CHINA NONFERROUS GOLD
LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 2019
Company Registration Number WK-277188
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CHINA NONFERROUS GOLD LIMITED
Contents
Company Information
Chief Executive Officer’s Statement
Report of the Directors
Board of 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
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CHINA NONFERROUS GOLD LIMITED
Company Information
Directors
Mr Boyi Liang
Mr Lixian Yu
Mr Delin Feng
Mr Xiuzhi Shi
Mr Yong Li
(Chairman and Non-Executive Director)
(Executive Director, Managing Director)
(Executive Director, Finance Director)
(Non-Executive Director)
(Non-Executive Director)
Company Secretary
Ms Ma Yifei
Registered Office
190 Elgin Avenue
George Town
Grand Cayman
KY1-9005
Cayman Islands
Nominated Adviser & Broker
WH Ireland Limited
24 Martin Lane
London
EC4R 0DR
United Kingdom
Bankers
UK
National Westminster Bank Plc
Knightsbridge Commercial
Business Centre
186 Brompton Road
London SW3 1HL
3
Bankers (continued)
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
Central Hong Kong
Tajikistan
OJSC"AGROINVESTBANK" DUSHANBE, TAJIKISTAN
Dushanbe, Tajikistan
"AMONATBONK" DUSHANBE, TAJIKISTAN
Dushanbe, Tajikistan
OJSC "BANK ESKHATA" Republic of Tajikistan, Khujiand
VAHDAT, Tajikistan
4
Bankers (continued)
CJSC "SPITAMEN BANK" DUSHANBE, TAJIKISTAN
VAHDAT, Tajikistan
CJSC "NBP Pakistan Subsidiary Bank in Tajikistan"
Dushanbe, Tajikistan
Independent Auditor
PKF Littlejohn LLP
15 Westferry Circus
Canary Wharf
London E14 4HD
Legal Advisors
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
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CHINA NONFERROUS GOLD LIMITED
Chief Executive Officer’s Statement
Chief Executive Officer’s Statement
As CEO of the board, it gives me great pleasure to present the CEO’s statement of the annual report for the
year ended 31 December 2019. Following successful completion of construction work at the mine site in 2018,
the Company has progressed well in several important aspects, with the Pakrut gold mine entering normal
production and achieving full operational capacity in 2019.
The Company made significant achievements in 2019 and became an important gold-production enterprise in
Tajikistan. The Pakrut gold mine achieved its internal production targets for 2019, which brings steady cash
flows to support the sustainable development of the Company.
Operation
Through the joint efforts of staff across the Group, construction works at the Pakrut gold project were
successfully completed at the end of 2018, which made it possible to commence full production in 2019.
From January to December 2019, a total of 731,600 tons of ore was extracted from the Pakrut gold mine, and a
total of 690,300 tons of ore were processed at a grade of 2.15 g/t, 17,966 tons of gold concentrate were
produced at a grade of 73.73 g/t, 1,168 kg gold bullion were poured with a comprehensive recovery rate of
79.6%.
Full production continued at the start of 2020 despite COVID-19, and from January to the end of June 2020, a
total of 261,268 tons of ore was extracted from the Pakrut gold mine, and a total of 344,652 tons of ore were
processed at a grade of 2.28 g/t, 9,979 tons of gold concentrate were produced at a grade of 72.51 g/t, 541.55
kg gold bullion were poured with a comprehensive recovery rate of 79.14%. To date, the operation at the Pakrut
gold mine remains stable overall and the key technical production figures including ore grade have been
increased significantly since 2019.
COVID-19
With COVID-19 spreading globally, our priority is the safety and health of our people and ensuring the
Company’s operations can continue in operation as normal. Since the outbreak of COVID-19 in Tajikistan on
April 30 2020, the Company has taken appropriate steps and effective measures to ensure that staff at
protected at site. To date operations at the mine site at Pakrut continue as normal, and there are no confirmed
or suspected cases in the Company in Tajikistan or China.
Thanks to the Chinese Government taking severe measures such as social distancing and self-isolation to
reduce COVID-19 spreading and allowing healthcare systems to make critical adaptations for testing and triage
capacity, there is no significant impact on working conditions in China. A tight prevention and control system
involving all sectors of society has been set up. Beijing has now cut all channels for the transmission of the
virus and there have been no cases reported within the Company to date in the second wave of COVID-19.
After the outbreak of the Tajik epidemic, flights with China have not been opened, and Chinese personnel on
6
CHINA NONFERROUS GOLD LIMITED
Chief Executive Officer’s Statement (continued)
vacation cannot return to work. The mine is still in normal operation. The amount of production personnel at the
mine site remains sufficient to meet the required production level, so production is still progressing well at site in
spite of COVID-19 and the target for the first half of 2020 is not affected by the suspended flights, as mentioned
in CEO's statement. In addition, the Company has organised a private chartered flight to transport around 45
Chinese employees to Tajikistan from China, which is due to take off on 8 August 2020. We therefore remain
confident that the annual internal production target can be achieved.
Financial results
The development and construction work at the Pakrut Gold Project was finalised at the end of the 2018 financial
year. The Group therefore generated revenue from full operational production during 2019. The transition from
trial production to full production at the beginning of 2019 has resulted in a reclassification of the mines under
construction asset (2018: $399,400,000) into property, plant and equipment – producing mines. As a result of
this reclassification and of the Group commencing full production, depreciation / depletion has also been
charged on these assets for the full year.
Administration expenditure for the year was US$16,337,000 (2018: US$6,372,000). The main reason for this in-
crease was due to the transition from trial production to full production at the Pakrut project in 2019 as noted
above, and the associated change in classification of expenses – as a consequence of this change in status,
expenditure including employment related expenses and taxes that were previously capitalised as part of the
ongoing construction and development at the mine site are now reflected in the income statement.
