Arc Minerals Limited
ARC MINERALS LIMITED
ANNUAL REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 MARCH 2020
Arc Minerals Limited
CONTENTS
CONTENTS
CORPORATE INFORMATION
CHAIRMAN’S STATEMENT
STRATEGIC REPORT & OVERVIEW OF OPERATIONS
DIRECTORS’ REPORT & FINANCE REVIEW
CORPORATE GOVERNANCE STATEMENT
DIRECTORS' RESPONSIBILITY STATEMENT
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE FINANCIAL STATEMENTS
2
4
6
9
16
23
24
28
29
30
31
33
Arc Minerals Limited – Annual Report & Financial Statements 2020
1
Director, Executive Chairman
Finance Director
Non-Executive Director
Non-Executive Director
Corporate Information
Directors
Nicholas von Schirnding
Rémy Welschinger
Brian McMaster
Mumena Mushinge
Chief Operations Officer
Vassilios Carellas
Registered Address
Craigmuir Chambers
Road Town. Tortola
British Virgin Islands, VG 1110
Independent Auditor
PKF Littlejohn LLP
15 Westferry Circus
Canary Wharf
London, E14 4HD
Company Solicitors (UK)
Hill Dickinson LLP
105 Jermyn St, St James’s
London, SW1Y 6EE
Nominated Advisor and Broker
SP Angel Corporate Finance LLP
Prince Frederick House
35-39 Maddox Street
London, WC2R 1DJ
Registrars
Computershare Investor Services (Channel Islands) Ltd
PO Box 83
Ordnance House, 31 Pier Road
St Helier, JE4 8PW
Channel Islands
Arc Minerals Limited – Annual Report & Financial Statements 2020
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Overview
Arc Minerals Limited (“Arc Minerals” or “Arc”) is a dynamic junior mining company focused on the
exploration and development of its portfolio of copper-cobalt projects located in Africa. Key assets
comprise:
• Zamsort Copper Project (66% owned) located in the Zambian Copperbelt, which comprises
the following projects:
4km2 Small Scale Mining License, adjacent to a
4km2 Small Scale Exploration License, both enclosed by a
400km2 Large Scale Exploration Licence
o
o
o
o Soil sampling and airborne geophysics identified 8 large scale copper targets
o Drilling programme underway
• Zaco Copper Project (72.5% owned) located in the Zambian Copperbelt, which comprises the
following projects:
o 4km2 Small Scale Exploration License, enclosed by a
o 382km2 Large Scale Exploration Licence, and a further
o 83km2 Large Scale Exploration Licence
o Soil sampling and airborne geophysics identified 5 large scale copper targets
o Drilling programme underway
Coupled with its exciting project portfolio, Arc Minerals has a strong technical and commercial team
with extensive experience in Africa and a proven track record of bringing mining projects into production.
2020 Highlights
Identified 13 large copper targets
• Consolidated controlling interest in the Zaco license (72.5%)
•
• Commencement of a diamond drilling programme at Zamsort and Zaco
• Discovery of the Muswema prospect
• Appointment of Rémy Welschinger as Finance Director
• Divestment of interest in Ṧturec Gold project in Slovakia for a consideration of up to US$8
million. Further details are provided in the Directors Report.
• Divestment of interest in Misisi Gold project the DRC for a consideration of up to US$50
million. Further details are provided in the Directors Report
• Exclusivity agreement signed with Anglo American
• Commencement of a diamond drilling programme at Zamsort and Zaco
Business Model and Strategy
The strategic vision of Arc Minerals is to build a leading African focused copper exploration company
leveraging off the three core fundamentals it has put in place for delivering on this vision:
• High quality project pipeline;
• Highly qualified and experienced team with a proven team track record of finding resources;
and
• Supportive institutional and retail shareholder base.
Arc Minerals Limited – Annual Report & Financial Statements 2020
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Chairman’s Statement
The past year was characterised by significant uncertainty in the equity and commodities markets as a
result of the ongoing US and China trade talks, Brexit and the outbreak of the coronavirus in China in
the last quarter of 2019, which of course has subsequently spread quickly and developed into a
pandemic with extensive global consequences.
The copper price remained relatively stable at the onset of the pandemic and has since then staged a
formidable recovery over the past two quarters increasing to circa US$6,800/tonne – a price level not
seen since 2018. The consensus is that demand will keep recovering as Chinese factories have resumed
production and western economies are recovering from the impact of the virus.
Despite this challenging backdrop, the longer-term outlook for copper remains positive driven by
industrialisation and urbanisation in Asia and other parts of the developing world, market size, supply
constraints and increasing diversity of use in electrical vehicles and renewable energy. This latter sector
of the market is expected to grow significantly as legislation is progressively introduced to reduce
greenhouse gas emissions.
The first half of 2020 was significantly challenged by the impact of the Covid-19 pandemic and the
requirement to modify and align our operations accordingly. Fortunately, the impact of Covid-19 on
our projects has been minimised with most of our staff working from home to ensure continuity of our
business.
Despite these restrictions we have continued to make good progress on our projects. In May, we
acquired a further 20% interest in Zaco Investments Limited (“Zaco”) bringing our interest to 72.50%.
The Zaco exploration license is a significant priority, covering 465km² of highly prospective tenement
immediately adjacent to the 407km² Zamsort exploration license and holding a number of significant
exploration targets including the Fwiji, West Lunga, Nyambwezu, Muswema South as well as the
Chihindi targets. In June, we commenced drilling on some of these targets as part of our 2020
programme.
Further, since the beginning of this year we have seen a significant increase in interest from major
mining companies that are all seeking to replenish their existing copper resource inventories and/or
looking for a new prospective exploration ground for world-class copper discoveries. To that end, we
have continued to have a number of discussions with major diversified mining groups. These discussions
culminated in us signing a 6-month exclusivity agreement with Anglo American in July. This exclusivity
agreement will allow Anglo American to have its team on the ground and conduct an extensive technical
review over our assets and, depending on the outcome of this review, Anglo American has the right to
either extend the agreement and/or enter into a commercial transaction for the development of certain
or all of the targets on our licenses.
As part of our commitment to selling our non-core assets, in November, we divested our interest in the
Ṧturec gold project in Slovakia to MetalsTech Limited (“MetalsTech”), an Australian listed mineral
exploration and mining company for a consideration of up to US$8 million.
In March we also announced the sale of our interest in the Missi gold project in the DRC to Golden
Square Equity Partners, a private group, for a consideration payable of up to US$50 million. The
consideration comprises a loan note of US$5m payable to Arc on 19 March 2021 and a royalty
agreement of up to US$45 million.
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The proceeds from these two sales include up to US$ 53 million of consideration related to potential
future royalties. The Company has elected not to value these royalties in the 2020 accounts which, if
valued, would have reduced this year’s loss. Further details concerning these sales are provided in the
Financial Summary section of Directors Report.
In June, we commenced the second season of exploration activities over the Zamsort and Zaco licenses
We plan to undertake c 8,000m of diamond core drilling in the coming months. The exploration effort
is initially focussed on the Fwiji Target ('Fwiji') where the Company has already defined the target area
through previous exploration campaigns. Follow up work is also planned at a number of the other target
areas, including Cheyeza East and Muswema.
At a corporate level, we bolstered our Board, welcoming Rémy Welschinger as finance director. Rémy
is a resource professional with significant experience in the metals and mining sector.
Jonathan de Thierry stepped down from the Board on 31 March 2020 and I would like to thank him on
behalf of the board for his contributions and wish him well with his future endeavours. In August, Don
Bailey announced his intention to retire from the Board on 1 September 2020. Don has made a very
significant contribution to the Company and we wish him a well-deserved retirement.
On a final note, I would like to take this opportunity to thank our shareholders and employees for their
continued support during this transformative time for the Company. I look forward to reporting on our
progress in the months ahead.
Nicholas von Schirnding
Executive Chairman
12 October 2020
Arc Minerals Limited – Annual Report & Financial Statements 2020
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Strategic Report
Overview of Operations
Arc Minerals is incorporated in the British Virgin Island and is engaged in the business of acquiring,
exploring and developing mineral properties. The Company’s stock trades in British Pounds Sterling
on the AIM Market in London under the symbol ARCM.
Arc Minerals has two principal areas of interest:
1. The Zamsort copper project (66% interest) in the Copperbelt in Zambia covering c 408km², which
is one of the last under-explored areas in the domes region in the copperbelt in northwest Zambia
and in close proximity to word-class mines
2. The Zaco copper project (72.5% interest), which lies adjacent to the Zamsort copper project in north
west Zambia and covers c. 469km²
During the year, Arc Minerals divested its interest in the Ṧturec Gold Project in Slovakia. On 19
November 2019, Arc entered into a sale and purchase agreement with MetalsTech Limited
(“Metalstech”), an Australian listed exploration and mining company for a consideration of up to
US$8.9million.
Arc Minerals also had an 99.43% interest Casa Mining Limited (“Casa”) which holds the Misisi gold
project in the eastern part of the Democratic Republic of Congo (“DRC”). On 18 March 2020, Arc entered
into share and purchase agreements with Golden Square Equity Partners Limited ("Golden Square")
for a consideration payable of up to US$50 million.
Zamsort and Zaco Copper Projects
The Zamsort Copper project is located approximately 900km by road from Lusaka, in the North Western
Province, and is well within the trending arm of the major geological structure known as the Lufilian Arc
(Copperbelt), on the western flank of the Kabompo Dome. The Copperbelt is home to all the major
copper mines in Zambia and Zamsort and Zaco copper projects represents one of the last dome-related
areas in Zambia yet to be explored in any detail.
Over the last fifteen years, three new major copper mines have been discovered and constructed to
exploit the mineral resources in the new western part of the Zambian Copperbelt. This region now
accounts for more than 75% of Zambian copper production and Zamsort and Zaco are in close proximity
to large operations such as First Quantum Minerals’ Sentinel and Kansanshi mines and Barrick Gold’s
Lumwana mine.
The Zamsort Copper Project consists of three licences - a 4km² small-scale mining license which host
the Kalaba copper-cobalt project, adjacent to a 4km2 small scale exploration license that hosts the
Commercial Scale Demonstration (“CSD”) Plant, both enclosed by a large scale exploration license of
400km². The Zaco license which lie adjacent to the Zamsort license and consist of one small scale
exploration license of 4km2 and two large scale exploration licences covering 382km2 and 83km2
respectively. The licenses were previously explored by Equinox Minerals Limited ('Equinox') and Anglo
American Prospecting Services (‘AAPS’) by way of the ‘Zambezi Joint Venture’ (‘JV’) through AAPS's
affiliate Zamanglo Prospecting Ltd (‘Anglo American’) during the late 1990s as part of the Kabompo
Project.
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The Kalaba copper-cobalt project benefits from a CSD plant which has been refurbished, however given
the relatively small size, the plant requires a higher-grade ore feed. Cheyeza could provide this feed
and the plant is on standby while grade modelling and metallurgical testing are in progress at Cheyeza
East. In June 2019, the Company commenced a diamond drilling programme focussing initially on the
Cheyeza East area. Initial results demonstrated pervasive mineralisation with intersections of 28.5m at
1.32% Cu including 13m grading 2.31% and 18m at 2.35% Cu including 7.60m grading 4.15% Cu.
Further drill holes intercepted 1.27% over 32m including 2.05% Cu over 17.50m and 2.79% Cu over
10.50m. The Company identified a mineralised area at Cheyeza East of 650m long and 300m wide.
In June 2020, the Company commenced with a further 8,000 meter diamond drilling programme with
hole depth of between 100-250m. The exploration programme is initially focussed on the Fwiji target
where the Company has already defined the target area through previous exploratory works. Follow up
work at a number of the other target areas, including Cheyeza and Muswema are also underway.
In July 2020, Arc’s subsidiaries in Zambia entered into a six month exclusivity agreement with a
subsidiary of Anglo American in respect to the Zamsort and Zaco Copper Projects.
At the request of Anglo American, the company sent 2,500 soil samples covering both license areas
that were collected during the 2015 - 2019 soil sampling programmes for assay to ALS in South Africa.
Whilst the absolute values of the pXRF analyses are sufficient to define the anomalous target areas,
the detection limits are not low enough to enable the mapping of the multiple components of a
hydrothermal mineral system, which otherwise could be mapped using these assays from the ALS
laboratory. The components defined include lithology, stratigraphy and redox boundaries as well as
zones of metal depletion and metal enrichment.
Assets Held For Sale
Both Sturec and Casa were designated by the Board for sale in the prior year and both were sold
during the year as summarised in the Financial Summary within the Directors Report
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Governance
Board of Directors
Nicholas von Schirnding, Director and Executive Chairman
Nick von Schirnding has over 25 years' experience in the mining sector across a number of
geographies. Nick was CEO of Asia Resource Minerals plc, a FTSE listed mining company. Prior to this
Nick was a senior executive with Anglo American plc and De Beers. Mr von Schirnding is also chairman
of Fodere, a private minerals processing business with a plant at Highveld Steel and a non-executive
director of Jangada Mines and Edenville Energy, both listed in London.
Rémy Welschinger, Finance Director
Remy Welschinger has over 15 years' experience in finance. He was Head of Commodities Sales at
Deutsche Bank in Europe and, prior to that, an Executive Director in the Fixed Income and Commodities
division of Morgan Stanley in London. Remy is a non-executive director of ASX-listed Infinity Lithium
and a director of Element-46 Ltd and Limehouse Capital Ltd, both private UK companies.
Brian McMaster, Non-Executive Director
Brian McMaster has almost 20 years’ experience in the area of corporate reconstruction and turnaround
and performance improvement and 20 years in the mining and exploration industry. Brian’s recent
experience includes founding Harvest Minerals and Jangada Mines, AIM listed companies with Potash
and PGM projects in Brazil respectively, as well as numerous reorganisations and the recapitalisation
and listing of 12 Australian companies.
Brian’s career to date includes significant working periods in the United States, South America, Asia,
India and UK. Brian was a founding director in venture capital and advisory firm, Garrison Capital Pty
Ltd, and is also currently a director of a number of ASX and AIM listed companies.
Mushinge Mumena, Non-Executive Director
Mumena Mushinge is well known Zambian based entrepreneur with a long-standing history in the
mining and minerals industry. Mr Mushinge is a director of a number of privately-owned Zambian based
mining and power generation businesses. Mr Mushinge founded Zamsort Limited in 2005 and has been
instrumental in developing the Kalaba prospect.
Arc Minerals Limited – Annual Report & Financial Statements 2020
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Directors’ Report
The Directors present their annual report on the affairs of the Group, together with the financial
statements and Auditor’s Report for the year ended 31 March 2020.
Principal activities
The Group is engaged in the business of acquiring, exploring and developing mineral properties in
Africa. The review of the business and future strategy is covered in the Chairman’s Statement on page
4 and Strategic Review on page 6.
Results and Dividends
During the year cash decreased by £1.072m (2019: increase of £1.050m).
The loss on continuing operations of the Group after taxation amounted to £2.936m (2019: Loss of
6.252m). There were no dividends paid in 2020 (2019: nil).
