CHINA NONFERROUS GOLD
LIMITED
Company Registration Number WK-277188
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 2018
CHINA NONFERROUS GOLD LIMITED
Contents
Company Information
Chairman’s Statement
Report of the Directors
Statement of Directors’ Responsibilities
Governance Report
Report of the Independent Auditor
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Accounting Policies
Notes to the Financial Statements
Page
3-4
5-6
7-15
16
17-20
21-25
26
27
28
29
30-36
37-58
2
(Chairman and Non-Executive Director)
(Executive Director, Managing Director)
(Executive Director, Finance Director)
(Non-Executive Director)
(Non-Executive Director)
CHINA NONFERROUS GOLD LIMITED
Company Information
Directors
Mr Xiang Wu
Mr Lixian Yu
Mr Delin Feng
Mr Xiuzhi Shi
Mr Yong Li
Company Secretary
Ms Ma Yifei
Registered Office
190 Elgin Avenue
George Town
Grand Cayman
KY1-9005
Cayman Islands
WH Ireland Limited
24 Martin Lane
London
EC4R 0DR
United Kingdom
Nominated Adviser
Bankers
UK
National Westminster Bank Plc
Knightsbridge Commercial
Business Centre
186 Brompton Road
London SW3 1HL
China
Bank of China
1/F CNMC
Building 10
Anding Road
Chaoyang District
Beijing 10029 China
Industrial and Commercial Bank of
China (Macau) Limited 18/F ICBC
Tower
Macau Landmark
555 Avenida da mizade
Macau
China
China Construction Bank Macau
Branch
5/F, Circle Square, 61
Avenida de Almeida
Ribeiro, Macau
Hong Kong
Wing Lung Bank Limited
Wing Lung Bank Building
45 Des Voeux Road
3
CHINA NONFERROUS GOLD LIMITED
Company Information
Central Hong Kong
Bankers (continued)
Independent Auditor
Legal Advisors
JSC SO PBRR ‘Tajprombank’
734025 Rudaki Avenue 22
Dushanbe
Tajikistan
JSC ‘Agroinvestbank’
734018 Ave SaadiSherozi 21
Dushanbe
Tajikistan
SSB RT ‘Amonatbank’
Rudaki Avenue 22
Dushanbe
Tajikistan
PKF Littlejohn LLP
1 Westferry Circus
Canary Wharf
London E14 4HD
English law
Charles Russell Speechlys LLP
5 Fleet Place
London EC4M7RD
United Kingdom
Tajikistan law
Galimov Fa and Matt
No. 60, Building 6, Somony Street
Dushanbe
Tajikistan
Cayman Islands law
Walkers
Suite 1501-1507
Alexandra House
18 Chater Road
Central
Hong Kong
4
CHINA NONFERROUS GOLD LIMITED
Report of the Directors
The Directors present their annual report and the audited Financial Statements of China Nonferrous Gold Limited
for the year ended 31 December 2018.
Principal Activity
The principal activity of the Group is that of mineral exploitation, mine development and mining.
BUSINESS REVIEW
Introduction
China Nonferrous Gold Limited (“CNG”) is a mineral exploration, development and mining company. The Group’s
project is located in central Asia, having been discovered during the Soviet era. The principal focus of the Group
is the development of the Pakrut Gold Project in Tajikistan.
CNG, following the scheme of arrangement between Kryso Resources Limited (formerly Kryso Resources Plc)
and its shareholders, was admitted to trading on AIM 31 July 2013 in order to continue funding the development
of the Pakrut Gold Deposit and the exploration of the Pakrut License Area, and to better position the Group to
obtain and acquire other gold and base metal deposits in Tajikistan.
The Group’s Executive Directors have a proven track record of operating in Tajikistan and they believe CNG to
be the first foreign company to obtain a 100% interest in a mining and exploration project in the country.
A review of the activities of the Group during 2018 is provided in the Chairman’s Statement.
Strategy
CNG’s strategy is to maximize shareholder value through the development of the Group’s exploration properties,
proving up additional resources. CNG’s medium term objective is to become a mid-tier gold producer and keep
in mind the mission of state-owned enterprises, maintain strategic strength, and strive to achieve the production
goal of Pakrut. The directors of CNG have a track record of operating successfully in Tajikistan and believe CNG
to have been the first foreign company to obtain 100% ownership of a mining and exploration project in Tajikistan.
OPERATING REVIEW
To date the Group has:
• Completed the construction of flotation tailings pond, filling station, mine camp and underground
ventilation system;
• After the year end, Pakrut gold mine reached production capacity of 2,000 tons per day as a whole once
construction works were completed at the end of 2018;
• Processed a total of 268,200 tons of ore at a grade of raw ore of 2.18 g/t;
• Produced 9,030 tons of gold concentrate at 63.58 g/t, the recovery rate was 80.89%;
• Smelting Plant processed more than 300 tons of gold concentrate, produced gold ingots of 350 kg; and
• Generated revenue from trial production of US$17,925,914.
Pakrut Gold Deposit and License Area
In April 2004, LLC Pakrut, a wholly owned subsidiary of the Group, was granted a license and geological lease
to explore and exploit the Pakrut License Area which comprises the Pakrut gold deposit and the surrounding
6,300 hectare exploration area located in the metalliferous southern Tien-Shan Fold Belt. This belt is reputed to
have the second largest known gold resource after the Witwatersrand in South Africa. The exploration license
was valid for 10 years and expired on 1 April 2014. An application has been submitted in accordance with the
required procedures to renew the exploration license. The renewal application is being considered by the
Government of Tajikistan and the Group is working with the Government to ensure it is renewed as soon as
possible. Exploration and evaluation activities can continue at the Pakrut Gold Deposit in the area covered by the
mining license.
7
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
In November 2011, the Government of the Republic of Tajikistan issued the Pakrut Project mining license to LLC
Pakrut. According to the terms of the license, the amount of ore that can be mined is variable depending upon
the mine plan. The plan submitted by the Group envisages an initial processing capacity of 660,000 tons of ore
per annum, increasing to 1,320,000 tons per annum. The mining license is valid until 2 November 2030. An
application has been submitted in accordance with the required procedures to obtain approval to mine all JORC
compliant reserves arising from exploration and evaluation activities undertaken by the Group between 2009 and
2013. The application is currently being considered by the Tajik Department of Geology, following which approval
is required by the Scientific and Technical Counsel.
FINANCIAL REVIEW
The results for the year ended 31 December 2018 were as follows:
Revenue
Mine construction costs capitalised during the year
Impairment of mine assets
Administrative expenses
Total costs
% Administrative expenses to total costs
Operating loss
Less: interest receivable
Loss on ordinary activities before taxation
Earnings per share (cents)
2018
US$000
17,926
(66,717)
-
(6,192)
72,909
100%
5,227
(923)
4,304
1.17
2017
US$000
5,784
(23,622)
(10,703)
(5,017)
39,342
12.8%
14,970
(1)
14,969
3.93
The main financial Key Performance Indicator (‘KPI’) for the Group is administration costs as a percentage of
total costs which continues to be at an acceptable proportion. In 2018, KPI index is at 8.49% (2017: 12.75%).
Administrative expenses have decreased in 2018 as a percentage of total costs due to the significant increase in
mine asset additions.
Revenue is also considered to be a KPI and will be increasingly important to monitor now that the Group has
entered full production in 2019. Revenue from trial production was US$17.9 million (2017: US$5.8 million) and is
forecasted to increase significantly from the 2019 financial year over the license period now that the Group has
entered into full production.
Corporate Responsibility
The Group seeks to build a sustainable and profitable business to maximize the return to its shareholders and in
doing so will not knowingly overlook its Corporate Responsibilities.
Certain Directors also serve as directors of other companies involved in natural resource exploration,
development and mining and consequently there exists the possibility for such Directors to be in a position of
conflict. Any decision made by such Directors involving the Group will be made in accordance with their duties
and obligations to deal fairly and in good faith with the Group and such other companies. In addition, such
Directors will declare, and refrain from voting on, any matter in which such Directors may have a conflict of interest.
People
The Group recognises that the success of its ventures is based on the well-being and health of its employees. All
employees have to pass through an induction process where they are briefed on the Group’s health and safety
policies. The safety of the Group’s employees is of the utmost importance and is therefore taken seriously in all
areas in which the Group’s employees operate.
8
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
The Group is also committed to the development of its employees and encourages them to attend courses and
programs to further develop their own skills. The Group also aims to provide a favorable working environment
which will continue to draw, retain and motivate its employees so that they can reach their true potential and share
in the Group’s success.
Employees are kept well informed of the performance and objectives of the Group through established methods
of personal briefings and regular meetings. Employees are given the opportunity to develop and progress
according to their ability. The Group has an employee share option scheme to encourage employees’ participation
in the Group’s performance.
The Group has continued its policy of giving the disabled full and fair consideration for all job vacancies for which
they offer themselves as suitable applicants, having regard to their particular aptitudes and abilities. With regard
to existing disabled employees and those who may become disabled during the year, the Group examines ways
and means of providing continuing employment under normal terms and conditions and provides training, career
development and promotion, where appropriate.
Social
The Group continues to have a strong relationship with the local communities in the areas in which it operates,
respecting their laws and customs. The Group employs local people in all levels within the organization; this
ensures a transparent and fair transfer of benefits and support to their communities where appropriate. The Group
engages the local communities in all aspects of the projects it is actively involved in, from exploration through to
feasibility and production, ensuring that concerns are addressed, and that support is maintained throughout the
entire process.
Environment
The Group has a strict environmental code with which all its employees are well-versed during the induction
process; this not only satisfies the local environmental code, but also the international code. The Group has
contracted the services of a local environmental consultant who monitors its operations to ensure that any lapses
are immediately brought to the attention of management.
Risk Factors
There are several principal risk factors outlined below that may affect the Group’s businesses and which may not
all be within the Group’s control.
PRINCIPAL RISKS AND UNCERTAINTIES
Environmental Risk
The Group’s core operations are located in Pakrut, a mountainous area of Tajikistan. The area is remote and can
be subject to adverse weather conditions which, as evidenced in the first half of 2017, can impact the ability of
the Group to perform its core operations and may lead to substantial damage of the Group’s properties. The
Group seeks to manage this risk by taking out appropriate insurance and carefully monitoring weather reports
during the seasons when adverse conditions are most likely and ensuring that appropriate action is taken to
minimise risk to life and property damage.
Production Risk
In 2019, Pakrut entered the full production phase. The company's existing production equipment is considered to
be sufficient to meet the requirements of the budgeted gold production targets. The right choice of production
equipment has a major impact on productivity and costings.
The production process of the gold should be based on the specific performance requirements of the product.
This requires an increase in production skills and requires training of company technicians. Technology is
changing rapidly and existing production technology may have fallen behind, therefore technicians must continue
to develop their knowledge and skillset to keep up with this pace.
At present, CNG has completed the trial production stage and entered the stage of comprehensive operation.
The Company will need to manage change and innovation and accumulate valuable experience and systems as
production levels ramp up. A key factor will be the continuous technological innovations and developments in the
industry. To become an industry leader, CNG must adhere to the technology innovation strategy and seek
innovative methods to achieve a comprehensive transformation.
9
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
Exploration and Development Risk
The exploration for and the development of mineral deposits involves significant risks, which even a combination
of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result
in substantial rewards, few properties which are explored ultimately develop into producing mines. Major
resources are required to establish ore reserves, to develop metallurgical processes and to construct mining and
processing facilities at the Pakrut site.
There is no certainty that the exploration and development expenditures made by the Group as described in these
financial statements will result in a commercially feasible mining operation. There is aggressive competition within
the mining industry for the discovery and acquisition of properties considered to have commercial potential. The
Group will compete with other companies, many of which have greater financial resources, for the opportunity to
participate in promising projects. Significant capital investment is required to achieve commercial production from
successful exploration efforts.
The commercial viability of a deposit is dependent on a number of factors. These include deposit attributes such
as size, grade and proximity to infrastructure; current and future market prices which can be cyclical; government
regulations including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of
minerals and environmental protection. The effect of these factors, either alone or in combination, cannot be
entirely predicted, and their impact may result in the Group not receiving an adequate return on invested capital.