The overall loss incurred by the Group was US$21,981,000 (2018: US$4,483,000). The increased losses are
due to the non-capitalisation of administration expenditure in 2019, as set out above, as well as depreciation
charged on property, plant and equipment and US$20,796,000 of finance costs in respect of loans held with re-
lated parties and banks, which was also capitalised in previous years within mines under construction during the
exploration and trial production phases, but which are now charged to the income statement. During 2019,
Pakrut generated gold sales revenue of US$49,157,000 (2018: US$17,926,000), a significant increase as a res-
ult of entering full operational production. In the current year other income of US$0.12 million (2018: US$2.8
million) has been generated from Pakrut’s sale of surplus stock materials (2018: US$2.8m, being compensation
from the insurance provider following the snowfall disaster in early 2017).
During the course of the year, the Group did not enter into any further financing agreements with shareholders
or their associates. The repayment dates in December 2019 on the loan contracts previously signed with China
National Capital International Co, Ltd., China Nonferrous Metals International Mining Co., Ltd. and China
Nonferrous Metals Mining Group Co., Ltd. (“CNMC Loans”) were extended to December 2020.
In July 2018, CNMC and China National Economic Trade Co, Ltd. signed an agreement transferring one of the
loans of US$20 million to China Nonferrous Mining Group Co, Ltd. to CNMC Trade Co., Ltd which constitutes a
related party under the AIM Rules for Companies. In July 2019, the remaining $126.5 million was also trans-
ferred to the same party.
7
CHINA NONFERROUS GOLD LIMITED
Chief Executive Officer’s Statement (continued)
In 2019, the Group repaid US$10 million to China Construction Bank Corporation Macau Branch (“CCBC”) in re-
spect of its existing loan agreement, of which US$75 million remains outstanding at the year end. During 2019,
the Group signed a new financing agreement with CCBC for a loan of $20 million, repayable in March 2021.
The existing CCBC loan facilities totalled US$95 million and the CNMC and CNMIM loan facilities totalled
US$276 million so that, including interest, US$371 million of loans were payable as at 31 December 2019 (ap-
proximately US$344m without interest). US$267 million is payable within one year of the financial statements,
which includes US$10 million due to CCBC and the remaining balance due to shareholders. The CCBC loan is
due for repayment in March 2021.
Events after the Reporting Period
In April 2020, the Company drew down US$14.50 million on a new US$30 million loan facility with China
Construction Bank (Asia) Corporation Limited, which is being used for general working capital purposes to fund
the Pakrut gold mine.
The Group has continued production throughout 2020 despite the outbreak of COVID-19, enabling it to raise
sufficient working capital. As announced on 15 July 2020, in order to ensure the repayment of existing loans
can be made, a broader refinancing will be 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 parent
Company CNMC has committed to supporting the CNG group should this be required for a period of at least 12
months from the date of approval of these financial statements.
The Company extended the repayment period of loans in place with CNMC Trade Company Limited (CNMC
Trade), totalling US$146.50 million, to December 2020. The Company currently has total debt facilities (includ-
ing banking facilities), before interest, of c.US$353.7 million (being the US$341m announced on 15 July 2020,
plus the CNMIM loan of US$12.7m.
Outlook
With the normal production and operation of Pakrut gold mine, the Company is fully confident in its ability to
achieve the production target of 680,000 tons of ore set at the beginning of this year. This is considered a
prudent target in light of the uncertainties presented by the COVID pandemic, and revenue is still expected to
increase based on the results of production to date in 2020 and the current gold prices.
The Company is continuing to enhance its production capacity. Whilst improving production, the Company is
also focusing on perfecting and improving the smelting process by reducing production costs, increasing recov-
ery rates and improving competitiveness.
8
coming months.
CHINA NONFERROUS GOLD LIMITED
Chief Executive Officer’s Statement (continued)
The Company has long been dedicated to becoming a significant gold producer in Central Asia. The Com-
pany has also established a strong relationship with the government of Tajikistan and other Central Asian coun-
tries, and it will consider other appropriate acquisitions at the right time, although there can be no guarantee
that any acquisition will occur.
While we have taken big strides in the production and operation of the Pakrut gold mine and achieved
much, there are still challenges to overcome and targets to meet, all of which I am confident to accomplish
in the coming months.
Objectively speaking, uncertainty created by the coronavirus pandemic on production and operations still exists
in Tajikistan, and the long term effects are difficult to predict and estimate. The Company will make every effort
to meet pandemic prevention and control requirements, as well as stabilising and expanding the production and
operation of Pakrut gold mine.
I would like to take this opportunity to thank all our employees, management and advisers for their continued
hard work in 2019. I would also like to extend my thanks to all our stakeholders for their continued backing over
the years. I very much look forward to updating our shareholders further on the mine developments, produc-
tion levels, new strategy and direction.
Lixian Yu
Chief Executive Officer
31 July 2020
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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 2019.
Principal Activity
The principal activity of the Group is that of mineral exploitation, mine development and mining.
BUSINESS REVIEW
Introduction
China Nonferrous Gold Limited (“CNG”) is a mineral exploration, development and mining Company. The
Group’s project is located in central Asia, having been discovered during the Soviet era. The principal focus of
the Group is the development and exploitation of the Pakrut Gold Project in Tajikistan.
CNG, following the scheme of arrangement between Kryso Resources Limited (formerly Kryso Resources Plc)
and its shareholders, was admitted to trading on AIM 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 2019 is provided in the CEO’s Statement.