Financial Summary
The year ended 31 March 2020 has seen several significant corporate developments
On 19 November 2019, Arc entered into a sale and purchase agreement with MetalsTech Limited
(“Metalstech”), an Australian listed exploration and mining company for the sale of its interest in the
Ṧturec gold project for a consideration of US$8 million. The consideration comprises an initial option
payment of A$30,000 followed by two cash payments aggregating A$750,000 (c. US$500,000).
In addition if before November 2024, the Šturec JORC Indicated and Measured Resource exceeds 1.5
million ounces gold at a grade greater than 2.5g/t (inclusive of recoverable Ag equivalent), MetalsTech
will pay Arc a further A$2 royalty per additional ounce of gold. This royalty is capped at 7 million ounces
of gold or Australian dollars 11M. Because of the general uncertainty about the size of the Sturec
resource the Company has not recorded the royalty in the accounts.
Any consideration due under the Resource Upgrade Royalty may be satisfied in such form of
consideration or instrument acceptable to MTC, in its sole discretion (including, but not limited to cash
or shares in MTC).
On 18 March 2020, Arc entered into share and purchase agreements with Golden Square Equity
Partners Limited ("Golden Square") for the sale of its interest in the Misisi gold project for a consideration
payable of up to US$50 million. The transaction closed on 19 March 2020 (“Completion Date”). An
amount of US$5 million of the consideration was paid to Arc in the form of a loan note which will mature
on 19 March 2021. In the event that the share capital of Casa is acquired by a publicly traded company,
the Purchaser may, at its option, discharge the US$5 million liability by delivering shares of the public
company with a market value of US$5 million to Arc. Golden Square also assumed all existing Casa
group liabilities on the Completion Date, capped at US$3m.
In addition, Golden Square entered into a 3% royalty payment agreement with Arc Minerals of up to
US$45 million, based on future gold production from the project(s) held by Casa as at the Completion
Date. In the accounts the Company has assigned nil value to the Royalty, because of general
uncertainties that surround the future development of any minerals project. The valuation will be
reassessed in future years. Further discussion about the accounting for the royalty can be found in
notes 1(l)(ii) and 4 (d) (ii).
During the year Arc invested USD 2.58 million into Zamsort to fund exploration and other costs.
Arc Minerals Limited – Annual Report & Financial Statements 2020
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Auditor Extension
During the year the audit committee made the executive decision to request the extension of the
auditor’s Responsible Individual for one additional year beyond the five-year rotation period as set out
within the audit industry’s ethical standards. During the year, the group acquired Zaco and disposed of
both its Casa and Sturec projects and related subsidiaries. The knowledge of the Responsible Individual
in relation to these material changes is considered essential in ensuring that these are accurately
presented in accordance with IFRS requirements.
Events after the reporting period
In May 2020, Arc further consolidated its interest in the Zaco license from 52.5% to 72.5%. The
additional 20% was acquired from Mr Mumena Mushinge, a director of the company, for a
consideration of 10 million shares in Arc.
Interest >3%
The following shareholders have a notifiable interest in the Company:
• Karl-Erik von Bahr
• Mushinge Mumena and spouse
• Lärarnas Riksförbund
7.99%
6.90%
6.28%
Directors
The names of Directors who served of the date of this report are set out below:
Directors
Date of Appointment
Date of Resignation
Executive Directors
Nick von Schirnding
Rémy Welschinger
Non-Executive Directors
Brian Mc Master
Mumena Mushinge
Don Bailey
Jonathan De Thierry
Directors’ Remuneration
24 January 2017
31 June 2019
1 August 2017
05 February 2019
-
-
-
-
1 June 2018
1 September 2020
2 January 2018
31 March 2020
The Group remunerates the Directors at levels commensurate with its size and experience of its
Directors. The Remuneration Committee determines and has reviewed the Directors’ remuneration and
believes the levels are appropriate and in line with industry sector median levels of remuneration.
Further details can be found on discussion about the Remuneration Committee on page 21 within the
Corporate Governance Statement. Details of the Directors’ emoluments and payments made for
professional services rendered are set out in note 7 to the financial statements.
Arc Minerals Limited – Annual Report & Financial Statements 2020
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Directors’ Interest
The beneficial interest of the Directors in the shares and options of the Company are set out as
follows:
Director
Annual Report 2020
Annual Report 2019
Shares
Options Warrants
Shares
Options Warrants
17,080,532 29,620,195
4,555,557 17,080,532 15,620,195
4,555,557
14,528,844 15,580,000
7,444,446 13,028,844
1,600,000
7,444,446
Nicholas von
Schirnding
Rémy
Welschinger*
Brian McMaster
2,555,557
4,375,000
555,557
2,555,557
2,375,000
555,557
Mumena
Mushinge
67,402,463
2,800,000
333,334 57,402,463
800,000
333,334
Don Bailey**
7,697,224
3,700,000
655,557
7,697,224
3,700,000
665,557
Jonathan de
Thierry***
13,767,888
2,000,000
266,667 13,767,888
2,000,000
266,667
* Rémy Welschinger was appointed on 31 June 2019
** Don Bailey resigned effective 31 September 2020
*** Jonathan DeThierry resigned effective 31 March 2020
None of the Directors exercised any share options during the year.
Corporate Governance
A statement on Corporate Governance is set out on pages 16 to 23.
Key Performance Indicators
The Board monitors the activities and performance of the Group on a regular basis and uses both
financial and non-financial indicators to assess the Group’s performance.
The Group underwent significant changes to its asset base in 2020. The Company sold its interest in
the Ṧturec gold project in Slovakia and its interest in the Misisi gold project in the Democratic Republic of
Congo (“DRC”).
The indicators set out below were used by the Board during the year ended 31 March 2020.
Non-Financial KPIs
The Board established the following goals for management in June 2019:
1. Successful financing of the Company;
2. JORC resource at Misisi;
3. Commissioning of the demonstration plant;
4. Profitable operation at the demonstration plant;
5. Disposal of non-core assets.
All these KPIs have been satisfied except (4) which remains an ongoing process.
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Financial KPIs
The current financial KPIs are:
Financial KPIs
Measure
2020
2019
Total funds raised
£ 000’s
1,795
6,183
Exploration costs capitalised
£ 000’s
1,924
3,181
The Company raised gross funds of £ 1.795m in 2020 versus £6.183m in 2019.
Exploration costs capitalised as intangible assets in the year were £1.934m (2019: £3.181m).
KPIs for 2021 will include:
1. A maiden resource on the Exploration Licenses of Zamsort and Zaco
2. A transaction with a large strategic partner
Health and Safety – number of reported incidents
There were no reportable incidents in the current year or prior year
Risk Management Report
A Risk Management Report is set out on Page 13.
Environmental Policy
The Group is aware of the potential impact that its subsidiaries and associated company may have on
the environment. The Group uses its best efforts to ensure that with regard to the environment its
subsidiaries and associated company comply with local regulatory requirements and the revised
Equator Principles.
Employment Policy
The Group is committed to promoting policies to ensure that high calibre employees are attracted,
motivated and retained for the ongoing success of the business. Employees and those who seek to
work within the Group are treated equally regardless of sex, martial status, creed, colour, race or ethnic
origin.
Insurance
The Group maintains insurance in respect of its Directors and Officers against liabilities in relation to
the Company and the Group. The Group maintains insurance in respect of its exploration and
development and operational programmes in Zambia.
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12
Statement of Disclosure to the Auditor
As at the date of this report the serving Directors confirm:
• So far as each Director is aware, there is no relevant audit information of which the Group’s
auditor is unaware, and;
• The Directors have taken all the steps that they ought to have taken in order to make
themselves aware of any relevant audit information and to establish that the Group’s auditor
is aware of such information.
Auditor
PKF Littlejohn LLP has signalled its willingness to continue in office as auditor
Going Concern
The Directors have reviewed a forecast prepared by the executive and have a reasonable expectation
that the Group will be able to raise funds to provide adequate resources to continue in operation and
satisfy liabilities for the foreseeable future. During the 3 years ended 31 March 2020 Arc raised in excess
of £10 million from the sale of equity and in May 2020 announced a further sale of £2.4 million from the
sale of shares. These ongoing equity sales are indicative of consistent strong investor support. As well
the anticipated proceeds from realisation of the US$5M note related to Casa sale, the Directors expect
to deliver further results which will lead to continuing market support albeit that further equity raises will
be required to fund delivery. The Directors therefore consider it appropriate, despite the loss incurred
during the year, for the Company to continue to adopt the going concern basis in preparing the Annual
Report and Financial Statements. Further details on the Directors assumptions and their conclusion are
included in the statement on going concern included in note1 (f) to the Financial Statements.
The auditors have drawn attention to going concern within their audit report by way of a material
uncertainty.
Risk Management Report
The Company’s risk exposures and the impact on the Company’s financial instruments are summarised
as follows:
Credit Risk
Credit risk is the risk of potential loss to the Company if a counterparty to a financial instrument fails to
meet its contractual obligations. The Company’s credit risk is primarily attributable to its liquid financial
assets, including cash, receivables, and balances receivable from the government. The Company limits
the exposure to credit risk in its cash by only investing its cash with high-credit quality financial
institutions in business and savings accounts, guaranteed investment certificates and in government
treasury bills which are available on demand by the Company for its programs. The Company does not
invest in money market funds. The Company has no risk exposure to asset backed commercial paper
or auction rate securities except for the Loan Note – Casa sale of £ 4.032m which is due in March 2021
and is backed by Casa shares representing 99.43% of Casa equity. (refer Note 15)
Financing Risk
The development of the Group’s properties will depend on the Group’s ability to obtain financing through
the raising of equity capital, joint venture of projects, debt financing, farm outs or other means. There is
no assurance that the Group will be successful in obtaining the required financing. If the Group is unable
Arc Minerals Limited – Annual Report & Financial Statements 2020
13
to obtain additional financing as needed, some interests may be relinquished, and/or the scope of the
operations reduced.
Liquidity Risk
Liquidity risk is the risk that the Company will not have the resources to meet its obligations as they fall
due. The Company manages this risk by closely monitoring cash forecasts and managing resources to
ensure that it will have sufficient liquidity to meet its obligations. All of the Company’s current financial
liabilities are anticipated to mature within the next ninety days.
Exploration and Development Risk
There is no assurance that the Group’s exploration and development activities will be successful, and
statistically few properties that are explored are ultimately developed into profitable producing mines.
The risk is mitigated by conservatively managing exploration funds such that subsequent exploration
expenditures are not committed until results from previous stages have been evaluated. There is
regular lab testing during the year’s exploration program to minimise unwarranted expenditure.
We have also assembled a talented team of professionals complemented by independent consultants
we engage regularly.
Market Risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates,
foreign exchange rates, and commodity and equity prices. These fluctuations may be significant.
Interest Rate Risk: The Company is exposed to interest rate risk to the extent that its cash balances
bear variable rates of interest. The interest rate risks on cash and short-term investments and on the
Company’s, obligations are not considered significant.
Foreign Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates against
the Company’s reporting currency, pound sterling. The Company expects to continue to raise funds in
London and Europe in sterling. The Company conducts its primary business in Zambia (“Kwacha”) with
a significant portion of expenditures in that country, for example drilling expenditure, denominated in
USD. As the Company reports in Great British Pounds (“GBP”), it is subject to risk due to fluctuations
in the exchange rates between the GBP and each of the USD and Kwacha. During the fiscal year the
Kwacha has depreciated approximately 30% against sterling and 35% against USD. Assets in Zambia
and most liabilities are denominated in Kwacha but the shareholder loan is denominated in USD. These
changes in the currency exchange rates between the Kwacha relative to foreign currencies have had
a significant impact on the group accounts. The Company has not hedged its exposure to currency
fluctuations.
Commodity Price Risk
While the value of the Company’s core mineral resource properties, the Zamsort and Zaco copper
projects are related to the price of copper and the outlook for this mineral, the Company currently does
not have any operating mines and hence does not have any hedging or other commodity-based risks
in respect of its operational activities.
Arc Minerals Limited – Annual Report & Financial Statements 2020
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Historically copper prices have fluctuated and are affected by numerous factors outside of the
Company’s control, including but not limited to: industrial demand; forward sales by producers and
speculators; levels of worldwide production; short-term changes in supply and demand because of
speculative hedging activities;
Licensing Risk
The Group’s exploration and development activities are dependent upon the grant of appropriate
licences, concessions, leases, permits and regulatory consents which may be withdrawn or made
subject to limitations or performance criteria. Such licences and permits are as a practical matter subject
to the discretion of the applicable Government or Government office. The Group must comply with
known standards, existing laws and regulations that may entail greater or lesser costs and delays
depending on the nature of the activity to be permitted. The interpretations, amendments to existing
laws and regulations, or more stringent enforcement of existing laws and regulations could have a
material adverse impact on the Group’s results of operations and financial condition. Whilst the Group
continually seeks to do everything within its control to ensure that the terms of each licence are met and
adhered to, third parties may seek to exploit any technical breaches in licence terms for their own
benefit. There is a risk that negotiations with a Government in relation to the grant, renewal or extension
of a licence may not result in the grant, renewal or extension taking effect prior to the expiry of the
previous licence period, and there can be no assurance of the terms of any extension, renewal or grant.
Political Risk
In conducting operations in Zambia, the Company is subject to considerations and risks related to the
political, economic and legal environment in which the Company operates. Among other things, the
Company's results may be impacted by changes in the political and social conditions in Zambia and by
changes in governmental policies with respect to mining laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of taxation.
COVID-19 outbreak
The COVID-19 outbreak was declared a pandemic by the World Health Organization in March 2020.
The Group is constantly reviewing the potential impact to their operations and implementing measures
to mitigate any possible impact as well as possible. The health, safety and well-being of its employees
and contractors comes first and will be prioritized over other aspects of the business.
To date, the Group has not seen a significant impact on its business. The outbreak and the response
of Governments in dealing with the pandemic is interfering with general activity levels within the
community, the economy and the operations of the Group. The scale and duration of these
developments remain uncertain as at the date of this report however they are not significantly impacting
the Company’s operations.
This Risk Management Report has been approved by the Board and signed on its behalf by:
Nicholas von Schirnding
Director & Executive Chairman
12 October 2020
Arc Minerals Limited – Annual Report & Financial Statements 2020
15
Corporate Governance Statement
The Company is committed to maintaining the highest standards in corporate governance throughout
its operations and to ensure that all of its practices are conducted transparently, ethically and efficiently.
The Company believes that scrutinising all aspects of its business and reflecting, analysing and
improving its procedures will result in the continued success of the Company and improve shareholder
value. Therefore, and in accordance with the AIM Rules for Companies (as updated from time to time),
the Company has chosen to formalise its governance policies by complying with the UK's Quoted
Companies Alliance Corporate Governance Code (the "QCA Code").
The key challenges facing the company have been set out above in the Chairman’s Statement, the
Strategic Report and the Directors’ Report.
The Board currently consists of four Directors: an Executive Chairman, a Finance Director and two Non-
Executive Directors (NEDs). The Board considers that appropriate oversight of the Company is provided
by the currently constituted Board.
QCA Code
The 10 principles set out in the QCA Code are listed below, with an explanation of how the Company
applies each of the principles and the reason for any aspect of non-compliance. There were no key
governance related matters that occurred during the year.