There is no assurance the Group will be able to adhere to the current development and production schedule or
that the required capital and operating expenditure will be accurate. The Group’s development plans may be
adversely affected by delays and the failure to obtain the necessary approvals, licenses or permits to commence
production or technical or construction difficulties which are beyond the Group’s control. Operational risks and
hazards include: unexpected maintenance, technical problems or delays in obtaining machinery and equipment,
interruptions from adverse weather conditions, industrial accidents, power or fuel supply interruptions and
unexpected variations in geological conditions.
The risks inherent in developing the Group’s projects are mitigated to some extent by the strategic alliance with
China Nonferrous Metals Int’l Mining Co. Ltd, which is a member of a group with a number of active mining
operations.
Regulatory and Legal Risk
Substantially all of the Group’s business and operations are governed by the laws, rules and regulations in
Tajikistan which can contain inherent ambiguities, uncertainty, inconsistency and contradictions with regards to
their application, interpretation, implementation and enforcement. In particular, the laws, rules and regulations
which the Group is subject to, including, but not limited to, those relating to foreign investments, subsoil use, land
use, licensing, customs, foreign currency, environmental protection and taxation are still evolving and remain
uncertain in many respects.
In addition, the judicial system in Tajikistan may not be independent and immune from the economic, political and
nationalistic influences in Tajikistan and the decisions of the courts are often not transparent and available to the
public. In many circumstances there are no prior court decisions for reference and the interpretations of the laws,
rules and regulations by the courts in Tajikistan remain ambiguous and it is difficult to predict or to seek effective
legal redress. The regulatory authorities in Tajikistan are entrusted with a high degree of discretion and authority
in the application, interpretation, implementation and enforcement of the laws, rules and regulations potentially
resulting in ambiguous and inconsistent actions.
There is no assurance that the Group will be able to comply with all new laws, rules and regulations applicable to
its mining operations or any changes in laws, rules and regulations. Furthermore, the legal protections available
to the Group may be limited and could have a material impact on the results of the Group and the imposition of
penalties and/or regulatory action. In addition, the process of obtaining, retaining or renewing licenses and permits
could be time-consuming and costly and could give rise to unexpected delays and expenses. The Group seeks
and obtains sufficient and appropriate legal advice where considered necessary.
10
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
The Group’s existing licenses and permits could be revoked or terminated by the Tajikistan Government, the local
government or the Tajikistan courts under certain circumstances, including failure to comply with the conditions
imposed by the licenses and permits, which may include the provision of regular reports to the relevant regulatory
authority, obtaining sufficient insurance coverage, adherence to the permitted extraction of mineral resources or
complying with the obligations relating to sustainable management, subsoil, environmental protection and health
and safety regulations. Failure to obtain, retain or renew the relevant licenses and permits required at all or on a
timely basis could have a material adverse effect on the Group’s financial condition. The Group works closely
with the Government and local government departments on the mine project in order to ensure all parties are
kept up to date on progress and closely monitors compliance with the conditions imposed under its existing
licenses and permits.
Economic Risk
The profitability of the Group’s future operations may be significantly affected by changes in the market prices for
the materials it may produce and is affected by numerous macroeconomic factors beyond the Group’s control.
The level of interest rates, the rate of inflation, world supply, and the stability of exchange rates can all cause
fluctuations in the price. Such external factors are in turn influenced by changes in international investment
patterns and monetary systems and also political developments. Metal prices have fluctuated in recent years,
particularly gold, and future significant price declines could cause future commercial production to be uneconomic
and have a material adverse effect on the Group’s financial condition. Economic risk is continually evaluated by
the Group, including expectations of future events, and action undertaken as necessary.
Certain payments, in order to earn or maintain property interests, are to be made in local currency in the
jurisdiction where the applicable property is located. As a result, fluctuations in the British Pound and the Tajik
Somoni could have a material adverse effect on the Group’s financial results which are denominated and reported
in US dollars. Where possible the Group maintains bank and cash balances in the same denomination as its
expected liabilities. The Group does not currently hedge its exposure to foreign currencies.
The Group currently has a comprehensive program of insurance but does not carry insurance to protect against
certain risks and nor can it guarantee that its level of insurance is sufficient to cover all outcomes and eventualities.
As a result, the Group may become subject to liability to include environmental pollution, political risk and other
hazards against which the Group cannot insure or which it may elect not to insure. The payment of such liabilities
may have a material adverse effect on the Group’s financial condition.
The tax laws and regulations in Tajikistan have been in effect for a relatively short period of time, including but
not limited to the new tax code which came into effect on 1 January 2013 and updated on 1 April 2015. The tax
risks in Tajikistan are therefore substantially higher than those in countries with more developed tax systems. The
uncertain application of tax laws and regulations creates the risk of additional tax liabilities and uncertainties
regarding the application and interpretation of those laws and regulations. The Group seeks to protect its available
tax losses carried forward.
Financial Risk
The Group’s operations expose it to a number of financial risks. These are discussed under ‘Financial Risk
Management’ within Note 1 of the Financial Statements.
Political and Country Risk
Substantially all of the Group’s business and operations are conducted in Tajikistan. The political, economic, legal
and social situation in Tajikistan introduces a certain degree of risk with respect to the Group’s activities. The
Government of Tajikistan exercises control over such matters as exploration and mining license, permitting,
exporting and taxation, which may adversely impact the Group’s ability to carry out exploration, development and
mining activities.
Government activity, which could include non-renewal of licenses, may result in any income receivable by the
Group being adversely affected. In particular, changes in the application or interpretation of mining and
exploration laws and/or taxation provisions in Tajikistan could adversely affect the value of the Group’s interests.
11
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
No assurance can be given that the Group will be able to maintain or obtain effective security or insurance for
any of its assets or personnel at its operations in Tajikistan; this may affect the Group’s operations or plans in the
future. A moderate degree of security is also currently required to mitigate the risk of loss by theft, either by the
Group’s employees or by third parties, and controls are implemented where possible to minimize this risk. No
assurance can be given that such factors will not have a material adverse effect on the Group’s ability to undertake
exploration, development and mining activities in respect to present and future properties in Tajikistan.
The Group’s controlling shareholder is a People’s Republic of China (“PRC”) state-owned enterprise. Any adverse
changes to Sino – Tajikistan diplomatic relations could affect the policies and regulations of the Tajikistan
Government towards foreign investment and foreign exchange, which could adversely affect the Group’s business,
financial conditions and prospects.
EU Referendum
The Group trades on the UK equity markets and as a result may be subject to the impact of the UK leaving the
European Union. Given the recent uncertainty surrounding the situation the Group is monitoring matters and
seeking advice as to how to mitigate any risks arising.
Performance of Key Personnel and Employees
The Group is dependent on a relatively small number of key employees, the loss of any of whom could have an
adverse effect on the Group.
There has been a steady emigration of skilled personnel from Tajikistan in recent years that could adversely affect
the Group’s ability to retain its employees.
Results and Dividends
The results for the year and the Group’s financial position at the end of the year are shown in the
followingFinancial Statements. The Directors do not recommend the payment of a dividend (2017: US$Nil).
Future Developments
Future prospects are set out in the Chairman’s Statement on pages 5 to 6 and above.
Directors and their Interests
The Directors who served the Group during the year together with their beneficial interests in the shares of the
Group were as follows:
At
At
31 December 31 December
2017
2018
Mr Xiang Wu
Mr Yong Li
Mr Lixian Yu
Mr Hao Zhang *
Mr Xiuzhi Shi
31,950
23,737
296,148
246,812
23,620
31,732
839
79,991
66,664
839
For further detail, please refer to Note 5.
* Mr Hao Zhang was appointed on 1st September 2017 and resigned on 22 November 2018.
No Director who served during the period held any share options in the Company. All Director related share
options expired during 2016.
12
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
Substantial shareholdings
As at the date of these financial statements, the Directors were aware of the following shareholdings in excess of
3% of the Company’s issued share capital.
China Nonferrous Metals Int’l Mining Co Ltd
Zhao Bin
Golden Max Group
Huang Lihuo
BOCOM International
Rainbow Bridge Investment Fund
Number of
ordinary
shares
146,666,666
50,090,304
33,823,113
33,068,430
16,500,000
12,335,489
Percent
of issued
ordinary
share
capital
38.36%
13.10%
8.85%
8.65%
4.31%
3.23%
13
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
Board of Directors
The current Board comprises:
Mr Xiang Wu (aged 52), Chairman and Non-Executive Director
Mr Wu joined the China Nonferrous Group in 1999 and has been the Chief Accountant of China Nonferrous Metal
Mining (Group) Co., Ltd, since November 2007, having previously held numerous financial management roles
within the Group. Mr Wu has served as Director and Chairman of Golden Bright Insurance Broker Co., Ltd since
March 2012, Director and Deputy Chairman of China Nonferrous Metal Industry’s Foreign Engineering and
Construction Co., Ltd since April 2015 and Director and Chairman of China Nonferrous Metals International
Mining Co., Ltd (“CNMIM”) (the Company’s largest shareholder) since April 2015.
Mr Lixian Yu (aged 51), Managing Director
Mr Yu, aged 51, a senior engineer, is the General Manger of China Nonferrous Metals Int’l Mining Co., Ltd.
(“CNMIM”), the Company’s largest shareholder, having joined CNMIM on July 2017. He graduated with a
Bachelor’s degree majoring in mining engineering from Central South University (formerly known as College of
Changsha Nonferrous Metals) in the PRC in June 1990 and has a postgraduate degree in law from CPC Hubei
Provincial Party School in the PRC. Mr Yu has extensive management and industry experience. From May 2002
to August 2006, Mr Yu held various positions in Daye Nonferrous Metals Co., a large-scale copper industry
enterprise and from August 2006 to July 2017 he served as deputy president of Daye Nonferrous Metals Group
Holdings Co., Ltd.
Mr Delin Feng (aged 48), Financial Director
Mr Feng, aged 48, a senior accountant, is the Chief Accountant of CNMIM, having joined the group in January
2019. He was appointed to the Board of China Nonferrous Gold on 21 March 2019. He graduated with a
Bachelor’s degree majoring in law from Wuhan University in the PRC in June 2004 and Bachelor of Science in
Management Accounting from Zhongnan University of Economics and Law in the PRC in June 2007. He
obtained the Master of Business Administration from Tianjin Polytechnic University in the PRC in March 2017.
Mr Feng has extensive accounting and management experience. From December 2008 to January 2010, he
worked as head of Fund Division of Finance Department of Daye Nonferrous Metals Co., Ltd.; from January
2010 to May 2013, Deputy director of Finance Department of Daye Nonferrous Metals Group Holdings Co.,
Ltd.; from May 2013 to October 2015, Deputy director of Finance Department of Daye Nonferrous Metals Co.,
Ltd.; from October 2015 to February 2018, Director of Finance Department of Daye Nonferrous Metals Group
Holdings Co., Ltd,; and from February 2018 to January 2019, Director of capital operation department of Daye
Nonferrous Metals Group Holdings Co., Ltd.
Mr Xiuzhi Shi (aged 52), Non-Executive Director
Mr. Shi, aged 52, holds a PhD in Mining Engineering from the Central South University, where he has been an
Associate Professor and Professor of the School of Resources and Safety Engineering since September 1999.
Mr. Shi has significant industry and academic experience in mining engineering and safety engineering. From
May 1990 to August 1999, Mr. Shi worked as the technical market researcher at the Hebei Coal Science Research
Institute while holding the post of mining engineer at the Gypsum Mine project for the Yunlong Group. Mr. Shi is
a member of the mining committee of the Nonferrous Metals Society of China, a standardisation expert for the
China Safety Industry Association and a safety culture expert for the State Administration of Work Safety. Mr. Shi
has also hosted or participated in more than 80 scientific research projects in mining and safety engineering and
has published over 160 academic papers in well-known domestic and overseas academic journals.
Mr Yong Li (aged 43), Non-Executive Director
Mr. Li, aged 43, is an attorney and senior counsel (Partner) of Gaopeng & Partners. He is also the Executive
Director at the Case Law Research Centre and is a supervisor of graduate students at the Law School of the
Central University of Finance and Economics. Mr. Li holds a PhD degree in Law from the Tsinghua University
and is a visiting scholar of Stanford Law School. Mr. Li has significant expertise in academic research in Company
Law, International Law and International Investment Law. He also has experience in investment, banking and
mergers and acquisitions. Mr. Li has also worked in dispute resolutions in numerous industries including mining,
manufacturing, infrastructure, construction, chemical engineering and in private equity and venture capital
investment. He is a director at the Beijing Finance Law Institute and the China Securities Law Institute, and is a
member of the China Law Society and the China National Lawyers' Association.