Strategy
CNG’s strategy is to maximize shareholder value through the development of the Group’s exploration properties,
proving up additional resources. CNG’s medium term objective is to become a mid-tier gold producer and keep
in mind the mission of state-owned enterprises, maintain strategic strength, and strive to achieve the production
goal of Pakrut. The directors of CNG have a track record of operating successfully in Tajikistan and believe
CNG to have been the first foreign Company to obtain 100% ownership of a mining and exploration project in
Tajikistan.
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CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
OPERATING REVIEW
To date the Group has:
•
•
•
•
Reached production capacity of 2,000 tons per day as a whole from January 2019;
Processed a total of 690,300 tons of ore at a grade of raw ore of 2.15g/t;
The recovery rate of processing was 89.26% and the recovery rate of smelting was 89.18%;
17,966 tons of gold concentrate were produced at the grade of 73.73 g/t, 1,168 kg gold bullion were
poured with comprehensive recovery rate of 79.6%; and
•
Generated revenue from production of US$49,157,000.
Pakrut Gold Deposit and License Area
In April 2004, LLC Pakrut, a wholly owned subsidiary of the Group, was granted a license and geological lease
to explore and exploit the Pakrut License Area which comprises the Pakrut gold deposit and the surrounding
6,300 hectare exploration area located in the metalliferous southern Tien-Shan Fold Belt. This belt is reputed to
have the second largest known gold resource after the Witwatersrand in South Africa. The exploration license
was valid for 10 years and expired on 1 April 2014. An application has been submitted in accordance with the
required procedures to renew the exploration license. The renewal application is being considered by the
Government of Tajikistan and the Group is working with the Government to ensure it is renewed as soon as
possible. Exploration and evaluation activities can continue at the Pakrut Gold Deposit in the area covered by
the mining license.
In November 2011, the Government of the Republic of Tajikistan issued the Pakrut Project mining license to
LLC Pakrut. According to the terms of the license, the amount of ore that can be mined is variable depending
upon the mine plan. The plan submitted by the Group envisages an initial processing capacity of 660,000 tons
of ore per annum, increasing to 1,320,000 tons per annum. The mining license is valid until 2 November 2030.
An application has been submitted in accordance with the required procedures to obtain approval to mine all
JORC compliant reserves arising from exploration and evaluation activities undertaken by the Group between
2009 and 2013. The application is currently being considered by the Tajik Department of Geology, following
which approval is required by the Scientific and Technical Counsel. It is the current intention of the Group to
seek an extension to the mining licence to ensure maximum exploitation of the resources available and this is
permissible under the current terms of the arrangements in place.
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CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
FINANCIAL REVIEW
The results for the year ended 31 December 2019 were as follows:
Revenue
Mine construction costs capitalised during the year
Cost of sales
Administrative expenses
Other operating expenses
Total costs
% Administrative expenses to total costs
Operating loss
Less: interest receivable
Add: interest payable
Loss on ordinary activities before taxation
Earnings per share (cents)
2019
2018
US$000
US$000
49,157
17,926
-
(66,717)
(32,842)
(17,926)
(16,337)
(6,192)
(136)
-
49,315
90,835
33.12%
6.82%
947
5,227
(270)
(923)
20,796
-
21,473
4,304
(5.75)
(1.17)
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 2019, KPI index is at 33.12% (2018: 6.82%).
Due to the Group entering full production at the beginning of 2019 and therefore no longer capitalising
expenditure as part of mines under construction, the proportion of administrative expenses in total expenses in
2019 has increased.
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 for the year was US$49.16 million (2018: US$17.9 million, from trial
production). This significant increase is in line with expectations given the increased production levels at the
mine site from 2019 following completion of development works at the end of 2018.
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CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
Corporate Responsibility
The Group seeks to build a sustainable and profitable business to maximize the return to its shareholders and
in doing so will not knowingly overlook its Corporate Responsibilities.
Certain Directors also serve as Directors of other companies involved in natural resource exploration,
development and mining and consequently there exists the possibility for such Directors to be in a position of
conflict. Any decision made by such Directors involving the Group will be made in accordance with their duties
and obligations to deal fairly and in good faith with the Group and such other companies. In addition, such
Directors will declare, and refrain from voting on, any matter in which such Directors may have a conflict of
interest.
People
The Group recognises that the success of its ventures is based on the well-being and health of its employees.
All employees have to pass through an induction process where they are briefed on the Group’s health and
safety policies. The safety of the Group’s employees is of the utmost importance and is therefore taken
seriously in all areas in which the Group’s employees operate.
The Group is also committed to the development of its employees and encourages them to attend courses and
programs to further develop their own skills. The Group also aims to provide a favorable working environment
which will continue to draw, retain and motivate its employees so that they can reach their true potential and
share in the Group’s success.
Employees are kept well informed of the performance and objectives of the Group through established methods
of personal briefings and regular meetings. Employees are given the opportunity to develop and progress
according to their ability. The Group has an employee share option scheme to encourage employees’
participation in the Group’s performance.
The Group has continued its policy of giving the disabled full and fair consideration for all job vacancies for
which they offer themselves as suitable applicants, having regard to their particular aptitudes and abilities. With
regard to existing disabled employees and those who may become disabled during the year, the Group
examines ways and means of providing continuing employment under normal terms and conditions and
provides training, career development and promotion, where appropriate.
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CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
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.
14
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
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 is in a stable production and operation stage. The Company will need to manage change and
innovation and accumulate valuable experience and systems as production levels continue to ramp up. A key
factor will be the continuous technological innovations and developments in the industry. To become an
industry leader, CNG must adhere to the technology innovation strategy and seek innovative methods to
achieve a comprehensive transformation.