Business Model and Strategy
Arc’s strategy is to invest in early stage copper-cobalt assets primarily in Africa and to realise their
potential either through sale or development. Our aim is to create value for our shareholders by
improving on and expanding existing exploration assets and identifying new exploration targets around
existing licence areas. Arc is currently focused primarily on the copper-cobalt projects of Zamsort
Limited and Zaco Investments Limited in Zambia.
Arc delivers on its strategic aims by (i) defining additional reserves and resources at its projects and
surrounding licence areas; (ii) securing appropriate funding; (iii) developing mineral resources in situ;
(v) maintaining good community relationships; and (vi) employing compliant environmental governance
practices.
The key challenges facing the company have been set out in the Risk Management report on pages 13
to 15.
Understanding Shareholder Needs and Expectations
The Board is committed to maintaining good communication and having constructive dialogue with its
shareholders. Significant developments are disseminated through the Regulatory News Service
(“RNS”) and timely updates to the Company’s website. Additionally, the Company holds Investor update
calls when appropriate during which Investors have access to the Chairman and other Officers. Arc has
an active and effective investor relations programme, which is the responsibility of the Chairman, that
includes institutional road-shows and presentations, effective Annual General Meetings with
presentations to shareholders and a high level of disclosure of activity to its shareholders.
Considering Wider Stakeholder and Social Responsibilities
The method used by the Company to obtain feedback from stakeholders is discussed below under the
heading Shareholder Communication.
The board has identified the Company’s stakeholders to include staff, suppliers, customers, partners,
local government and wider communities. A key part of Arc’s business model is identifying the impact
that activities will have on the surrounding communities at Arc’s projects. The Company is always
Arc Minerals Limited – Annual Report & Financial Statements 2020
16
looking for opportunity to develop the wider communities in which it operates and Arc behaves ethically
in its recruitment, training and engagements. The environmental impact of Arc’s activities is also
carefully considered and the maintenance of high environmental standards applied. Arc has established
relationships with local and national governments in the territories of its projects.
Risk management
Whilst the Board is ultimately responsible for identifying and managing areas of significant business
risk, it has established an Audit and Risk Committee that ensures effective Risk Management systems
are in place that identify and manage key Company risks, establish and maintain effective controls, and
ensure compliance with risk management policies and the reporting of any non-compliance
occurrences.
The Company’s risk management systems have identified the key risks applicable to the Company as
set out in the Risk Management Report on page 13 and appropriate mitigation controls are in place.
These risks are:
• Credit Risk
• Financing Risk
• Liquidity Risk
• Exploration and Development Risk
• Market Risk
• Commodity Price Risk
• Licencing Risk
• Political Risk
• COVID 19
Well-functioning Board of Directors
The Board is comprised of two executive directors (Nick von Schirnding, Executive Chairmen and Rémy
Welschinger, Finance Director) and two NEDs (Brian McMaster and Mumena Mushinge). Each Director
serves on the Board until the Annual General Meeting following his election or appointment. The
Executive Directors work full time for the Company. NEDs are expected to allocate sufficient time to the
Company in order to meet their respective responsibilities.
Appropriate Skills and Experience of the Directors
The Board considers the current balance of sector, financial and public market skills and experience
which it embodies is appropriate for the size and stage of development of the Company and that the
Board has the skills and requisite experience necessary to execute the Company’s strategy and
business plan whist also enabling each Director to discharge his fiduciary duties effectively. The Board
recognises that it currently is limited in diversity and this continues to form part of recruitment
consideration. Details of the current Board of Directors biographies is provided on page 8.
The Board reviews annually, and when required, the appropriateness of its mix of skills and experience
to ensure that it meets the changing business needs.
The Executive Chairman is assisted by the company secretariat in preparing for and running effective
board meetings, including the timely dissemination of appropriate information. The company secretariat
provides advice and guidance to the extent required by the board on the legal and regulatory
environment.
Evaluating Board Performance
Arc reviews Board, Committee and individual director performance on an ongoing basis in the context
of its contribution to the Company’s financial performance.
Arc Minerals Limited – Annual Report & Financial Statements 2020
17
The Remuneration Committee, of which details of the members are provided further down in this report,
compares the performance of the Board with the requirements of its Terms of Reference, the Company
Vision and KPI’s and critically reviews the composition of the Board. The evaluation of the Board is
carried out annually and on a three-yearly cycle and the Committee may enlist an independent evaluator
as and when it deems it appropriate.
The Review Process, includes the following key considerations:
• Board’s mission and goals
• Board composition and effectiveness
• Performance against Strategic Plan
• Board s protocols and processes
• Relationships with Stakeholders
• Continuous professional learning of Board Members
Succession planning is considered by the Board as a whole and reviewed annually.
Corporate Culture
The corporate culture of the Company is promoted throughout its employees and contractors and is
underpinned by compliance with local regulations and the implementation and regular review and
enforcement of various policies as set out below so that all aspects of the Company are run responsibly.
It is the Board’s view that Arc’s corporate culture is consistent with its objectives, strategy and business
model. A significant part of the Company’s activities is centred upon what needs to be an open and
respectful dialogue with employees, clients and other stakeholders. Therefore, the importance of sound
ethical values and behaviours is crucial to the ability of the Company to successfully achieve its
corporate objectives.
The Board is aware that the tone and culture set by the Board will greatly impact all aspects of the
Company as a whole and the way that employees behave. The board adheres to its group-wide
corporate governance policies which include:
• anti-corruption and bribery;
• whistleblowing;
• health and safety;
• environment and community;
• IT, communications and systems; and
• social media.
Maintenance of Governance Structures and Processes
Board of Directors
Arc’s key strategic, financial and operational decisions are reserved exclusively for the Board. The
Board aims to meet every six to eight weeks or more frequently if activities require and is supplied with
appropriate and timely information. The Directors are free to seek any further information that they
consider necessary. All Directors have access to advice from the company secretariat and Finance
Director as well as independent professionals at the Group's expense. Training is available for new
Directors and other Directors as necessary. The directors’ biographies can be found on the Company’s
website at www.arcminerals.com/about-us/board-and-management and on page 8 of this report.
Arc Minerals Limited – Annual Report & Financial Statements 2020
18
It is important that the Board itself contains the right mix of skills and experience in order to deliver the
strategy of the Company. As such, the Board is comprised of:
• an executive chairman, whose responsibility is the delivery of the Company's strategy and
governance model and communication with shareholders;
• an executive finance director, whose responsibility is to support the executive chairman in the
delivery of the Company’s strategy. In particular, the finance director is responsible for the
formulation and submission to the Board of the Group’s financial strategy and for the financial
performance of the Group in line with the Company’s strategy;
• one independent, non-executive director;
• one non-independent, non-executive director;
Director
Position
Independent
(Y/N)
Remuneration
Committee
Membership
Nomination
Committee
Membership
Audit & Risk
Committee
Membership
Nicholas von
Schirnding
Executive
Chairman
Rémy
Welschinger
Finance
Director
Brian
McMaster
Senior
Independent
Director
Mumena
Mushinge
Non-Executive
Director
N
N
Y
N
-
Member
Member
Member
-
-
Chairman
Chairman
Chairman
-
-
-
A Director is considered independent if he is not a substantial shareholder, has not been an
employee within the group and has not had a material business relationship with a Group company.
The board has appointed Mr Brian McMaster as Senior Independent Director. Additionally, the
Executive Chairman is assisted by the company secretariat in preparing for and running effective
board meetings, including the timely dissemination of appropriate information. The company
secretariat provides advice and guidance to the extent required by the Board on the legal and
regulatory environment. The Company does not specify any minimum time commitment from
Directors and instead reviews their time commitment as part of their individual evaluations.
Each director serves on the board until the annual general meeting following his election or
appointment, and the board meets at least three times a year.
The following matters are reserved for the Board:
Management Structure and Appointments
• Executive Director responsibilities.
• Board appointments or removals.
• Board and senior management succession, training, development and appraisal.
• Appointment or removal of Company Secretary.
• Appointment or removal of internal auditor.
• Remuneration, contracts, grants of options and incentive arrangements for Executive Directors
and senior management, including any plans to be put to shareholders for approval.
• Delegation of the Board's powers.
• Agreeing membership and terms of reference of board committees and task forces.
Arc Minerals Limited – Annual Report & Financial Statements 2020
19
• Approval of delegated levels of authority.
• Matters referred to the Board by the board committees.
Strategic/Policy Considerations
• Business strategy.
• Diversification/retrenchment policy.
• Ensuring maintenance of a sound system of internal control and risk management, including:
• Group’s risk appetite statements.
• Procedures for detection of fraud and the prevention of bribery.
• Approval of the overall levels of insurance for the group, including directors’ and officers’ liability
insurance.
• Agreement of codes of ethics and business practices.
• An on-going assessment of significant risks and effectiveness of internal controls.
• Calling of shareholders' meetings and approval of resolutions and corresponding
documentation to be put forward to shareholders at a general meeting, plus any circulars,
prospectuses and listing particulars.
• Avoidance of wrongful or fraudulent trading.
• Ensuring a satisfactory dialogue with shareholders based on the mutual understanding of
objectives.
• Considering the balance of interests between shareholders, employees, customers and the
community.
• Reviewing the group’s overall corporate governance arrangements.
• Undertaking an annual review of its own performance, that of its committees and individual
directors and the division of responsibilities.
Transactions
• Transactions which are notifiable under the AIM Rules.
• Approval of major capital projects.
• Contracts which are material strategically or by reason of size entered into by the Company in
the ordinary course of business e.g. bank borrowings over £1 million and acquisitions or
disposals of fixed assets (including intangible assets such as intellectual property) above £1
million.
• Major investments (including the acquisition or disposal of interests of more than 3 per cent. in
the voting shares of any company or the making of any takeover offer.
• Contracts not in the ordinary course of business.
• Actions or transactions where there may be doubt over propriety.
• Approval of certain announcements, prospectuses, circulars and similar documents.
• Disclosure of directors' interests.
• Transactions with directors or other related parties.
Finance
• Raising new capital and confirmation of major financing facilities.
• Changes relating to the group’s capital structure, including the reduction of capital and/or share
issues.
• Treasury policies requested to be put in place by the Board.
• Discussion of any proposed emphasis of matter on the accounts.
• Final approval of annual and interim reports and accounts and material changes to accounting
policies.
• Appointment/reappointment or removal of the external auditor, to be put to shareholders for
approval in general meeting, following the recommendation of the Board or its Committee.
• Charitable and political donations.
• Approval and recommendation of dividends.
Arc Minerals Limited – Annual Report & Financial Statements 2020
20
• Approval before each year starts of operating and capital expenditure budgets for the year and
any material changes to them.
General
• Major changes to the Group’s corporate structure.
• Any changes to the Company’s listing status and status as a plc.
• Approval of key policy documents including the share dealing code and MAR policy, anti-
bribery policy and whistleblowing policy.
• This schedule of matters reserved for board decisions.
The Board is supported by the audit and risk and remuneration and nomination committees as
described below.
Audit and Risk Committee
Arc’s Audit and Risk Committee is responsible for ensuring that the financial performance of the
Company is properly monitored and reported and in this capacity interacts as needed with the
Company’s External Auditors. The Committee also considers risk management and internal
financial controls.
Some of the Audit Committee's duties include:
•
•
•
•
•
reviewing the Company's accounting policies and reports produced by internal and external
audit functions.
considering whether the Company has followed appropriate accounting standards and made
appropriate estimates and judgements, taking into account the views of the external auditor.
reporting its views to the board of directors if it is not satisfied with any aspect of the proposed
financial reporting by the Company.
reviewing the adequacy and effectiveness of the Company’s internal financial controls and
internal control and risk management systems.
reviewing the adequacy and effectiveness of the Company's anti-money laundering systems
and controls for the prevention of bribery and receive reports on non-compliance.
• overseeing the appointment of and the relationship with the external auditor.
The Audit and Risk Committee has two members, each of whom being non-executive directors and
at least one member has recent and relevant financial experience and is independent. The current
members of the committee are Brian McMaster and Nick von Schirnding. The committee chairman
is Brian McMaster.
A copy of the terms of reference of the Audit and Risk Committee can be found on the Company’s
website.
Remuneration Committee
The purpose of the Remuneration Committee is to determine and agree with the board the
framework or broad policy for the remuneration of the Company’s chairperson and executive
directors. The main duties of the Remuneration Committee include:
•
reviewing the pay and employment conditions across the Company, including the board of
directors.
• approving targets and performance related pay schemes operated by the Company and all
share incentive plans and pension arrangements.
Arc Minerals Limited – Annual Report & Financial Statements 2020
21
The Remuneration Committee has two members, each of whom being non-executive directors and
at least one member is independent. The current members of the committee are Brian McMaster
and Rémy Welschinger. Brian McMaster is the chairman of the committee.
A copy of the terms of reference of the Nomination Committees can be found on the Company’s
website.
Nomination Committee
The purpose of the Nomination Committee is to evaluate and determine the composition of the
Board itself. The main duties of the Nomination Committee therefore include:
• Regularly reviewing the structure, size and composition (including the skills, knowledge,
experience, independence and diversity) of the Board and make recommendations to the Board
with regard to any changes, succession planning and vacancies.
identifying suitable candidates from a wide range of backgrounds to be considered for positions
on the Board.
•
The Nomination Committee has two members, each of whom being non-executive directors and at
least one member is independent. The current members of the committee are Brian McMaster and
Nick von Schirnding. Brian McMaster is the chairman of the committee.
A copy of the terms of reference of the Nomination Committees can be found on the Company’s
website.
Given the small number of meetings held by of each of the above-mentioned Committees, neither
have produced a separate report, however the Company intends to review this requirement on an
annual basis.
Share Dealing Code
The Company has adopted a share dealing code to ensure directors and certain employees do not
abuse, and do not place themselves under suspicion of abusing inside information of which they
are in possession and to comply with its obligations under the Market Abuse Regulation ("MAR")
which applies to the Company by virtue of its shares being traded on AIM. Furthermore, the
Company's share dealing code is complaint with the AIM Rules for companies published by the
London Stock Exchange (as amended from time to time).
Under the share dealing code, the Company must:
• disclose all inside information to the public as soon as possible by way of market announcement
unless certain circumstances exist in which the disclosure of the inside information may be
delayed;
keep a list of each person who is in possession of inside information relating to the Company;
•
• procure that all persons discharging managerial responsibilities and certain employees are
given clearance by the Company before they are allowed to trade in Company securities; and
• procure that all persons discharging managerial responsibilities and persons closely associated
to them notify both the Company and the Financial Conduct Authority of all trades in Company
securities that they make.
Key Relationships
There are a number of key relationships and resources that are fundamental to the Company's
success, such as maintaining good relationships with local communities and governments where
Arc Minerals Limited – Annual Report & Financial Statements 2020
22
the Company operates as well as with engineering and financing groups to ensure that the company
has adequate resources to deliver its strategy.