14
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
Corporate Governance Report
The Chairman of the Board of Directors of China Nonferrous Gold Ltd has a responsibility to ensure that CNG
has a sound corporate governance policy and an effective Board.
The Board has adopted the Quoted Companies Alliance (QCA) Corporate Governance Code in line with the
London Stock Exchange’s recent changes to the AIM Rules requiring all AIM-quoted companies to adopt and
comply with a recognised corporate governance code. The QCA code identifies ten principles to be followed in
order for companies to deliver growth in long-term shareholder value, encompassing effective management with
regular and timely communication to shareholders. This report follows the structure of those principles and
explains how we have applied the guidance as well as disclosing any areas of non-compliance.
We will provide annual updates on our compliance with the code. The Board considers that the Group complies
with the QCA code so far as is practicable having regard to the size, nature and current stage of development of
the Company.
Principle 1: Establish a strategy and business model which promotes long-term value for shareholders
The principal strategy of the Group in the short term is to develop the Group’s exploration assets and to bring the
Pakrut Gold Project into a higher stage.
CNG is a gold exploration specialist, with operations in Pakrut. Our goal is to deliver long term value for our
shareholders. We aim to do this by identifying good quality.
Consequently we:
•
•
•
use our expertise to identify those areas with economically feasible deposits,
assess the business environment of the target country and its attractiveness for prospecting and eventual
mining operation,
understand existing interests in a license area in order to ensure we can earn-in to existing interests on
terms favourable to our shareholders.
Principle 2: Seek to understand and meet shareholder needs and expectations
The board is committed to regular shareholder dialogue with both its institutional and retail shareholders. The
principal opportunity for the board to meet shareholders is at the Company’s AGM, to which shareholders are
encouraged to attend.
Charles Chung has been appointed by the board to act as the investor relations manager for CNG. Mr Chung is
the principal contact point for shareholders wishing to discuss matters with the board and any shareholder views
received by Mr Chung are communicated to the full board.
Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long term
success
Given the industry in which CNG operates, good relationships are essential with both its suppliers and local
communities. CNG strives to have a strong relationship with those local communities and is committed to
respecting their laws and customs. To further this, CNG as far as possible seeks to employ local workers so as
to ensure that some benefits of the Group’s operations are kept within those local communities. The Group also
has a two-way dialogue with relevant local communities to discuss any concerns which may arise.
Linked to this, the Group retains the services of a local environmental consultant to ensure any actual or potential
issues impacting on the environment in which the Group operates are brought to the attention of management as
soon as possible so they can be addressed.
17
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the
organisation
We have set out on pages 9-12 of this report the principal risks to the Company’s business and outlook, and how
such risks are minimised.
Risk matters are reviewed in board meetings on a regular basis and are reported against in the Company’s annual
report below.
Principle 5: Maintaining the Board as a well-functioning, balanced team led by the Chair
The board is responsible for running the Company, maintaining all internal control systems and considering all
major business and financial risks. All strategic decisions are decided by the board acting collectively.
The board consists of three non-executive directors and two executive directors. It is considered that Mr Shi and
Mr Li are independent non-executive directors. Board minutes and related papers are circulated to directors in
good time ahead of the relevant board meeting.
The board has established audit, remuneration and nomination committees which meet regulatory in accordance
with their terms of reference.
The three committees are all composed of Wu Xiang, Shi Xiuzhi and Li Yong.
Principle 6: Ensure that between them the Directors have the necessary up-to-date experience, skills and
capabilities
The Nomination Committee is required to give recommendations to the directors where there are vacancies or
where it is felt that additional directors should be appointed. For new appointments the search for candidates is
conducted, and appointments are made, on merit, against objective criteria and with due regard for the benefits
of diversity on the Board.
Whilst the Company’s largest shareholder, China Nonferrous Metals Int’l Mining Co Ltd, has the right to appoint
directors to the Board, the Nomination Committee will still assess any proposed appointees to ensure that the
board maintains an appropriate balance of skills and experience.
Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous
improvement
The board reviews its effectiveness annually and as shown by the changes to the board of directors in 2018, the
board will make changes to its composition when deemed necessary.
Additional non-executives may be considered for appointment to the board to improve the make-up of the board’s
skills. The Company is currently looking for an additional non-executive director with extensive industry and other
relevant experience in order to enhance CNG’s corporate governance structure.
Principle 8: Promote a culture that is based on ethical values and behaviours
The report of the directors sets out CNG’s values including those relating to corporate responsibility, the Group’s
people, its social impact and the impact upon the environment.
The Board aims to lead by example and do what is in the best interests of the Company. We operate in remote
and under-developed areas and ensure our employees understand their obligations towards the environment and
in respect of their job obligations.
18
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
The board seeks to ensure that all of its employees are aware of CNG’s ethical values and this is covered in the
mandatory induction process for new employees.
Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-
making by the Board
The Company has established a robust governance structure in order to manage internal and external risks.
These are reviewed regularly to ensure they remain suitable for the Company.
Board programme
The Board sets direction for the Company through a formal schedule of matters reserved for its decision. The
Board and its Committees receive appropriate and timely information prior to each meeting; a formal agenda is
produced for each meeting and Board and Committee papers are distributed by the Company Secretary several
days before meetings take place. Any Director may challenge Company proposals and decisions are taken
democratically after discussion. Any Director who feels that any concern remains unresolved after discussion
may ask for that concern to be noted in the minutes of the meeting, which are then circulated to all Directors. Any
specific actions arising from such meetings are agreed by the Board or relevant Committee and are then followed
up by the Company’s management.
Roles of the Board, Chairman and Chief Executive Officer
The Board is responsible for the long-term success of the Company. There is a formal schedule of matters
reserved to the Board. It is responsible for overall Group strategy; approval of exploration projects; approval of
the annual and interim results; annual budgets; dividend policy; and Board structure. It monitors the exposure to
key business risks. There is a clear division of responsibility at the head of the Company. The Chairman is
responsible for running the business of the Board and for ensuring appropriate strategic focus and direction.
The Chief Executive Officer (‘CEO’) is responsible for proposing the strategic focus to the Board, implementing it
once it has been approved and overseeing the management of the Company. The CEO, together with the Chief
Financial Officer (‘CFO’) and other senior employees, is responsible for establishing and enforcing systems and
controls, and liaison with external advisors. The CEO has responsibility for communicating with shareholders,
assisted by the CFO and other senior employees.
All Directors receive regular and timely information on the Group’s operational and financial performance.
Relevant information is circulated to the Directors in advance of meetings. The business reports monthly on its
headline performance against its agreed budget, and the Board reviews the monthly update on performance and
any significant variances are reviewed at each meeting. Senior executives below Board level attend Board
meetings when deemed appropriate by the CEO or Chairman, to present business updates.
Board committees
The Board is supported by the Audit and Remuneration committees. Each committee has access to such
resources, information and advice as it deems necessary, at the cost of the Company, to enable the committee
to discharge its duties. The company is looking for an additional non-executive director in part to enhance its
corporate governance structure.
The Audit Committee provides a formal review of the effectiveness of the internal control systems, the Group’s
financial reports and results announcements and the external audit process. The audit committee met four times
during the year. All three members were present at all meetings, being Wu Xiang, Shi Xiuzhi and Li Yong.
The Remuneration Committee provides a formal and transparent review of the remuneration of the Executive
Directors and senior employees and makes recommendations to the Board on individual remuneration
packages. The remuneration committee met three times during the year. All members were present at all
meetings, being Wu Xiang, Shi Xiuzhi, Li Yong and Yu Lixian.
19
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
The Company is committed to open dialogue with both institutional and retail shareholders. The Chairman liaises
with CNG’s principal shareholders and relays their views to the wider board.
The Company considers that its annual AGM is an important part of this dialogue and encourages shareholders
to attend.
20
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor
Independent Auditor’s Report to the Members of China Nonferrous Gold Limited
Opinion
We have audited the consolidated financial statements of China Non-ferrous Gold Limited (the ‘Group’) for the
year ended 31 December 2018 which comprise the Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting
policies. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
• give a true and fair view of the state of the group’s affairs as at 31 December 2018 and of its loss for the
year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the AIM Rules for Companies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the financial statements section of our report. We are independent of the group in accordance
with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report
to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements
is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may
cast significant doubt about the Company’s ability to continue to adopt the going concern basis of
accounting for a period of at least twelve months from the date when the financial statements are
authorised for issue.
21
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor (continued)
Our application of materiality
The scope of our audit was influenced by our application of materiality. We have set headline materiality at
US$3,500,000 (2017: US$3,000,000) for the group financial statements using 2% of gross assets as a basis. The
increase in materiality from the prior year is predominantly due to significant increases in mine assets as well as
revenue.
We consider gross assets to be the most significant determinant of the group’s financial position and performance
used by shareholders, with the key financial statement balances being mine assets and cash. The going concern
of the group is dependent on its ability to fund operations going forward, as well as on the valuation of its assets,
which represent the underlying value of the group.
Whilst materiality for the financial statements as a whole was set at US$3,500,000, each significant component
of the group was audited to an overall materiality ranging between US$13,000 and US$3,000,000 with
performance materiality set at 75%. We applied the concept of materiality both in planning and performing our
audit, and in evaluating the effect of misstatements.
An overview of the scope of our audit
As part of designing our audit we determined materiality, as above, and assessed the risk of material
misstatement in the financial statements. In particular, we looked at areas requiring the directors to make
subjective judgements, for example in respect of significant accounting estimates including impairment of mine
assets and production start date, 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 evaluating whether there was
evidence of bias by the directors that represented a risk of material misstatement due to fraud.
A full scope audit was performed on the complete financial information of the Group’s operating components
located in Tajikistan, China and United Kingdom, with the Group’s key accounting function for all being based in
China with a local function in Tajikistan.
The Group’s Tajik operations are audited by a non-PKF network firm. The audit team visited their offices in
Dushanbe to hold discussions surrounding significant events during the year and to review the working papers.
The team communicated regularly with the component auditor during all stages of the audit, including review of
planning and completion stage group reporting, and are responsible for the scope and direction of the audit
process. All other work is performed on site in both China and Tajikistan by PKF Littlejohn LLP.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. 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.
22
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor (continued)
Key Audit Matter (“KAM”)
Revenue recognition
How the scope of our audit responded to the key
audit matter
Our work included but was not restricted to:
Under ISA 240 there is a presumption that revenue
recognition is a fraud risk.
During the year gold has been produced and revenue
of US$17.9 million has been recognised. This is
considered a risk due to the increase in revenue from
the following year as the Group move towards full
production.
▪ Obtaining and reviewing the sales contract and
other related documentation;
▪ Understanding the revenue recognition policy
and reviewing for compliance with IFRS;
▪ Reviewing the gold price used with reference
to the London Bullion market price on the date
of sale and ensure that the invoice raised is in
accordance with the required contracted price;
and
▪ Reviewing work performed by component
auditor in respect of revenue and holding
discussions thereon.
We are satisfied that revenue has been recognised in
accordance with IFRS and is not materially misstated in
the financial statements.
Valuation of Mines under construction
Our work included but was not restricted to:
This represents the most material balance within the
financial statements, at US$399.4 million at the year
end, and represents the key source from which the
Group is and will continue to generate income. Given
delays in achieving full production (which has now been
achieved post-year end) there is the risk that the value
of the mine is impaired.
There is also the risk that costs have been incorrectly
capitalised and should be expensed.
▪ A review of the work performed by contractors
and capitalised borrowing costs during the
period;
▪ A review of the component auditor’s working
papers to ensure the appropriate capitalisation
of costs to mine assets in accordance with
IFRS;
▪ Performing substantive audit testing on items
capitalised during the year to ensure their
capitalisation is in accordance with IFRS and to
gain an understanding of the nature of such
costs;
▪ Ensuring valid mining licenses are held at the
year end;
▪ A review of management’s impairment
considerations, including challenge and
sensitivity analysis of the key inputs to
management’s NPV calculations; and
▪ Consideration of any potential impairment
indicators through a site visit and consideration
of other sources.
