has opened a foreign sales
channel, and the seller is Daye Nonferrous Metals. In December
2021, a total of 50.056kg gold sales occurred in related party
transactions, with an amount of US $2,938,161.24, which has been
received.
28. Events after the Reporting Period
In 2022, the Group executed a loan agreement with CNMC Trade
Company Limited ("CNMC Trade") for a loan of up to USD $34.55
million (the "CNMC Loan"). This CNMC Loan has been used to repay
the existing China CITIC Bank Corporation Limited ("CITIC") bank
facilities of USD $34.55m (being USD20m advanced in January 2021
("First Loan") and USD14.55m advanced in March 2021 ("Second
Loan").
In 2022, the Group executed a foreign currency working capital
loan agreement with China CITIC Bank Corporation Limited (Zhuhai
Branch) ("CITIC") for a loan facility of up to US$20 million (the
"new CITIC Loan"), with an annual interest at 3.00% over 6 month
LIBOR, which was used to repay US$20m of the CNMC Loan.
The Group has continued production throughout 2021 despite the
outbreak of COVID-19, enabling it to raise sufficient working
capital.
The Company currently has total debt facilities (including
banking facilities), before interest, of c.US$319 million.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20220630005440/en/
CONTACT:
China Nonferrous Gold Limited
SOURCE: China Nonferrous Gold Limited
Copyright Business Wire 2022
(END) Dow Jones Newswires
June 30, 2022 07:57 ET (11:57 GMT)
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