Shareholder Communication
The Company recognises that maintaining strong communications with its shareholders promotes
transparency and will drive value in the medium to long-term. Accordingly, the Company will provide
regular updates on the progress of the Company, detailing recent business and strategy
developments, in news releases which will be posted on the Company's website. In order to
continually improve transparency, the board would be delighted to receive feedback from
shareholders. Communications should be directed to info@arcminerals.com. Nicholas von
Schirnding has been appointed to manage the relationship between the Company and its
shareholders and will review and report to the board on any communications received.
Arc is committed to providing full and transparent disclosure of its activities, via the RNS system of
the London Stock Exchange. Historical annual reports and interim accounts are available on the
Company’s website.
Directors’ Responsibility Statement
The Directors are responsible for preparing the Directors’ Report, the Risk Management Report, and
the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Company Financial Statements for each
financial year. The Directors are required by the AIM Rules of the London Stock Exchange to prepare
Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) and
have elected under company law to prepare the Company Financial Statements in accordance with
IFRS.
Under company law the Directors must not approve the Financial Statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group and the Company and of the profit
or loss of the Group and Company for that period.
In preparing the Group and Company Financial Statements, the Directors are required to:
1. select suitable accounting policies and then apply them consistently;
2. make judgements and accounting estimates that are reasonable and prudent;
3. state whether they have been prepared in accordance with IFRS; and
4. prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time
the financial position of the Group and the Company and enable them to ensure that the Financial
Statements comply with the Companies Act 2006. They are also responsible for safeguarding the
assets of the Group and the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Arc Minerals website.
Arc Minerals Limited – Annual Report & Financial Statements 2020
23
Independent Auditor’s Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ARC MINERALS
LIMITED
Opinion
We have audited the financial statements of Arc Minerals Limited (the ‘group’) for the year ended 31
March 2020 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated
Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated
Statement of Changes in Equity and notes to the financial statements, including a summary of
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 March 2020 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.
Material uncertainty relating to going concern
We draw attention to note 1f in the financial statements which identifies conditions that may cast
significant doubt on the group’s ability to continue as a going concern. The group is not expected to
generate positive cash flows from operations in the 12 months from the date at which these financial
statements were signed and will need to either raise additional funds or obtain receipt of the loan note
due from the disposals throughout the year. As stated in note 1f, these events or conditions, along with
the other matters as set forth in note 1f, indicate that a material uncertainty exists that may cast
significant doubt on the company’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Our application of materiality
The materiality applied to the group financial statements was £83,400 (2019: £380,000), based on a
percentage of gross assets, as it is from these assets that the group seeks to deliver returns for
shareholders. The significant decrease being a result of the assets disposed of during the year.
Performance materiality has been set at 75% of headline materiality, and the threshold for which we
communicate errors to management has been set at £4,170 (2019: £19,000). We apply the concept of
materiality in both planning and performing the audit, and evaluating the effect of misstatements. At the
planning stage, materiality is used to determine the financial statements areas that are included within
the scope of the audit and the extent of the sample sized during the audit. Materiality has been
reassessed at the closing stages of the audit, taking into consideration new information which arose.
No alterations were made to materiality either during or at the conclusion of the audit.
Arc Minerals Limited – Annual Report & Financial Statements 2020
24
Independent Auditor’s Report (continued)
An overview of the scope of our audit
In designing our audit, in addition to those material areas of the financial statements, we looked at
areas which were deemed to be involving significant accounting estimates and judgements by the
director’s, such as the carrying value of the receivable relating to the disposal of the Misisi project and
the valuation of the Royalty agreement for both the disposals of the Misisi Project and Sturec,
including future events that are inherently uncertain such as the carrying value of the exploration
assets. We also addressed the risk of management override of internal controls, including amount
other matters consideration of whether there was evidence of bias that represented a risk of material
misstatement due to fraud.
Component auditors were used for the significant component in Zambia, operating under our instruction.
The Partner interacted regularly with the component audit team during all stages of the audit and was
responsible for the scope and direction of the audit process. This, in conjunction with the additional
procedures performed such as obtaining documentation for the carrying value of the assets held, gave
us sufficient appropriate evidence for our opinion on the group.
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 the scope of our audit responded to the
key audit matter
Sale of the Misisi project and Sturec project (Note 4)
During the year the group has disposed of its
interests in its Misisi Project in the DRC and
its Sturec project in Slovakia, of which were
both classified as held for sale in the prior
period.
of
Included with in the consideration package
the disposals are Royalty
relating
to
agreements
additional
consideration will be become due based on
the production levels of each project. As both
are currently in the exploration stage, this
involves a significant amount of management
estimate.
which
There is a risk that the accounting for the
disposal of subsidiaries and the valuation of
the consideration receivable is incorrectly
recorded and disclosed
in the financial
statements.
Our work in this area included:
• Obtaining
the Sales and Purchase
for both
Agreements’ as support
disposals;
• Review and challenge of managements
assessment of the Royalty element of
the consideration;
• Vouching amounts received to cash at
bank;
• Recalculation of the loss on disposal of
both projects; and
• Reviewing the recoverability of the loan
note receivable relating to the disposal of
the Misisi project.
The carrying value of the loan note receivable of
$5m (£4,032k) relating to the sale of the Misisi
Project is dependent on the ability of the acquirer
to settle the amount due on the date this falls due
on 19 March 2021. We draw your attention to
financial statements which
note 15 of
the
Arc Minerals Limited – Annual Report & Financial Statements 2020
25
Independent Auditor’s Report (continued)
Carrying value of exploration assets (Note 11)
The carrying value of intangible assets as at
31 March 2020 was £4,029k which comprises
of exploration and evaluation expenditure on
the Zambian licence area. There is the risk
that the carrying value of this project is
impaired
and
development costs capitalised during the
year have not been capitalised in accordance
with IFRS 6.
exploration
that
and
discloses the value of said loan note which, if
impaired, would likely have a material impact on
the financial statements. Our opinion is not
modified in this respect.
Our work in this area included:
• Reviewing
in
impairment
relation to the asset held;
indicators
and
considering
the
in
IFRS 6
• Obtaining support for ownership;
• Reviewing with management the basis
for impairment or non-impairment and
challenging any assumptions made; and
testing on
substantive
capitalised expenditure during the year
to ensure it met the capitalisation criteria
of IFRS 6
• Performing
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.
Our opinion on the group financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon. In connection with our audit of the financial
statements, 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 audit or otherwise appears to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. 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 directors’ responsibilities statement, 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.
Arc Minerals Limited – Annual Report & Financial Statements 2020
26
Independent Auditor’s Report (continued)
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.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: http://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 entity’s members, as a body, in accordance with our letter of
engagement. Our audit work has been undertaken so that we might state to the entity’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 entity and
the entity’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Joseph Archer (Engagement Partner)
For and on behalf of PKF Littlejohn LLP
Statutory auditor
12 October 2020
15 Westferry Circus
Canary Wharf
London E14 4HD
Arc Minerals Limited – Annual Report & Financial Statements 2020
27
Consolidated Statement of Comprehensive Income
Consolidated Statement of Comprehensive Income for the year ended 31 March 2020
Year to
31 March 2020
Administrative expenses
Impairment
Operating loss
Interest and finance costs
Loss on change of ownership status
Loss on sale of shares of Andiamo Exploration Limited
Loss before income tax
Income tax expense
Loss for the year from continuing operations
Loss on disposal of assets held for sale, net of tax
Loss from discontinued operations
Loss for the year
Other comprehensive income:
Item that may be subsequently reclassified to profit or loss
Increase in ownership in subsidiaries
Currency translation differences
Total comprehensive loss for the year, net of tax
Loss attributable to:
Equity holders of the parent
Non-controlling interest
Total comprehensive loss attributable to:
Equity holders of the parent
Non-controlling interest
Earnings per share attributable to owners of the parent during
the year
- Basic (pence per share)
- Diluted (pence per share)
- From continuing operations – Basic
- From continuing operations – Diluted
- From discontinued operations – Basic
- From discontinued operations – Diluted
Notes
3
4
13a 14
5
4d
4d
20
20
8
8
8
8
8
8
Year to
31 March
2019
£ 000s
(2,341)
(582)
(2,923)
£ 000s
(2,234)
-
(2,234)
(303)
(318)
(399)
-
(2,936)
(2,809)
(202)
(6,252)
-
-
(2,936)
(6,252)
(20,671)
-
(23,607)
-
(188)
(6,440)
-
(2,248)
(25,855)
(23,158)
(449)
(23,607)
(24,642)
(1,213)
(25,855)
(3.57)
(2.81)
(0.72)
(0.56)
-
-
(767)
1,408
(5,799)
(6,003)
(249)
(6,252)
(6,550)
(249)
(6,799)
(1.12)
(0.98)
(1.08)
(0.95)
(0.03)
(0.03)
The notes on pages 33 to 60 are an integral part of these consolidated financial statements.
Arc Minerals Limited – Annual Report & Financial Statements 2020
28
Consolidated Statement of Financial Position
Consolidated Statement of Financial Position as at 31 March 2020
31 March 2020
31 March 2019
Notes
£ 000s
£ 000s
ASSETS
Non-current assets
Intangible assets
Investment in associate
Property, plant and equipment
Total non-current assets
Current assets
Inventory
Assets held for sale
Prepayments and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Held for sale liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Long term loan payable
TOTAL LIABILITIES
NET ASSETS
Share Capital
Share premium
Share based payment reserve
Warrant reserve
Foreign exchange reserve
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interest
TOTAL EQUITY
10
13
11
4
15
4
16
9
19
19
18
20
4,029
-
3,328
7,357
44
-
4,383
169
4,596
11,953
-
(3,073)
(3,073)
(3,198)
(6,271)
5,682
-
51,231
998
84
(91)
(47,436)
4,786
896
5,682
2,418
339
3,359
6,116
268
27,035
590
1,226
29,119
35,235
(1,944)
(1,443)
(3,387)
(1,891)
(5,278)
29,957
-
50,222
1,320
-
2,157
(24,438)
29,261
696
29,957
These financial statements were approved by the Board of Directors on 12 October 2020 and signed
on its behalf by:
Nicholas von Schirnding
Executive Chairman
The notes on pages 33 to 60 are an integral part of these consolidated financial statements.
Arc Minerals Limited – Annual Report & Financial Statements 2020
29
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows for the year ended
31 March 2020
Cash flows from operating activities
Loss before income tax and including discontinued operations
Loss on disposal of Assets held for sale
Interest Expense
Share based payment and warrants issued
Loss on disposal of associate
Year to
31 March 20
Year to
31 March 19
Notes
£ 000s
£ 000s
10
18
(23,607)
20,561
303
287
(6,440)
-
318
337
-
202
Write-down of inventory
Impairment of Intangible assets and other assets
Fair value loss on change of ownership status
Gain on disposal of fixed assets
Foreign exchange
14
228
-
399
-
(17)
-
582
2,809
(144)
54
Depreciation and amortisation
Net cash used in operating activities before changes in working capital
(57)
(1,903)
52
(2,230)
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
15
16
208
1,482
(130)
(268)
(253)
374
Net cash generated from / (used in) operating activities
343
(2,377)
Cash flows from investing activities
Purchase of intangible assets
Purchase of fixed assets
Proceeds from disposal of assets held for sale
Investment in Zaco Limited
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares – net of share issue costs
Proceeds from exercise of warrants
Shareholder loan – Zamsort
Cash acquired on acquisition of Casa Mining Limited
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of the year
(1,954)
(362)
206
(78)
(2,188)
(3,181)
(1,231)
-
(297)
(4,709)
-
152
1,307
-
1,459
(1,072)
1,241
169
6,183
-
1,891
62
8,136
1,050
191
1,241
The notes on pages 33 to 60 are an integral part of these consolidated financial statements.
Arc Minerals Limited – Annual Report & Financial Statements 2020
30
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity as at 31 March 2020
Attributable to equity holders of the Company
Share
capital
Share
premium
Foreign
exchange
reserve
Share based
payment
reserve
Warrant
reserve
Retained
earnings
Total
Non-
controlling
interest
Total equity
£ 000s
£ 000s
£ 000s
£ 000s
£ 000s
£ 000s
£ 000s
£ 000s
£ 000s
Balance as at 1 April 2018
Loss for the year
Other comprehensive income(loss) for the year - currency
translation differences
Other comprehensive income(loss) for the year - increase in
ownership in subsidiaries
Total comprehensive income (loss) for the year
Share capital issued
Share based payments granted
Share based payments expired
Acquisition of 99.43% of Casa Mining Limited
Acquisition of 66% of Zamsort Limited
Total transactions with owners, recognised directly in equity
Balance as at 31 March 2019
-
-
-
-
-
-
-
-
-
-
-
-
38,324
-
749
-
-
1,408
-
-
11,898
-
-
-
-
11,898
50,222
-
1,408
-
-
-
-
-
-
2,157
1,333
-
-
-
-
-
337
(350)
-
-
(13)
1,320
-
-
-
-
-
-
-
-
-
-
-
-
(16,257)
(6,440)
24,149
(6,440)
1,318
-
25,467
(6,440)
-
1,408
-
1,408
(767)
(7,207)
-
-
350
-
(1,324)
(974)
(24,438)
(767)
(5,799)
11,898
337
-
-
(1,324)
10,911
29,261
-
-
-
-
-
(1,204)
582
(622)
696
(767)
(5,799)
11,898
337
-
(1,204)
(742)
10,289
29,957
Arc Minerals Limited Annual Report & Financial Statements 2020
31
Consolidated Statement of Changes in Equity
Balance as at 1 April 2019
Loss for the year
Other comprehensive income(loss) for the year - currency
translation differences
Other comprehensive income(loss) for the year - increase in
ownership in subsidiaries
Total comprehensive income (loss) for the year
Share capital issued
Granted during the year
Share option expired during the year
Disposal of 99.43% of Casa Mining Limited
Zaco Non-controlling interest
Increase in Zamsort Non-controlling interest
Total transactions with owners, recognised directly in equity
Balance as at 31 March 2020
-
-
-
-
-
-
-
-
-
-
-
-
-
50,222
-
2,157
-
-
(2,248)
-
-
1,009
-
-
-
-
-
1,009
51,231
-
(2,248)
-
-
-
-
-
-
-
(91)
1,320
-
-
-
-
-
287
(609)
-
-
-
(322)
998
-
-
-
-
-
-
84
-
-
-
-
84
84
(24,438)
(23,607)
29,261
(23,607)
-
(2,248)
-
(23,607)
-
609
-
-
-
609
(47,436)
-
(25,855)
1,009
371
-
-
-
-
1,380
4,786
696
-
-
-
-
-
-
-
(114)
5
309
200
896
29,957
(23,607)
(2,248)
-
(25,855)
1,009
371
-
(114)
5
309
1,580
5,682
Share capital: This represents the nominal value of equity shares in issue and is nil as the shares have a nil par value.
Share premium: This represents the premium paid above the nominal value of shares in issue.
Foreign exchange reserve: This reserve represents exchange differences arising from the translation of the financial statements of foreign subsidiaries and the retranslation
of monetary items forming part of the net investment in those subsidiaries.
Share-based payments reserve: This represents the value of share-based payments provided to employees and Directors as part of their remuneration and provided to
consultants and advisors hired from time to time as part of the consideration paid. The reserve represents the fair value of options and performance share rights
recognised as an expense. Upon exercise of options or performance share rights, any proceeds received are credited to share capital and share premium.