We are satisfied that the valuation of these assets is not
materially misstated in the financial statements.
23
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor (continued)
Valuation and existence of inventory
Our work included but was not restricted to:
Inventory held by Pakrut LLC at the year-end is valued
at US$17.3 million and includes consumables for use in
exploration activities and construction materials for use
in the construction and maintenance of the mine and
related assets (processing plants, tailings dams,
electrical supply infrastructure etc.).
There is a risk that inventory balances are misstated
due to incorrect valuation basis or inaccurate reporting
of stock quantities held at year end.
The volume and geographical spread of inventory also
gives rise to a control risk in terms of completeness and
accuracy, together with the risk of misappropriation.
Other information
▪ A review of the component auditor’s working
papers in respect of the stock count performed
at the mine site, as well as inventory valuation
and cut-off;
▪ Additional work performed to test post-year
end cut-off on a sample of inventory items; and
▪ A review of the post year-end inventory
movement to ensure cut-off is correct.
We are satisfied that inventory is not materially
misstated in the financial statements.
The other information comprises the information included in the annual report4, other than the financial statements
and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the
consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the consolidated financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of
the consolidated 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 consolidated 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.
24
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Comprehensive Income
Year ended 31 December 2018
Revenue
Cost of sales
Gross Profit
Other operating income
Administrative expenses
(Loss)/gain on foreign exchange
Impairment of mines under construction
Operating Loss
Finance income
Finance costs
Loss before Income Tax
Income tax
2018
Note
US$000
3
17,926
(17,926)
-
2,838
(6,192)
(1,873)
2017
US$000
5,784
(5,784)
-
-
(5,017)
750
-
(10,703)
(5,227)
(14,970)
923
-
1
-
(4,304)
(179)
(14,969)
(68)
6
8
8
7
Loss for the year attributable to owners of the parent
(4,483)
(15,037)
Total comprehensive income attributable to owners of
the parent for the year
(4,483)
(15,037)
Basic and Diluted Earnings per share attributable to
owners of the parent (expressed in cents per share)
9
(1.17)
(3.93)
All of the activities of the Group are classed as continuing.
The accounting policies and notes on pages 30 to 58 form part of these Financial Statements.
26
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Changes in Equity
Year ended 31 December 2018
Attributable to owners of the parent
Share
capital
US$000
Share
premium
US$000
Other
reserve
US$000
Retained
earnings
US$000
Total
US$000
Balance at 1 January 2017
38
65,901
10,175
(48,398)
27,716
Loss and Total comprehensive
income for the year
-
-
-
(15,037)
(15,037)
Total contributions by and
distributions to owners of the
parent, recognized directly in
equity
38
65,901
10,175
(63,435)
12,679
-
-
-
-
-
Balance at 31 December 2017
38
65,901
10,175
(63,435)
12,679
Balance at 1 January 2018
Loss and Total comprehensive
income for the year
Total contributions by and
distributions to owners of the
parent, recognized directly in
equity
Balance at 31 December 2018
38
65,901
10,175
(63,435)
12,679
-
38
-
38
-
-
(4,483)
(4,483)
65,901
10,175
(67,918)
8,196
-
-
-
-
65,901
10,175
(67,918)
8,196
Description and purpose of reserves:
a)
Share capital: share capital consists of amounts subscribed for share capital at nominal value.
b)
value.
Share premium: share premium consists of amounts subscribed for share capital in excess of nominal
c)
arrangement.
Other reserve: other reserve comprises the capital reorganisation reserve under the scheme of
Retained earnings: cumulative net gains and losses recognized in the consolidated statement of
d)
comprehensive income. Also included in this figure is the share options and warrants reserve established in
2013 as part of the capital restructuring program. As at 31 December 2018, this reserve holds a $Nil balance
and has been recycled in full through retained earnings as all options and warrants have expired (see Note 22).
The accounting policies and notes on pages 30 to 58 form part of these Financial Statements.
28
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Cash Flows
Year ended 31 December 2018
Cash flows from Operating Activities (Note 23)
Net cash used in Operating Activities
Cash flows from Investing Activities
Payments for mining rights and construction in progress
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Interest received
31 December
2018
US$000
31 December
2017
US$000
3,556
3,556
(48,394)
-
-
923
(4,101)
(4,101)
(9,322)
(13)
42
-
Net cash used in Investing Activities
(47,471)
(9,293)
Cash flows from Financing Activities
Proceeds from borrowings (net of capitalized issue costs)
Repayment of borrowings
Interest paid
Net cash generated from Financing Activities
Net decrease in Cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Major non-cash transactions
90,000
(35,000)
(14,789)
40,211
(3,703)
12,067
8,363
26,500
(1,667)
(11,935)
12,898
(496)
12,563
12,067
Year ended 31 December 2018
During the year the Group drew down from its loan facility with CNMC of US$Nil (2017: US$10,162,387) which
under the terms of the agreement were paid directly to CNMIM as part settlement of its loan facility with CNMIM,
rather than being paid to China Nonferrous Gold Ltd.
The accounting policies and notes on pages 30 to 58 form part of these Financial Statements.
29
CHINA NONFERROUS GOLD LIMITED
Accounting Policies
Accounting Policies
Basis of Preparation
The principal accounting policies applied in the preparation of these consolidated financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated. The
consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) and IFRS Interpretations Committee (IFRSIC) as adopted by the European Union. The
consolidated financial statements have been prepared on a historical cost basis.
The preparation of Financial Statements in conformity with IFRSs requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the Consolidated Financial Statements are disclosed in Note 2.
The functional and presentational currency of the Group is US dollars and accordingly the amounts in the
Financial Statements are denominated in that currency.
General Information
China Nonferrous Gold Limited was incorporated in the Cayman Islands on 24 April 2013 in order to effect group
reorganisation by means of a scheme of arrangement (“the Scheme”). Under the Scheme dated 30 July 2013,
the shareholders of the existing ordinary shares in Kryso Resources Limited (formerly Kryso Resources Plc) had
their shares cancelled in consideration for which they received ordinary shares in China Nonferrous Gold Limited
on a one-for-one basis. The ordinary shares of Kryso Resources Limited were de-listed and the issued shares of
China Nonferrous Gold Limited admitted to trading on AIM.
Changes in Accounting Policies and Disclosures
a) New and amended standards adopted by the Group
The International Accounting Standards Board (IASB) issued various amendments and revisions to IFRS and
IFRIC interpretations. The amendments and revisions were effective for the first time for the financial year
beginning 1 January 2018. Their adoption has not had any material impact on the disclosures or on the amounts
reported in these financial statements:
The following standards were adopted by the Group during the year;
IFRS15: Revenue from Contracts with Customers
IFRIC 22 revisions: Foreign Currency Transactions and Advance Consideration
•
•
• Annual Improvements: 2014-2016 Cycle (IFRS 1 & IAS 28)
•
•
IFRS 9: Financial Instruments
IFRS 2 amendments: Measurement of Share-based Payment Transactions
IFRS 9 has been adopted without restating comparative information. There have been no reclassifications or
adjustments arising from the adoption of IFRS 9, however accounting policies have been updated to reflect the
requirements of the standard.
IFRS 15 has been adopted without restating comparative information. There has been no financial impact on the
group in respect the new standard although the revenue recognition accounting policy has been updated to reflect
the increased disclosure requirements.
30
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
b) New and amended standards and interpretations issued but not yet effective for the financial year
beginning 1 January 2018 and not early adopted
Standard
IFRS 9 (Amendments)
IFRS 3 (Amendments)
IFRS 16
Annual Improvements
IFRS 28 (Amendments)
IFRIC 23
IAS19 (Amendments)
IAS 1 & IAS 8 (Amendments)
Impact on initial application
Prepayment Features with Negative Compensation
Business Combinations
Leases
2015 – 2017 cycle
Long-term Interests in Associates and Joint Ventures
Uncertainty over Income tax treatments
Plan Amendment, Curtailment or Settlement
Definition of Material
Effective date
1 January 2019
1 January 2020*
1 January 2019
1 January 2019*
1 January 2019*
1 January 2019
1 January 2019*
1 January 2020*
*Subject to EU endorsement
IFRS 16 provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all
leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to
classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged
from its predecessor, IAS 17.This will have no material impact on the Group going forward due to the present
value of leases currently held. This will change if the Group enters into any material lease arrangements and
appropriate considerations will be made should this be the case.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a
material impact on the Group.
Basis of Consolidation
The consolidated Financial Statements comprise the financial statements of the Group as at 31 December 2018.
Subsidiaries are all entities over which the Group has control which is where the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. These subsidiaries are adjusted, where appropriate, to conform to Group accounting
policies. All intra-group assets and liabilities, equity, income, expenses and cash flows are eliminated on
consolidation. Where necessary, amounts reported by subsidiaries have been adjusted to conform with the
Group’s accounting policies.
Subsidiaries are consolidated from the date on which control is transferred to the Group and continue to be
consolidated until the date when such control ceases.
Share Capital
Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs
attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds.
Financial Instruments – Initial Recognition and Subsequent Measurement
Classification
From 1 January 2018, the Group classifies its financial assets into only one category, being those to be measured
at amortised cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual
terms of the cash flows.
Recognition
Purchases and sales of financial assets are recognised on trade date (that is, the date on which the Group
commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows
from the financial assets have expired or have been transferred and the Group has transferred substantially all
the risks and rewards of ownership.
31
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus transaction costs that are directly
attributable to the acquisition of the financial asset.
Debt instruments
Amortised cost: Assets that are held for collection of contractual cash flows, where those cash flows represent
solely payments of principal and interest, are measured at amortised cost. Interest income from these financial
assets is included in finance income using the effective interest rate method. Any gain or loss arising on
derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign
exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or
loss.
Impairment
From 1 January 2018 the Group assesses, on a forward-looking basis, the expected credit losses associated
with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether
there has been a significant increase in credit risk.
For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognised from initial recognition of the receivables.
Intangible Assets – Exploration and Evaluation Expenditure
Exploration and evaluation activity involves the search for mineral resources, the determination of technical
feasibility and the assessment of commercial viability of an identified resource. Research expenditure is written
off in the year in which it is incurred. The Group recognises expenditure as exploration and evaluation assets
when it determines that the legal rights to said assets have been obtained. When a decision is taken that a mining
property becomes viable for commercial production, all further pre-production expenditure is capitalized.
Expenditure included in the initial measurement of exploration and evaluation assets and which is classified as
intangible assets, relates to the acquisition of rights to undertake topographical, geological, geochemical and
geophysical studies, exploratory drilling, trenching, sampling and other activities to evaluate the technical
feasibility and commercial viability of extracting a mineral source.
Mines under construction
Expenditure is transferred from “Exploration and evaluation” assets to mining rights within “Mines under
construction” once the work completed to date supports the future development of the property and such
development receives the requisite approvals. All subsequent expenditure on technically and commercially
feasible sites is capitalised within mining rights.
All expenditure on the construction, installation or completion of infrastructure facilities is capitalised as
construction in progress within “Mines under construction”. Once the mine is fully operational and normal
production levels commence, all assets included in “Mines under construction” are transferred into “Property,
Plant and Equipment” or “Producing mines”. It is at this point that depreciation/amortisation commences over its
useful economic
therefore
depletion/depreciation/amortisation will commence from 2019.
the mine has entered
full production and
the year end,
life. Since
Mines under construction are stated at cost. The initial cost comprises transferred exploration and evaluation
assets, construction costs, infrastructure facilities, any costs directly attributable to bringing the asset into
operation, the initial estimate of the rehabilitation obligation and, for qualifying assets, borrowing costs. Costs are
capitalised and categorised between mining rights and construction in progress respectively according to whether
they are intangible or tangible in nature.
32
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
Impairment of non-financial assets
Exploration and evaluation assets and mines under construction are assessed for impairment annually or where
there is an indication that an asset or cash generating unit (“CGU”) may be impaired. If an indication exists, or
when annual impairment testing for an asset is required, the Group estimates the asset’s or CGU’s recoverable
amount. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in
use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset/CGU is
considered impaired and is written down to its recoverable amount. The Group bases its impairment calculation
on detailed budgets and forecasts based on the life-of-mine plans.