Production risks are related to the possibility that gold production or output levels are lower than expected. The
main sources of production risk are bad weather conditions and limited production capacity, such as hail, snow
disasters, and limited Chinese technical staff. Despite the control measures taken, the production risk may also
be due to the harsh winter weather and the breakdown of production equipment and machinery. At present,
Pakrut is adopting corresponding risk prevention and control strategies for the above risks, including purchase
of equipment spare parts and materials in advance to ensure the sufficiency of raw materials and the normal
operation of the machinery at the mine site; vigorously training Tajik technical personnel, exerting local talent
policies, and rationally using manpower resources; reasonably estimate the impact of severe weather to ensure
the achievement of the annual output target.
15
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
COVID-19 risk
Due to the impact of COVID-19, the price of gold has continued to rise as expected during an economic
downturn, however the Tajik Somoni’s exchange rate against the RMB has continued to fall. Currently, the cost
of purchases in Tajikistan from foreign countries therefore remains high, which causes a risk of increased
foreign exchange losses.
Secondly, due to travel restrictions, some Chinese technical staff have not been able to return to their posts at
present, most notably the outsourced mining personnel of LLC Wen Jian. It is hoped that these technicians will
arrive in August in order to ensure the production target for the year is met.
The Group has sought to mitigate this risk through constant communication with in-country personnel and
ensuring that those onsite employee can perform what task they can to minimize disruption.
Additionally, the Group has adopted COVID-19 best practices to minimize the risk of infection amongst
employees whilst maxmising their wellbeing.
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.
16
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
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.
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CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
The Group’s existing licenses and permits could be revoked, terminated or not extended in accordance with
expectations by the Tajikistan Government, the local government or the Tajikistan courts under certain
circumstances, including failure to comply with the conditions imposed by the licenses and permits, which may
include the provision of regular reports to the relevant regulatory authority, obtaining sufficient insurance
coverage, adherence to the permitted extraction of mineral resources or complying with the obligations relating
to sustainable management, subsoil, environmental protection and health and safety regulations. Failure to
obtain, retain or renew the relevant licenses and permits required at all or on a timely basis could have a
material adverse effect on the Group’s financial condition. The Group works closely with the Government and
local government departments on the mine project in order to ensure all parties are kept up to date on progress
and closely monitors compliance with the conditions imposed under its existing licenses and permits.
Economic Risk
The profitability of the Group’s future operations may be significantly affected by changes in the market prices
for the materials it may produce and is affected by numerous macroeconomic factors beyond the Group’s
control. The level of interest rates, the rate of inflation, world supply, and the stability of exchange rates can all
cause fluctuations in the price. Such external factors are in turn influenced by changes in international
investment patterns and monetary systems and also political developments. Metal prices have fluctuated in
recent years, particularly gold, and future significant price declines could cause future commercial production to
be uneconomic and have a material adverse effect on the Group’s financial condition. Economic risk is
continually evaluated by the Group, including expectations of future events, and action undertaken as
necessary.
Certain payments, in order to earn or maintain property interests, are to be made in local currency in the
jurisdiction where the applicable property is located. As a result, fluctuations in the Chinese Renminbi and the
Tajik Somoni could have a material adverse effect on the Group’s financial results which are denominated and
reported in US dollars. Where possible the Group maintains bank and cash balances in the same denomination
as its expected liabilities. The Group does not currently hedge its exposure to foreign currencies.
The Group currently has a comprehensive program of insurance but does not carry insurance to protect against
certain risks and nor can it guarantee that its level of insurance is sufficient to cover all outcomes and
eventualities. As a result, the Group may become subject to liability to include environmental pollution, political
risk and other hazards against which the Group cannot insure or which it may elect not to insure. The payment
of such liabilities may have a material adverse effect on the Group’s financial condition.
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CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
Pakrut is located in Tajikistan, an overseas country, and the tax pressure is relatively large. Due to the poverty
and backwardness of the host country, the financial funds are tight, and the tax has become the main source of
national revenue. Chinese companies in Tajikistan share the same feeling. In order to complete the taxation
task, the taxation bureau took various measures to order, even threaten to require enterprises to pay more
taxes, so there has been no local taxation policy change. In 2019, Pakrut further strengthens internal control
and basic management, formulates tax management measures that meet the Company's management needs,
promptly proposes tax-related risks and related countermeasures in the Company's business and management
processes, and is responsible for establishing and maintaining tax authorities good relationship, prepare and
maintain relevant tax-related business materials in accordance with the provisions of the tax law, strengthen tax
planning, actively obtain various tax incentives in the process of economic business development, and
safeguard the Company's overall interests.
Financial Risk
The Group’s operations expose it to a number of financial risks. These are discussed under ‘Financial Risk
Management’ within Note 1 of the Financial Statements.
Political and Country Risk
Substantially all of the Group’s business and operations are conducted in Tajikistan. The political, economic,
legal and social situation in Tajikistan introduces a certain degree of risk with respect to the Group’s activities.
The Government of Tajikistan exercises control over such matters as exploration and mining 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.
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.
19
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
Funding
The Group may need to secure further funding for working capital and other purposes and in addition it will
need to renegotiate its current funding in the short-medium term. There is the risk that this may not be
forthcoming which would impact the Group operations. The Group has numerous funding options available and
remain in close contact with its controlling shareholder who have, up to now, continued to provide economic
support as required.
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. The Group will continue to monitor matters and seek advice as to how to mitigate any risks
arising throughout the transition period.
Performance of Key Personnel and Employees
The Group is dependent on a relatively small number of key employees, the loss of any of whom could have an
adverse effect on the Group.
There has been a steady emigration of skilled personnel from Tajikistan in recent years that could adversely
affect the Group’s ability to retain its employees.
The Group seeks to mitigate this risk by actively engaging with its employees and seeking to offer a secure
work environment with appropriate pay levels to maintain both motivation and loyalty to the Group.