Retained earnings: This represents the accumulated profits and losses since inception of the business and adjustments relating to options and warrants.
Non-Controlling Interest: This represents the Non-Controlling Interest element of Casa Mining Limited.
The notes on pages 33 to 60 are an integral part of these consolidated financial statements.
Arc Minerals Limited Annual Report & Financial Statements 2020
32
Notes to the financial statements
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a.
General Information and Authorisation of Financial Statements
The Company is registered in the British Virgin Islands under the BVI Business Companies Act 2004
with registered number 1396532 and is located at Craigmuir Chambers, Road Town, Tortola. The
Company’s ordinary shares are traded on the AIM Market operated by the London Stock Exchange.
The principal activity of the Company during the year was that of a holding company for a group
engaged in the identification, evaluation, acquisition and development of natural resource projects.
The Financial Statements of Arc Minerals Limited for the year ended 31 March 2020 were authorised
for issue by the Board on 12 October 2020.
b. Basis of Preparation
The financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) as adopted by the European Union.
The consolidated financial statements have been prepared on the historical convention, as modified
by the measurement to fair value of financial assets through profit and loss and held for sale assets
and liabilities as described in the accounting policies below.
The financial information is presented in Pounds Sterling (£) and all values are rounded to the nearest
thousand Pounds Sterling (£000’s) unless otherwise stated.
The principal accounting policies applied in the preparation of these consolidated financial statements
are set out below. These policies have been consistently applied unless otherwise stated.
c.
New and amended standards adopted by the Group
New and amended standards mandatory for the first time for the year beginning 1 April 2019
The following new IFRS standards and/ or amendments are mandatory for the first time of the
Company:
•
IFRIC Interpretation 23 – Uncertainty over Oncome Tax treatments (effective 1 January
2019)
IFRS 16 – Leases (effective 1 January 2019)
•
IFRS 16 became effective for periods commencing on or after 1 January 2019 and as such is
relevant for the year ended 31 December 2019. Under the provisions of the standard most leases,
including the majority of those previously classified as operating leases, will be brought onto the
statement of financial position, as both a right-of-use asset and a largely offsetting lease liability.
The right-of-use asset and lease liability are both based on the present value of lease payments
due over the term of the lease, with the asset being depreciated in accordance with IAS 16
'Property, Plant and Equipment' and the liability increased for the accretion of interest and
reduced by lease payments. The directors have considered the effects on the Group's financial
statements and conclude there is no material impact.
Of the other IFRSs and IFRICs, none are expected to have a material effect on future Company
financial statements.
ii) New standards and interpretations not yet adopted
The International Accounting Standards Board (IASB) has issued the following new and revised
standards, amendments and interpretations to existing standards that are not effective for the
Arc Minerals Limited Annual Report & Financial Statements 2019
33
Notes to the financial statements
financial year ending 31 March 2020 and have not been adopted early. The Group is currently
assessing the impact of these standards and based on the Group’s current operations do not expect
them to have a material impact on the financial statements.
standard
interpretation
IFRS 3 (Amendments)
IAS 1 (Amendments)
IAS 8 (Amendments)
/
impact on initial application
effective date
Business Combinations
Presentation of Financial Statements
Accounting policies, Changes
Estimates
in Accounting
1 January 2020*
1 January 2020*
1 January 2020*
*Effective dates provided are the IASB effective dates. EU effective dates are yet to be confirmed.
The Directors do not anticipate the adoption of these standards and interpretations in future
reporting periods will have a material impact on the Group’s financial statements
d. Basis of Consolidation
The consolidated financial statements consolidate the financial statements of Arc Minerals Limited
and the audited financial statements of its subsidiary undertakings made up to 31 March 2020. The
audited accounts of Zamsort Limited are consolidated as of 31 December 2019 as it is deemed
impractical to consolidate these companies as at 31 March 2020. Any significant transactions between
1 January 2020 and 31 March 2020 have been recognised accordingly in these financial statements.
Subsidiaries are entities over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They are de-consolidated from the date
that control ceases.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities,
equity, income, expenses and cash flows relating to transactions between members of the Group are
eliminated in full on consolidation.
e. Associates
Associates are entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates
are accounted for using the equity method of accounting. Under the equity method, the investment
is initially recognised at cost and the carrying amount is increased or decreased to recognise the
investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s
investment in associates includes any goodwill identified on acquisition.
Where the ownership interest in an existing investment is increased whereby significant influence is
obtained, the Group re-measures the existing investment immediately prior to obtaining significant
influence with resulting gains/losses recognised immediately in profit or loss. The fair value of the
existing investment added to the fair value of the consideration of the additional investment is treated
as the deemed cost and is continued to be accounted for under the equity method.
If the ownership interest in an associate is reduced but significant influence is retained, only a
proportionate share of the amounts previously recognised in other comprehensive income is
reclassified to profit or loss where appropriate.
The Group’s share of post-acquisition profit or loss is recognised in the statement of comprehensive
income, and its share of post-acquisition movements is recognised in the other comprehensive income
section of the statement of comprehensive income with a corresponding adjustment to the carrying
amount of the investment. When the Group’s share of losses in an associate equals or exceeds its
Arc Minerals Limited Annual Report & Financial Statements 2019
34
Notes to the financial statements
interest in the associate, including any unsecured receivables, the Group does not recognise further
losses, unless it has incurred legal or constructive obligations or made payments on behalf of the
associate.
The Group determines at each reporting date whether there is any objective evidence that the
investment in the associate is impaired. If this is the case, the Group calculates the amount of
impairment as the difference between the recoverable amounts of the associate and its carrying value
and recognises the amount adjacent to ‘share of profit/loss of associate’ in the group statement of
comprehensive income.
When the Group loses significant influence over an associate, it derecognises that associate and
recognises a profit or loss being the difference between the sum of the proceeds received and any
retained interest, and the carrying amount of the investment in the associate at the date significant
influence is lost.
Gains and losses resulting from upstream and downstream transactions between the Group and its
associates are recognised in the Group’s financial statements only to the extent of unrelated investor’s
interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Accounting policies of associates have been changed where
necessary to ensure consistency with the policies adopted by the Group.
Impairment gains and losses arising in investments in associates are recognised in the statement of
comprehensive income.
When the Group gains control of an associate the fair value of the associate undertaking is then
assessed with any gain or loss arising being recognised within the income statement.
f. Going Concern
The financial statements have been prepared on a going concern basis. The Group’s assets are not
generating revenues, operating cash outflows have been incurred in the year and an operating loss
and cash outflow from operations is expected in the 12 months subsequent to the date of these
financial statements being signed and, as a result, the Group will need to receive the funds related to
the loan note received on sale of Casa and/or raise funding to finance their ongoing activities and non-
discretionary expenditures.
Based on the Board’s review of a forecast for the next 12 months the Directors have a reasonable
expectation that the Group has access to adequate resources to continue in operational existence for
the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements for the year ended 31 March 2020.
Should the Group be unable to continue trading, adjustments would have to be made to reduce the
value of the assets to their recoverable amounts, to provide for further liabilities which might arise
and to classify fixed assets as current.
The auditors make reference to a material uncertainty in relation to going concern within their audit
report.
g. Business combinations
The Group applies the acquisition method to account for business combinations. The consideration
transferred for the acquisition of the subsidiary is the fair value of the assets transferred, the liabilities
incurred to the former owners of the acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at acquisition date. The
Group recognises any non-controlling interest in the acquiree on an acquisition by acquisition basis;
either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts
Arc Minerals Limited Annual Report & Financial Statements 2019
35
Notes to the financial statements
of the acquiree’s identifiable net asset.
Acquisition related costs are expensed as incurred.
If a business combination is achieved in stages, the acquisition date carrying value of the acquiree’s
previously held interest in the acquire is re-measured to fair value at the acquisition date; any gain or
loss arising from such a re-measurement are recognised in profit or loss.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the
fair value of non-controlling interest over the identifiable net assets acquired and liabilities assumed.
If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the
difference is recognised in profit or loss in the Income Statement.
Any interest of non-controlling interests in the acquiree is initially measured at the minority’s
proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. There are
no non- controlling shareholders of subsidiaries.
h. Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
Board, being the Group’s chief operating decision-maker (“CODM”).
i. Foreign currencies
The Group presentational currency is Pounds Sterling. Each entity in the Group determines its own
functional currency and items included in the financial statements of each entity are measured using
that functional currency. At present the functional currency for Zamsort Limited it is the Zambian
Kwacha.
The presentation currency (Pounds Sterling - GBP) is used primarily because the Parent Company Arc
Minerals Limited is listed on the Alternative Investment Market (AIM) of the London Stock Exchange
and raises its funding in GBP.
The results and financial position of all the Group entities that have a functional currency different
from the presentation currency are translated into the presentation currency as follows:
• monetary assets and liabilities for each balance sheet presented are translated at the closing rate
at the date of that balance sheet;
•
income and expenses are translated at average exchange rates during the accounting year; and
• all resulting exchange differences are recognised in other comprehensive income where
material.
On consolidation, exchange differences arising from the translation of the net investment in foreign
entities, and of monetary items receivable from foreign subsidiaries for which settlement is neither
planned nor likely to occur in the foreseeable future are taken to other comprehensive income. When
a foreign operation is sold, such cumulative exchange differences are subsequently reclassified in the
income statement as part of the gain or loss on sale.
j. Taxation
Tax is recognised in the consolidated Statement of Comprehensive Income, except to the extent that
it relates to items recognised in other comprehensive income or directly in equity. In this case, the
tax is also recognised in other comprehensive income or directly in equity, respectively.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary
differences arising from differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit.
However, deferred tax liabilities are not recognised if they arise from the initial recognition of
goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in
Arc Minerals Limited Annual Report & Financial Statements 2019
36
Notes to the financial statements
a transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss.
In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the Company is able to
control the reversal of the temporary difference and it is probable that the temporary difference will
not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to taxes
levied by the same taxation authority on either the same taxable entity or different taxable entities
where there is an intention to settle the balances on a net basis.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is
realised or the liability is settled. Deferred tax assets and liabilities are not discounted.
There has been no tax credit or expense for the year relating to current or deferred tax.
k.
Intangible assets
Exploration and evaluation assets
Exploration and development costs are carried forward in respect of areas of interest where the
consolidated entity’s rights to tenure are current and where these costs are expected to be recouped
through successful development and exploration, or by sale. Alternatively, these costs are carried
forward while active and significant operations are continuing in relation to the areas of interest and
it is too early to make reasonable assessment of the existence or otherwise of economically
recoverable reserves. When the area of interest is abandoned, exploration and evaluation costs
previously capitalised are impaired.
Costs incurred by the Company on behalf of its subsidiaries and associated with mining development
and investment are capitalised on a project-by-project basis pending determination of the feasibility
of the project. Costs incurred include appropriate technical and administrative expenses but not
general overheads. If a mining development project is successful, the related expenditures will be
written-off over the estimated life (useful economic life) of the commercial ore reserves on a unit of
production basis. Impairment reviews are carried out regularly by the Directors of the Company.
Where a project is abandoned, or is considered to be of no further commercial value, the related costs
will be written off to the Statement of Comprehensive Income.
The recoverability of these costs is dependent upon the discovery of economically recoverable
reserves, the ability of the Group to obtain necessary financing to complete the development of
reserves and future profitable production or proceeds from the disposal of recoverable reserves.
l. Significant accounting judgements, estimates and assumptions
Critical Accounting Estimates and Judgements
The preparation of financial statements using accounting policies consistent with IFRS requires the
Directors to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and
expenses. The preparation of financial statements also requires the Directors to exercise judgement
in the process of applying the accounting policies. Changes in estimates, assumptions and judgements
can have a significant impact on the financial statements.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised prospectively from the period in which the estimates are revised. The
Arc Minerals Limited Annual Report & Financial Statements 2019
37
Notes to the financial statements
following are the key estimate and assumption uncertainties that have a significant risk of resulting in
a material adjustment within the next financial year:
(i)
Valuation of exploration, evaluation and development expenditure
The value of the Group’s exploration, evaluation and development expenditure is dependent upon
the success of the Group in discovering economic and recoverable mineral resources, especially in
countries of operation where political, economic, legal, regulatory and social uncertainties are
potential risk factors.
The future revenue flows relating to these assets are uncertain and will also be affected by
competition, relative exchange rates and potential new legislation and related environmental
requirements.
The Group’s ability to continue its exploration programmes and develop its projects is dependent on
future fundraising, the outcome of which is uncertain. The ability of the Group to continue operating
within its jurisdiction is dependent on a stable political environment which is uncertain. This may also
impact the Group’s legal title to assets held which would affect the valuation of their assets.
The Group therefore makes estimates in relation to the valuation of these assets with consideration
of these factors.
There have been no changes to any past valuations.
(ii)
Valuation of Casa Royalty
There are a number of key factors which affect the valuation of the Casa Royalty which has a face
value of US$ 45m (GBP 40m). These include (a) development and construction timeframe; (b)
appropriate discount factor; (c) availability of construction financing; (d) political stability (e) gold price
and (f) ability to control timing of receipt.
Given these uncertainties the Company has elected to assign nil value to the Royalty. The Company
will reassess this carrying value in future as the Misisi Project progresses along the development curve.
Further information can be found in Note 4 (d)(ii)
(iii)
Sturec Resource Royalty
As disclosed in Note 4(d)(ii) Sturec was sold in February 2020. As part of the transaction if before
November 2024, the Šturec JORC Indicated and Measured Resource exceeds 1.5 million ounces gold
at a grade greater than 2.5g/t (inclusive of recoverable Ag equivalent), MetalsTech will pay Arc a
further A$2 royalty per additional ounce of gold . This royalty is capped at 7 million ounces of gold or
Australian dollars 11M. Because of the general uncertainty about the size of the Sturec resource and
the difficulties of operating in Slovakia the Company has not recorded the royalty in the accounts.
(iv)
Receipt of the US$ 5 million receivable in respect of the Casa Sale
The Casa asset was sold during the period with the consideration being a mixture of cash and royalty.
The cash element was not due on sale but falls for payment on 19 March 2021. Management have
made a judgement about the recoverability of this receivable and their estimation is that will be
settled in accordance with the due dates stated within the sale and purchase agreement.
m. Inventories
Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable
value. Cost comprises all of costs of purchase, cost of conversion and other costs incurred in bringing
the inventories to their present location and condition. Weighted average cost is used to determine
the cost of ordinarily interchangeable items.
Arc Minerals Limited Annual Report & Financial Statements 2019
38
Notes to the financial statements
Mining inventory includes run of mine stockpiles, minerals in circuit and consumables. Stockpiles and
minerals in circuit are valued at the cost of production to their point in process using a weighted
average cost of production, or net realisable value, whichever is lower. Low grade stockpiles are only
recognised as an asset when there is evidence to support the fact that some economic benefit will
flow to the Group on the sale of such inventory. Consumables are valued at their cost of acquisition,
or net realisable value, whichever is lower.
n. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand.
o. Trade and other receivables
Receivables are recognised initially at cost, being their initial fair value. These are classified as loans
and receivables, and so are subsequently carried at cost using the effective interest method. The
Directors are of the view that such items are collectible and no provisions are required.
p. Financial instruments
The Group’s financial instruments are classified as loans and receivables. The classification depends
on the purpose for which the financial instruments were acquired. Management determines the
classification of its financial instruments at initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market, and comprise trade and other receivables and cash and cash
equivalents (see separate accounting policies for these items).