The assessment is carried out by allocating exploration and evaluation and mines under construction assets to
CGUs which are based on specific projects and geographical areas. Where exploration for and evaluation of
mineral resources in CGUs does not lead to the discovery of commercially viable quantities of mineral resources
and the Group has decided to discontinue such activities, the associated expenditure will be written off to profit
or loss. Exploration and evaluation assets are also impaired when the Group’s right to explore in an area has
expired.
Property, Plant and Equipment
Items of property, plant and equipment are recorded at cost, less accumulated depreciation and accumulated
impairment losses. Land is not depreciated.
Depreciation on property, plant and equipment is provided to write off the cost of an asset, less its estimated
residual value, evenly over the expected useful economic life of that asset as follows:
Plant and Machinery
Motor Vehicles
Office Furniture and Equipment
–
–
–
33.3% straight line
33.3% straight line
33.3% straight line
Depreciation on assets used in exploration and evaluation activities and mines under construction is capitalised
within non-current assets.
Impairment
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment to determine
whether there is any indication that those assets have suffered an impairment loss. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (ie.
CGUs). If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount
of the asset is reduced to its recoverable amount. The recoverable amount is the higher of an asset’s fair value
less costs to sell and value in use. In calculating value in use, the 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 CGU.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily
takes a substantial period of time to get ready for its intended use (a qualifying asset) are capitalised as part of
the cost of the respective asset until the asset is substantially ready for its intended use. Borrowing costs consist
of interest and other costs that an entity incurs in connection with the borrowing of funds.
Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual
borrowing costs incurred under the effective interest method. The effective interest method is a method of
calculating the amortised cost of a financial liability and of allocating borrowing costs over the relevant period.
33
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
Inventories
Inventories, comprising materials, spares, mining and processing equipment, explosives, diesel fuel and supplies,
are valued at cost, after making due allowance for obsolete and slow moving items. Cost is determined using the
first-in, first-out (“FIFO”) method.
Inventories comprising gold are valued at the lower of weighted average cost and net realisable value. Cost
includes direct materials, direct labour costs and production overheads, including depreciation and depletion of
relevant property, plant and equipment.
Foreign Currencies
Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (‘the functional currency’), being US Dollar. The Group
Financial Statements are presented in US Dollars, which is the Group’s functional and presentation currency.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s
functional currency (foreign currencies) are initially recorded in the functional currency at the exchange rate ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at
the rates of exchange ruling at the Statement of Financial Position date. Exchange differences arising on the
settlement of monetary items, and on the translation of monetary items at the Statement of Financial Position
date, are included in the Statement of Comprehensive Income for the period.
Current Income Tax and Deferred Taxation
Current income tax assets and liabilities for the current period are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are
those that are enacted or substantively enacted, at the reporting date, in the countries where the Group operates.
Deferred tax is accounted for using the 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 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.
The Group has losses to be carried forward on which no deferred tax asset is recognised due to the uncertainty
as to the timing of profit.
Operating Lease Agreements
Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with
the lessor are recognised as expenses on a straight-line basis over the period of the lease.
Share Based Payments
The Group operates a share option scheme to encourage participation by Directors and employees in the Group’s
performance and also issues warrants to third party service providers and investors. The fair value of the services
received in exchange for the grant of options and warrants is recognised as an expense over the vesting period.
Where the fair value of the services received cannot be determined, the total amount to be expensed is
determined by reference to the fair value of any option and warrant granted, excluding non-market vesting
conditions. Non-market vesting conditions are included in assumptions about the number of options that are
expected to vest. At each Statement of Financial Position date, the Group revises its estimate of options that are
expected to vest.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal
value) and share premium when the options and warrants are exercised.
34
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
Rehabilitation and Environmental Provision
The Group recognises a rehabilitation and environmental provision where it has a legal and constructive obligation
as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation,
and a reliable estimate of the amount of the obligation can be made. The nature of these restoration activities
includes dismantling and removing structures; rehabilitating the mine and tailings dam; dismantling operating
facilities; and restoring, reclaiming and revegetating affected areas.
On initial recognition, the present value of the estimated costs is capitalised by increasing the carrying amount of
the related mining asset to the extent that it was incurred as a result of the development or construction of the
mine. Any changes to or additional rehabilitation costs are recognised as additions or charges to the
corresponding asset and rehabilitation liability when they occur.
Over time, the discounted liability is increased for the change in present value based on the discount rate that
reflects current market assessments and the risks specific to the liability. The annual unwinding of the discount is
recognized in the statement of comprehensive income as part of finance costs.
The Group does not recognise a deferred tax asset in respect of the temporary difference on the rehabilitation
liability nor the corresponding deferred tax liability in respect of the temporary difference on the rehabilitation
asset.
Going Concern
The Group’s activities, together with the factors likely to affect its future development, performance and position
are set out in the Chairman’s Statement and Report of the Directors. These areas also include the Group’s
objectives, policies and procedures for managing its business risk objectives, which includes its exposure to
economic, political and environmental and other operational risks.
The Directors of the Group have prepared cash flow forecasts which reflect the Group’s forecast production,
operational and overhead costs, cash inflows and loan repayments. In making these assessments the Directors
have considered all available information available to date including actual revenues generated, costs incurred,
golds prices, productions volumes, financing costs as well as loan repayments.
The Directors have received a letter confirming that the ultimate parent will continue to support the Group and
therefore the Directors believe that funding and financial support will be forthcoming if required although this is
not guaranteed.
Based on consideration of the above the Directors have a reasonable expectation that the Group has access to
adequate resources to continue in operation for the foreseeable future. Thus, they continue to adopt the going
concern basis of accounting in preparing the financial statements for the year ended 31 December 2018.
Segmental Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision makers. The chief operating decision maker (“CODM”), who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the executive board of Directors.
Trial production revenue and costs
i) Revenue
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is
recognised. It replaces IAS 18 Revenue and related interpretations and establishes a five-step model to accounts
for revenue arising from contracts with customers. These steps are as follows: identification of the customer
contract; identification of the contract performance obligations; determination of the transaction price; allocation
of the transaction price to the performance obligations; and revenue recognition as performance obligations are
satisfied.
35
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
Under IFRS 15, revenue is recognised when performance obligations are met. This is considered to be the point
of delivery of goods to the customer. Revenue is measured at the fair value of consideration received or receivable
from sales of gold to an end user, net of buyer’s discount, treatment charges, freight costs and value added tax.
The application of the new standard including the five-step approach has not resulted in any changes to the timing
of recognition of revenue in the current or any prior period. Accordingly, the information for 2017 has not been
restated.
ii) Trial Production Costs
Costs associated with the production of gold during the trial production phase are estimated to match the revenue
generated and are deducted from the mines under construction representing the cost of said production.
Other income
In the current year other income of US$2.8 million has been generated, being compensation from the insurance
provider following the snowfall disaster in early 2017.
36
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements
1.
Financial Risk Management
The Group’s operations expose it to a number of financial risks; principally the availability of adequate
funding, movements in interest rates and fluctuations in foreign currency exchange rates. Continuous
monitoring of these risks ensures that the Group is protected against any adverse effects of such risks so
far as it is possible and foreseeable.
Market Risk
a) Cash Flow and Interest Rate Risk
The continued operation of the Group is dependent on the ability to raise sufficient working capital until
commencement of commercial production. The Group currently finances itself through the issue of equity
share capital and the secured loan facilities from CNMIM, CNMC and CCB. Management monitors its cash
and future funding requirements through the use of cash flow forecasts. All cash not immediately required
for working capital purposes is held on short term deposit. The Group’s exposure to interest rate fluctuations
on cash balances is restricted to the rate earned on these short-term deposits. At the year end the Group
had cash reserves of US$20,786 held in a sterling deposit account. A 0.25% change to the interest rate
would give rise to a US$52 increase or decrease in interest on this deposit, on an annual basis.
The Group’s interest rate risk arises from long-term borrowings. The Group has both variable and fixed rate
borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is
partially offset by cash invested at variable rates. The annual fixed interest rate for the CNMIM loan is 9%
for all USD and RMB denominated tranches. All payments of principal and interest in respect of the RMB
denominated tranche are repayable at a fixed RMB: USD exchange rate. The interest rate on the CCB loan
is 2.10% per annum over the quarterly LIBOR rate and the loan is repayable in US$. The interest rate on
the new CNMC loan of US$90 million is fixed at 5.8% per annum, calculated and paid on a half yearly basis.
The interest rate on all other CNMC loans is a fixed annual interest rate of 4% on the amount drawn down,
payable in arrears.
At 31 December 2018, if interest rates on variable rate borrowings at that date had been 0.25% higher/lower,
with other variables held constant, the recalculated loss for the year would be US$9,978 higher/lower due
to the higher/lower interest expense.
b) Foreign Currency Risk
The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures.
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates. The Group has cash assets denominated in UK Sterling, United
States Dollars, Tajik Somoni and PRC Renminbi and incurs liabilities for its working capital expenditure in
all of these denominations, primarily Tajik Somoni. Payments are made in all of these denominations at the
pre-agreed price and converted (if necessary) as soon as payment needs to occur. Currency conversions
and provisions for expenditure are only made as soon as debts are due and payable. The Group is therefore
exposed to currency risk in so far as its liabilities are incurred in UK Sterling, PRC Renminbi and Tajik
Somoni, and fluctuations occur due to changes in the exchange rates against the functional and
presentational currency of US Dollar. The table below details the split of the cash held as at 31 December
2018 between the various currencies.
Somoni
1,098
GBP Sterling US Dollar
31
7,142
Renminbi
Total US$000
8,363
92
The Group manages this risk by matching receipts and payments and monitoring movements in exchange
rates. The Group does not currently hedge its exposure to foreign currencies and recognises the profits and
losses resulting from currency fluctuations as and when they arise. At the year end the Group did not have
material exposure to foreign exchange risk relating to its non-US$ denominated bank deposits and as such
this not disclosed.
37
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
1.
Financial Risk Management (continued)
Liquidity Risk and Credit Risk
The continued operation of the Group is dependent on the ability to raise sufficient working capital. As noted
above, the Group currently finances itself through the issue of equity and borrowings from CNMIM, CNMC
and CCB. Management monitors its cash and future funding requirements through the use of cash flow
forecasts. The Group enters into capital commitments for exploration and construction expenditure, and any
surplus cash not immediately required for working capital purposes is held on short term deposit.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual
undiscounted payments.
Less than
1 Year
US$000
Between
1 and 2
Years
US$000
Between
2 and 5
Years
US$000
Over
5 Years
US$000
Total
US$000
Carrying
amount
US$000
Year ended
31 December 2018
Interest-bearing
borrowings
Trade and other
payables
Provisions for other
liabilities
Year ended
31 December 2017
Interest-bearing
borrowings
Trade and other
payables
Provisions for other
liabilities
162,724
117,285
65,000
82,194
-
-
-
-
345,010
345,010
82,194
82,194
-
244,918
-
117,285
-
65,000
2,481
2,481
2,481
429,685
837
428,041
172,684
31,500
75,000
78,409
-
-
-
-
279,184
279,184
78,409
78,409
-
251,093
-
31,500
-
75,000
2,481
2,481
2,481
360,074
767
358,360
The Group holds bank accounts with banks in the UK, PRC and Tajikistan with the following credit ratings:
Credit rating
A
AA-
BBB+
No independent credit rating available
2018
US$000
2017
US$000
7,216
-
-
992
8,208
11,489
-
60
518
12,067
If a bank has no credit rating, the Group assesses the credit quality through local knowledge and past
experience in the particular jurisdiction.
38
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
Capital Risk Management
The Group consider equity to be their capital. The Group’s objective when managing their capital is to
safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders
and to enable the Group to continue its exploration, evaluation and mine construction. The Group holds debt
in the form of both shareholder and external loans and defines capital based on the total equity of the
Company. Except for the secured loan facilities from CNMIM, CNMC and CCB, the Group’s current policy
for raising capital is through equity issues and debt financing. The Group is not currently required to monitor
its gearing ratio and is not exposed to any externally imposed capital requirements.
2. Critical Accounting Estimates, Assumptions and Judgments
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amount of assets and liabilities are set out below. Estimates and assumptions are continually evaluated and
are based on management’s experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the carrying amount of assets and liabilities
affected in future periods.
