Arc Minerals Limited
ARC MINERALS LIMITED
ANNUAL REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 2022
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
15
22
23
29
30
31
32
34
Arc Minerals Limited – Annual Report & Financial Statements December 2022
1
Director, Executive Chairman
Finance Director
Non-Executive Director
Non-Executive Director
Corporate Information
Directors
Nicholas von Schirnding
Rémy Welschinger
Brian McMaster
Valentine Chitalu
Chief Operations Officer
Vassilios Carellas
Registered Address
Craigmuir Chambers
Road Town. Tortola
British Virgin Islands, VG 1110
Registrars
Computershare Investor Services (Channel Islands) Ltd
Ordnance House, 31 Pier Road
St Helier, JE4 8PW
Channel Islands
Nominated Advisor and Joint Broker
SP Angel Corporate Finance LLP
Prince Frederick House
35-39 Maddox Street
London, WC2R 1DJ
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
Joint Broker
WH Ireland
3rd Floor Royal House
28 Sovereign Street
Leeds, LS1 4BJ
Financial Advisor
Rothschild & Co – Global Advisory
New Court, St Swithin’s Lane
London, EC4N 8AL
Arc Minerals Limited – Annual Report & Financial Statements December 2022
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Overview
Arc Minerals Limited (“Arc Minerals”, “Arc” or the “Company”) is a dynamic junior exploration and development
company focused on exploring for base metals, principally copper, in Africa. The Company has a controlling
interest in several licences in sub-Saharan Africa.
In the North-Western province in Zambia, Arc’s licences are located in the Domes region of the Zambian
Copperbelt near world-class mines such as First Quantum Minerals’ Sentinel and Kansanshi copper mines and
Barrick’s Lumwana mine.
The Company, via its Zambian subsidiaries, has a controlling stake over a number of areas under licence located
on the opposite flank of the Kabompo Dome to First Quantum’s Sentinel operations, approximately 900km by
road from Lusaka.
To date, Arc Minerals have carried out c.22,000m of drilling, collected and analysed c.75,000 soil samples, and
flown 10,700 line km’s of airborne geophysical surveys over the areas under licence, which comprised the
following at 31 December 2022:
•
•
•
Large-Scale Exploration Licence (23004-HQ-LEL);
Large-Scale Exploration Licence (23005-HQ-LEL);
Large-Scale Exploration Licence (19906-HQ-LEL).
The Group is currently in the process of reorganising its licences in preparation for the joint venture with a
subsidiary of Anglo American as announced on 20 April 2023, including renewing or replacing licences as
appropriate, in order to maintain the areas under licence and the Directors are not aware of any reason why any
renewals or applications would not be granted.
The Group has submitted three mining license applications (33402-HQ-LML, 33403-HQ-LML and 33404-HQ-
LML), over the expired exploration licenses 23004-HQ-LEL and 19906-HQ-LEL. All of the mining licence
applications been approved and validated by the Mining Cadastre Department and following the submission of
the subsequent requisite documentation, the Mines Advisory Committee (MAC), will meet and review the
finalised LML applications prior to issuance of the Mining Licenses.
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.
Business Model and Strategy
The strategic vision of Arc Minerals is to build a leading African focused base metals exploration and
development company leveraging off the three pillars that 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
building mines; and
•
Supportive institutional and retail shareholder base.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
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Chairman’s Statement
2022 Overview
The past year was dominated by the Company’s ongoing negotiations with a subsidiary of Anglo American plc
(“Anglo American”) to structure and finalise a joint venture in respect of the Company’s copper interests in North
Western Zambia.
In May 2022 the Company announced that it, together with its partners, had entered into an agreement with
Anglo American with the intention to form a joint venture in respect of its Zambian copper interests. The key
commercial terms of the Joint Venture were that upon signing of a binding Joint Venture (which was
subsequently signed as announced on 20 April 2023 subject to completing certain Conditions Precedent) Anglo
American would have an initial ownership interest of 70% with Arc and its partners the balance.
The terms of the Joint Venture agreement included Anglo American having the right to retain an Ownership
Interest of 51% (Phase 1), by funding exploration expenditures equal to $24m on or before 180 days after the
third anniversary and making cash payments to Arc Minerals’ subsidiary Unico of $3m upon signing of the Joint
Venture Agreement and satisfying the Conditions Precedent and $1m per annum for the following three years
with a final payment of $8m by the end of Phase 1.
Following the completion of Phase I, Anglo American will have the right to retain an additional ownership
interest equal to 9% (for a total ownership interest of 60%) by funding $20m of additional exploration
expenditures within 2 years of the Phase I end date and following the completion of Phase II, Anglo American
will have the right to retain an additional ownership interest equal to 10% (for a total ownership interest of 70%)
by funding $30m within 2 years of the Phase II End Date.
At the date of this report the Company continues to work towards finalising the Conditions Precedent referred
to above.
Following the acquisition of Alvis-Crest (Propriety) Limited in late 2021, the Company started initial exploration
work on its licenses in Botswana. These licenses lie within and adjacent to the highly prospective Central
Structural Corridor of the Kalahari Copper Belt (“KCB”) and within 10km and 50km of Khomecau’s Zone 5 and
Banana Zone copper projects respectively, known as the two largest copper projects on the KCB.
These licenses already host two known copper-nickel anomalies, both 2-3km in length overlying the favourable
interpreted DKF-NPF contact that have yet to be drill tested and now potentially may have further targets. As a
result of delays associated with the Covid pandemic the two licenses in Botswana (PL 135/2017 and PL 162/2017)
were renewed for an additional two years until 30 September 2024.
On 29 April 2022 the Company announced an update on the progress of the acquisition of a 73.5% interest in
the Misisi gold project (“Misisi”) by Regency Mining Ltd (“Regency”) from Golden Square Equity Partners Limited
(“Golden Square”). Regency replaced Rackla Metals Inc. as the acquiror of Misisi. The terms of the transaction
saw Arc being paid US$250,000 with Regency procuring the issuance to Arc of shares in a publicly listed company
in Canada with a value of US$1,250,000 (“Consideration Shares”). At the time of writing the issuance of the
shares in Canada were subject to finalisation of an equity raise. The agreement also provides Arc with a royalty
agreement on the same terms as the previous Misisi royalty agreement announced on 5 May 2021.
In addition, Arc held a US$5m secured loan note dated 19 March 2020 issued by Golden Square (“Loan Note”).
The Loan Note has since been replaced by the issuance to Arc of 3 million shares in a US listed company, Tingo
Inc. (OTC: TMNA) (“Security Shares”), a agri-fintech business in Africa, in full and final settlement of the Loan
Note.
Sustainability
From an ESG perspective, I am proud to report that the Company continued with its local outreach programme
in some of the communities where we operate in North West Zambia.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
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Outlook
Notwithstanding the current economic headwinds of higher energy prices, the war in Ukraine and elevated levels
of inflation and interest rates the outlook for copper remains strong. Global demand will require significant
additional copper supply over and above the current requirements. Prolonged underinvestment in exploration
and new mine development means the metal has a future that is well supported by strong fundamentals.
President Hakainde Hichilema’s government has prioritised additional foreign investment into the mining sector
and has made a number of significant policy changes to support increased economic growth in Zambia.
Acknowledgements
I would like to extend my gratitude to our shareholders for their continued support over the past year and look
forward to reporting further on our progress.
Nicholas von Schirnding
Executive Chairman
2 July 2023
Arc Minerals Limited – Annual Report & Financial Statements December 2022
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Strategic Report
Overview of Operations
Arc Minerals is incorporated in the British Virgin Islands 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.
Zambia Copper Projects
The Company, via its Zambian subsidiaries, has a controlling stake over a number of areas under licence located
on the opposite flank of the Kabompo Dome to First Quantum’s Sentinel operations, approximately 900km from
Lusaka.
The Zambian license areas are located approximately 900 km from Lusaka, in Mwinilunga, Northwestern
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 these licenses represent 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 developed and constructed to exploit the
mineral resources in the new western part of the Zambian Copperbelt. This region now accounts for a substantial
part of Zambian copper production and the areas under licence are in close proximity to large operations such
as First Quantum Minerals’ Sentinel and Kansanshi mines and Barrick Gold’s Lumwana mine.
The areas under licence 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.
The current areas under licence encompass 9 of 30 exploration targets that were ranked in the late-90’s by the
JV over the Kabompo Project, which include the top seven ranked targets. First Quantum Minerals’ Kalumbila
property, better known as the Trident Project, developed to become the Sentinel copper mine which in 2020
achieved record copper production of over 251,000 tonnes. First Quantum’s Enterprise Nickel project is also
located on the flanks of the Kabompo Dome and approximately 40 km to the east of the areas under licence.
At the time of the JV, Kalumbila was originally ranked number 22 out of JV’s top 30 Kabompo Project targets
with an original exploration target size of six million tonnes of ore; eventually a copper Resource in excess of 1
billion tonnes of ore (one of the largest in Zambia) was demonstrated - during this same period the initial Anglo-
American exploration target for Kalaba exploration target was 150 million tonnes of ore.
To date, Arc Minerals have carried out c.22,000m of drilling, collected and analysed c.75,000 soil samples, and
flown 10,700 line km’s of airborne geophysical surveys over the Group’s areas under licence, which comprised
the following at 31 December 2022:
•
•
•
Large-Scale Exploration Licence (23004-HQ-LEL);
Large-Scale Exploration Licence (23005-HQ-LEL);
Large-Scale Exploration Licence (19906-HQ-LEL).
The Group is currently in the process of reorganising its licences in preparation for the joint venture with a
subsidiary of Anglo American as announced on 20 April 2023, including renewing or replacing licences as
appropriate, in order to maintain the areas under licence and the Directors are not aware of any reason why any
renewals or applications would not be granted.
The Group has submitted three mining license applications (33402-HQ-LML, 33403-HQ-LML and 33404-HQ-
LML), over the expired exploration licenses 23004-HQ-LEL and 19906-HQ-LEL. All of the mining licence
Arc Minerals Limited – Annual Report & Financial Statements December 2022
6
applications been approved and validated by the Mining Cadastre Department and following the submission of
the subsequent requisite documentation, the Mines Advisory Committee (MAC), will meet and review the
finalised LML applications prior to issuance of the Mining Licenses.
During the year, exploration activities in Zambia were limited as our focus moved to due diligence and preparing
the group for the Anglo Joint Venture (as announced on 20 April 2023).
Botswana Copper Project
In November 2021, Arc Minerals Limited acquired a 75% interest in Alvis-Crest (Proprietary) Limited, the holder
of two prospecting licences (PL 135/2017 & PL 162/2017) in Botswana's Kalahari Copper Belt (“KCB”), colloquially
called the Virgo Project/Licences. The Virgo project is located in a emerging copper district in the Kalahari district
in close proximity of some larger discoveries and cover an area of over 210km2. The Virgo licenses lie within (PL
165/2017) and adjacent (PL 135/2017) to the highly prospective Central Structural Corridor and within 10km
and 50km of the Zone 5 and Banana Zone copper projects respectively, known as the two largest copper projects
on the KCB.
Historically, two copper-nickel soil anomalies have already been recorded on PL 135/2017 and PL 162/2017 and
are approximately 3km and 2.5km in strike length respectively. The largest of the two anomalies, located on PL
135/2017, overlays an interpreted DKF-NPF contact, while a second more intermittent anomaly may be linked
to extensional faulting around the dome edge. The large coherent anomaly on PL 162/2017, also appears to
overlay the interpreted DKF-NPF contact on the northern limb of a syncline.
Alvis Crest carried out soil sampling in two new areas and a drilling campaign in 2022 to test two areas of copper
soil anomalies previously established in the two prospecting licenses. The first area to be tested was in
PL135/2017 followed by another in PL162/2017.