Trade and other payables are classified as financial liabilities, and are initially recognised a cost, being
their fair value, and subsequently measured at amortised cost using the effective interest method.
Any interest is recognised as a finance cost within the statement of comprehensive income.
There is no material difference between the carrying values and fair value of the Group’s financial
instruments.
q. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated
impairment losses.
Depreciation is provided on all property, plant and equipment to write off the cost less estimated
residual value of each asset at 25% on a straight-line basis.
All assets are subject to annual impairment reviews.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow
to the Group and the cost of the item can be measured reliably. The carrying amount of the
replacement part is derecognised. All other repairs and maintenance are charged to the Statement of
Comprehensive Income during the financial period in which they are incurred.
The asset’s residual value and useful economic lives are reviewed, and adjusted if appropriate, at the
end of each reporting period.
An asset’s carrying value is written down to its recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and
are recognised within the Statement of Comprehensive Income.
Arc Minerals Limited Annual Report & Financial Statements 2019
39
Notes to the financial statements
r.
Impairment of assets
The Group assesses at each reporting date whether there is an indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required,
the Group makes an estimate of the asset’s recoverable amount.
An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use. This
is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets, and the asset's value in use cannot be
estimated to be close to its fair value. In such cases, the asset is tested for impairment as part of the
cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating
unit exceeds its recoverable amount, it is considered impaired and is written down to its recoverable
amount.
In assessing value in use, estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset. Impairment losses relating to continuing operations are recognised in
those expense categories consistent with the function of the impaired asset, unless the asset is
carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease).
An assessment is also made at each reporting date as to whether there is any indication that previously
recognised impairment losses may no longer exist or may have decreased. If such indication exists,
the recoverable amount is estimated. A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the asset’s recoverable amount since the
last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased
to its recoverable amount. That increased amount cannot exceed the carrying amount that would
have been determined, net of depreciation, had no impairment loss been recognised for the asset in
prior years. Such reversal is recognised in the Statement of Comprehensive Income unless the asset
is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After
such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised
carrying amount, less any residual value, on a systematic basis over its remaining useful life.
s. Trade and other payables
Trade and other payables are carried at amortised cost under the effective interest method and
represent liabilities for goods and services provided to the Group prior to the end of the financial year
that are unpaid and arise when the Group becomes obliged to make future payments in respect of the
purchase of these goods and services.
t. Assets held for sale
Assets (or disposal groups) classified as held for sale are measured at the lower of their carrying
amount or fair value less costs to sell.
The Group classifies an asset (or disposal groups) as held for sale if their carrying amount is to be
recovered through a sale transaction rather than through continued use. The Group considers this to
be the case when the asset (or disposal group) is available for immediate sale in its present condition
subject only to terms that are usual and customary for sales of such assets (or disposal groups) and
the sale is considered to be highly probable.
A sale is considered to be highly probable if the Board of Directors is committed to a plan to sell the
asset (or disposal group), and an active programme to locate a buyer and complete the plan has been
initiated and is expected to complete within one year of classification.
Assets held for sale are no longer depreciated or amortised while they are classified as held for sale.
Interest and other expenses attributable to the liabilities of the disposal group continue to be
recognised.
Arc Minerals Limited Annual Report & Financial Statements 2019
40
Notes to the financial statements
Assets classified as held for sale are presented separately from the other assets in the statement of
financial position. The liabilities classified as held for sale are presented separately from other
liabilities in the statement of financial position.
u. Share-based payments
The Group provides benefits to senior personnel, consultants and advisors of the Group in the form
of share-based payments, whereby such parties render services in exchange for shares or rights over
shares (equity-settled transactions).
The cost of these equity-settled transactions with such parties is measured by reference to the fair
value of the equity instruments at the date at which they are granted. The fair value is determined by
using a Black-Scholes model.
In valuing equity-settled transactions, no account is taken of any performance conditions, other than
conditions linked to the price of the shares of Arc Minerals Limited (market conditions) if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity,
over the period in which the performance and/or service conditions are fulfilled, ending on the date
on which the relevant party become fully entitled to the award (the vesting period).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting
date reflects:
the extent to which the vesting period has expired and;
(i)
(ii) the Group’s best estimate of the number of equity instruments that will ultimately vest.
No adjustment is made for the likelihood of market performance conditions being met, as the effect
of these conditions is included in the determination of fair value at grant date. The charge to the
Income Statement for a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
only conditional upon a market condition.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the
computation of earnings/ (loss) per share.
v. Earnings per share
Basic EPS is calculated as profit attributable to equity holders of the parent for the period, adjusted to
exclude any costs of servicing equity (other than dividends), divided by the weighted average number
of ordinary shares, adjusted for any bonus element. Fully-diluted EPS adjusts Basic EPS to reflect the
impact if all share purchase warrants and options were exercised.
w. Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
subsequently carried at amortised cost; any difference between the proceeds (net of transaction
costs) and the redemption value is recognised in the income statement over the period of the
borrowings, using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the
extent that it is probable that some or all of the facility will be drawn down. To the extent that there
is no evidence that it is probable that some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services, and amortised over the period of the facility to which
it relates.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer
settlement of the liability for at least 12 months after the end of the reporting period.
Arc Minerals Limited Annual Report & Financial Statements 2019
41
Notes to the financial statements
x. Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a substantial period of time to
get ready for their intended use or sale, are added to the cost of those assets, until such time as the
assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
y. COVID-19
It is not possible to estimate the impact of the outbreak’s near-term and longer effects or
Governments’ varying efforts to combat the outbreak and support businesses. This being the case,
we do not consider it practicable to provide a quantitative or qualitative estimate of the potential
impact of this outbreak on the Company at this time.
The financial statements have been prepared based upon conditions existing at 31 March 2020 and
considering those events occurring subsequent to that date, that provide evidence of conditions that
existed at the end of the reporting period. As the outbreak of COVID-19 occurred in the last quarter
of the financial year and its impact mostly happened subsequent to the financial year, its impact is
considered an event that is indicative of conditions that arose after the reporting period and
accordingly, no adjustments have been made to financial statements as at 31 March 2020 for the
impacts of COVID-19.
2. Segmental analysis
Segment information has been determined based on the information reviewed by the Board for the
purposes of allocating resources and assessing performance. No revenue is currently being generated.
Head office activities are mainly administrative in nature whilst the activities in Zambia relate to
exploration and development work.
Segment results, assets and liabilities include items directly attributable to a segment as well as those
that can be allocate on a reasonable basis.
31 March 2020
Result
Loss from continuing operations
Interest and finance costs
Loss on change of ownership status (Zaco)
Loss from discontinued operations
(Loss) Profit before Income Tax
Other information
Capital additions
Non-controlling interest
Assets
Non-current Assets
Inventory
Current assets excluding cash and cash equivalents
Cash and equivalents
BVI
£ 000's
(1,471)
(303)
(399)
(20,671)
(22,844)
-
-
0
-
4,263
169
Zambia
£ 000's
(763)
-
-
-
(763)
2,353
896
3,249
7,357
44
120
-
Arc Minerals Limited Annual Report & Financial Statements 2019
Total
£ 000's
(2,234)
(303)
(399)
(20,671)
(23,607)
2,353
896
3,249
7,357
44
4,383
169
42
Notes to the financial statements
Consolidated total assets
4,432
7,521
11,953
Liabilities
Non-current liabilities
Current liabilities
Consolidated total liabilities
-
2,247
2,247
3,198
826
4,024
3,198
3,073
6,271
Slovakia and the DRC are no longer considered reportable segments following the sale of the
Company's assets in these countries.
31 March 2019
Result
Operating (loss)/gain
Loss on sale of shares of Andiamo Exploration
Ltd
Loss on change of ownership status (Zamsort)
Interest and finance costs
(Loss) Profit before Income Tax
UK/BVI
£ 000's
Slovakia
£ 000's
Zambia
£ 000's
DRC
£ 000’s
(1,320)
(92)
(1,511)
(202)
(2,809)
(318)
(4,649)
-
-
-
(92)
-
-
-
(1,511)
-
-
-
-
-
Total
£ 000's
(2,923)
(202)
(2,809)
(318)
(6,252)
Other information
Capital additions
Non-controlling interest
Assets
Non-current Assets
Available for sale financial assets
Held for sale assets
Inventory
Current assets excluding cash and cash
equivalents
Cash and equivalents
Consolidated total assets
Liabilities
Non-current liabilities
Held for sale liabilities
Current liabilities
Consolidated total liabilities
-
-
-
-
-
582
-
114
-
696
339
-
-
-
422
1,196
1,957
-
-
836
836
-
-
6,000
-
5
-
5,777
-
-
268
163
30
-
-
21,035
-
-
-
6,005
6,238
21,035
-
34
-
34
1,891
-
607
2,498
-
1,910
-
1,910
6,116
-
27,035
268
590
1,226
35,235
1,891
1,944
1,443
5,278
Arc Minerals Limited Annual Report & Financial Statements 2019
43
Notes to the financial statements
3. Expenses by nature
Directors' fees
Wages and salaries
Office expenses
Travel and subsistence expenses
Professional fees – legal, consulting, exploration
AIM related costs including Public Relations
Auditor's remuneration – audit
Stock option expense
Foreign exchange (gain)/loss
Other expenses
Impairment of inventory
Zamsort administration costs
Total operating expenses
Auditors Remuneration
2020
£ 000's
2019
£ 000's
439
88
70
103
182
207
35
287
(17)
77
228
535
406
114
35
170
302
183
42
337
196
24
-
532
2,234
2,341
During the year, the Group obtained the following services from the Company’s auditor:
Fees payable to the auditor for the audit of the consolidated financial
statements
Fees payable to the auditor for other services:
Tax advisory services
Total
Employee information
Group Staff Costs comprised:
Wages, salaries and benefits
Zamsort wages and salaries
Charge to the profit or loss
2020
£ 000's
35
-
35
2020
£ 000's
88
208
296
The average number of persons employed in the Group, including Executive Directors, was:
Average number of persons employed:
Head office administration
Operations
Zamsort administration
Zamsort operations
2020
Number
7
-
11
46
64
2019
£ 000's
42
3
45
2019
£ 000's
114
453
567
2019
Number
12
1
10
40
63
Arc Minerals Limited Annual Report & Financial Statements 2019
44
Notes to the financial statements
4. Disposals of Held for sale assets
During 2018 the Group confirmed its intention to dispose of Sturec and announced a similar plan for
Casa in 2019. During 2020 both assets were sold as summarised in (d)
The related financial information is set out below:
a) Results of disposal group prior to sale
2020
Casa
2020
Slovakia
2020
Total
2019
2019
Casa
Slovakia
£ 000's
£ 000's
£ 000's
£ 000's
£ 000's
(41)
(41)
-
(41)
(41)
(29)
(80)
(80)
-
(80)
(80)
(81)
(121)
(121)
-
(121)
(121)
(110)
(163)
(163)
-
(163)
(163)
-
(25)
(25)
-
(25)
(25)
-
2019
Total
£
000's
(188)
(188)
-
(188)
(188)
-
Expenses
Loss before income tax
Income tax
Loss after tax
Loss from discontinued operations
Other comprehensive income from
discontinued operations
b) Cash flows of disposal Group prior to sale
Operating activities
Investing activities
Financing activities
c) Assets and liabilities of disposal Group (i)
Assets classified as held for sale
Intangible assets
Property, plant and equipment
Cash and cash equivalents
Trade and other receivables
Inventory
2020
Casa
2020
Slovakia
2020
Total
2019
2019
Casa
Slovakia
2019
Total
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
(29)
(303)
332
-
(81)
-
81
-
(110)
(303)
413
-
162
(1,419)
1,265
8
(27)
-
27
-
135
(1,419)
1,292
8
2020
Casa
2020
Slovakia
2020
Total
2019
2019
Casa
Slovakia
2019
Total
£ 000's
£ 000's
£ 000's
£ 000's
£ 000's
£ 000's
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,881
-
5,801
159
26,682
159
8
146
-
7
2
31
15
148
31
21,035
6,000
27,035
(i) In 2020 Held for sale assets and liabilities were sold as summarised below in (d).
Liabilities directly associated with assets classified as held for sale (i)
Deferred consideration
Trade and other creditors
2020
Casa
£ 000's
-
2020
Slovakia
2020
Total
2019
2019
Casa
Slovakia
2019
Total
£ 000's
-
£ 000's
-
£ 000's
1,535
£ 000's
-
£ 000's
1,535
-
-
-
-
-
-
375
1,514
39
39
409
1,553
Arc Minerals Limited Annual Report & Financial Statements 2019
45
Notes to the financial statements
d) Disposal of assets Held for sale
(i) On 7 February 2020 the Company announced the sale of its Sturec assets in return for
Australian$ 750,000 which has been received and a royalty capped at AUD 11,000,000
calculated as AUD 2 per excess ounce if at any time during the 3 year period commencing
November 2021 the Sturec resource exceeds 1.5M ounces grading 2.5 g/t up to 7.0M
ounces.
Proceeds of £ 381,000 have been recorded in the accounts which generated a loss of
£5.584M.
(ii) On 18 March 2020 the Company announced the sale of its shareholding in Casa Mining Limited
in return for a US$ 5,000,000 interest-free Note payable on 19 March 2021 and a 3% Royalty
calculated on net smelter production capped at US$45,000,000. The US$5M note is secured
by a charge over the shares of Casa Mining Limited.
There are a number of key factors which affect the valuation of the Casa Royalty which has a
face value of US$ 45,000,000. These include (a) development and construction timeframe; (b)
appropriate discount factor; (c) availability of construction financing; (d) political stability and
(e) gold price.
Given these uncertainties the Company has elected to assign nil value to the Royalty. The
Company will reassess this carrying value in future as the Misisi Project progresses along the
development curve.
Proceeds of £ 4.032m have been recorded in the accounts which generated a loss of
£(15.087m) from the sale of the Misisi project.
The total loss on disposal of assets held for sale is £20.671m.
5. Taxation
Current income tax charge
Deferred tax charge/ (credit)
Total taxation charge/ (credit)
Taxation reconciliation
2020
£’000
2019
£’000
-
-
-
-
-
-
The charge for the year can be reconciled to the loss per the consolidated statement of
comprehensive income:
Gain (Loss) before income tax
Tax on loss at the weighted average Corporate tax rate of 1.13 % (2019: 10.00 %)
Effects of:
Permanent differences
Tax losses carried forward
Non-taxable income/Non-deductible expenses for tax purposes
Total income tax expense
2020
£’000
(23,607)
268
-
-
(268)
-
2019
£’000
(6,782)
680
-
-
(680)
-
The deferred tax asset has not been provided for in accordance with IAS 12 due to uncertainty as to
when profits will be generated against which to relieve any such asset. The Group does not have a
material deferred tax liability at the year end.