Results and Dividends
The results for the year and the Group’s financial position at the end of the year are shown in the following
Financial Statements. The Directors do not recommend the payment of a dividend (2018: US$Nil).
Future Developments
Future prospects are set out in the CEO’s Statement on pages 6 to 9 and above.
20
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
Directors and their Interests
The Directors who served the Group during the year do not hold any beneficial interests in the shares of the
Group (2018: None).
No Director who served during the period held any share options in the Company.
Remuneration of the Directors is disclosed in Note 5.
Substantial shareholdings
As at the date of these financial statements, the Directors were aware of the following shareholdings in excess
of 3% of the Company’s issued share capital.
China Nonferrous Metals Int’l Mining Co Ltd
Zhao Bin
Golden Max Group
Huang Lihuo
BOCOM International
Rainbow Bridge Investment Fund
Going Concern
Number of
Percentage of
ordinary
issued share
shares
capital
146,666,667
50,090,304
33,823,113
33,068,430
16,500,000
12,335,489
38.36
13.10
8.85
8.65
4.31
3.23
The Company’s business activities, together with the factors likely to affect its future development, performance
and position are set out in the CEO’s Statement on pages 6 to 9. Note 1 to the financial statements includes the
Company’s objectives, policies and processes for managing its capital; its financial risk management objectives;
and its exposures to credit risk and liquidity risk.
The Directors have prepared the Group financial statements on a going concern basis after reviewing the
Group’s forecast cash position and working capital requirements for the period to 31 July 2021 and satisfying
themselves that the Group will have sufficient funds on hand to realise its assets and meet its obligations as
they fall due.
21
CHINA NONFERROUS GOLD LIMITED
Report of the Directors (continued)
In making their assessment, the Directors have considered the level of production and operation at the mine
site and how the Group will be able to use the cash inflows from these operations to support its working capital
position and repay loans when they fall due. The Directors have considered the importance of working closely
with its lenders, some of whom are related parties, and they have sought appropriate assurances from them
regarding their continued support. The Directors have also considered the ongoing COVID-19 pandemic and,
although the extent of the global impact is as yet uncertain, the Group believes there are sufficient measures in
place at the mine site in Tajikistan and in the Beijing head office to mitigate any potential risks presented and
enable operations to continue as normal.
After making the due enquiries the Directors have a reasonable expectation that the Company and Group have
access to adequate resources to continue in operational existence for the foreseeable future which is
considered to be at least 12 months from the date of the signing of these financial statements. Accordingly, the
Group continues to adopt the going concern basis in preparing the annual report and financial statements.
Events after the Reporting Period
Details of events after the reporting period are set out in the Chief Executive Officer’s Statement and in Note 28
to the Financial Statements.
Relevant Audit Information
The Directors who held office at the date of approval of this Report of the Directors confirm that, so far as they
are individually aware, there is no relevant audit information of which the Company’s auditor is unaware; and
each Director has taken all the steps that they ought reasonably to have taken as a Director to make
themselves aware of any relevant audit information and to establish that the auditor is aware of that information.
Auditor
PKF Littlejohn LLP has signified its willingness to continue in office as auditor.
Signed by order of the Board of Directors
Mr Lixian Yu
31 July 2020
22
CHINA NONFERROUS GOLD LIMITED
Board of Directors
Board of Directors
The current Board comprises:
Mr Boyi Liang (aged 57), CEO and Non-Executive Director
Mr. Liang, aged 57, holds a Master’s degree and is a senior engineer by trade, has served as deputy manager
of the asset operation department of China National Construction Group, as deputy manager of the planning
department and as manager and director of the corporate department of the China Nonferrous Mining Group
Company. He currently serves as the CEO of China Nonferrous Metals International Mining Company Limited,
and the assistant to the general manager of the China Nonferrous Mining Group Company, and as director of
the Strategic Research Office.
Mr Lixian Yu (aged 53), Managing Director
Mr Yu, aged 53, 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 50), Financial Director
Mr Feng, aged 50, 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.
23
CHINA NONFERROUS GOLD LIMITED
Board of Directors
Mr Xiuzhi Shi (aged 54), Non-Executive Director
Mr. Shi, aged 54, 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 45), Non-Executive Director
Mr. Li, aged 45, 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.
24
CHINA NONFERROUS GOLD LIMITED
Statement of Directors’ Responsibilities
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with
applicable law and regulations. The Directors are required to prepare financial statements for each financial
year. The Directors have elected to prepare the Group Financial Statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
The Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and of the profit or loss of the Group for that year. In preparing these
Financial Statements, the Directors are required to:
•
•
•
Select suitable Accounting Policies and then apply them consistently;
Make judgments and accounting estimates that are reasonable and prudent;
State whether applicable IFRSs as adopted by the European Union have been followed, subject to
any material departures disclosed and explained in the Financial Statements: and
•
Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume
that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group.
They are also responsible for safeguarding the assets of the Group, and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website. The Company is compliant with AIM Rule 26 regarding the Company’s
website.
Signed by order of the Board of Directors
Mr Lixian Yu
31 July 2020
25
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
Corporate Governance Report
This report forms part of the Report of the Directors.
The CEO 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.
26
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
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.
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 regularly in accordance
with their terms of reference (http://www.cnfgold.com/corporate-information/corporate-governance).
The three committees are all composed of Shi Xiuzhi, Li Yong and Liang Boyi.
Principle 6: Ensure that between them the Directors have the necessary up-to-date experience, skills and
capabilities
The board must have an appropriate balance of sector, financial and public markets skills and experience, as
well as an appropriate balance of personal qualities and capabilities. The board should understand and
challenges its own diversity, including gender balance, as part of its composition. The board should not be
dominated by one person or a group of people. Strong personal bonds can be important but can also divide a
board.