Soil sampling as an initial test for copper distribution within an area of interest is recommended as it has proved
that despite the thick Kalahari cover, copper in soils is detectable. Soil samples were tested for copper using XRF
analysis and method successfully picked up copper values though in very low range.
For the PL135/2017 license area, a grid of 3.5km stretch of 1km NE-SW line spacing and 25m sample spacing
was covered by soil sampling. A total of 205 samples were collected and sent for copper analysis at Intertek
Genalysis laboratory in Australia. Results obtained gave very good copper values and led to a soil anomaly that
has been drilled for host rock, structure and mineralization.
For the PL162/2017 license area, a grid of 2.7km stretch of 1 Km NW-SE line spacing and 25m sample spacing
was covered by soil sampling. A total of 102 samples were collected and sent for copper analysis at Intertek
Genalysis laboratory in Australia. Results obtained in the area gave good copper values and resulted in a copper
anomaly that has been tested with RC drilling.
Drilling on these two license areas consisted of five Reverse-Circulation (‘RC’) holes for 805m and two core
diamond holes for 420.60m. Assays results from this drilling are still pending.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
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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, Edenville Energy, and
Orusur Mining, all of which are listed on AIM 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. Rémy is an 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 over 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.
Valentine Chitalu, Non-Executive Director
Valentine Chitalu is an entrepreneur in Zambia and southern Africa specialising in private equity and local private
sector development. He is the co-founder and Chairman of Phatisa Group, a private equity fund manager in Sub-
Saharan Africa, and has previously worked for the CDC Group in London and Lusaka, focusing on identifying
investment opportunities and portfolio management, and was Chief Executive Officer of the Zambian
Privatisation Agency where he was responsible for the divestiture of over 240 enterprises. Valentine is a
Chartered Certified Accountant and holds a Masters in Economics from Cambridge University.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
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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 December 2022.
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 Report
on page 6.
Results and Dividends
During the year cash decreased by £1.119m (31 December 2021: increase of £1.035m).
The loss on continuing operations of the Group after taxation amounted to £5.827m (31 December 2021: Loss
of £5.447m). There were no dividends paid in the year ended 31 December 2022 (31 December 2021: nil).
Financing
The Company continued to demonstrate its ability to successfully access capital markets. During the year the
Company raised a total of £2.213m from the exercise of warrants.
Events after the reporting date
Refer to Note 26
Interest >3%
The following shareholders have a notifiable interest in the Company as at 30 June 2023:
Karl-Erik von Bahr
Lärarnas Riksförbund
•
•
• Hargreave Hale Ltd
7%
5%
4%
Directors
The names of Directors who served of the date of this report are set out below:
Directors
Executive Directors
Nick von Schirnding
Rémy Welschinger
Non-Executive Directors
Brian McMaster
Caleb Mulenga
Valentine Chitalu
Date of Appointment
Date of Resignation
24 January 2017
31 June 2019
1 August 2017
29 October 2020
27 August 2021
-
-
-
27 March 2023
-
Directors’ Remuneration
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 in the Remuneration Committee section on page 20 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 December 2022
9
Directors’ Interest
The beneficial interest of the Directors in the shares and options of the Company are set out as follows:
Director
Nicholas von
Schirnding
17,080,532
Rémy Welschinger
14,528,844
Brian McMaster
2,555,557
Caleb Mulenga(i)
Valentine Chitalu (ii)
-
-
2,000,000
2,000,000
(i) Caleb Mulenga resigned on 27 March 2023
(ii) Valentine Chitalu was appointed on 27 August 2021
Annual Report Dec 2022
Annual Report Dec 2021
Shares
Options
Warrants
Shares
Options *
Warrants
-
-
-
-
-
-
-
-
17,080,532
14,528,844
2,555,557
-
-
-
-
-
2,000,000
2,000,000
4,555,557
7,444,446
555,557
-
-
None of the Directors exercised any share options or warrants during the year. All warrants previously held by Nicholas von Schirnding,
Rémy Welschinger and Brian McMaster expired unexercised.
* Share options issued to certain directors and other PDMRs of the company were surrendered in 2021 in exchange for consideration. Please
refer to Note 18 for more information.
Corporate Governance
A statement on Corporate Governance is set out on pages 15 to 22.
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.
Non-Financial KPIs
The Board established the following goals for management in 2023:
1. Drilling a discovery hole at Arc’s Botswana portfolio of licences
2. Expanding Arc’s portfolio of copper exploration and development assets in Africa
3. Closing the Anglo Joint Venture as announced on 20 April 2023
Financial KPIs
The current financial KPIs are:
Financial KPIs
Total funds raised
Exploration costs capitalised
Measure
Dec 2022
Dec 2021
£ 000’s
£ 000’s
2,213
675
4,999
367
These KPIs will continue to be the priorities for the Group.
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 12.
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 companies comply with local regulatory requirements and the revised Equator Principles.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
10
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.
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 has sufficient funds to continue in operation and satisfy liabilities for the foreseeable future.
The Directors are also required to assess the Group’s ability to continue as a going concern (“Going Concern
Assessment") in the event that the joint venture with a subsidiary of Anglo American as announced on 20 April
2023 (the “Anglo JV") is delayed or fails to close or if the Group cannot liquidate its receivables and/or
investments. It must be made clear that consideration of these factors by the Directors for purposes of the Going
Concern Assessment, does not in any way reflect the Directors’ views on the commercial viability, nor probability
of closing, the Anglo JV. The Directors’ Going Concern Assessment similarly does not reflect the Directors’ views
in respect of liquidating the Group’s receivables and/or investments nor in terms of the potential realisable
values. When excluding the Anglo JV and non-cash receivables and investments from their Going Concern
Assessment, the Directors note that the Group’s ability to remain a going concern for at least 12 months from the
approval of these financial statements is dependent on the Group’s ability to raise further equity and/or debt
finance. Whilst the Directors acknowledge that this carries a high degree of uncertainty, in part due to current
market volatility, they have a reasonable expectation that the Group will continue to be able to raise finance as
required over this period.
During the c.6 years ended 31 December 2022 Arc raised in excess of £17.5 million from the sale of equity and
exercise of warrants of which c.£2 million was raised in 2022 from the sale of shares. These ongoing equity sales
are indicative of consistent strong investor support. 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 Note 1(f) to the Financial Statements.
This Directors’ Report has been approved by the Board and signed on its behalf by:
Nicholas von Schirnding
Director & Executive Chairman
2 July 2023
Arc Minerals Limited – Annual Report & Financial Statements December 2022
11
Risk Management Report
The Company’s risk exposures and the impact on the Company’s financial statements 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 programmes. The Company does not invest in money market funds. The Company has
no risk exposure to asset-backed commercial paper or auction rate securities.
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 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 twelve months.
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. The Group is currently in the process of reorganising its licences in Zambia in preparation for the joint
venture with a subsidiary of Anglo American as announced on 20 April 2023, including renewing or replacing
licences as appropriate, in order to maintain the areas under licence and the Directors are not aware of any
reason why any renewals or applications would not be granted.
The Group has submitted three mining license applications (33402-HQ-LML, 33403-HQ-LML and 33404-HQ-
LML), over the expired exploration licenses 23004-HQ-LEL and 19906-HQ-LEL. All of the mining licence
applications been approved and validated by the Mining Cadastre Department and following the submission of
the subsequent requisite documentation, the Mines Advisory Committee (MAC), will meet and review the
finalised LML applications prior to issuance of the Mining Licenses.
The Group’s Botswana prospecting licences 135/2017 and 162/2017 were successfully renewed during 2022 and
are valid until 30 September 2024.
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.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
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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 business in Zambia (“Kwacha”) and in Botswana (“Pula”). A
significant portion of expenditures are incurred in Zambia, 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. Assets in Zambia and most liabilities are
denominated in Kwacha but the shareholder loan is denominated in USD. Changes in the currency exchange
rates between the Kwacha relative to foreign currencies can have a significant impact on the group accounts.
The Company’s foreign currency risk exposure to the Botswanan Pula is negligible due to maintaining low Pula
cash balances. The Company has not hedged its exposure to currency fluctuations.
Commodity Price Risk
While the value of the Company’s mineral resource properties 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.
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 and Botswana, 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/or Botswana
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.
Dependence on key personnel
The Group is dependent upon its executive management team and various technical consultants. Whilst it has
entered into contractual agreements with the aim of securing the services of these personnel, the retention of
Arc Minerals Limited – Annual Report & Financial Statements December 2022
13
their services cannot be guaranteed. The development and success of the Group depends on its ability to recruit
and retain high quality and experienced staff. The loss of the service of key personnel or the inability to attract
additional qualified personnel as the Group grows could have an adverse effect on future business and financial
conditions.
This Risk Management Report has been approved by the Board and signed on its behalf by:
Nicholas von Schirnding
Director & Executive Chairman
2 July 2023
Arc Minerals Limited – Annual Report & Financial Statements December 2022
14
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 continues 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.
1. Business Model and Strategy
The QCA Code states that ‘the board must be able to express a shared view of the Company’s purpose, business
model and strategy.’
Arc’s strategy is to invest in highly prospective copper-cobalt exploration 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 its copper-cobalt projects in sub-Saharan Africa.
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; (iv) maintaining good
community relationships; and (v) employing compliant environmental governance practices.
2. Understanding Shareholder Needs and Expectations
The QCA Code states ‘the directors must develop a good understanding of the needs and expectations of the
Company’s shareholder base.’
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.
3.
Considering Wider Stakeholder and Social Responsibilities
The QCA Code states that long-term success relies upon good relations with a range of different stakeholder
groups both internal and external. The board needs to identify the Company’s stakeholders and understand
their needs, interests and expectations.
The method used by the Company to obtain feedback from stakeholders is discussed below under the heading
Shareholder Communication.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
15
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 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.
4. Risk management
The QCA Code states that ‘the board needs to ensure that the Company’s risk management
framework identifies and addresses all relevant risks in order to execute and deliver the Company’s strategy’.
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 following key risks as applicable to the Company
and appropriate mitigation controls are in place:
•
•
•
•
•
•
•
•
•
•
•
Exploration and Development Risk
Political Risk in sub-Saharan Africa
License and Permitting Risk
Market Risk
Foreign Currency Risk
Commodity Price Risk
Dependence on Key Personnel
Financing Risk
Liquidity Risk
Credit Risk
Global Health Risk (Covid-19)
5. Well functioning Board of Directors
The QCA Code states that ‘the board must be maintained as a well-functioning, balanced team led by the Chair.
The board should have an appropriate balance between executive and non- executive directors and have at least
two independent non-executive directors’.
Profiles of the Arc directors are available on the Company website at www.arcminerals.com.
The Board is currently comprised of two executive directors (Nick von Schirnding, Executive Chairman and Rémy
Welschinger, Finance Director) and two independent non-executive directors (“NEDs”) (Brian McMaster and
Valentine Chitalu). As at the date of this statement, Arc’s board composition complies with the QCA Code and
each independent director has been assessed and is considered to be independent by the board. All Directors
are expected to devote the necessary time commitments required by their position.
6. Appropriate Skills and Experience of the Directors
The QCA Code states that ‘the board must have an appropriate balance of skills and experience and not be
dominated by one person or group of people’.
Arc complies with the QCA Code and full biographical details of the directors and their skills and experience can
be found at www.arcminerals.com/about-us/board-and-management. The Directors who have been appointed
to the Company have been chosen because of the range of their skills and experience and which are appropriate
Arc Minerals Limited – Annual Report & Financial Statements December 2022
16
for the strategy and objectives of the Company. The Board recognises that it currently is limited in diversity and
this continues to form part of recruitment consideration.