Arc Minerals Limited Annual Report & Financial Statements 2019
46
Notes to the financial statements
The tax rate used in 2020 is the weighted average rate of the Republic of Zambia and British Virgin
Islands. Unused tax losses available in Zambia approximate Zambian Kwacha 75m at 31 December
2019 approximately GBP 3.3m
6. Dividends
No dividends were paid (2019: nil).
7. Key management remuneration
Key management remuneration
2020
Executive Directors
Nicholas von Schirnding
Rémy Welschinger *
Non-Executive Directors
Brian McMaster
Mumena Mushinge †
Don Bailey
Jonathan de Thierry
Key Management Personnel
Vassilios Carellas (COO)
John Forrest (CFO until 31 October 2019)
2020
£ 000’s
848
Short term
employee benefits
Share based
payments
2019
£ 000’s
723
Total
£ 000’s
£ 000’s
£ 000’s
208
97
36
36
36
36
88
56
69
53
14
14
-
14
54
37
277
150
50
50
36
50
142
93
848
* Appointed as a Director during the year
† Mr Mushinge received USD 70k in fees from Zamsort Ltd as a Director of the Company in the financial year to 31 March 2019.
593
255
2019
Executive Directors
Nicholas von Schirnding
Non-Executive Directors
Brian McMaster
Michael Foster *
Jonathan de Thierry
Don Bailey †
Mumena Mushinge †
Key Management Personnel
Vassilios Carellas (COO)
John Forrest (CFO)
Short term
employee benefits
Share based
payments
Total
£ 000’s
£ 000’s
£ 000’s
174
165
339
35
26
35
30
6
143
94
543
20
22
20
104
-
89
64
484
55
48
55
134
6
232
158
1,027
* Resigned as a Director during the year
† Appointed as a Director during the year. Mr Mushinge received USD 11,667 in fees from Zamsort Ltd in the period since his a ppointment as a Director of the
Company to 31 March 2019.
Arc Minerals Limited Annual Report & Financial Statements 2019
47
Notes to the financial statements
No pension benefits are provided for any Directors (2019: nil).
8. Earnings per share
The calculation of Earnings per share is based on the loss attributable to equity holders divided by the
weighted average number of shares in issue during the year.
(Loss) Gain
2020
£ 000’s
(25,855)
2019
£ 000’s
(6,440)
Weighted average number of ordinary shares (000s)
724,168
577,412
Potential diluted weighted average number of shares (000s)
919,043
659,211
Basic earnings per share (expressed in pence)
Fully Diluted earnings per share (expressed in pence)
Net Profit (loss) per share continuing operations – Basic
Net Profit (loss) per share continuing operations – Diluted
Net (loss) per share discontinuing operations – Basic
Net (loss) per share discontinuing operations – Diluted
9. Loan payable
Loan payable
(3.57)
(2.81)
(0.72)
(0.56)
-
-
2020
£ 000’s
3,198
(1.12)
(0.98)
(1.08)
(0.95)
(0.03)
(0.03)
2019
£ 000’s
1,657
(i)
(ii)
The loan is payable to the 34% shareholder in Zamsort Limited in the amount of USD 4M
as at 31 March 2020. The loan is unsecured and repayable on 31 December 2021.
The loan ranks equally with Arc’s working capital loan to Zamsort of USD 7.1M which is
eliminated on consolidation of Zamsort in the group accounts. This loan is unsecured and
repayable on 31 December 2021.
In summary, the Company had loans to Zamsort Limited of USD 6.76M at 31 December 2018 and
USD 7.1M at 31 March 2020.
10. Intangible assets
Goodwill
Zamsort
£ 000’s
Deferred
Exploration
Casa
£ 000’s
Deferred
Exploration
Zaco
£ 000’s
Deferred
Exploration
Zamsort
£ 000’s
Total
£ 000’s
Cost
At 1 April 2018
Assets acquired on purchase of Zamsort
Limited (see note 14)
Additions, net
Currency gain
Reclassified as Deferred Exploration
(see note 14)
Transferred to Assets Held for Sale
(see note 5)
Net book value as at 31 March 2019
At 1 April 2019
Additions
Currency loss
Net book value as at 31 March 2020
-
18,495
671
-
-
-
1,434
1,122
(671)
-
-
-
-
-
-
-
(21,051)
-
-
-
-
-
-
-
-
-
-
-
-
-
10
-
10
-
18,495
-
1,747
-
671
-
2,418
2,418
1,924
(323)
4,019
671
3,181
1,122
-
(21,051)
2,418
2,418
1,934
(323)
4,029
Arc Minerals Limited Annual Report & Financial Statements 2019
48
Notes to the financial statements
11. Fixed Assets
Cost
At 1 April 2018
Assets acquired on purchase
of Zamsort Limited (see note 14)
Disposals
Additions
Foreign exchange
At 31 Mar 2019
At 1 April 2019
Disposals
Additions
Foreign exchange
At 31 Mar 2020
Depreciation
At 1 April 2018
Assets acquired on purchase
of Zamsort Limited (see note 14)
Disposals
Depreciation
Foreign exchange
At 31 Mar 2019
At 1 April 2019
Disposals
Depreciation
Foreign exchange
At 31 Mar 2020
Processing
Plant
£ 000’s
Mining
Equipment
£ 000’s
Motor
Vehicles
£ 000’s
Furniture &
Fittings
£ 000’s
-
2,487
-
1,149
(387)
3,249
3,249
449
(515)
3,183
-
-
-
-
-
-
-
-
-
-
378
(175)
71
(59)
215
215
(17)
(34)
164
-
(271)
83
(24)
40
(172)
(172)
100
27
(45)
43
119
-
188
(69)
-
(28)
91
91
-
(15)
76
-
(43)
17
(23)
7
(42)
(42)
(19)
7
(54)
49
22
-
38
-
11
(6)
43
43
(3)
(7)
33
-
(23)
-
(5)
3
(25)
(25)
(8)
4
(29)
18
4
Total
£ 000’s
-
3,091
(244)
1,231
(480)
3,598
3,598
429
(571)
3,456
-
(337)
100
(52)
50
(239)
(239)
73
38
(128)
3,539
3,328
Net book value – 31 March 2019
Net book value – 31 March 2020
3,249
3,183
Arc Minerals Limited Annual Report & Financial Statements 2019
49
Notes to the financial statements
12. Investment in subsidiaries
At 31 March 2019, the Company held interests in the share capital of the following subsidiary
companies. During 2020 the following companies were sold as disclosed in Note 4:
(iii)
Shares of Ortac Resources (UK) Limited which had subsidiaries St Stephans Gold
sro; Ortac sro and Carpathian Minerals sro;
(iv)
Casa Mining Limited which had subsidiary Leda Mining Congo SA
Company
Place of Business
% Ownership held Nature of business
Ortac Resources (UK) Limited
England and Wales
St. Stephans Gold s.r.o . *
Ortac s.r.o. *
Carpathian Minerals s.r.o. *
Slovak Republic
Slovak Republic
Slovak Republic
Casa Mining Limited
Republic of Mauritius
Leda Mining Congo S.A. †
Democratic Republic of Congo
Zamsort Limited
Unico Minerals Limited ‡
Republic of Zambia
British Virgin Islands
100%
100%
100%
100%
92%
73%
66%
100%
Holding Company
Mineral Exploration
Mineral Exploration
Mineral Exploration
Mineral Exploration
Mineral Exploration
Mineral Exploration
Holding Company
Zaco Investments Limited ‡
Republic of Zambia
52.5%
Mineral Exploration
* Wholly owned subsidiary of Ortac Resources (UK) Limited
† Subsidiary of Casa Mining Limited
‡ Zaco Investments Limited is a subsidiary of Unico Minerals Limited which was incorporated as a subsidiary of the Company in 2019 in British Virgin Islands
with registered office at Craigmuir Chambers, Road Town, Tortola, BVI; Interest in Zaco has increased to 72.5% since 31 March 2020.
Zamsort Limited registered office at 69B/6 Wite Wood Road Lusaka Zambia
The non-controlling interest shown within the primary statement arises as a result of the Group
owning less than 100% of a subsidiary company.
13. Investment in associates
Set out below are the associates of the Group during the year ended 31 March 2020.
1 April 2018
Additions
Share of loss
31 March 2019
1 April 2019
Additions
Acquired > 50%
31 March 2020
Zaco
£ 000’s
-
339
-
339
339
60
(399)
-
Total
£ 000’s
-
339
-
339
339
74
(413)
-
Zaco Investments Limited is a Zambian-registered company, now owned 72.5% by Arc (52.5% at 31
March 2020). In 2020 the Company increased its interest in Zaco from 42.5% to 52.5% and Zaco’s
results were consolidated. The acquisition cost of this 52.5% interest was £398,766. (Refer to Note
13a).
Arc Minerals Limited Annual Report & Financial Statements 2019
50
Notes to the financial statements
The Chairman of Arc has been appointed Chairman of Zaco. The Zaco year end is being changed to 31
December.
13a Acquisition of Zaco Investments Limited (“Zaco”)
Zaco is involved in the exploration for minerals in the Republic of Zambia.
On 1 April 2019 the Company held a 42.5% interest in Zaco at a cost of £339,000. The Company
acquired equity control on 3 December 2019. As noted below and in Note 26 the Company currently
holds 72.5% of Zaco.
Consideration - £398,766
In 2018, the Company acquired 37.5% of the equity shares of Zaco for cash of US$ 375,000 (£288,017).
After its acquisition of 37.5% of Zaco Limited, the Company was offered a further 5% at the same pro
rata cost, US$ 50,000. At the time the Company was focused on financing its 5,800m Kalaba drill
program. Nicholas von Schirnding offered to make the purchase on behalf of the Company. The Board
accepted his offer and Mr von Schirnding purchased the 5% block with the expectation that the
Company would purchase it from him when financial conditions permitted. The 5% Zaco interest was
subsequently purchased, in January 2019, at a cost of US$55,000 (£41,985) including a financing
charge.
In July 2019, Arc further consolidated its interest in the Zaco license from 42.5% to 47.5%. The
additional 5% was acquired from Limehouse Capital Ltd, a company that is wholly owned by Rémy
Welschinger, a director of the Company, for a consideration of USD 50,000 payable as 1.414m shares
in Arc (£39,592).
In November 2019, Arc further consolidated its interest in the Zaco license from 47.5% to 52.5%. The
additional 5% was acquired from Mr Mumena Mushinge, a director of the Company, for a
consideration of USD 37,500 (£29,173) payable in cash.
The fair value of net assets acquired at the acquisition date was £nil.
The loss on acquisition of Zaco of (£398,766) is reported as a Loss on change of ownership status in
the Statement of Comprehensive income.
If new information obtained within one year from the date of acquisition about the facts and
circumstances that existed at the acquisition date identifies adjustments to the above amounts, or
any additional provisions that existed at the acquisition date, the acquisition accounting will be
revised.
Non-controlling interest
The non-controlling interest of Zaco Investments Limited at the date of acquisition were measured at
the fair value of these interests. This fair value was estimated by the consideration offered by the
Company to acquire the controlling interest.
Impact of acquisitions on the results of the Group
The contribution to net loss of the Group by Zaco Investments Limited was £Nil and Group revenue
includes £Nil from the operations of Zaco.
If this business was acquired at the beginning of the reporting period, both the Group revenue and
the Group loss for the fiscal year would be unchanged.
The financial statements of Zaco Investments Limited have been consolidated to its year end of 31
October 2019, as it is impractical to consolidate the balances as at 31 March 2020. Zaco is changing its
year end date to 31 December.
Arc Minerals Limited Annual Report & Financial Statements 2019
51
Notes to the financial statements
Between 1 January 2020 and 31 March 2020 Zaco incurred expenses of £Nil and the consolidated
financial statements have therefore not been adjusted.
14. 2019 Acquisition of Zamsort Limited (“Zamsort”)
Zamsort is involved in the mining of and exploration for minerals in the Republic of Zambia. On 1 April
2018 the Company held a 14% interest in Zamsort at a cost of £546,000. The Company acquired equity
control on 5 June 2018.
Consideration - £5,332,000
In May 2017 in exchange for a 14% equity interest in Zamsort the Company agreed to convert
£546,000 (US$828,472) of US$1,200,000 Secured Loan Notes issued to the Company in 2015 by
Zamsort;
On 15 May 2018 the Company issued 102,083,333 shares with an imputed cost of £3,072,708 to
acquire a further 35% interest in Zamsort, thereby increasing its interest to 49%;
On 5 June 2018 the Company issued 17,500,000 shares with an imputed cost of £770,000 to acquire
a 6% interest in Zamsort, thereby increasing its interest to 55%, a controlling interest;
On 18 June 2018 the Company issued 12,000,000 shares with an imputed cost of £509,400 to acquire
a 6% interest in Zamsort, thereby increasing its interest to 61%;
On 11 July 2018 the Company issued 10,000,000 shares with an imputed cost of £420,000 to acquire
a 5% interest in Zamsort, thereby increasing its interest to 66%;
The acquisition resulted in Goodwill of £671,000 as follows:
Net assets acquired:
Cash and cash equivalents
Intangible assets
Fixed assets, net
Inventory
Trade and other receivables
Trade and other payables
Shareholder loans
Total net assets acquired
Total Consideration for 6% of Zamsort shares (49% - 55%)
Fair value of the associate at the Second Acquisition Date
Fair Value of Non-Controlling interest at the Second Acquisition Date
Less: Fair value of Zamsort
Goodwill
Goodwill has been allocated to Deferred exploration
£ 000s
62
218
2,753
507
151
(385)
(1,655)
1,651
770
809
743
(1,651)
671
If new information obtained within one year from the date of acquisition about the facts and
circumstances that existed at the acquisition date identifies adjustments to the above amounts, or
any additional provisions that existed at the acquisition date, the acquisition accounting will be
revised.
Arc Minerals Limited Annual Report & Financial Statements 2019
52
Notes to the financial statements
Non-controlling interest
The non-controlling interest of Zamsort Limited at the date of acquisition were measured at the fair
value of these interests. This fair value was estimated by the consideration offered by the Company
to acquire the controlling interest.
Impact of acquisitions on the results of the Group
The contribution to net loss of the Group was a loss of £1,867,000 by Zamsort Limited. Group revenue
includes £Nil from the operations of Zamsort.
If these businesses were acquired at the beginning of the reporting period Group revenue would have
been £Nil, and loss for the year from continuing operations would have been £895,000 more.
The directors of the Group consider these results to be representative of the performance of the
combined Group, annualised, and provide a reference point for comparison against periods in the
future.
The financial statements of Zamsort Limited have been consolidated to
31 December 2018, as it is impractical to consolidate the balances as at 31 March 2019.
its year end of
Between 1 January 2019 and 31 March 2019 Zamsort incurred expenses of £393,000 and paid trade
creditors £295,000 with funds advanced by Arc Minerals Limited (£454,000) and the minority
shareholders (£234,000). As this expenditure was material in value, the consolidated financial
statements have been adjusted to incorporate these transactions in accordance with IFRS 10
Consolidated Financial Statement.
15. Trade and other receivables
Current trade and other receivables
Other receivables
Loan Note – Casa sale
Prepayments
Total
Group
2020
£ 000’s
351
4,032
-
4,383
Group
2019
£ 000’s
577
-
13
590
Current trade and other receivables are all due within one year of the balance sheet date.