27
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
As companies evolve, the mix of skills and experience required on the board will change, and board
composition will need to evolve to reflect this change.
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.
The Board recognizes that it has limited diversity and this will form a part of any future recruitment consideration
if there are any Director resignations or the board concludes that additional Directors are required.
Each Director undertakes a mixture of formal and informal continual professional development as necessary to
ensure that their skills remain current and relevant to the Group.
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 2019 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.
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.
28
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
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 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 Chief Executive
Officer (‘CEO’) is responsible for running the business of the Board and for ensuring appropriate strategic focus
and direction.
The 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, to present business updates.
29
CHINA NONFERROUS GOLD LIMITED
Corporate Governance Report
The table below sets out the attendance statistics for all current Board members through 2019:
Meetings attended
Meetings held during the
year (or since appointment)
Mr Boyi Liang**
Mr Lixian Yu
Mr Delin Feng*
Mr Xiuzhi Shi
Mr Yong Li
* Mr Delin Feng was appointed on 21 March 2019.
** Mr Boyi Liang was appointed on 30 July 2019.
Board committees
3
7
5
8
8
3
8
6
8
8
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 Shi Xiuzhi, Li Yong and Liang Boyi.
The four audit committees were held on January 28, April 24, September 25, and December 20, 2019.
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 Shi Xiuzhi, Li Yong and Liang Boyi. The three remuneration committees were held on March 28,
July 20, and November 25, 2019.
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 CEO 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
30
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor
Opinion
We have audited the group financial statements of China Nonferrous Gold Limited (the ‘group’) for the year
ended 31 December 2019 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 group financial statements:
• give a true and fair view of the state of the group’s affairs as at 31 December 2019 and of its loss for the
year then ended; and
• have been properly prepared in accordance with IFRSs as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the financial statements section of our report. We are independent of the group in accordance
with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Emphasis of matter
We draw attention to Note 28 of the financial statements, as well as the disclosures made in the Chief
Executive Officer’s Statement on p.6 and the ‘Principle Risks and Uncertainties’ and ‘Going concern’ sections in
the Report of the Directors, which describe the group’s assessment of the COVID-19 impact on its ability to
continue as a going concern. The group has explained that the events arising from the COVID-19 outbreak do
not impact its use of the going concern basis of preparation nor do they cast significant doubt about the group’s
ability to continue as a going concern for a period of at least twelve months from the date when the financial
statements are authorised for issue.
Our opinion is not modified in this respect.
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 group’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.
Our application of materiality
The scope of our audit was influenced by our application of materiality. We determined materiality for the
financial statements as a whole to be US$3,500,000 (2018: US$3,500,000) for the group financial statements
using 2% of gross assets as a basis, whilst also taking into consideration loss before tax.
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CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor (continued)
We consider gross assets to be the most relevant determinant of the group’s financial position and performance
used by shareholders, with the key financial statement balances being 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. However, we consider that loss before tax will
also be a key indicator of performance to financial statements users as the group completes its first year of full
production and seeks to maximise production and operating efficiencies at the mine.
Whilst materiality for the financial statements as a whole was set a US$3,500,000 each significant component
of the group was audited to an overall materiality ranging between US$12,000 and US$3,450,000 with
performance materiality set at 70%. We applied the concept of materiality both in planning and performing our
audit, and in evaluating the effect of misstatement.
An overview of the scope of our audit
In designing our audit we determined materiality, as above, and assessed the risk of material misstatement in
the financial statements. In particular, we looked at areas requiring the directors to make subjective judgements,
for example in respect of significant accounting estimates including impairment of mine assets, and considered
future events that are inherently uncertain. We also addressed the risk of management override of internal
controls, including evaluating whether there was evidence of bias by the directors that represents a risk of
material misstatement due to fraud.
A full scope audit was performed on the complete financial information of the group’s operating components
located in Tajikistan 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 discussed significant
events occurring during the year and post year-end period with the component auditor and performed a review
of the component auditor’s working papers, including review of planning and completion stage group reporting,.
The group audit team are responsible for the scope and direction of the audit process. All other work was
performed remotely by PKF Littlejohn LLP.
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CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor (continued)
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
How the scope of our audit responded to the key audit matter
Valuation of PPE/Producing Mines –
Pakrut LLC (Note 12)
Our work in this area included:
▪ A review of the costs transferred into PPE from Mines under
construction in 2019 to ensure their appropriateness in
accordance with IFRS, including a review of work performed by
the component auditor.
▪ A review of management’s impairment assessment, including
consideration of any NPV calculations used. We challenged the
source of the inputs and obtained and reviewed the supporting
evidence.
▪ Assessment of the mining licenses held by the group to confirm
their validity including discussions with legal team in Pakrut.
▪ Considering whether there any potential impairment indicators
through review of announcements to the market and Board
minutes, as well as our discussions with management and the
component auditor.
Producing mines within PPE is the most
material balance within the financial
statements and represents the key
source from which the Group generates
income. The value of Producing mines,
as at 31 December 2019, is $390m and
was transferred into PPE from Mines
under Construction at the start of the
2019 financial year.
The group entered full production from 1
January 2019 after experiencing delays in
achieving full production levels. As a
result there is now more clarity over the
forecast cashflows expected over the
mine’s life as the Group now has greater
visibility over actual costings.
There is the risk that as a result the value
of the mine is impaired.