The Board considers the current balance of sector, financial and public market skills and experience which it
embodies as 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 whilst enabling each
Director to discharge his fiduciary duties effectively. 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.
7.
Evaluating Board Performance
The QCA Code states that ‘the board should regularly review the effectiveness of its performance as a unit, as
well as that of its committees and individual directors’.
Arc reviews Board, Committee and individual director performance on an ongoing basis in the context of its
contribution to the Company’s financial performance. The Remuneration Committee 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 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.
8.
Corporate Culture
The QCA Code states that ‘the board should promote a corporate culture that is based on ethical values and
behaviours’.
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;
Arc Minerals Limited – Annual Report & Financial Statements December 2022
17
•
•
IT, communications and systems; and
social media.
9. Maintenance of Governance Structures and Processes
The QCA Code states that ‘the Company should maintain governance structures and processes in line with its
corporate culture and appropriate to its size and complexity’.
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.
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; and
two independent, non-executive directors.
A Director is considered independent if he is not a Person Discharging Managerial Responsibility (“PDMR”) within
the Group. Director experience and qualifications are set out in their profiles on page 8.
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.
Director
Position
Nicholas von
Schirnding
Executive
Chairman
Rémy
Welschinger
Finance Director
Brian McMaster
Valentine
Chitalu
Senior
Independent
Director
Non-Executive
Director
Independent
(Y/N)
Remuneration
Committee
Membership
Nomination
Committee
Membership
Audit & Risk
Committee
Membership
N
N
Y
Y
Member
Member
Member
-
-
Chairman
Chairman
-
-
-
-
Chairman
The following matters are reserved for the Board:
Arc Minerals Limited – Annual Report & Financial Statements December 2022
18
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.
• Approval of delegated levels of authority.
• Matters referred to the Board by the board committees.
Strategic/Policy Considerations
Ensuring maintenance of a sound system of internal control and risk management, including:
• Business strategy.
• Diversification/retrenchment policy.
•
• Group’s risk appetite statements.
•
• Approval of the overall levels of insurance for the group, including directors’ and officers’ liability
Procedures for detection of fraud and the prevention of bribery.
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.
Ensuring a satisfactory dialogue with shareholders based on the mutual understanding of objectives.
• Avoidance of wrongful or fraudulent trading.
•
• 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.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
19
• 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.
• 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.
•
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 and at least one member has recent and relevant financial
experience. The current members of the committee are Valentine Chitalu and Nicholas von Schirnding. The
committee chairman is Valentine Chitalu. The full Terms of Reference of the Audit 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.
The Remuneration Committee has two members. The current members of the committee are Brian McMaster
and Nicholas von Schirnding. The committee chairman is Brian McMaster. The full Terms of Reference of the
Remuneration Committee can be found on the Company’s website.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
20
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. The current members of the committee are Brian McMaster and
Nicholas von Schirnding. The committee chairman is Brian McMaster. The full Terms of Reference of the
Nomination Committee can be found on the Company’s website.
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 the Company operates as well
as with engineering and financing groups to ensure that the company has adequate resources to deliver its
strategy.
10. Shareholder Communication
The QCA Code states that ‘a healthy dialogue should exist between the board and all of its stakeholders,
including shareholders, to enable all interested parties to come to informed decisions about the company’.
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 Minerals Limited – Annual Report & Financial Statements December 2022
21
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”) as adopted by the European Union 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 of the profit or loss of the Group for that period.
In preparing the Group 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 transactions and disclose with reasonable accuracy at any time the financial position of the Group
and enable them to ensure that the Financial Statements comply with the BVI Business Companies Act 2004.
They are also responsible for safeguarding the assets of the Group 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 December 2022
22
Independent Auditor’s Report
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ARC MINERALS LTD
Opinion
We have audited the financial statements of Arc Minerals Limited (the ‘Group’) for the year ended
31 December 2022 which comprise:
•
•
the Consolidated Statement of Comprehensive Income,
the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in
Equity,
the Consolidated Statements of Cash Flows and
•
• Notes to the financial statements, including significant accounting policies.
The financial reporting framework that has been applied in the preparation of the group financial
statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union.
In our opinion:
•
•
the financial statements give a true and fair view of the state of the Group’s as at 31 December
2022 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with EU-endorsed
International Financial Reporting Standards (“IFRS”).
Basis for opinion
We conducted our audit in accordance with EU-endorsed International Financial Reporting Standards
(“IFRS”) 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 related to going concern
We draw attention to the going concern section in the Note 1(f) to the financial statements. The Group's
ability to generate funds to meet short-term operating cash requirements, including planned expenditure
for exploration is reliant on the Group's ability to obtain financing from equity fund raises and the joint-
venture deal completing with Anglo American Plc within the next 12 months. The joint venture agreement
with Anglo American Plc is subject to regulatory approvals, which have not been received as of the date of
this report.
These events and conditions indicate that a material uncertainty exists and if the funds are not raised, it
may cast significant doubt on the Group’s ability to continue its operations, maintain its growth strategy
and meet its liabilities in the foreseeable future. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the director’s use of the going concern basis
of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’
assessment of the Group’s ability to continue to adopt the going concern basis of accounting included
Arc Minerals Limited – Annual Report & Financial Statements December 2022
23
Independent Auditor’s Report (continued)
• Reviewing the cash flow forecasts prepared by management to the end of July 2024, covering
more than 12 months the period of next 12 months corroborating, providing challenge to key
assumptions, stress testing the forecasts and reviewing for reasonableness;
• A comparison of actual results for the year to forecasts to assess the forecasting ability/accuracy
of management;
• Reviewing post-year-end RNS announcements; and
• Assessing the adequacy of going concern disclosures within the Annual Report and Financial
Statements
Our responsibilities and the responsibilities of directors with respect to going concern are described in the
relevant sections of this report.
Our application of materiality
• The materiality applied to the Group financial statements was £131,700 (2021: £142,000), based
on a percentage of gross assets, as it is from these assets that the Group seeks to deliver returns
for shareholders.
• Performance materiality has been set at 65% (2020: 75%) of materiality, and the threshold for
which we communicate errors to the Audit and Risk Committee has been set at £6,500 (2021:
£7,100).
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 sizes 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.
Our approach to the audit
In designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements. In particular we looked at areas involving significant accounting estimates and
judgements by the directors such as the carrying value of the exploration and evaluation assets and the
recoverability of receivables, as well as the disposal of Zamsort Limited, and considered future events that
are inherently uncertain. As in all of our audits, we also addressed the risk of Management override of
internal controls, including among other matters, consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
Of 5 components of the Group, a full scope audit was performed on the complete financial information of
3 components, and for the 2 components not considered financially significant, we performed a limited
scope review which analytical review together with substantive testing on specified account balances as
appropriate on group audit risk areas applicable to those components based on their relative size, risks in
the business and our knowledge of the entity appropriate to respond to the risk of material misstatement.
Component auditors were used for both the financially significant component and for material non-
significant component in Zambia, operating under our instruction. The engagement 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
Arc Minerals Limited – Annual Report & Financial Statements December 2022
24
Independent Auditor’s Report (continued)
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.
In addition to the matter described in the material uncertainty related to going concern section, we have
determined the matters described below to be the key audit matters to be communicated in our report.
Key Audit Matter 1 – Valuation of Intangible assets
The carrying value of intangible assets as at 31 December 2022 was [£5,233,000] which comprised of
exploration and evaluation expenditure on the Zambian and Botswana licence areas, as disclosed in Note
10.
There is a risk that the carrying value of these projects is impaired and that exploration and development
costs capitalised during the year have not been capitalised in accordance with IFRS 6.
Due to the complexity and estimation uncertainty, the audit team raised this as a key audit matter.
How the scope of our audit responded to the key audit matter
Our work in this area included:
• Reviewing and considering the impairment indicators in IFRS 6 in relation to the asset held;
• Obtaining support for ownership of licences;
• Reviewing Management’s basis for impairment or non-impairment and challenging assumptions
made;
• Performing substantive testing on capitalised expenditure during the year to ensure it met the
capitalisation criteria of IFRS 6.
Key observations
We draw users’ attention to the disclosure within Note 10 and within the Critical Accounting Estimates
and Judgements which state that the Zambian licences 23004-HQ-LEL and 23005-HQ-LEL for Zaco
Investment Limited held by the Group was due for renewal in August 2022.
The Group has submitted an application to renew the licence 23005-HQ-LEL and Anglo American Plc
submitted an application for the renewal of the licence 23005-HQ-LEL as part of the joint-venture
arrangement. The Directors are not aware of any reason why the licences will not be renewed.
Key Audit Matter 2 – Recoverability of Receivables
As of 31 December 2022, Arc Minerals Limited had receivables from Regency Mining Limited in the amount
of GBP 1,036,349 (USD 1,250,000), as disclosed in Note 15. Regency Mining Limited acquired a 73.5%
interest in the Misisi gold project from Golden Square Equity Partners Limited, replacing Rackla Metals Inc.
as the acquiror of Misisi. The terms of the transaction were that Arc Minerals Limited would be paid USD
250,000 in cash and the equivalent of USD 1,250,000 in shares in a publicly listed company in Canada. As
of 31 December 2022, Arc Minerals Limited had received only USD 250,000 in cash.
There is a risk that the account receivable from Regency Mining Limited in the amount of GBP 1,036,349
(USD 1,250,000) will not be recoverable and should be impaired as at 31 December 2022.
Due to the estimation uncertainty, the audit team raised this as a key audit matter.
How the scope of our audit responded to the key audit matter
Our work in this area included:
Arc Minerals Limited – Annual Report & Financial Statements December 2022
25
Independent Auditor’s Report (continued)
• Reviewing Regulatory News Service (RNS) and signed agreements;
• Reviewing Management’s assessment of the likelihood of recoverability of receivables;
• Obtaining and reviewing the customer confirmation about the payment terms and reasons for the
payment delay from Regency Mining Limited;
• Recalculation of the balance denominated in the foreign currency;
• Ensuring adequate disclosures were made throughout the financial statements and within Critical
Accounting Estimates and Judgements and were in line with the reporting requirements of EU-
endorsed International Financial Reporting Standards (“IFRS”).
Key observations
We draw users’ attention to the disclosure within Note 15 and within the Critical Accounting Estimates
and Judgements that the account receivable balance of GBP 1,036,349 (USD 1,250,000) from Regency
Mining Limited was due as of 31 December 2022 and is likely to be recovered once the Group receives
shares equivalent to the balance held in the public listed company, which management expect to receive
in Q3 of 2023.
Directors are not aware of any reason why the account receivable with Regency Mining Limited in the
amount of GBP 1,036,349 (USD 1,250,000) will not be recoverable.
.
Key Audit Matter 3 – Disposal of Zamsort Limited
In February 2022, the Group announced that the parties to the legal cases in Zambia and in the UK had
come to an agreement to settle various disputed matters and for all legal proceedings to be permanently
dropped. As part of the settlement agreement, the Group agreed to transfer to the claimant parties for nil
consideration, 100% of the issued share capital of Zamsort Ltd (the “Zamsort Transfer”), which owns the
pilot plant and related assets. The remaining assets at Zamsort Limited were transferred to Handa
Resources Limited.
Due to complexity of the disposal accounting, the audit team raised this as a key audit matter.
Our work in this area included:
• Reviewing Regulatory News Service (RNS), signed agreements and bank statements;
• Reviewing the proof of the licence ownership transfer from Zamsort Limited to Handa Resources
Limited;
• Reviewing Board of Directors’ approvals by inspecting the Board of Directors’ minutes;
• Reviewing the consolidation adjustments related to Zamsort Limited disposal accounting;
• Ensuring adequate disclosures were made throughout the financial statements and were in line with
the reporting requirements of the EU-endorsed International Financial Reporting Standards (“IFRS”).
Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information
contained within the annual report. Our opinion on the Group financial statements does not cover the
other information and we do not express any form of assurance conclusion thereon. Our responsibility is
to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this gives rise to a material misstatement
Arc Minerals Limited – Annual Report & Financial Statements December 2022
26
Independent Auditor’s Report (continued)
in the financial statements themselves. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of directors
As explained more fully in the directors’ report, the directors are responsible for the preparation of the
group financial statements and for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the Group financial statements, the directors are responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below:
• We obtained an understanding of the Group and the sector in which they operate to identify laws and
regulations that could reasonably be expected to have a direct effect on the financial statements. We
obtained our understanding in this regard through discussions with Management and the application
of cumulative audit knowledge and experience of the sector.
• We determined the principal laws and regulations relevant to the Group in this regard to be those
arising from AIM rules and local mining and exploration regulations applicable to the subsidiaries.
There was regular interaction with the component auditors during all stages of the audit, including
procedures designed to identify non-compliance with laws and regulations, including fraud.
• We designed our audit procedures to ensure the audit team considered whether there were any
indications of non-compliance by the group with those laws and regulations. These procedures
included, but were not limited to enquiries of management, review of minutes and RNS
announcements and review of legal and regulatory correspondence.
• We also identified the risks of material misstatement of the financial statements due to fraud. We
considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management
override of controls, that the potential for management bias was identified in relation to the
impairment assessment of
intangible assets, recoverability of receivables and valuation of
investments. We addressed this by challenging the assumptions and judgements made by
management when evaluating any indicators of impairment, assessing recoverability of receivables
and valuation of investments.
• As in all of our audits, we addressed the risk of fraud arising from management override of controls by
performing audit procedures which included, but were not limited to: the testing of journals; reviewing
Arc Minerals Limited – Annual Report & Financial Statements December 2022
27
Independent Auditor’s Report (continued)
accounting estimates for evidence of bias; and evaluating the business rationale of any significant
transactions that are unusual or outside the normal course of business.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities,
including those leading to a material misstatement in the financial statements or non-compliance with
regulation. This risk increases the more that compliance with a law or regulation is removed from the
events and transactions reflected in the financial statements, as we will be less likely to become aware of
instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather
than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Use of our report
This report is made solely to the Arc Minerals Limited’s (“company”) members, as a body, in accordance
with our engagement letter dated 22 June 2022. Our audit work has been undertaken so that we might
state to the company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone, other than the company and the company's members as a body, for our audit work, for this report,
or for the opinions we have formed.
Zahir Khaki (Engagement Partner)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
2 July 2023
15 Westferry Circus
Canary Wharf
London E14 4HD
Arc Minerals Limited – Annual Report & Financial Statements December 2022
28
Consolidated Statement of Comprehensive Income
Consolidated Statement of Comprehensive Income for the year ended 31 December 2022
Administrative expenses
Operating loss
Loss on disposal of Zamsort
Loss for the year before tax
Income tax expense
Loss for the year
Other comprehensive income:
Item that may be subsequently reclassified to profit or loss
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
Notes
3
4
5
31 December
2022
£ 000s
31 December
2021
£ 000s
(3,665)
(3,665)
(2,162)
(5,827)
-
(5,447)
(5,447)
-
(5,447)
-
(5,827)
(5,447)
1,959
(3,868)
(7,342)
1,515
(5,827)
(6,048)
2,180
(3,868)
597
(4,850)
(5,359)
(88)
(5,447)
(5,142)
292
(4,850)
Earnings per share attributable to owners of the parent during the year
- Basic (pence per share)
- From continuing operations – Basic
8
8
(0.50)
(0.50)
(0.50)
(0.50)
The notes on pages 34 to 65 are an integral part of these consolidated financial statements.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
29
Consolidated Statement of Financial Position
Consolidated Statement of Financial Position as at 31 December 2022
Notes
31 December
2022
£ 000s
31 December
2021
£ 000s
ASSETS
Non-current assets
Intangible assets
Fixed assets
Total non-current assets
Current assets
Trade and other receivables
Assets held for sale
Short term investments
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Long term payables
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
11
14
4
16
18
9
19
21
20
20
5,233
12
5,245
1,096
-
1,738
616
3,450
8,695
4,490
22
4,512
3,971
3,592
439
1,735
9,737
14,249
(2,733)
(2,733)
(1,338)
(1,338)
(117)
(2,850)
5,845
-
64,272
283
84
1,045
(59,196)
6,488
(643)
5,845
(4,735)
(6,067)
8,182
-
62,019
273
84
(1,885)
(53,385)
7,106
1,076
8,182
These financial statements were approved by the Board of Directors on 2 July 2023 and signed on its
behalf by:
Nicholas von Schirnding
Executive Chairman
The notes on pages 34 to 65 are an integral part of these consolidated financial statements.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
30
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows for the year ended 31 December 2022
Notes
31 December
2022
£ 000s
31 December
2021
£ 000s
Cash flows from operating activities
Loss before income tax and including discontinued
operations
Share based payment and warrants issued
Gain and losses on investments
Gain through profit and loss on forgiven shareholder loans
Loss through profit and loss on disposal of Zamsort
Loss arising on deconsolidation of Zamsort
Gains and Losses on foreign exchange
Depreciation and amortisation
Net cash used in operating activities before changes in
working capital
Decrease in inventories
Decrease (Increase) in trade and other receivables
Increase in trade and other payables
Net cash used in operating activities
Cash flows from investing activities
Purchase of intangible assets
Proceeds from Casa disposal
Proceeds on disposal of short term investments
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 share based payments
Minority shareholder loans
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
20
16
3
3
4
3
14
18
10
16
21
(5,827)
27
2,519
(6,485)
5,517
2,162
(168)
10
(2,245)
-
(1,004)
124
(880)
(675)
202
176
(297)
2,253
-
50
2,303
(1,119)
1,735
616
(5,447)
23
-
-
-
-
114
31
(5,279)
15
(431)
2,116
1,700
(367)
-
-
(367)
3,564
1,199
292
5,055
1,035
700
1,735
Major non-cash transactions not taken into account in the Consolidated Statement of Cash Flows:
(i) Reduction by £2.335m in minority shareholders loans as a result of the disposal of Zamsort.
(ii) The company issued 1.2m shares to a service provider in settlement of £40k.
(iii) The Casa loan note of £3.710m was settled by receiving 3m shares in Tingo Inc (OTC:TMNA).
The notes on pages 34 to 65 are an integral part of these consolidated financial statements.
Arc Minerals Limited – Annual Report & Financial Statements December 2022
31
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity as at 31 December 2022
Attributable to equity holders of the Company
Share
capital
Share
premium
£ 000s
£ 000s
Foreign
exchange
reserve
Share
based
payment
reserve
Warrant
reserve
Retained
earnings
Total
Non-
controlling
interest
Total equity
£ 000s
£ 000s
Balance as at 1 January 2022
Loss for the year
Other comprehensive income(loss) for the year - currency
translation differences
Total comprehensive income (loss) for the year
Share capital issued
Share options expired during the year
Share options expense during the year
Effect of foreign exchange on opening balance
Disposal of Zamsort
Total transactions with owners, recognised directly in
equity
Balance as at 31 December 2022
-
-
-
-
-
-
-
-
-
-
-
62,019
-
-
-
2,253
-
-
-
-
2,253
£ 000s
(1,885)
-
1,294
1,294
-
-
-
2,550
(914)
1,636
273
-
-
-
-
(16)
27
(1)
-
10
283
£ 000s
(53,385)
(5,827)
-
(5,827)
-
16
-
-
-
16
£ 000s
7,106
(5,827)
1,294
(4,533)
2,253
-
27
2,549
(914)
3,915
£ 000s
1,076
1,515
665
2,180
-
-
-
(2,631)
(1,268)
(3,899)
£ 000s
8,182
(4,312)
1,959
(2,353)
2,253
-
27
(82)
(2,182)
16
84
-
-
-
-
-
-
-
-
-
64,272
1,045
84
(59,196)
6,488
(643)
5,845
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
32
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Company
Share
capital
Share
premium
£ 000s
£ 000s
Balance as at 1 January 2021
Loss for the year
Other comprehensive income(loss) for the year - currency
translation differences
Total comprehensive income (loss) for the year
Share capital issued
Granted during the year
Surrendered during the year
Effect of foreign exchange on opening balance
Investment by NCI in the year
Total transactions with owners, recognised directly in
equity
Balance as at 31 December 2021
-
-
-
-
-
-
-
-
-
-
-
55,755
-
-
-
6,264
-
-
-
-
6,264
62,019
629
(1,885)
Foreign
exchange
reserve
£ 000s
(3,111)
-
597
597
-
-
-
629
-
Share
based
payment
reserve
£ 000s
1,368
-
-
-
-
23
(1,118)
-
-
(1,095)
273
Warrant
reserve
Retained
earnings
Total
£ 000s
84
-
-
-
-
-
-
-
-
£ 000s
(49,056)
(5,447)
-
(5,447)
-
-
1,118
-
-
-
84
118
(53,385)
£ 000s
5,040
(5,447)
597
(4,850)
6,264
23
-
629
-
5,916
7,106
Non-
controlling
interest
£ 000s
506
-
-
-
-
-
-
145
425
570
1,076
Total equity
£ 000s
5,546
(5,447)
593
(4,854)
6,264
23
-
774
425
7,486
8,182
Share capital represents the nominal value of the ordinary shares.
Share Premium represents consideration less nominal value of issued shares and costs directly attributable to the issue of new shares.
Share based payment reserve represents stock options awarded by the group.
Warrant reserve represents warrants granted by the group.
Foreign exchange reserve represents the translation differences arising from translating the financial statement items from functional currency to presentational currency and foreign exchange
differences arising on the elimination of intercompany loans forming part of the investment of subsidiaries.
Retained earnings represents retained losses.
Non-controlling interest represents the interests of minority shareholders in the assets and liabilities of the Group.
The notes on pages 34 to 65 are an integral part of these consolidated financial statements.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
33
Notes to the financial statements
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General Information and Authorisation of Financial Statements
a.
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 December 2022 were
authorised for issue by the Board on 2 July 2023.
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
(iv)
The following new standards have come into effect this year, however they have no impact on
the Group:
• Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
• Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16
and IAS 41); and
• References to Conceptual Framework (Amendments to IFRS 3).
ii)
New UK-adopted International Standards and Interpretations not yet adopted
The following amendments are effective for the period beginning 1 January 2023:
Initial application of IFSR 17 and IFRS 9 – Comparative Information (Amendment to IFRS 17)
•
• Amendments to IAS 1: Presentation of Financial Statements and IFRS Practice Statement 2:
Disclosure of Accounting Policies
• Amendments to IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors –
Definition of Accounting Estimates
• Amendments to IAS 12: Income Taxes - Deferred Tax related to Assets and Liabilities arising
from a Single Transaction
The Group is evaluating the impact of the new and amended standards above which are not expected
to have a material impact on the Group’s results or shareholders’ funds.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
34
Notes to the financial statements
d. Basis of Consolidation
The Consolidated Financial Statements comprise the financial statements of the Company and its
subsidiaries made up to 31 December. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee.
Generally, there is a presumption that a majority of voting rights result in control. To support this
presumption and when the Group has less than a majority of the voting or similar rights of an investee,
the Group considers all relevant facts and circumstances in assessing whether it has power over an
investee, including:
• The contractual arrangement with the other vote holders of the investee;
• Rights arising from other contractual arrangements; and
• The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control.