The Group has identified the following areas where significant estimates, assumptions and judgments are
required. The most significant judgment for the Group is the assumption that exploration and development
at its sites will ultimately lead to a commercial mining operation. Failure to do so could lead to impairment
of the mine.
Estimated impairment of mines under construction (note 11)
The Group tests annually whether exploration, evaluation and licensing assets and mines under
construction have suffered any impairment. The recoverable amounts of the cash generating units (“CGUs”)
have been determined based on value in use calculations which require the use of estimates and
assumptions such as long-term commodity prices, gold recovery rates, discount rates, operating costs and
therefore expected margins, future capital requirements and mineral resource estimates (see below). These
estimates and assumptions are subject to risk and uncertainty and therefore there is a possibility that
changes in circumstances will impact the recoverable amount. Management has assessed its CGUs as
being individual exploration and mine sites, which is the lowest level for which cash inflows are independent
of those of other assets or CGUs.
In assessing the carrying amounts of its exploration, evaluation and licensing assets and mines under
construction at Pakrut, the Directors have used an independently prepared and Director approved bankable
feasibility study. The period used in management’s assessment is the anticipated life of the mine to the
expiration of the license in 2030 with revenues being generated from full production from January 2019.
Gold revenues have been estimated over that period at a price of US$1,300. These estimates are based
on, and are consistent with, external sources of information. The calculation assumes a mining capacity of
2,000 tonnes of ore daily increasing to 4,000 tonnes per day. The total cost per ounce is estimated to be
around US$650 with a gross margin of circa 60%. Royalties have been calculated at 6% of sales revenues
and corporate income tax at 15%, according to the relevant laws in Tajikistan. A discount rate of 10% has
been utilised.
The calculations have been tested for sensitivity to changes in the key assumptions. The most sensitive
inputs in the calculation of the value in use are operating costs, the gold price, and the discount rate. An
impairment to the mine value would occur if the discount rate were to increase to 12%, gold prices fell by
1% or costs were to increase by 1%.
39
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
Approval of Pakrut reserves by Tajik Department of Geology
In November 2011, the Government of the Republic of Tajikistan issued the Pakrut Gold Project mining
license to LLC Pakrut. According to the terms of the license, the amount of ore that can be mined is variable
depending upon the mine plan. The plan submitted by the Group envisages an initial processing capacity
of 660,000 tons of ore per annum, increasing to 1,320,000 tons per annum. The mining license is valid until
2 November 2030.
The mining license issued in November 2011 currently entitles the Group to mine JORC compliant resources
(measured, indicated and inferred) of 904,000 ounces out of total JORC compliant resources of 4,383,000
ounces at Pakrut, excluding the Eastern Pakrut, Rufigar and Sulfidnoye ore zones. The JORC compliant
resources include the results from the Group’s exploration and evaluation work subsequent to the mining
license issue date.
LLC Pakrut has sought approval of the increased JORC compliant resources from the Tajik Department of
Geology and the Scientific and Technical Counsel which includes the results of all exploration and evaluation
activities undertaken by the Group between 2009 and 2013. The application is currently subject to that
approval process and the Directors are not aware of any legal or other impediments which would prevent
approval of their application and therefore permit the Group to mine the increased resources. However, the
approval process currently remains incomplete.
The mine design and construction work undertaken to date, together with the assessment of the recoverable
amount of ‘Mines under Construction’ (see below), is based upon the total quantity of JORC compliant
resources of which part falls outside the area covered by the mining license and still subject to formal
approval, as noted above. Failure to obtain this approval would lead to an impairment of ‘Mines under
Construction’, together with inventories, and also impact the going concern basis of preparation of the
Financial Statements. The Group has made the judgement that this approval will be forthcoming. No
provision for impairment has been recognised in these Financial Statements relating to this uncertainty.
Mineral resource and reserve estimates
Reserves are estimates of the amount of resources that can be economically and legally extracted from the
Group’s mining properties. The Group estimates its mineral resources based on information compiled by
appropriately qualified persons relating to the geological and technical data on the size, depth, shape and
grade of the ore body and suitable production techniques and recovery rates. This analysis requires complex
geological judgments to interpret the data. The estimation of the recoverable amount is based upon factors
such as estimates of commodity prices, future capital expenditure and production costs along with geological
assumptions made in estimating the size and grade of the resources. Details of the mineral resources and
reserve estimates can be found on www.cnfgold.com.
The Group estimates and reports mineral resource estimates in line with the principles contained in the
Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (December
2004), which is prepared by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of
Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia, known as the
“JORC Code”. The determination of a JORC resource is itself an estimation process that involves varying
degrees of uncertainty depending on how the resources are classified (i.e. measured, indicated or inferred).
As additional geological information is produced during the operation of a mine and through additional
exploration activity, mineral resource estimates may change. Such changes may impact on the Group’s
reported financial position which includes the carrying value of mines under construction, property, plant
and equipment and inventories.
40
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
Production start date
Estimations are made in the determination of the point at which development ceases and production commences
for a mine development project. This point determines the cut-off between pre-production and production
accounting. The group ceases to capitalise pre-production costs and begins depreciation and amortisation of
mine assets at the point at which the mine’s plant becomes available for use as intended by management.
Determining when this is achieved is an assessment made by the group’s management and includes the following
factors:
• The level of development expenditure compared to project cost estimates.
• Completion of a reasonable period of testing of the mine plant and equipment.
• Achieved mineral recoveries, plant availability and throughput levels are at or near expected / budgeted
levels.
• The ability to produce gold into a saleable form.
• The achievement of continuous production.
In December 2018, the construction and infrastructure projects at the mine site were completed and production
levels began to ramp up. However, management have assessed that it was not until early 2019 that the mine’s
plant has been available for use as intended by management, as it has been seen since the year end that
production levels are stable, process technologies have improved leading to efficiencies and target mineral
recoveries of reliable and high-quality gold are being achieved in line with budgeted levels.
Therefore, in the 2019 financial year, the mine assets in the consolidated financial statements will be presented
accordingly.
41
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
3. Segment Information
The following segments are based on the management reports received by the Executive Directors, who are the
chief operating decision makers. The Group operates principally in three geographical areas, UK, PRC and
Tajikistan, with operations managed on a project by project basis within Tajikistan. For segment reporting
purposes, the operations of the Cayman Islands registered parent company are included in the UK and PRC
segment as these segments are jointly managed
The Group’s exploration and evaluation activities are located in Tajikistan, principally within the Pakrut Gold
Project. Support and administration services are provided from the UK and PRC. Inter-segment revenue is
eliminated on consolidation and is conducted on mutually agreed terms between Group companies.
2018
Revenue
Cost of sales
Administrative expenses (including foreign
exchange)
Impairment
Other operating income
Operating loss
Finance income
Income tax
Loss for the year
Intersegment revenue
Total assets
Total liabilities
Depreciation
Additions to property, plant and equipment
Additions to mines under construction
UK and PRC
US$000
Tajikistan
Pakrut
US$000
-
-
17,926
(17,926)
(3,257)
-
-
(3,257)
923
-
(2,334)
10,375
394,784
23
-
-
(4,808)
-
2,838
(1,970)
-
(179)
(2,149)
425,862
33,257
50
-
66,717
Total
US$000
17,926
(17,926)
(8,065)
-
2,838
(5,227)
923
(179)
(4,483)
436,237
428,041
73
-
66,717
Revenue generated in the period was from two customers, the government of Tajikistan and an
independent bank, the latter being minimal at TJS 363,139.
2017
Revenue
Cost of sales
Administrative expenses (including foreign exchange)
Operating loss
Finance income
Income tax
Loss for the year
Total assets
Total liabilities
Depreciation
Additions to property, plant and equipment
Additions to mines under construction
-
-
(870)
-
(870)
1
-
(869)
2,747
337,413
25
-
-
5,784
(5,784)
(3,397)
(10,703)
(14,100)
-
(68)
(14,168)
368,292
20,947
81
11
23,622
5,784
(5,784)
(4,267)
(10,703)
(14,970)
1
(68)
(15,037)
371,039
358,360
106
11
23,622
42
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
4. Particulars of Employees
The average number of staff employed by the Group during the financial year amounted to:
Administrative and management
Construction in progress
The aggregate costs of the above were:
Wages and salaries
Social security costs
2018
No.
121
375
496
2017
No.
130
409
539
2018
US$000
2017
US$000
3,380
693
4,072
3,984
882
4,866
Staff costs include US$2.045 million (2017: US$2.26 million) of costs capitalised and included within
additions to ‘Mines under Construction’.
5. Directors’ Emoluments
During the year, no Directors (2017 – none) exercised share options.
The Directors’ emoluments in respect of qualifying services were:
2018
Mr Xiang Wu
Mr Lixian Yu
Mr Yong Li
Mr Xiuzhi Shi
Mr Hao Zhang *
2017
Mr Xiang Wu
Mr Lixian Yu
Mr Yong Li
Mr Xiuzhi Shi
Mr Weili Tang
Mr Hao Zhang
Mr Pizhao Che
Salary and
fees
US$
31,950
296,148
23,737
23,620
246,812
622,267
Bonus and
holiday pay
US$
-
-
-
-
-
-
Other
benefits
US$
-
-
-
-
-
-
Termination
fees
US$
-
-
-
-
-
-
Total
US$
31,950
296,148
23,737
23,620
246,812
622,267
Salary and
fees
US$
31,732
79,991
839
839
13,256
66,664
23,047
216,368
Bonus and
holiday pay
US$
-
-
-
-
-
-
-
-
Other
benefits
US$
-
-
-
-
-
-
-
-
Termination
fees
US$
-
-
-
-
-
-
-
-
Total
US$
31,732
79,991
839
839
13,256
66,664
23,047
216,368
Key management comprises Executive and Non-Executive Directors and all emoluments are short term in nature.
* Mr Hao Zhang resigned on 22 November 2018.
43
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
6. Expenses by nature
Employee benefit expenses
Operating lease expenses
Depreciation
Less transfer to mines under construction
Legal, professional and regulatory costs
Travel and entertaining
Social & other taxes
Other Expenses
Commission/bank fees
2018
US$000
2017
US$000
2,530
94
3,526
(3,453)
911
289
1,232,354
922
142
2,818
393
2,488
(2,382)
1,069
371
-
159
101
Total administrative expenses
6,192
5,017
Fees payable to the Company’s auditor for the audit of the consolidated
financial statements
Fees payable to the Company’s auditor for other services:
- Tax compliance services
7.
Income Tax
a) Analysis of Charge in the Year
Current tax:
Current tax
Deferred tax
Total
2018
US$000
2017
US$000
137
135
12
149
-
135
2018
US$000
2017
US$000
179
-
179
68
-
68
No provision for income taxes arose in the Cayman Islands, the UK, British Virgin Islands. A current income
tax expense arose in Tajikistan during the year as LLC Pakrut sold gold in the amount of TJS 164,152,371 –
equivalent to US$ 17,926,000 (2017: TJS 49,442,586 – equivalent to US$5,784,000). Thereby, the Company
paid the amount of advance payments of income tax according to the Tax Code of the Republic of Tajikistan,
being 1% of revenue. During the year ended 31 December 2018, LLC Pakrut was in development stage of the
mine. Although Pakrut produced income, it is in a state of loss, so does not incur corporation tax at 15%.
44
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
Factors Affecting Current Tax Charge
The tax assessed on the loss for the year is higher than the weighted average standard rate of corporation tax
of 20% (2017 – 20%).
Loss before income tax
Loss on ordinary activities by weighted average rate of tax at 20% (2017 – 20%)
Expenses not deductible for tax purposes
Tax losses for which no deferred income tax asset was recognised
2018
US$000
(4,304)
2017
US$000
(14,169)
(861)
73
967
179
(2,994)
106
2,956
68
The Group did not recognise deferred income tax assets of approximately US$967,000 (2017 – US$2,956,000).
These were in respect of unused Tajikistan tax losses amounting to approximately US$16,772,000 (2017–
US$14,802,000). The Tajikistan tax losses can be carried forward for three years from the year incurred and
used against future taxable income at 15%.
8.