All financial assets are held at amortised cost.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of
receivable mentioned above.
The Loan Note – Casa sale is secured by Casa shares which were sold as discussed in Note 4 (d) (ii)
The carrying amounts of the Group’s current and non-current trade and other receivables are
denominated in the following currencies:
Current trade and other receivables
UK Pounds
US Dollars
Zambian Kwacha
Total
Group
2020
£ 000’s
160
4,032
191
4,383
Group
2019
£ 000’s
427
163
-
590
Arc Minerals Limited Annual Report & Financial Statements 2019
53
Notes to the financial statements
16. Trade and other payables
Current trade and other payables
Trade payables, other payables and accruals
Group
2020
£ 000’s
3,028
3,028
Group
2019
£ 000’s
1,443
1,443
Included in trade and other payables are £ 1,856,905 of unsecured loan notes which are repayable
within 12 months comprised of
(i) USD 1.7M of unsecured convertible loan notes which carry an interest rate of approximately 20%
and are convertible at 4.5p and
(ii) £ 540,000 of 10% unsecured loan notes
On 15 May 2020 , USD 1.5M of the notes in (i) were converted to 79,426,868 shares.
The carrying values of trade and other payables are considered to be a reasonable approximation of
the fair value and are considered by the Directors as payable within one year.
17. Share capital
Authorised
Unlimited ordinary shares of no par value
Called up, allotted, issued and fully paid
At 1 April 2017
Financings for cash
Issued in relation to the acquisition of
Casa Mining Limited
As at 31 March 2018
Financings for cash
Issued in relation to the acquisition of
Casa Mining Limited
Issued in relation to the acquisition of
Zamsort Limited
Issued to service providers in lieu of fees
Issued to management in lieu of fees
Issued pursuant to warrant exercises
As at 31 March 2019
Issued in relation to the acquisition of
5% of Zaco Investments Limited
Issued under the Drill-for-Equity Programme
Issued to creditors in lieu of payment
Issued pursuant to warrant exercises
As at 31 March 2020
£ 000’s
-
Number
of shares
Nominal
value
Average price
per share
(pence)
Gross
Consideration
value
GBP’000
82,134,987
151,666,667
85,902,258
319,703,912
223,625,025
13,085,988
141,583,333
2,051,793
5,400,000
487,500
705,937,551
1,414,000
14,746,970
9,116,165
6,712,811
737,927,497
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2.00 – 3.00
2.35
2.40 – 4.50
2.53
3.37
2.83
3.33
2.90
2.80
2.80-4.78
3.10-3.82
2.00-2.80
3,700
2,018
5,718
6,759
331
4,772
58
180
14
12,114
40
535
291
152
1,018
Share issue costs in the amount of £215,618 were incurred in the period and set off against the share
premium account.
Arc Minerals Limited Annual Report & Financial Statements 2019
54
Notes to the financial statements
18. Share based payments and Warrants
Share Options
During the year the following share options were issued and valued using the Black Scholes method:
Weighted
Avg Price
(pence)
Number
Exercise
Price
(pence)
Share price
at grant
(pence)
Weighted Avg
Term
(years)
Value
(000s)
**
1 April 2018
Expired
Granted 30 May 2018
Granted 12 June 2018
Granted 12 June 2018
Granted 29 October 2018
31 March 2019
1 April 2019
Expired
Granted 8 July 2019
Granted 22 November 2019
31 March 2020
11.31
-
-
-
-
-
7.93
7.93
-
-
-
3.62
18,018,210
(1,812,097)
12,900,000
1,200,000
2,500,000
1,200,000
34,006,113
34,006,113
(200,000)
15,240,002
2,980,000
52,026,115
-
4.50
4.50
7.00
4.50
-
4.50
4.50
-
3.40
4.31
4.31
3.35
-
2.35
2.60
3.98
-
5
5
5
3
3.97
3.97
-
4.25
4.33
3.44
1,333
(350)
211
36
68
22
1,320
1,320
(609)
263
24
998
Of the options granted in May 2018, 10.5M are subject to vesting conditions linked to milestones. No
other options are subject to vesting conditions.
Options can be settled in cash and are typically granted for a term between three and five years at the
discretion of the Board of Directors upon recommendation by the Remuneration Committee.
The weighted average exercise price of the options outstanding at 31 March 2020 is 3.62 pence.
In the Black-Scholes model the key inputs for the options granted in 2019 were Volatility as 65%, the
Risk Free Interest Rate as 0.88% and the dividend yield as 0%.
** Under IFRS 2 “Share-based Payments”, the Company determines the fair value of options issued to
Directors, Employees and other parties as remuneration and recognises the amount as an expense in
the Statement of Comprehensive Income with a corresponding increase in equity.
The charge incurred during the year in relation to share based payments was £287,000 (2019
£337,000).
Arc Minerals Limited Annual Report & Financial Statements 2019
55
Notes to the financial statements
Warrants
Grant
date
1 April 2018
1 April 2018
15 May 2018
15 May 2018
15 May 2018
16 May 2018
18 June 2018
1 October 2018
10 October 2018
31 October 2018
17 December 2018
19 February 2019
Exercised during the year
Expired during the year
Exercise
Price
(pence)
2.00-5.50
2.25
2.40
3.36
6.00
2.90
6.00
4.50
6.50
4.50
3.20
4.50
Term
(years)
0.1-2.61
3.59
1.13
1.13
1.13
4.13
1.22
2.01
2.53
1.76
2.22
2.89
Share Price
at grant
pence
2.23
3.01
3.01
3.01
2.70
4.245
4.01
3.65
3.40
2.95
2.90
Number
10,975,000
1,000,000
4,666,667
505,953
2,000,000
980,584
4,620,000
1,789,000
44,400,014
1,000,000
2,041,094
63,600,009
(487,500)
(3,750,000)
TOTAL 31 March 2019
133,340,821
2.00-6.50
0.1-4.13
Weighted Average
5.01
2.49(i)
(1) Remaining term as at 31 March 2019
The charge incurred during the year in relation to warrants was nil (201: nil).
Grant
date
1 April 2019
1 April 2019
3 May 2019
1 July 2019
4 December 2019
Exercised during the year
Expired during the year
Exercise
Price
(pence)
2.00-6.50
2.55
2.80
4.50
4.50
Term
(years)
0.1-4.13
4.00
-
2.25
4.33
Share Price
at grant
pence
2.525
2.575
3.100
2.900
Number
133,340,821
550,176
1,671,144
10,000,000
5,500,000
(6,712,811)
(1,500,000)
TOTAL 31 March 2020
142,849,330
2.25-6.50
0.1-4.68
Weighted Average
5.52
1.60(i)
(2) Remaining term as at 31 March 2020
The charge incurred during the year in relation to warrants was £84,000 (2019: nil).
19. Share premium
Opening Balance
Total Additions (see note 17 for details)
Share issue costs
As at 31 March
See note 17 for a breakdown of share issues during the year.
2020
£ 000s
50,222
1,018
(9)
51,231
2019
£ 000s
38,324
12,114
(216)
50,222
Arc Minerals Limited Annual Report & Financial Statements 2019
56
Notes to the financial statements
20.
Non-Controlling Interest (NCI)
Balance at 1 April 2018
Acquisition of 99.43% of Casa Mining Ltd
Acquisition of 66% of Zamsort Ltd
As at 31 March 2019
Disposal of 99.43% of Casa Mining Ltd
Acquisition of 52.5% of Zaco Investments Ltd
Investment by NCI in the year
As at 31 March 2020
Casa
£ 000s
1,318
(1,204)
-
114
(114)
-
-
-
Zamsort
£ 000s
-
-
582
582
-
-
309
891
Zaco
£ 000s
-
-
-
-
-
5
-
5
Total
£ 000s
1,318
(1,204)
582
696
(114)
5
309
896
21. Financial instruments and capital risk management
Financial Risk Management
Financial Risk Factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency
risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects
on the Group’s financial performance.
Risk management is carried out by the Board of Directors under policies approved at Board meetings.
The Board frequently discusses principles for overall risk management including policies for specific
areas such as foreign exchange.
a) Market Risk
i) Foreign Exchange Risk
The Group operates internationally and is exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the pound sterling, US Dollar and Zambian Kwacha.
Foreign exchange risk arises from recognised monetary assets and liabilities, where they may be
denominated in a currency that is not the Group’s functional currency. While the Zambian Kwacha has
depreciated 30% since 31 March 2019 the Kwacha risk is mitigated by the fact that Zamsort would
only have one month’s cash requirement on hand at any one time. Another significant risk in Zambia
is a US Dollar risk as the Shareholder Loan of our minority partner is denominated in US Dollars. The
Directors consider that, for the time being, no hedging or other arrangements are necessary to
mitigate this risk.
On the assumption that all other variables were held constant, and in respect of the Group and the
Company’s expenses the potential impact of a 20% increase/decrease in the GBP:Kwacha foreign
exchange rate on the Group’s loss for the year and on equity is as follows:
Potential impact on Zambian kwacha expenses: 2020
Increase/(decrease) in GBP:ZMK rate
b) Credit Risk
Credit risk arises from cash and cash equivalents.
20%
-20%
Group
£ 000’s
(153)
153
The Group considers the credit ratings of banks in which it holds funds in order to reduce exposure to
credit risk. The Group will only keep its holdings of cash and cash equivalents with institutions which
have a minimum credit rating of ‘A’.
The Group considers that it is not exposed to major concentrations of credit risk.
Arc Minerals Limited Annual Report & Financial Statements 2019
57
Notes to the financial statements
The Group holds cash as a liquid resource to fund its obligations. The Group’s cash balances are held
primarily in Sterling. The Group’s strategy for managing cash is to assess opportunity for interest
income whilst ensuring cash is available to match the profile of the Group’s expenditure. This is
achieved by regular monitoring of interest rates and monthly review of expenditure forecasts. Short
term interest rates on deposits have for the fiscal year been very unattractive.
The Group has a policy of not hedging and therefore takes market rates in respect of foreign exchange
risk; however, it does review its currency exposures on an ad hoc basis. Currency exposures relating
to monetary assets held by foreign operations are included within the foreign exchange reserve in the
Group Balance Sheet.
The currency profile of the Group’s cash and cash equivalent is as follows:
Cash and cash equivalents
Sterling
US Dollars
At end of year
2020
£ 000’s
66
103
169
2019
£ 000’s
1,196
30
1,226
On the assumption that all other variables were held constant, and in respect of the Group’s cash
position, the potential impact of a 20% increase in the GBP:USD foreign exchange rate would not have
a material impact on the Group’s cash position and as such is not disclosed.
c) Liquidity Risk
To date the Group has relied upon equity funding to finance operations. The Directors are confident
that adequate funding will be forthcoming with which to finance operations. Controls over
expenditure are carefully managed.
The Group ensures that its liquidity is maintained by a management process which includes projecting
cash flows and considering the level of liquid assets in relation thereto, monitoring Balance Sheet
liquidity and maintaining funding sources and back-up facilities.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets.
Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value
are observable, either directly or indirectly.
Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are
not based on observable market such as industry knowledge and experience of the Directors.
The movement in the levels during the year to 31 March 2018 are attributable to the changes in
ownership status during the period and any additional equity purchases or fair value adjustments
required as a result.
Capital Risk Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to position as a
going concern and to continue its exploration and evaluation activities. The Group has capital, defined
as the total equity and reserves of the Group, of £ 5,682,000 (2019: £29,957,000).
The Group monitors its level of cash resources available against future planned exploration and
evaluation activities and issues new shares in order to raise further funds from time to time.
Arc Minerals Limited Annual Report & Financial Statements 2019
58
Notes to the financial statements
22. Commitments
Operating leases
There are no operating leases.
Exploration commitments
Ongoing exploration expenditure is required to maintain title to the Group’s mineral exploration
permits. No provision has been made in the Group financial statements for these amounts as the
expenditure is expected to be fulfilled in the normal course of the operations of the Group.
23. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been
eliminated on consolidation and are not disclosed in this note. There were no other transactions with
related parties, except as disclosed below:
Zaco Acquisition
After its acquisition of 37.5% of Zaco Limited, the Company was offered a further 5% at the same
proforma cost, US$ 50,000. At the time the Company was focused on financing its 5,800m Kalaba drill
program. Nicholas von Schirnding offered to make the purchase on behalf of the Company. The Board
accepted his offer and Mr von Schirnding purchased the 5% block with the expectation that the
Company would purchase it from him when financial conditions permitted. The 5% Zaco interest was
subsequently purchased at a cost of US$55,000 including a financing charge.
In July 2019, Arc further consolidated its interest in the Zaco license from 42.5% to 47.5%. The
additional 5% was acquired from Limehouse Capital Ltd, a company that is wholly owned by Rémy
Welschinger, a director of the Company, for a consideration of USD 50,000 payable as 1.414m shares
in Arc (£39,592).
In November 2019, Arc further consolidated its interest in the Zaco license from 47.5% to 52.5%. The
additional 5% was acquired from Mr Mumena Mushinge, a director of the Company, for a
consideration of USD 37,500 (£29,173) payable in cash.
In May 2020, Arc further consolidated its interest in the Zaco license from 52.5% to 72.5%. The
additional 20% was acquired from Mr Mumena Mushinge, a director of the Company, for a
consideration of 10 million shares in Arc (£175,000).
Remuneration of Key Management Personnel
The remuneration of the Directors and PDMRs is set out in note 8.
Of the amounts set out in note 8:
£36,000 (2019 – £35,000) was paid to Gemstar a Personal Services Company (“PSC”) owned by Brian
McMaster.
£88,000 (2019 – £55,000) was paid to VC Resources Ltd, a PSC owned by Vassilios Carellas.
£56,000 (2019 – £94,000) was paid to Logwood Financial Services, a PSC owned by John Forrest
£36,000 (2019 – £30,000 and 2.5M options) was paid to a PSC owned by Don Bailey
A relative of Rémy Welschinger made a loan of €250k (£213k) to the Company which is unsecured and
repayable with 10% interest on due for repayment 30 December 2020. Of this amount, €62.5k
including interest of €6.25k (total £61k) was converted to equity as part of the Company’s placing in
May 2020, as announced.
Arc Minerals Limited Annual Report & Financial Statements 2019
59
Notes to the financial statements
24. Contingent liability
Zamsort Limited is named in a lawsuit before the High Court in Zambia for USD 265,000 of damages
pertaining to a discussion involving the former owners of Zamsort and a third party held in 2014. Legal
advisors to Zamsort have advised that the claim is without merit. A bond has been deposited with the
court and is included in current assets. The amount of the bond is 2.8M Zambian Kwacha (GBP 125k),
approximately 50% of the damages claimed.
25. Ultimate controlling party
There is no ultimate controlling party in the opinion of the Board.
26. Events after the reporting period
In May 2020, Arc further consolidated its interest in the Zaco license from 52.5% to 72.5%. The
additional 20% was acquired from Mr Mumena Mushinge, a director of the company, for a
consideration of 10 million shares in Arc.
Arc Minerals Limited Annual Report & Financial Statements 2019
60