Subsidiaries
Subsidiaries are entities over which the Group has control. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group. They are deconsolidated from the date that control
ceases. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year
are included in the consolidated financial statements from the date the Group gains control until the
date the Group ceases to control the subsidiary.
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 December 2022.
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
interest in the associate, including any unsecured receivables, the Group does not recognise further
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
35
Notes to the financial statements
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 Directors have reviewed a forecast prepared by the executive and have a reasonable expectation
that the Group has sufficient funds to continue in operation and satisfy liabilities for the foreseeable
future.
The Directors are also required to assess the Group’s ability to continue as a going concern (“Going
Concern Assessment") in the event that the joint venture with a subsidiary of Anglo American as
announced on 20 April 2023 (the “Anglo JV") is delayed or fails to close or if the Group cannot liquidate
its receivables and/or investments. It must be made clear that consideration of these factors by the
Directors for purposes of the Going Concern Assessment, does not in any way reflect the Directors’
views on the commercial viability, nor probability of closing, the Anglo JV. The Directors Going Concern
Assessment similarly does not reflect the Directors’ views in respect of liquidating the Group’s
receivables and/or investments nor in terms of the potential realisable values. When excluding the
Anglo JV and non-cash receivables and investments from their Going Concern Assessment, the
Directors note that that the Group’s ability to remain a going concern for at least 12 months from the
approval of these financial statements is dependent on the Group’s ability to raise further equity and/or
debt finance. Whilst the Directors acknowledge that this carries a high degree of uncertainty, in part
due to current market volatility, they have a reasonable expectation that the Group will continue to be
able to raise finance as required over this period.
During the c.6 years ended 31 December 2022 Arc raised in excess of £17.5 million from the sale of
equity and exercise of warrants of which c.£2 million was raised in 2022 from the sale of shares. These
ongoing equity sales are indicative of consistent strong investor support. 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.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
36
Notes to the financial statements
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
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 pound sterling (GBP). 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 the Zambian subsidiaries is the
Zambian Kwacha (“ZMW”). The functional currency of the Botswana subsidiary is the Botswanan Pula
(BWP). The functional currency for all other entities is GBP.
The presentational currency (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.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
37
Notes to the financial statements
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
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
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
38
Notes to the financial statements
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
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 is currently in the process of reorganising its licences in preparation for the joint venture with a
subsidiary of Anglo American as announced on 20 April 2023, including renewing or replacing licences as
appropriate, in order to maintain the areas under licence and the Directors are not aware of any reason why any
renewals or applications would not be granted.
The Group has submitted three mining license applications (33402-HQ-LML, 33403-HQ-LML and 33404-HQ-
LML), over the expired exploration licenses 23004-HQ-LEL and 19906-HQ-LEL. All of the mining licence
applications been approved and validated by the Mining Cadastre Department and following the submission of
the subsequent requisite documentation, the Mines Advisory Committee (MAC), will meet and review the
finalised LML applications prior to issuance of the Mining Licenses.
The Group’s ability to continue its exploration programmes and develop its projects is dependent on
future fundraising, as well as the successful application of appropriate licensing, 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.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
39
Notes to the financial statements
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 15
(iii)
Sturec Resource Royalty
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$2 royalty per additional
ounce of gold. This royalty is capped at 7 million ounces of gold or Australian dollars 11M. Because of
the general uncertainty about the size of the Sturec resource and the difficulties of operating in
Slovakia the Company has not recorded the royalty in the accounts.
(iv)
Recoverability of the US$ 5 million receivable in respect of the Casa Sale, first reported at
31 March 2021
The Casa asset was sold during the year ended 31 March 2020 with the consideration being a mixture
of cash and royalty as above. The cash element was due for payment on 19 March 2021. As reported
in Note 15, the terms of the original loan note were amended. As announced on 29 April 2022, the
loan note was satisfied in full.
(v)
Valuation of short term investments
Short term investments comprise shares held in Asiamet Resources Ltd (AIM:ARS) and Tingo Inc
(OTC:TMNA). Short term investments are measure initially, and subsequently revalued at reporting
dates, at fair value through profit or loss. Similarlty, changes in fair value are recognised through profit
and loss. Additional information is contained in Note 17.
m. Equity
Equity comprises the following:
·
·
·
·
·
·
·
“Share capital” represents the nominal value of the ordinary shares;
“Share Premium” represents consideration less nominal value of issued shares and costs
directly attributable to the issue of new shares;
“Share based payment reserve" represents stock options awarded by the group;
“Warrant reserve” represents warrants granted by the group;
“Foreign exchange reserve” represents the translation differences arising from translating the
financial statement items from functional currency to presentational currency and foreign
exchange differences arising on the elimination of intercompany loans forming part of the
investment of subsidiaries;
“Retained earnings” represents retained losses.
“Non-controlling interest” represents the interests of minority shareholders in the assets and
liabilities of the Group.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
40
Notes to the financial statements
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 amortised cost, being their initial fair value. These are classified
as loans and receivables, and so are subsequently carried at amortised cost using the effective interest
method. The Directors are of the view that such items are collectible and that no provisions are
required.
p. Financial instruments
(i)
Classification
The Group classifies its financial assets at amortised cost and at fair value through the profit or loss or
OCI. The classification depends on the purpose for which the financial assets were acquired.
Management determines the classification of its financial assets at initial recognition
(ii)
Recognition and measurement
Amortised cost
Regular purchases and sales of financial assets are recognised on the trade date at cost – the date on
which the Group commits to purchasing or selling the asset. Financial assets are derecognized when
the rights to receive cash flows from the assets have expired or have been transferred, and the Group
has transferred substantially all of the risks and rewards of ownership.
Fair value through the profit or loss
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are
measured at FVTPL.
Financial assets at FTVPL, are measured at fair value at the end of each reporting period, with any fair
value gains or losses recognised in profit or loss. Fair value is determined by using market observable
inputs and data as far as possible. Inputs used in determining fair value measurements are categorised
into different levels based on how observable the inputs used in the valuation technique utilised are
(the ‘fair value hierarchy’):
- Level 1: Quoted prices in active markets for identical items (unadjusted)
- Level 2: Observable direct or indirect inputs other than Level 1 inputs
- Level 3: Unobservable inputs (i.e. not derived from market data).
The classification of an item into the above levels is based on the lowest level of the inputs used that
has a significant effect on the fair value measurement of the item. Transfers of items between levels
are recognised in the period they occur.
Listed investments are valued at closing bid price on 31 December 2022. For measurement purposes,
financial investments are designated at fair value through the income statement. Gains and losses on
the realisation of investments are recognised in the income statement for the period. The difference
between the market value of financial instruments and book value to the Company is shown as a gain
or loss in the income statement for the period.
(iii)
Impairment of financial assets
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
41
Notes to the financial statements
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on the difference between the contractual cash
flows due in accordance with the contract and all the cash flows that the Group expects to receive,
discounted at an approximation of the original Effective Interest Rate (“EIR”). The expected cash flows
will include cash flows from the sale of collateral held or other credit enhancements that are integral
to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs are provided for credit losses that result from
default events that are possible within the next 12-months (a 12-month ECL). For those credit
exposures for which there has been a significant increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over the remaining life of the exposure, irrespective
of the timing of the default (a lifetime ECL).
For trade receivables (not subject to provisional pricing) and other receivables due in less than 12
months, the Group applies the simplified approach in calculating ECLs, as permitted by IFRS 9.
Therefore, the Group does not track changes in credit risk, but instead, recognises a loss allowance
based on the financial asset’s lifetime ECL at each reporting date.
The Group considers a financial asset in default when contractual payments are 90 days past due.
However, in certain cases, the Group may also consider a financial asset to be in default when internal
or external information indicates that the Group is unlikely to receive the outstanding contractual
amounts in full before taking into account any credit enhancements held by the Group. A financial
asset is written off when there is no reasonable expectation of recovering the contractual cash flows
and usually occurs when past due for more than one year and not subject to enforcement activity.
At each reporting date, the Group assesses whether financial assets carried at amortised cost are
credit impaired. A financial asset is credit-impaired when one or more events that have a detrimental
impact on the estimated future cash flows of the financial asset have occurred.
(iv)
Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the
asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’
s carrying amount and the sum of the consideration received and receivable is recognised in profit or
loss. This is the same treatment for a financial asset measured at FVTPL.
Financial liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit
or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an
effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the
case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s
financial liabilities include trade and other payables and loans.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Trade and other payables
After initial recognition, trade and other payables are subsequently measured at amortised cost using
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
42
Notes to the financial statements
the Effective Interest Rate (“EIR”) method. Gains and losses are recognised in the statement of profit
or loss and other comprehensive income when the liabilities are derecognised, as well as through the
EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the
statement of profit or loss and other comprehensive income.
Derecognition
A financial liability is derecognised when the associated obligation is discharged or cancelled or
expires.
When an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is recognised in profit or loss and other
comprehensive income.
Financial liabilities included in trade and other payables are recognised initially at fair value and
subsequently at amortised cost.
Fair value measurement
IFRS 13 establishes a single source of guidance for all fair value measurements. IFRS 13 does not
change when an entity is required to use fair value, but rather provides guidance on how to measure
fair value under IFRS when fair value is require or permitted. The resulting calculations under IFRS 13
affected the principles that the Company uses to assess the fair value, but the assessment of fair value
under IFRS 13 has not materially changed the fair values recognised or disclosed. IFRS 13 mainly
impacts the disclosures of the Company. It requires specific disclosures about fair value measurements
and disclosures of fair values, some of which replace existing disclosure requirements in other
standards.
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.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
43
Notes to the financial statements
Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and
are recognised within the Statement of Comprehensive Income.
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. 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.
Assets classified as held for sale are presented separately from the other assets in the statement of
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
44
Notes to the financial statements
financial position. The liabilities classified as held for sale are presented separately from other
liabilities in the statement of financial position.
t. 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:
(i)
the extent to which the vesting period has expired, and;
(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.
u. 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.
v. 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
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
45
Notes to the financial statements
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.
w. 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.
x. COVID-19
Exposure to COVID-19 impacted the development of exploration assets in the prior period, but the
impact of COVID-19 has since reduced and the Company is returning to normal activity.
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 administrative in nature whilst the activities in Zambia and Botswana 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 December 2022
Result
Loss/(Gain) from continuing operations
Loss before Income Tax
Other information
Non-controlling interest
Assets
Non-current Assets
Investments at fair value through profit
and loss
Current assets excluding cash and cash
equivalents
Cash and equivalents
Consolidated total assets
Liabilities
Non-current liabilities
Current liabilities
Consolidated total liabilities
BVI
£ 000's
10,218
10,218
-
-
-
302
1,738
1,064
593
3,697
-
-
-
1,442
1,442
Zambia
£ 000's
(4,399)
(4,399)
577
577
-
3,275
-
8
6
3,289
-
-
-
1,279
1,279
Botswana
£ 000's
8
8
66
66
-
1,669
-
24
17
1,710
-
-
117
12
129
Total
£ 000's
5,827
5,827
643
643
-
5,245
1,738
1,096
616
8,696
-
-
117
2,733
2,850
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
46
Notes to the financial statements
31 December 2021
Result
Loss from continuing operations
Loss before Income Tax
Other information
Non-controlling interest
Assets
Non-current Assets
Assets classified as held for sale
Current assets excluding cash and cash
equivalents
Cash and equivalents
Consolidated total assets
Liabilities
Non-current liabilities
Current liabilities
Consolidated total liabilities
3. Expenses by nature
BVI
£ 000's
5,200
5,200
-
-
143
-
4,284
1,705
6,132
-
2,412
2,412
Directors' fees
Office expenses
Travel and subsistence expenses
Professional fees – legal, consulting, exploration
AIM related costs including Public Relations
Auditor's remuneration – audit
Stock option expense
Losses on investments
Loss on disposal of Zamsort
Zamsort gain on forgiven shareholder loan
Surrendered options consideration
Other expenses
Zaco administration costs
Zamsort administration costs
Handa administration costs
Alvis-Crest administration costs
Gains and losses on foreign exchange
Total operating expenses
Zambia
£ 000's
Botswana
£ 000's
277
277
987
987
2,827
3,592
126
28
6,573
3,484
55
3,539
Note
7
-
-
89
89
1,542
-
-
2
1,544
116
-
116
31 Dec
2022
£ 000's
685
114
25
787
151
117
27
2,519
5,517
(6,485)
-
201
129
3
36
7
(168)
3,665
Total
£ 000's
5,447
5,447
1,076
1,076
4,512
3,592
4,410
1,735
14,249
3,600
2,467
6,067
31 Dec
2021
£ 000's
918
78
4
692
138
41
23
-
-
-
3,474
2
90
186
-
-
(199)
5,447
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
47
Notes to the financial statements
Auditors Remuneration
During the year, the Group obtained the following services from the Company’s and component
companies’ auditors:
Fees payable to the auditor for the audit of the consolidated financial
statements – current year
Fees payable to the auditor for the audit of the consolidated financial
statements – prior year (not accrued in prior year)
Fees payable to the auditors of subsidiaries for component audits –
current year
Total
31 Dec
2022
£ 000's
60
54
3
117
31 Dec
2021
£ 000's
-
40
1
41
Employee information
There were no employees on payroll in the group during the year ended 31 December 2022 (nil in
2021).