Finance Income and Costs
Finance Income
Interest income on short term bank deposits
Finance Costs
Interest expense on shareholder’s loans wholly repayable within
five years
Interest expense on bank borrowings wholly repayable within
five years
Less: Borrowing costs capitalized in qualifying assets
Provisions: Unwinding of discount
Less: Unwinding of discount capitalized in qualifying assets
Finance costs
9. Earnings per Share
Basic and diluted earnings per share (cents)
2018
US$000
2017
US$000
923
1
11,871
7,531
4,522
(16,393)
69
(69)
-
4,404
(11,935)
63
(63)
-
2018
US$
(1.17)
2017
US$
(3.93)
The basic earnings per share is calculated by dividing the loss attributable to equity holders after tax of
US$4,483,000 (2017– loss $15,037,000) by the weighted average number of shares in issue and carrying the
right to receive dividend. For the year ended 31 December 2018 this was 382,392,292 (2017– 382,392,292)
shares.
As the Group has incurred a loss for the year, no option or warrant is potentially dilutive, and hence the basic
and diluted earnings per share are the same. At the year end, there were no (2017 – 50,000) share options
outstanding that are potentially dilutive in the future.
45
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
10.
Intangible Assets
Cost
At 1 January 2017, 31 December 2017 and 31 December 2018
Impairment
At 1 January 2017, 31 December 2017 and 31 December 2018
Net Book Value
At 31 December 2017 and 31 December 2018
Exploration
and
evaluation
assets
US$000
9,941
(9,941)
-
The exploration and evaluation assets represent internally generated costs in connection with the Group’s
exploration and evaluation activities. Expenditure is transferred from exploration and evaluation assets to
mines under construction once the work completed to date supports the future development of the property
and such development receives appropriate approvals.
The rights of LLC Pakrut to carry out exploration and evaluation activity at the Pakrut deposit expired on 1
April 2014. The renewal application by the Group to extend the exploration license is being considered by
the Government of Tajikistan. Although the Directors are not aware of any legal or other impediments which
would ultimately prevent approval of the license extension, the Directors fully impaired the carrying value
of the exploration and evaluation assets during 2014 due to non-renewal of the Exploration License.
Exploration and evaluation activities can continue at the Pakrut Gold Deposit in the area covered by the
mining license. Currently, staff members of Pakrut are coordinating with the local government for
exploration licenses.
46
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
11. Mines under Construction
Cost
At 1 January 2017
Additions
Impairment
At 31 December 2017
Additions
Impairment
At 31 December 2018
Mining rights
US$000
Construction
in progress
US$000
Total US$000
35,022
-
35,022
-
-
35,022
283,219
23,622
(10,730)
296,138
68,240
-
364,378
318,241
23,622
(10,730)
331,160
68,240
-
399,400
The additions figure is stated net of costs relating to depletion of mine assets as a result of trial production
of US$17,925,914 (2017: US$5,783,976).
Mining rights comprise exploration and evaluation assets up to the date the Pakrut Gold Project was
determined to be technically feasible and commercially viable. All subsequent exploration and evaluation
expenditure at this site is capitalised within mining rights. Mining rights also includes the subsoil contract
signature bonus, a share-based payment for securing the Pakrut Mining License and payments to obtain
land use rights.
Construction in progress comprises the mine, smelting plant, tailings pond, power lines and road
construction work carried out at the Pakrut Gold Project by contractors and directly by the Group. It also
includes the borrowing costs associated with the loan to finance the mine construction from China
Nonferrous Metals Intl Mining Co. Limited (“CNMIM”) and China Construction Bank (“CCB”), together with
associated legal, professional and consultancy costs.
Mines under construction are not depreciated until construction is completed and the assets are available
for their intended use, signified by the formal commissioning of the mine for production. This is discussed
further in Note 2.
47
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
12. Property, Plant and Equipment
Office
furniture
and
equipment
US$000
Land
US$000
Motor
vehicles
US$000
Plant and
machinery
US$000
Total
US$000
32
-
-
32
-
-
32
-
-
-
-
-
848
11
(8)
851
114
(209)
8,894
-
(26)
14,823
-
(6)
24,596
11
(40)
8,868
14,817
24,567
1,904
-
242
(68)
2,260
(278)
755
10,772
14,990
26,549
428
96
524
3,611
1,064
9,091
1,311
13,130
2,471
4,675
10,402
15,601
87
3,234
205
3,526
611
7,909
10,607
19,127
32
32
144
327
2,862
4,193
4,384
4,415
7,422
8,967
Cost
At 1 January 2017
Additions
Disposals
At 31 December 2017
Additions
Disposals
At 31 December 2018
Accumulated Depreciation
At 1 January 2017
Charge for the year
At 31 December 2017
Charge for the year
At 31 December 2018
Net Book Value
At 31 December 2018
At 31 December 2017
Depreciation of US US$3,453,000 (2017 – US$2,382,000) has been capitalised as part of mines under
construction assets. The net book value of tangible assets used in exploration and evaluation was US$ Nil
(2017 – US$ Nil). The net book value of tangible fixed assets used in mines under construction was
US$5,277,980 (2017 – US$8,730,980).
48
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
13. Subsidiary Undertakings
The Group had the following principal subsidiaries at 31 December 2018:
Name of Company
Holding
Country of
Incorporation
Proportion
of Voting
Rights held
Nature of Business
Directly held
Kryso Resources (BVI)
Limited
Ordinary shares
British Virgin
Islands
100%
Holding Company
Kryso Resources Limited
Ordinary shares
UK
100%
Holding Company
Indirectly held
International Mining
Supplies and Services
Limited (BVI holds
100%share)
LLC Pakrut(BVI holds
100%share))
Ordinary shares
UK
100%
Service Company
Ordinary Shares
Tajikistan
100%
Mineral exploitation,
development and mining
14. Financial Instruments by category
Financial assets
at amortised
cost
US$000
3,709
8,363
12,072
Financial
liabilities at
amortised
cost
US$000
345,010
838
82,194
428,041
31 December 2018
Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments
Cash and cash equivalents
Total
31 December 2018
Liabilities per Statement of Financial Position
Borrowings
Provisions for other liabilities and charges
Trade and other payables, excluding non-financial liabilities
Total
49
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
14. Financial Instruments by category (continued)
31 December 2017
Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments
Cash and cash equivalents
Total
31 December 2017
Liabilities per Statement of Financial Position
Borrowings
Provisions for other liabilities and charges
Trade and other payables, excluding non-financial liabilities
Total
15.
Inventories
Gold
Construction materials and processing equipment
Financial
assets at
amortised
cost
US$000
629
12,067
12,696
Financial
liabilities at
amortised
cost
US$000
279,184
767
78,409
358,360
2017
US$000
49
18,167
18,216
2018
US$000
49
17,294
17,344
Inventories categorised as construction materials and processing equipment are acquired for use in mine
construction at which time they are charged to construction in progress within Mines under construction.
The cost of inventories recognised as an expense in profit or loss during 2018 was US$ Nil (2017 –US$Nil).
16. Trade and Other Receivables
Other receivables
Prepayments and deposits
Total
Group
2018
US$000
2,983
725
3,709
Group
2017
US$000
75
554
629
None of the receivables are past due. The fair values are equal to the carrying amounts.
Other receivables includes $2,739,702 (2017: $Nil) due from related party CNMIM in relation to funds
received from the insurance provider after the snowfall disaster, which were received on behalf of CNG.
50
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
17. Borrowings
Bank borrowings
Other loans
Less: unamortised borrowing costs
Total
Non-current portion
Current portion
2018
US$000
85,000
260,010
-
345,010
2017
US$000
120,000
159,184
-
279,184
182,285
106,500
162,724
172,684
The fair value of borrowings equals their carrying amounts, as the impact of discounting is not significant.
CNMIM loan
In accordance with the terms of the Subscription Agreement and Warrant Instrument dated 27 July 2010
between Kryso Resources Limited (formerly Kryso Resources Plc) and CNMIM, a subsidiary company of
significant shareholder China Nonferrous Metals Mining (Group) Co. Limited (“China Nonferrous”), CNMIM
was required to use its best endeavors to secure mine funding for the construction and development of the
Pakrut Gold Project.
The USD tranche of the loan has been settled in full and US$Nil was outstanding as at 31 December 2018
(2017: US$Nil). The amount outstanding on the RMB tranche of the loan as at 31 December 2018 was
US$12,683,599 (2017: US$12,683,599).
CNMC loans
The loan agreement between CNMC International Capitals Company Limited (“CNMC”) and China
Nonferrous Gold Limited was signed on 20 September 2017. Under this agreement, CNMC provided a loan
facility of US$6,500,000 to China Nonferrous Gold Limited. This loan was used to improve the daily business
operations of China Nonferrous Gold Limited.
The full amount of the loan was drawn down on the 20 September 2017. The loan contains annual fixed
interest at 4%, however where the loan is used for a purpose other than that stated in the contract (see
comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum.
Payment of interest is made quarterly.
The loan is repayable in full on 20 December 2019. For any outstanding amounts owed after this date,
interest will be charged at a rate of 6% per annual until the outstanding amount is paid.
The Group has pledged its 100% equity interest in China Nonferrous Gold Limited to CNMC as security for
repayment of the loan.
51
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
A loan agreement between CNMC International Capitals Company Limited (“CNMC”) and China Nonferrous
Gold Limited was signed on 27 April 2016. Under this agreement, CNMC provided a loan facility of
US$120,000,000 to China Nonferrous Gold Limited. This loan was used to refinance the previous ICBC loan
of the same amount, and the purpose of these funds is for development, operations and management of
the Pakrut Gold Project, including operating and related expenses.
The full amount of the loan was drawn down on the 27 April 2016. The loan contains annual fixed interest
at 4%, however where the loan is used for a purpose other than that stated in the contract (Pakrut Mine –
see comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum.
Payment of interest will be made biannually in June and December.
The loan is repayable in full on 20 December 2019. For any outstanding amounts owed after this date,
interest will be charged at a rate of 6% per annum until the outstanding amount is paid.
The Group has pledged its 100% equity interest in LLC Pakrut to CNMC as security for repayment of the
loan.
A loan agreement between CNMC and China Nonferrous Gold Limited was signed on 27 May 2016 for a
total amount of US$20,000,000, which was drawn down in full on 27 June 2016. The loan period per the
contract was 6 months, from 27 May 2016 to 26 November 2016. During 2018, the loan was transferred
from CNMC to another member of the group, CNMCTC. As at 31 December 2017, a loan extension
agreement was signed extending the repayment date until 26 November 2018. A further extension has been
signed extending the repayment date until 26 November 2019.
The loan contains a fixed interest rate of 4% per annum, which is calculated on a monthly basis from the
21st of the month to the 20 of the following month. Interest payments are due on a quarterly basis on the
21st of the month. Interest on the overdue balance will be charged at 150% of the fixed interest rate per the
agreement.
A loan agreement between CNMC and China Nonferrous Gold Limited was signed on 8 February 2018 for
a total amount of US$90,000,000, which was drawn down in full on 9 February 2018. The loan was provided
for the purposes of the construction, operations and management of the Pakrut Gold Project, including
operating and related expenses. This use is in line with the terms of the agreement. The loan period per the
contract was from 9 February 2018 to 8 December 2020.
The loan contains a fixed interest rate of 5.8% per annum, which is calculated on a half yearly basis from
the 21st of December to the 20th June, and from the 21st June to 20th December. Payment of interest will be
made biannually in June and December of each year. Where the loan is used for a purpose other than that
stated in the contract (see comments above), the proportion of the loan used will incur interest at a fixed
rate of 11.6% per annum. At the repayment date, interest will be charged at 8.7% on any unpaid balance.
52
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
CCB loan
The first loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited
was signed on 13 April 2016. Under this agreement CCB provided a loan facility of US$20,000,000 to China
Nonferrous Gold Limited. This loan was used to improve operations and management of the Pakrut Gold
Project as well as recovery from snow disaster. This use is in line with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation,
Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount
of not less than US$20,618,556.70, with validity of not less than 12 months in favor of CCB.
The full amount of the loan was drawn down on 13 April 2016. The loan incurs interest at a rate of 3 months
LIBOR + 1.3% and is payable in quarterly in arrears.
The principal amount of the loan was repaid on 12 October 2018.