Depletion of Producing Mines (Note
12)
Our work in this area included:
During 2019 the Group entered full
production and as a result depreciation
was required to be calculated and
charged for the first time in respect of
Producing mine assets, previously held
as Mines under construction. The
calculation of this amount requires
significant judgement and the use of
estimates by management and
represents a material charge within the
financial statements. There is the risk that
this has been incorrectly calculated and
▪ Verifying the mathematical accuracy of the calculations
prepared by management;
▪ Reviewing the key inputs used within the calculations and
challenging all estimates used (see note 2) and obtaining
support; and
▪ Discussions with management in respect of the basis for the
calculation.
The lifespan of the mine used in the calculation is 18 years which is 8
years more than the licence currently held by CNG permits. Based on
the information available to management they currently have no
reason to expect the licence extension not to be granted however if it
were not then there is the risk that the key inputs into this calculation
33
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor (continued)
the relevant disclosures not made.
would need to be changed and this could lead to a material impact on
the related charge within the financial statements.
Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion
on the group financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to
read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the
preparation of the group financial statements and for being satisfied that they give a true and fair view, and for
such internal control as the directors determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the group financial statements, the directors are responsible for assessing the group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
34
CHINA NONFERROUS GOLD LIMITED
Report of the Independent Auditor (continued)
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with our engagement letter
dated 10 May 2019. Our audit work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone, other than the Company and the
Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Joseph Archer (Engagement Partner)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
31 July 2020
35
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Comprehensive Income
Year ended 31 December 2019
Revenue
Cost of sales
Gross Profit
Other operating income
Administrative expenses
Loss on foreign exchange
Other operating expenses
Operating Loss
Finance income
Finance costs
Loss before Income Tax
Income tax
2019
2018
Note
US$000
US$000
3
49,157
17,926
(32,842)
(17,926)
16,315
116
6
(16,337)
(905)
(136)
(947)
270
(20,796)
8
8
-
2,838
(6,192)
(1,873)
-
(5,227)
923
-
(21,473)
(4,304)
7
(508)
(179)
Loss for the year attributable to owners of the parent
(21,981)
(4,483)
Total comprehensive income attributable to owners of
the parent for the year
(21,981)
(4,483)
Basic and Diluted Earnings per share attributable to
owners of the parent (expressed in cents per share)
9
(5.75)
(1.17)
All of the activities of the Group are classed as continuing.
The accounting policies and notes on pages 41 to 91 form part of these Financial Statements.
36
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Financial Position
As at 31 December 2019
Non-Current Assets
Mines under construction
Property, plant and equipment
Total Non-Current Assets
Current Assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total Current Assets
Non-Current Liabilities
Borrowings
Provisions for other liabilities and charges
Total Non-Current Liabilities
Current Liabilities
Borrowings
Trade and other payables
As at
As at
31 December 2019
31 December 2018
Note
US$000
US$000
11
12
15
16
17
19
17
18
-
399,400
402,548
7,422
402,548
406,822
16,856
4,766
11,120
17,343
3,709
8,363
32,743
29,415
(103,586)
(182,285)
(913)
(838)
(104,499)
(183,122)
(267,527)
(162,724)
(77,050)
(82,194)
Total Current Liabilities
(344,577)
(244,918)
Net Current Liabilities
(311,843)
(215,503)
Net (Liabilities)/Assets
(13,785)
8,196
37
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Financial Position
As at 31 December 2019
Equity attributable to the owners of the parent
Share capital
Share premium
Other reserve
Retained earnings
Total Equity
21
38
65,901
10,175
38
65,901
10,175
(89,899)
(67,918)
(13,785)
8,196
These Financial Statements were approved and authorised for issue by the Directors on 31 July 2020 and are
signed on their behalf by
Mr Lixian Yu
Managing Director
The accounting policies and notes on pages 41 to 91 form part of these Financial Statements.
38
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Changes in Equity
Year ended 31 December 2019
Attributable to owners of the parent
Share
capital
Share
Other
Retained
premium
reserve
earnings
Total
US$000
US$000
US$000
US$000
US$000
Balance at 1 January 2018
Loss for the year
Total comprehensive loss for the year
Total transactions with owners of the
parent, recognised directly in equity
Balance at 31 December 2018
38
-
38
-
38
65,901
10,175
(63,435)
12,679
-
-
(4,483)
(4,483)
65,901
10,175
(67,918)
8,196
-
-
-
-
65,901
10,175
(67,918)
8,196
Balance at 1 January 2019
38
65,901
10,175
(67,918)
8,196
Loss for the year
(21,981)
(21,981)
Total comprehensive loss for the year
38
65,901
10,175
(89,899)
(13,785)
Total transactions with owners of the
parent, recognised directly in equity
Balance at 31 December 2019
Description and purpose of reserves:
-
38
-
-
-
-
65,901
10,175
(89,899)
(13,785)
a)
b)
c)
d)
Share capital: share capital consists of amounts subscribed for share capital at nominal value.
Share premium: share premium consists of amounts subscribed for share capital in excess of nominal value.
Other reserve: other reserve comprises the capital re-organisation reserve under the scheme of arrangement.
Retained earnings: cumulative net gains and losses recognised in the consolidated statement of comprehensive
income. Also included in this figure is the share options and warrants reserve established in 2013 as part of the capital
restructuring program. 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 41 to 91 form part of these Financial Statements.
39
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Cash Flows
Year ended 31 December 2019
Cash flows from Operating Activities (Note 23)
Net cash generated from Operating Activities
Cash flows from Investing Activities
Payments for mining rights and construction in progress
Purchase of property, plant and equipment
Interest received
31 December
31 December
2019
2018
US$000
US$000
3,624
3,624
3,556
3,556
(5,842)
270
(48,394)
-
923
Net cash used in Investing Activities
(5,572)
(47,471)
Cash flows from Financing Activities
Proceeds from borrowings (net of capitalised issue costs)
20,000
90,000
Repayment of borrowings
Interest paid
(10,000)
(35,000)
(5,295)
(14,789)
Net cash generated from Financing Activities
4,705
40,211
Net increase/(decrease) in Cash and cash equivalents
Cash and cash equivalents at beginning of the year
2,757
8,363
(3,704)
12,067
Cash and cash equivalents at end of the year
11,120
8,363
The accounting policies and notes on pages 41 to 91 form part of these Financial Statements.