4. Disposals of held for sale assets and Zamsort subsidiary
Zamsort Settlement
As announced in February 2022, the Company announced that the parties to the legal cases in Zambia
and in the UK have come to an agreement to settle various disputed matters and for all legal
proceedings to be permanently dropped (the "Settlement Agreement"). The Settlement Agreement
was submitted to Zambian courts to effect a Consent Judgement which has the force of law.
In return for the claimant parties, being Terra Metals Limited, Zambia Mineral Exchange Corporation
Limited and their related parties (Mumena Mushinge, Brian Chisala and Katambi Bulawayo),
relinquishing all claims against Zamsort or any other company in the Arc Minerals Ltd Group, present
or contingent, and in full and final settlement of all claims in formal conclusion of all matters, the
Group agreed to transfer to the claimant parties, for nil consideration, 100% of the issued share capital
of Zamsort Ltd (the “Zamsort Transfer”), which owns the pilot plant. The Group also agreed to consent
to the claimant parties applying for the 8 square kilometre small mining and small exploration license
areas that were previously in existence at Zamsort prior to Arc's involvement (the “Original Zamsort
License Area”).
The pilot plant, related equipment and intangible assets that relate to the Original Zamsort License
Area have remained in Zamsort and all other assets and liabilities of Zamsort immediately preceding
the date of the Zamsort Transfer (the “Assets and Liabilities transferred to Handa subsidiary ”) were
transferred to Handa Resources Ltd. The net loss on the disposal of Zamsort was £2.162m
All of the Group’s representative directors who served on the board of directors of Zamsort resigned
effective 1 April 2022.
Effective 31 March 2022 the Group was deemed to no longer have control of subsidiary Zamsort Ltd.
The Group’s share of the loss is reported in the profit and loss. Financial information relating to the
deconsolidation for the period to the date of disposal is set out below.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
48
Notes to the financial statements
Details of deconsolidation of the subsidiary
Carrying amount of net assets upon
deconsolidation (see below)
Elimination of non-controlling interest
Foreign currency translation reserve related
to non-controlling interest
Fair value loss on disposal of subsidiary
through profit and loss
a) Results of disposal group prior to disposal
Administrative 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 disposal
Operating activities
Investing activities
Financing activities
Cash used
c) Assets and liabilities of disposal Group (i)
Assets classified as held for sale (2022)
Intangible assets
Property, plant and equipment
Inventory
Total
Assets classified as held for sale (2021)
Intangible assets
Property, plant and equipment
Dec
2022
Zamsort
£ 000's
101
Dec
2022
Total
£ 000's
101
(3,899)
(3,899)
1,636
1,636
(2,162)
(2,162)
Dec
2022
Zamsort
Dec
2022
Total
£ 000's £ 000's
2,519
2,519
2,519
-
2,519
2,519
-
2,519
-
-
-
-
Dec
2022
Zamsort
£ 000’s
2,768
-
-
Dec
2022
Total
£ 000’s
2,768
-
-
2,768
2,768
Dec
2022
Dec
2022
Zamsort
£ 000's
-
-
-
-
Total
£ 000's
-
-
-
-
Dec
2021
Zamsort
£ 000's
899
2,674
Dec
2021
Total
£ 000's
899
2,674
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
49
Notes to the financial statements
Inventory
Total
19
3,592
19
3,592
(i) The assets classified as available for sale by the Zamsort subsidiary is a result of the Zamsort Settlement agreement. The assets were transferred on 31
March 2022.
d) Zamsort subsidiary disposal on 31 March 2022
Zamsort Assets
Zamsort Liabilities
Zamsort Net Asset Value
Derecognised on disposal of Zamsort subsidiary
Net Asset Value on 31 March 2022 (transferred to Handa)
5. Taxation
Current income tax charge
Deferred tax charge/ (credit)
Total taxation charge/ (credit)
Mar
2022
Mar
2022
Zamsort Consolidated
£ 000's
3,404
(3)
3,401
(3,300)
101
£ 000's
3,404
(3)
3,401
(3,300)
101
31 Dec
2022
£’000
31 Dec
2021
£’000
-
-
-
-
-
-
Taxation reconciliation
The charge for the year can be reconciled to the loss per the consolidated statement of
comprehensive income:
Loss before income tax
Tax on loss at the weighted average Corporate tax rate of 0.96% (Dec 2021: 1.78%)
Effects of:
Permanent differences
Tax losses carried forward
Losses not subject to corporation tax
Total income tax expense
31 Dec
2022
£’000
5,827
101
-
(101)
-
-
31 Dec
2021
£’000
5,447
97
-
(5)
(92)
-
The weighted average applicable tax rate of 0.96% (2021: 1.78% %) used is a combination of the 0%
corporation tax in the BVI (2021:0%), 30 % corporation tax in Zambia (2021: 35%) and 22% corporation
tax in Botswana (2021: 22%).
A 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.
The tax rate used is the weighted average rate of the Republic of Zambia and British Virgin Islands.
Unused tax losses available in Zambia approximate Zambian Kwacha 198m at 31 December 2022
(31 December 2021 - Kwacha 191m) approximately GBP 8.6m (31 December 2021 - £8.5m).
6. Dividends
No dividends were paid (31 December 2021: nil).
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
50
Notes to the financial statements
7. Key management remuneration
Key management remuneration
31 December 2022
Executive Directors
Nicholas von Schirnding
Rémy Welschinger
Non-Executive Directors
Brian McMaster
Caleb Mulenga
Valentine Chitalu
Key Management Personnel
Vassilios Carellas (COO)
31 December 2021
Executive Directors
Nicholas von Schirnding
Rémy Welschinger
Non-Executive Directors
Brian McMaster
Caleb Mulenga
Valentine Chitalu*
Key Management Personnel
Vassilios Carellas (COO)
31 Dec
2022
£ 000’s
848
Short term
employee benefits
Share based
payments
31 Dec
2021
£ 000’s
1,129
Total
£ 000’s
£ 000’s
£ 000’s
308
233
-
-
48
48
48
-
-
163
-
848
-
-
-
-
-
-
-
-
-
-
-
-
308
233
-
-
48
48
48
-
-
163
-
848
Short term
employee benefits
Share based
payments (i)
Total
£ 000’s
£ 000’s
£ 000’s
450
334
47
71
16
211
1,129
-
-
-
-
23
-
23
450
334
47
71
39
211
1,152
* Appointed as a Director during the year ended 31 Dec 2021
(i) Certain options were surrendered in January 2021 (see Note 19] for more information).
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
31 Dec
2022
£ 000’s
(5,827)
31 Dec
2021
£ 000’s
(5,447)
Weighted average number of ordinary shares (000s)
1,173,115
1,098,646
Potential diluted weighted average number of shares (000s)
1,206,044
1,346,957
Basic earnings per share (expressed in pence)
Net Profit (loss) per share continuing operations – Basic
(0.50)
(0.50)
(0.50)
(0.50)
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
51
Notes to the financial statements
9. Long term payables
Minority shareholder loans
Surrended share options payable
31 Dec
2022
£ 000’s
117
-
117
31 Dec
2021
£ 000’s
3,606
1,129
4,735
(i)
(ii)
The minority shareholder loans are payable to the minority shareholder in Alvis-Crest
(Proprietary) Limited in the amount of BWP 1.797m as at 31 December 2022 (31
December 2021: BWP 1.797m). The loans are unsecured and loan holders have agreed to
roll forward the loans until a liquidity event occurs.
The minority shareholder loans rank equally with Arc’s working capital loans to Alvis-Crest
(USD 861k) which are eliminated on consolidation Alvis-Crest in the group accounts. The
loans are unsecured and loan holders have agreed to roll forward the loans until a liquidity
event occurs.
10. Intangible assets
Cost
At 1 Jan 2021
Additions
Reclassification of intangible assets to
held for sale assets
Currency gain/(loss)
Net book value as at 31 Dec 2021
At 1 Jan 2022
Additions
Transfer of intangibles
Zamsort derecognition
Currency gain/(loss)
Net book value as at 31 Dec 2022
Deferred
Exploration
Deferred
Exploration
Zaco
£ 000’s
Zamsort
£ 000’s
152
344
-
459
955
2,288
16
(899)
630
2,035
Prospecting
and
exploration
rights
Alvis-Crest
£ 000’s
-
1,312
-
-
1,312
Deferred Exploration
Deferred Exploration
Deferred
Exploration
Zaco
£ 000’s
Handa
£ 000’s
Zamsort
£ 000’s
955
123
-
-
25
1,103
-
-
1,960
-
202
2,162
2,035
-
(1,960)
(852)
777
-
Prospecting
and
exploration
rights
Alvis-Crest
£ 000’s
1,312
-
-
-
-
1,312
Other
Intangible
Assets
Total
£ 000’s
£ 000’s
2,440
1,860
(899)
1,089
4,490
Total
-
188
-
-
188
Other
Intangible
Assets
£ 000’s
£ 000’s
188
552
-
-
(84)
656
4,490
675
-
(852)
920
5,233
The Group’s Intangible assets are comprised of evaluation and exploration expenditures in respect of
the licences in Zambia and Botswana. Other Intangible Assets include exploration expenditures
incurred by the Group in relation to Zambia and Botswana.
Exploration projects in Zambia and Botswana are at an early stage of development and there are no
JORC (Joint Ore Reserves Committee) or non-JORC compliant resource estimates available to enable
value in use calculations to be prepared.
The Group is currently in the process of reorganising its licences in preparation for the joint venture with a
subsidiary of Anglo American as announced on 20 April 2023, including renewing or replacing licences as
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
52
Notes to the financial statements
appropriate, in order to maintain the areas under licence and the Directors are not aware of any reason why any
renewals or applications would not be granted.
The Group has submitted three mining license applications (33402-HQ-LML, 33403-HQ-LML and 33404-HQ-
LML), over the expired exploration licenses 23004-HQ-LEL and 19906-HQ-LEL. All of the mining licence
applications been approved and validated by the Mining Cadastre Department and following the submission of
the subsequent requisite documentation, the Mines Advisory Committee (MAC), will meet and review the
finalised LML applications prior to issuance of the Mining Licenses.