The second loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited
was signed on 14 June 2016. Under this agreement CCB provided a loan facility of US$100,000,000 to
China Nonferrous Gold Limited. This loan was used to refinance a previous loan from CNMC of
US$55,000,000, with the remainder used for development, operations and management of the Pakrut Gold
Project, including operating and related expenses. This use is in line with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation,
Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount
of not less than US$103,092,783.51, with validity of not less than 60 months in favor of CCB.
The full amount of the loan was drawn down on 30 June 2016. The loan incurs interest at a rate of 3 months
LIBOR + 2.1% and is payable in arrears at the end of each applicable interest period.
The loan is repayable in 8 installments commencing 18 months from drawdown date and every 6 months
thereafter as follows:
31/12/17 – US$5,000,000 (payment made in January 2018)
30/06/18– US$5,000,000
31/12/18 – US$5,000,000
30/06/19 – US$5,000,000
31/12/19 – US$5,000,000
30/06/20 – US$5,000,000
31/12/20 – US$5,000,000
30/06/21 (or 14 working days prior to expiry date of relevant Standby Letter(s) of Credit – whichever is
earlier) – Balance of loan
53
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
18. Trade and other payables
Trade and other payables
2018
US$000
2017
US$000
82,194
78,409
82,194
78,409
Trade and other payables include amounts due of US$65,906,519 (2017 – US$70,474,164) in relation to
exploration and evaluation activities and mines under construction.
19. Provisions for Other Liabilities and Charges
At 1 January 2018
Unwinding of discount
At 31 December 2018
All provisions are non-current.
Rehabilitation
US$000
Total
US$000
767
71
838
767
71
838
The Group makes full provision for the future cost of rehabilitating mine sites and associated production
facilities on a discounted basis at the time of constructing the mine and installing those facilities.
The rehabilitation provision represents the present value of rehabilitation costs relating to the Pakrut mine
site, which are expected to be incurred up to 2030, which is the expiration date of the mining license. The
provision has been created based upon the feasibility study. Assumptions based upon the current economic
environment within Tajikistan have been made, which management believes are a reasonable basis upon
which to estimate the future liability and will be reviewed regularly to take into account any material changes
to the assumptions. The actual rehabilitation costs and works required will ultimately depend upon future
market prices for the necessary rehabilitation works required, changes in future regulatory requirements
and the timing on when the mine ceases to operate commercially.
The discount rate used in the calculation of the provision as at 31 December 2018 is 9% per annum. The
value of the undiscounted provision is US$2,481,000 (2017: US$2,481,000).
20. Treasury Policy and Financial Instruments
The Group operates informal treasury policies which include ongoing assessments of interest rate
management and borrowing policy. The Board approves all decisions on treasury policy.
Facilities are arranged, based on criteria determined by the Board, as required to finance the long-term
requirements of the Group. The Group has financed its activities by the raising of funds through the placing
of shares and through the issue and subsequent exercise of options and warrants.
At 31 December 2018 and 2017 there were no monetary assets denominated in currencies other than the
functional currencies of the Group’s operations.
54
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
There are no material differences between the book value and fair value of the financial assets at the year
end. Except for the impact of discounting on the provisions for liabilities and other charges, there are no
material differences between the book value and fair value of financial liabilities at the year end.
21. Share Capital
2018
No. of
ordinary
shares
2018
Share
Capital
US$000
2017
No. of
ordinary
shares
2017
Share
Capital
US$000
At 1 January (Ordinary shares
of $0.0001) each
Issued during the year
At 31 December (Ordinary
382,392,292
-
38
-
382,392,292
-
shares of US$0.0001 each)
382,392,292
38
382,392,292
38
-
38
All shares are authorised for issue and fully paid.
22. Share Based Payments
Options can be granted to any employee of the Group in accordance with the rules of the Unapproved Share
Option Scheme. The option price is not to be less than the initial Placing Price or the price on the day of
issue. The options cannot be exercised for a period of at least one year from the date of grant. In the event
of any employee to whom options have been granted ceasing to be an employee of the Group he or she
will have a set period in which to exercise those options (depending on the reasons for leaving), failing which,
the options will lapse.
Details of share options granted by the Company were as follows:
2018
2017
No. of
share
options
50,000
50,000
-
-
Weighted
average
exercise
price
(pence)
No. of
share
options
30.00
30.00
1,525,000
(1,475,000)
-
-
50,000
50,000
Weighted
average
exercise
price
(pence)
30.00
30.00
30.00
30.00
Share Option Scheme
Outstanding at beginning of
year
Expired during the year
Outstanding at end of year
Exercisable at 31 December
There were no share options outstanding at the year end.
55
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
23. Cash flow information
Cash flows from Operating Activities
Loss before income tax
Adjustments for:
Finance income
Depreciation
Impairment
Foreign exchange loss
Change in working capital:
Inventory
Trade and other receivables
Trade and other payables
Other current assets
Other current liabilities
Net Cash generated from Operating Activities
Net debt reconciliation
Cash and cash equivalents
Borrowings – repayable within one year
Borrowing – repayable after one year
Net debt
Cash and cash equivalents
Borrowings – fixed interest rates
Borrowings – variable interest rates
Net debt
31 December
2018
US$000
31 December
2017
US$000
(4,304)
(14,969)
(923)
73
-
-
873
(172)
(766)
(2,908)
11,684
3,556
(1)
102
10,703
2,732
90
(2,758)
-
-
(4,101)
31 December
2018
US$000
8,363
(162,724)
(182,285)
(336,646)
31 December
2017
US$000
12,067
(172,684)
(106,500)
(267,117)
31 December
2018
US$000
8,363
(260,010)
(85,000)
(336,647)
31 December
2017
US$000
12,067
(159,184)
(120,000)
(267,117)
Cash at bank
US$000
Borrowings
due within 1
year
US$000
Borrowings
due after 1
year
US$000
Total
US$000
Net debt as at 1 January 2017
12,563
(26,667)
(227,684)
(241,787)
Cash flows
(496)
(146,017)
121,184
(25,329)
Net debt as at 31 December 2017
12,067
(172,684)
(106,500)
(267,117)
Cash flows
(3,703)
9,960
(75,785)
(69,528)
Net debt as at 31 December 2018
8,363
(162,724)
(182,285)
(336,645)
56
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
24. Controlling Party
The Directors consider China Nonferrous Metals Mining (Group) Co. Limited (“CNMC”) to be the ultimate
controlling party, by virtue of their shareholding and representation on the Board of Directors.
25. Capital Commitments – Pakrut Gold Project
Capital commitments contracted for at the end of the reporting period but not yet incurred is as follows:
Capital expenditure contracted for but not provided for in respect of
new treatment facilities, electrical upgrades and construction design
fees (2017: acquisition of mines under construction and
property, plant and equipment)
2018
US$000
2017
US$000
5,029
35,735
Capital commitments categorised within mines under construction relate to construction of the Pakrut gold
mine.
26. Contingent Liabilities
a) During 2018, a contract was entered into between LLC Pakrut & LLC WenJian, a company set up by a
former employee of Pakrut (Dept. 2), to provide outsourced services including the extraction of ore,
delivery of ore to smelting plant, cleaning of mine, mine development and construction works. LLC
WenJian is not considered to be a related party.
Although LLC WenJian hold the relevant license for the construction works, the company does not hold
a license in accordance with the laws of Tajikistan “On subsoil” and “On licensing of certain types of
activities” for implementing the other services they have been contracted to perform. This is a breach of
Tajik laws and regulations which could result in penalties being imposed on both parties to the contract.
The outcome of this situation is unclear and could result in fines imposed with the worst-case scenario
being that Pakrut could have their own license rescinded by the Tajik government. There is no visibility
surrounding the value or nature of any penalty at this time.
b)
In accordance with the terms of the 'investment agreement' for sale of gold between the government of
Tajikistan, Kryso Resources (BVI) Limited and LLC Pakrut, the employee ratio at Pakrut should be 80%
Tajik citizens and 20% foreign. The actual ratio during 2018 was 68% Tajik & 32% foreign employees.
Non-compliance could result in penalties or, in the worst case, unilateral termination of the agreement
by government of Tajikistan (to which Pakrut currently makes all sales). The potential value of the
monetary impact of any consequences is unknown at this time.
27. Related Party Transactions
The amount paid by the Company and Kryso Resources Limited to CNMIM for interest on the loan in 2018
amounted to US$Nil (2017: US$1,847,814). The amount due to CNMIM as at 31 December 2018 was
US$17,299,431 (2017: US$16,095,682). CNMIM is a significant shareholder of China Nonferrous Gold
Limited and Xiang Wu and Leo Yu are Chairman and President of CNMIM respectively. During 2018, CNG
did not pay any interest to CNMC.
The amount payable by the Company to CNMC for interest on the loans in 2018 amounted to US$9,857,378
(2017: US$5,805,833). The amount due to CNMC as at 31 December 2018 was US$221,913,278 (2017:
US$149,283,611). CNMC is the ultimate parent of China Nonferrous Gold Limited and Xiang Wu is Chief
Accountant of CNMC.
57
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
During the year, the loan amount of US$20,000,000 and interest payable of US$811,111 due to CNMC was
transferred to being due to CNMCTC a related party to China Nonferrous Gold Limited.
During 2018, 15MCC provided equipment and materials, together with installation and construction work to
the Group amounting to US$27,684,899 (2017: $3,391,001) and the Group advanced payments to 15MCC
amounting to US$20,462,214 (2017: $6,494,020). As at 31 December 2018, the total liability due to 15MCC
was $33,976,176 (2017: US$33,762,180).
In 2015 the Group entered into an additional consultancy contract with CNMC Hongtoushan Fushun Mining
Co Ltd., through CNMIM as agent as follows:
Smelting and Processing Agreement
CNMC Hongtoushan Fushun Mining Co Ltd. (CNHFMG) is a copper mine and processing operation owned
by CNMC. On 7th of September 2015, the Group entered into a smelting and processing agreement with
CNHFMG.
Under the terms of the Agreement, CNG will pay to CNHFMG an amount of RMB 17.99 (approximately
US$2.8) per gram of finished gold once the Project commences the 12-month production period. Prior to
this period the Company will cover the labour and associated costs of CNFMG. Once in production, in the
event the recovery of the plant is above the Beijing General Research Institute of Mining and Metallurgy
forecast rate over the life of production of 82.99 percent, CNHFMG will share 40 percent of the profits from
the upside directly due to the increased recovery. In the event recovery is below 75 percent, CNHFMG will
bear 20 per cent of any loss incurred by the Company from the Project due to directly to recovery levels.
During 2018, CNHFMG provided equipment and materials, together with installation and construction work
to the Group amounting to US$Nil (2017: US$Nil) and the Group advanced payments to CNHFMG
amounting to US$98,302 (2017: USD$102,263). As at 31 December 2018, the total liability due to
CNHFMG was $1,047,414 (2017: US$1,217,446). In October 2018, the contract with CNHFMG was
terminated by mutual agreement.
During the year of 2018 CNMC provided a guarantee for standby letters of credit amounting to
US$103,092,784 as security for the Group’s bank loan facility with China Construction Bank. During the
year of 2017, CNMC provided a guarantee from standby letters of credit amounting to US$118,556,701 as
security for the Group’s bank loan facility with China Construction Bank.
During the year, there is a total receivable amount of $2,739,702 (2017: US$Nil) owed by CNMIM for the
insurance claim on the 2017 snowfall disaster which is held on the Group’s behalf. There is also a total
amount of US$10,123,046 payable by the entities within the group owed to CNMIM as at 31 December
2018 (2017: US$Nil).
There is an amount of US$1,911 (2017: $2,026) owed to Pizhao Che who is a retired director of the group.
28. Events after the Reporting Period
In January 2019, the Group drew down US$20 million on a US$30 million loan facility with China
Construction Bank Corporation Macau Branch. The contract was signed in November 2018 but at that time
there was no withdrawal.
The Group has resumed production in January 2019, enabling it to raise sufficient working capital. As
mentioned earlier, in order to ensure the repayment of existing loans, a broader refinancing is required.
Discussions are ongoing and with the signing of the new loan agreement, the remaining discussions are
expected to be completed in the near term. The Group has now entered full production and this should
enable sufficient working capital to be raised. As previously announced, to ensure repayment of the existing
facilities as they fall due, a wider refinancing will be required.
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