The Directors have undertaken a review to assess whether circumstances exist which could indicate
the existence of impairment as follows:
•
The Group no longer has title to mineral leases.
• A decision has been taken by the Board to discontinue exploration due to the absence of
a commercial level of reserves.
•
Sufficient data exists to indicate that the costs incurred will not be fully recovered from
future development and participation.
Following their assessment, the Directors concluded that no impairment charge is necessary.
11. Fixed Assets
Processing
Plant
£ 000’s
Mining
Equipment
£ 000’s
Motor
Vehicles
£ 000’s
Furniture &
Fittings
£ 000’s
Cost
At 1 Jan 2021
Impairment
Alvis-Crest acquisition
Disposals
Additions
Reclassification of fixed assets to held
for sale assets
Foreign exchange
At 31 Dec 2021
2,063
-
-
-
-
(2,652)
589
-
At 1 Jan 2022
Impairment
Zamsort derecognition
Disposals
Additions
Foreign exchange
At 31 Dec 2022
Accumulated Depreciation
At 1 Jan 2021
Disposals
Alvis-Crest acquisition
Depreciation
Reclassification of fixed assets to held
for sale assets
Foreign exchange
At 31 Dec 2021
At 1 Jan 2022
Disposals
Zamsort transfer
Depreciation
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
132
-
-
-
-
(169)
37
-
-
-
-
-
-
-
-
(98)
-
-
(21)
148
(29)
-
-
-
-
-
56
-
14
-
-
-
16
86
86
-
(40)
-
-
(11)
37
(38)
-
(9)
(8)
-
(11)
(66)
(66)
-
40
(9)
26
(1)
-
-
-
-
8
33
33
-
(31)
-
-
-
2
(23)
-
-
(2)
-
(6)
(31)
(31)
-
30
-
Total
£ 000’s
2,277
(1)
14
-
-
(2,821)
650
119
119
-
(71)
-
-
(11)
39
(159)
-
(9)
(31)
148
(46)
(97)
(97)
-
71
(9)
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
53
Notes to the financial statements
Reclassification of fixed assets to held
for sale assets
Foreign exchange
At 31 Dec 2022
Net book value – 31 Dec 2021
Net book value – 31 Dec 2022
Processing
Plant
£ 000’s
-
Mining
Equipment
£ 000’s
-
Motor
Vehicles
£ 000’s
-
Furniture &
Fittings
£ 000’s
-
-
-
-
-
-
-
-
-
9
(26)
20
11
-
(1)
2
1
Total
£ 000’s
-
8
(27)
22
12
12. Investment in subsidiary companies
At 31 Decemeber 2022, the Company held interests in the share capital of the following subsidiary
companies.
Company
Place of Business
% Ownership held Nature of business
Unico Minerals Limited
British Virgin Islands
Zaco Investments Limited
Handa Resources Limited
Republic of Zambia
Republic of Zambia
Alvis-Crest (Proprietary) Limited
Republic of Botswana
100%
72.5%
66%
75%
Holding Company
Mineral Exploration
Mineral Exploration
Mineral Exploration
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;
Handa Resources Limited registered office at Plot No. 1266, Haile Selassie Avenue, Longacres, Lusaka, Zambia
Alvis Crest (Proprietary) Limited is registered at c/o Upt Secretarial Services (Pty) Limited, Plot 465, Mathangwane Road, Extension 4, Gaborone, Botswana
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. Acquisition of Alvis-Crest (Proprietary) Limited
Alvis
On 4 November 2021, the Group concluded the acquisition of 75% of the share capital of Alvis-Crest
(Proprietary) Limited (“Alvis Crest”) and 75% of the exiting shareholder loans to the value of BWP
5,392,291 (£350k) for a total consideration of £1.2m through the issue of 35,488,259 fully paid
ordinary shares of no par value in the Company (“Consideration Shares”) at a 10-VWAP share price up
to and including 3 November 2021 of 3.3814 pence per share. The consideration attributable to the
acquisition of the 75% share capital of Alvis Crest is £850k. In addition, the Company recorded £41k
of legal fees in connection with the acquisition which has been capitalised. Arc have the option to
acquire the remaining 25% of Alvis for US$5m exercisable until Arc makes a final investment decision,
which would be upon the completion of a bankable feasibility study in respect of the licences. Arc
acquired control of Alvis Crest effective 11 November 2021. The acquisition meets the definition of a
business combination and has been accounted for using the acquisition accounting method in
accordance with IFRS.
Alvis holds two prospecting licenses in the Botswana Kalahari Copperbelt, adjacent to the world-class
high-grade copper-silver project Zone 5, owned by Khoemacau Copper Mining ("Licenses").
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and
goodwill are as follows:
Prospecting and exploration rights
Capitalised exploration expenditure
Fair value
£ 000’s
1,312
41
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
54
Notes to the financial statements
Fixed assets
Minority shareholder loan
Acquired shareholder loan
Total fair value
Transaction costs
Consideration
Goodwill
5
(117)
(350)
(891)
41
850
-
Non-controlling interest
The non-controlling interest of these acquisitions 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.
14. Trade and other receivables
Current trade and other receivables
Other receivables
Receivable – Casa Sale (USD 1,250,000)
Loan Note – Casa sale (USD 5,000,000)
Prepayments
Total
Receivable – Casa Sale
Group
31 Dec
2022
£ 000’s
63
1,033
-
-
1,096
Group
31 Dec
2021
£ 000’s
241
-
3,710
20
3,971
Included in receivables at 31 December 2022 is £1.033M (USD 1.25M) to reflect the overdue
Consideration Shares due to Arc in relation to the disposal of Casa Mining Limited (see note 15).
Casa Loan Note
Included in receivables at 31 December 2021 was a secured loan note of US$5 million (£3,710k) issued
by Golden Square to Arc (the “Casa Loan Note”). The Casa Loan Note related to the disposal of Casa
as first announced in the RNS dated 18 March 2020. The Casa Loan Note was subsequently extended
and, as announced in the RNS dated 29 April 2022, satisfied in full.
The carrying amounts of the Group’s trade and other receivables are denominated in the following
currencies:
Current trade and other receivables
UK Pounds
US Dollars
Zambian Kwacha
Botswana Pula
Total
Group
31 Dec
2022
£ 000’s
32
1,033
8
24
1,097
Group
31 Dec
2021
£ 000’s
574
3,710
126
-
4,410
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
55
Notes to the financial statements
15. Disposal of Casa Mining Ltd
Consideration
As announced on 29 April 2022, Regency Mining Ltd (“Regency”) acquired a 73.5% interest in the Misisi
gold project (“Misisi Project”) from Golden Square Equity Partners Limited (“Golden Square”),
replacing Rackla Metals Inc. as the acquiror of Misisi. The terms of the transaction were that Arc would
be paid USD 250,000 in cash and the equivalent of USD 1,250,000 in shares in a publicly listed company
in Canada (“Consideration Shares”). The agreement also provided Arc with a royalty agreement on the
same terms as the previous royalty agreement announced on 5 May 2021.
On 30 June, the Company received the first cash payment of USD 125,000 towards the USD 1,500,000
receivable from the disposal of its Casa interests. On 12 September, the Company received the second
cash payment of USD 125,000, bringing the aggregate cash payments received by the Company to
date to USD 250,000. The balance of USD 1,250,000 is to be settled by the issuance of listed stock
which has been delayed due to corresponding delays in the listing process of the underlying entity.
Management continues to follow up on progress and the directors consider the balance recoverable.
USD 5m Loan Note
From 19 March 2020, Arc held a USD 5,000,000 loan note issued by Golden Square (Pty) Ltd (“Golden
Square Loan Note”) secured by 3 million shares in OTC:TMNA (“Security Shares”). As announced on
29 April 2022 the Company accepted the Security Shares in full and final settlement of the Golden
Square Loan Note.
At 1 January 2022
Currency gain
At 29 April 2022
Security Shares fair value
Gain on settlement 29 April 2022
USD
$ 000's
5,000
-
5,000
7,470
2,470
GBP
£ 000's
3,710
284
3,994
5,967
1,973
The fair value movements in the Security shares are disclosed in note 17.
Casa Royalty
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 originally payable on 19 March 2021 and a 3% Royalty
calculated on net smelter production capped at US$45,000,000. The $5m loan note was subsequently
extended and, as announced in the RNS dated 29 April 2022, satisfied in full.
There were a number of key factors which affect the valuation of the Casa Royalty which has a face
value of US$ 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.
16. Short-term Investments Held at Fair Value Through Profit and Loss
The Group’s investments held at fair value through profit and loss consist of investments publicly
traded on the London Stock Exchange and the Over-The-Counter (OTC) market. These investments
are valued at the mid-price as at year end.
Level 1
£ 000's
Level 2
£ 000's
Level 3
£ 000's
Total
£ 000's
At 1 January 2022
-
-
-
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
-
56
Notes to the financial statements
Additions
Fair value changes
Gain/(Loss) on disposals
Disposals
Foreign exchange
At 31 December 2022
6,406
(4,685)
(25)
(176)
218
1,738
-
-
-
-
-
-
-
-
-
-
-
-
Level 1
£ 000's
Level 2
£ 000's
Level 3
£ 000's
Losses on short-term investments held at fair value through profit and loss
Fair value loss on investments
Realised loss on disposal of investments
At 31 December 2022
(4,685)
(25)
(4,710)
-
-
-
-
-
-
6,406
(4,685)
(25)
(176)
218
1,738
Total
£ 000's
(4,685)
(25)
(4,710)
The current valuation of the TMNA shares is c.£1.6m based on a closing share price of USD 0.66 on 31
December 2022.
17. Zamsort/Handa Restructuring
Zamsort Settlement (background)
The Company announced in February 2022 that the parties to the legal cases in Zambia and in the UK
have come to an agreement to settle various disputed matters and for all legal proceedings to be
permanently dropped (the "Settlement Agreement"). The Settlement Agreement was submitted to
Zambian courts to effect a Consent Judgement which has the force of law.
In return for the claimant parties, being Terra Metals Limited, Zambia Mineral Exchange Corporation
Limited and their related parties (Mumena Mushinge, Brian Chisala and Katambi Bulawayo),
relinquishing all claims against Zamsort or any other company in the Arc Minerals Ltd Group, present
or contingent, and in full and final settlement of all claims in formal conclusion of all matters, the
Group agreed to transfer to the claimant parties, for nil consideration, 100% of the issued share capital
of Zamsort Ltd (the “Zamsort Transfer”), which owns the pilot plant. The Group also agreed to consent
to the claimant parties applying for the 8 square kilometre small mining and small exploration license
areas that were previously in existence at Zamsort prior to Arc's involvement (the “Original Zamsort
License Area”).
As announced on 31 March 2022, the Company issued 3,000,000 options in relation to the Zamsort
Settlement with an exercise price of 5 pence each and an expiry date of 31 March 2024. Following the
grant of these options there were 20,133,334 share options outstanding.
All of the Group’s representative directors who served on the board of directors of Zamsort resigned
effective 1 April 2022 (“Resignation Date”).
Transfer of assets and liabilities from Zamsort to Handa
The pilot plant, related equipment and intangible assets that relate to the Original Zamsort License
Area which remained in Zamsort (“Zamsort Retained Assets”) was treated as available for sale assets
at 31 December 2021. All assets and liabilities, other than the Zamsort Retained Assets, immediately
preceding the date of the Zamsort Transfer (the “Transferred Assets & Liabilities”) were transferred
to Handa Resources Ltd (“Zamsort/Handa Restructuring”). The Zamsort/Handa Restructuring has been
recorded on 31 March 2022, being the date immediately preceding the Resignation Date and resulted
in a c.£6.8m expense in the year to 31 December 2022.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
57
Notes to the financial statements
18. Trade and other payables
Current trade and other payables
Surrended share options payable
Minority shareholder loans
Trade payables, other payables and accruals
Included in trade and other payables are the following:
Surrendered Share Options Payable
Group
31 Dec
2022
£ 000’s
1,181
1,271
281
2,733
Group
31 Dec
2021
£ 000’s
1,129
-
209
1,338
As announced on 16 March 2021, a number of persons discharging managerial responsibility ("PDMR")
surrendered 75,837,378 share options which were exercisable at a profit. In lieu of this surrender, the
share option holders were compensated in line with the Black-Scholes fair value model, using a 10-
day VWAP of 6.94p through cash and / or shares to be issued at the Company's discretion to a total
value of £3,474,179 ("Consideration") according to a compensation schedule which will be phased
over the next 3 years at the Company's discretion ("Payment Period").
Subsequent to the surrender of share options as herein described, there remained 16,333,334 share
options outstanding.
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.
Minority shareholder loans
The minority shareholder loans are payable to the minority shareholder in Handa Limited and Zaco
Limited in the amounts of USD 1.134M and USD 400k, respectively, as at 31 December 2022 (31
December 2021: USD 4.33M and USD 367k, respectively). The loans are unsecured and, whilst
repayable on request, the loan holders have agreed to roll forward the loans until a liquidity event
occurs.
The minority shareholder loans rank equally with Arc’s working capital loans to Handa (USD 1.684M),
Zaco (USD 1.071M) and Alvis-Crest (USD 861k) which are eliminated on consolidation of Handa, Zaco
and Alvis-Crest in the group accounts. The loans are unsecured and, whilst repayable on request, the
loan holders have agreed to roll forward the loans until a liquidity event occurs.
19. Share capital
Authorised
Unlimited ordinary shares of no par value
Called up, allotted, issued and fully paid
As at 1 January 2021
Financings for cash
Issued on conversion of convertible debt
Issued pursuant to share based payment
exercised
Issued to creditors in lieu of payment
Issued pursuant to warrant exercises
£
000’s
-
Number
of shares
Nominal
value
992,689,831
84,835,160
6,293,572
4,400,000
1,200,000
25,613,064
-
-
-
-
-
Average
price per
share
(pence)
3.50-6.50
3.5
3.00-5.00
6.70
3.00-6.50
Gross
Consideration
value
GBP’000
4,636
3,800
220
190
80
1,009
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
58
Notes to the financial statements
Issued in relation to the acquisition of
75% of Alvis-Crest (Pty) Ltd
As at 31 December 2021
35,488,259
1,150,519,886
-
3.38
As at 1 January 2022
Issued to creditors in lieu of payment
Issued pursuant to warrant exercises
As at 31 December 2022
1,150,519,886
1,200,000
74,024,896
1,225,744,782
-
-
3.30
2.25-3.00
1,200
6,499
6,499
40
2,213
8,752
Share issue costs in the amount of £nil (31 December 2021 – £235,450) were incurred in the year and
set off against the share premium account.
20. 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)
3.71
3.69
3.69
3.85
1 January 2021
Expired
Prior year adjustments *
Surrendered/Exercised
during the year
Granted
31 December 2021
1 January 2022
Expired
Prior year adjustments
Exercised during the year
Granted
31 December 2022
Number
Exercise
Price
(pence)
Share price
at grant
(pence)
Weighted Avg
Term
(years)
Value
(000s)
**
95,026,115
-
1,044,597
(80,237,378)
2,000,000
17,833,334
17,833,334
(700,000)
-
-
3,000,000
20,133,334
-
-
-
-
-
-
4.50
3.33
-
-
-
5.00
-
-
-
-
3.60
-
2.89
-
-
-
2.82
1.83
1.83
-
-
-
1.25
0.95
1,389
-
(20)
(1,118)
22
273
273
(17)
-
-
27
283
* As disclosed in the statement of changes in equity, the value of these options (£20k) had been
reversed in the previous financial year through retained earnings as the amounts were not material.
No options are/were 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 December 2022 is 3.85 pence
(31 December 2021 - 3.69 pence).
In the Black-Scholes model the key inputs for the options granted in 2022 were Volatility as 64.6%, the
Risk Free Interest Rate as 0% 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 £27,000 (31 December
2021 – £23,000).
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
59
Notes to the financial statements
Warrants
Grant
date
1 January 2022
Exercised during the year
Expired during the year
TOTAL 31 December 2022
Weighted Average
Number
165,859,668
(74,024,896)
(79,039,125)
12,795,647
Exercise
Price
(pence)
Term
(years)
Share Price
at grant
pence
4.29
1.36 (i)
(i) Remaining term as at 31 December 2022
The charge incurred during the year in relation to warrants was nil.
Grant
date
1 Jan 2021
Exercised during the year
Expired during the year
TOTAL 31 December 2021
Weighted Average
Number
230,476,911
(25,613,064)
(39,004,179)
165,859,668
Exercise
Price
(pence)
Term
(years)
Share Price
at grant
pence
3.75
0.49 (i)
(i) Remaining term as at 31 December 2021
The charge incurred during the year in relation to warrants was nil.
21. Share premium
Opening Balance
Total Additions
Share issue costs
As at 31 December
31 Dec
2021
£ 000s
62,019
2,253
-
64,272
31 Dec
2021
£ 000s
55,755
6,499
(235)
62,019
See Note 19 for a breakdown of share issues during the year.
22. Financial instruments and capital risk management
Financial assets by category
The categories of financial assets included in the balance sheet and the headings in which they are
included are as follows:
Current assets
Trade and other receivables
Assets held for sale
Short term investments
Cash and cash equivalents
2022
£000
1,096
-
1,738
616
3,450
2021
£000
3,971
3,592
439
1,735
9,737
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
60
Notes to the financial statements
Financial liabilities by category
The categories of financial liabilities included in the balance sheet and the headings in which they
are included are as follows:
Current liabilities
Trade and other payables
Financial Risk Management
Financial Risk Factors
2022
£000
1,258
1,258
2021
£000
2,467
2,467
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 (“USD”), Zambian Kwacha
(“ZMW”) and Botswanan Pula (“BWP”). 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.
The Zambian Kwacha appreciated by approximately 2.5% in 2022(i), although it has shown to be a
volatile currency. The Kwacha risk is mitigated by the fact that the Group’s Zambian entities 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 Botswanan Pula appreciated by approximately 0.14% in 2022(i). Whilst less volatile than the ZMW,
the Pula risk is similarly mitigated to that of the Kwacha by the fact that the Group’s Botswanan entity
would only have one month’s cash requirement on hand at any one time.
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:ZMW foreign
exchange rate on the Group’s loss for the year and on equity is as follows:
Potential impact on Zambian kwacha and Botswanan Pula expenses: 2021
Increase/(decrease) in exchange rates
Group (BWP)
£ 000’s
-
-
20%
-20%
Group (ZMW)
£ 000’s
(55)
55
Potential impact on Zambian kwacha and Botswanan Pula expenses: 2022
Increase/(decrease) in exchange rates
20%
(2)
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
(9)
61
Notes to the financial statements
b) Credit Risk
Credit risk arises from cash and cash equivalents.
-20%
2
9
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 reputable
institutions.
The Group considers that it is not exposed to major concentrations of credit risk.
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 remained very unattractive during the fiscal year and management
employed short-term investment strategies to protect working capital reserves.
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
Zambian Kwacha (ZMK)
Botswana Pula (BWP)
At end of year
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.
Dec
2022
£ 000’s
593
3
3
17
616
Dec
2021
£ 000’s
1,706
-
28
1
1,735
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.
Listed securities
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.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
62
Notes to the financial statements
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.
Risk arises from uncertainty about the future valuations of financial instruments held in accordance
with the Company’s investment objectives. These future valuations are determined by many factors
but include the operational and financial performance of the underlying investee companies, as well
as market perceptions of the future of the economy and its impact upon the economic environment
in which these companies operate.
The Company holds investments in companies that are listed on stock markets. The value at the
balance sheet date is £1.738m (2021: £4.031m). If there were to be a 10% decrease in overall share
prices of these financial investments, the impact on the comprehensive income and net assets would
be a decrease of £174k (2021:£403k). There would be a similar increase in the event there was a 10%
increase in overall share prices.
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 £6,026,000 (December 2021: £8,182,000).
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.
23. Commitments
Alvis-Crest committed exploration expenditure
The Group is committed to spending US$250,000 per annum on the Virgo Project. The licence was
renewed in 2022 for 3 years to 2025. As such, under the current licence term, the Group is committed
to spending at least US$250,000 in the next 12 months and an additional US$250,000 per year for the
following 2 years.
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.
24. 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 during the reporting year, except as disclosed below:
Remuneration of Key Management Personnel
The remuneration of the Directors and PDMRs is set out in Note 7.
Of the amounts set out in Note 7:
£163,143 (2021 – £210,638) was paid to VC Resources Ltd, a PSC owned by Vassilios Carellas.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
63
Notes to the financial statements
As announced on 16 March 2021, share options issued to certain directors and other PDMRs of the
company were surrendered in exchange for consideration. Please refer to Note 18 for more
information.
25. Ultimate controlling party
There is no ultimate controlling party in the opinion of the Board.
26. Events after the reporting date
Joint venture agreement with Anglo American
On 12 May 2022 the Company announced that it, together with its partners, had entered into an
agreement with Anglo American with the intention to form a joint venture in respect of its Zambian
copper interests. The key commercial terms of the Joint Venture were that, upon signing of a binding
Joint Venture Agreement (“JV Agreement”), Anglo American would have an initial ownership interest
of 70% with Arc and its partners holding the balance via Unico Minerals Ltd (“Unico”) in which Arc will
have a 69% interest with the balance held by its partners. On 20 April 2023, the JV Agreement was
signed subject to completing certain conditions precedent including a restructuring of the Group's
assets, obtaining approvals from relevant government and regulatory authorities and other customary
conditions.
At the date of this report the Company continues to work towards finalising the Conditions Precedent.
The key commercial terms of the Joint Venture are as follows:
• Upon signing of the Joint Venture Documents ("Effective Date"), a Joint Venture vehicle will be
formed with initial ownership interests by Anglo American and Unico of 70% and 30%,
respectively ("Initial Ownership Interests");
• Anglo American has the right to retain an Ownership Interest of 51%, by:
o
funding exploration expenditures equal to USD 24,000,000 on or before the date that is
180 days after the third anniversary of the Effective Date ("Phase I End Date"); and
o making cash payments to Unico totalling up to USD 14,500,000, as follows:
§ USD 3,500,000 upon signing of the Joint Venture Agreement and satisfying the
Conditions Precedent;
§ USD 1,000,000 on the first anniversary of the Effective Date;
§ USD 1,000,000 on the second anniversary of the Effective Date;
§ USD 1,000,000 on the third anniversary of the Effective Date; and
§ USD 8,000,000 by the Phase I End Date.
• Following the completion of Phase I, Anglo American will have the right to retain an additional
ownership interest equal to 9% (for a total ownership interest of 60%) by funding
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
64
Notes to the financial statements
USD 20,000,000 of additional exploration expenditures within 2 years of the Phase I End Date
("Phase II End Date")
• Following the completion of Phase II, Anglo American will have the right to retain an additional
ownership interest equal to 10% (for a total ownership interest of 70%) by funding USD
30,000,000 within 2 years of the Phase II End Date.
• Anglo American, for as long as it holds the largest interest in the Joint Venture, shall have the
right to nominate three directors and Unico shall have the right to nominate two directors. Joint
Venture board decisions shall be adopted by simple majority vote.
Arc Minerals Limited Annual Report & Financial Statements Dec 2022
65