40
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 re-organisation 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 2019. 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:
IFRS 16: Leases
IFRIC 23: Uncertainty over income tax treatments
•
•
• Annual Improvements to IFRS Standards 2015-2017 Cycle
41
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 2019 and not early adopted
Standard
Conceptual Framework
(Amendments)
Title
n/a
IAS 1 & IAS 8 (Amendments)
Definition of Material
IFRS 3 (Amendments)
Business Combinations
IAS 1 (Amendments)
Presentation of Financial Statements: Classification of
Liabilities as Current or Non-current
Effective date
1 January 2020
1 January 2020
1 January 2020*
1 January 2022*
*Subject to EU endorsement
These Standards will have no material impact on the Group.
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 2019.
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.
42
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
Financial Instruments – Initial Recognition and Subsequent Measurement
Classification
The Group classifies its financial assets into only one category, being those to be measured at amortised cost.
The classification is dependent 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 de-recognised 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.
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
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.
43
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
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”. 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.
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 life. In 2019, the mine has entered full
production and therefore depletion/depreciation/amortisation has commenced and ‘Mines under construction’
has been transferred into Property, Plant and Equipment.
Impairment of non-financial assets
In accordance with its accounting policies and processes, each asset or cash generating unit (CGU) is
evaluated annually at 31 December, to determine whether there are any indications of impairment. If any such
indications of impairment exist, a formal estimate of the recoverable amount is performed.
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 of disposal (FVLCD) and its value in use. Where the carrying amount of an asset or CGU exceeds its
44
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
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 assets including exploration and evaluation and producing mines 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.
The determination of FVLCD for each CGU are considered to be Level 3 fair value measurements, as they are
derived from valuation techniques that include inputs that are not based on observable market data. The Group
considers the inputs and the valuation approach to be consistent with the approach taken by market
participants.
Property, plant and equipment
(i)
Initial recognition
Upon completion of the mine construction phase, the assets held within ‘Mines under construction’ are
transferred into ‘Property, plant and equipment’ as ‘Producing Mines’. Items of property, plant and equipment
and producing mines are stated at cost, less accumulated depreciation and accumulated impairment losses.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to
bringing the asset into operation, the initial estimate of the rehabilitation obligation, and, for qualifying assets
(where relevant), borrowing costs. The purchase price or construction cost is the aggregate amount paid and
the fair value of any other consideration given to acquire the asset.
Producing mines also consist of the value attributable to mineral reserves and the portion of mineral resources
considered to be probable of economic extraction at the time of an acquisition. When a mine construction
project moves into the production phase, the capitalisation of certain mine construction costs ceases, and costs
are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalisation
relating to mining asset additions, improvements or new developments, underground mine development or
mineable reserve development.
(ii)
Depreciation/amortisation
Accumulated mine development costs or ‘Producing mines’ are depreciated/amortised on a unit of production
(UOP) basis over the economically recoverable reserves of the mine concerned. The unit of account for run-of-
mine (ROM) costs is tonnes of ore, whereas the unit of account for post-ROM costs is recoverable ounces of
gold. Rights and concessions are depleted on the UOP basis over the economically recoverable reserves of the
relevant area. The UOP rate calculation for the depreciation/amortisation of mine development costs takes into
45
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
account expenditures incurred to date, together with sanctioned future development expenditure. Economically
recoverable reserves include proven and probable reserves.
The estimated fair value attributable to the mineral reserves and the portion of mineral resources considered to
be probable of economic extraction at the time of the acquisition is amortised on a UOP basis, whereby the
denominator is the proven and probable reserves.
Depreciation on other 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
– 8-10 years
– 5-10 years
– 3-5 years
Depreciation on assets used in exploration and evaluation activities and mines under construction is capitalised
within non-current assets.
Assets under construction relate to ongoing construction work at the mine site which does not form part of the
mine asset, for example office and accommodation buildings. Such assets are not depreciated until they are
ready for use, at which time they are transferred into plant and equipment and depreciation commences.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon
disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included in statement of profit or loss and
other comprehensive income when the asset is derecognised.
The asset’s residual values, useful lives and methods of depreciation/amortisation are reviewed at each
reporting period and adjusted prospectively, if appropriate.
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 after which they are
expensed. 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.
46
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.
47
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
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.
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 Chief Executive Officer’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.
48
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
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.
As at 30 June 2020 the Group had approximately US$19 million of cash and cash equivalents and US$340
million of debt (excluding accrued interest to the date of maturity, the terms of which are disclosed in the notes)
comprising the following:
- CNMC Trade loan of US$146.5 million, repayable on 20 December 2020, excluding accrued interest
to 20 December 2020.
- CNMC International Capitals Company ⅡLimited loan of US$90 million, repayable on 8 December
2020, excluding accrued interest to 8 December 2020.
- CCB Macau drawn down loan facility of US$70 million, excluding interest, the maturity date is 29 June
2021.
- CCB Macau drawn down loan facility of US$20 million, excluding interest, the maturity date is 28
January 2021.
- CCB Asia drawn down loan facility of US$14.55 million, excluding interest, the maturity date is 16
March 2021.
The Board has reviewed the Group's cash flow forecast for the period to 31 July 2021. The forecasts show that
the CNMC Trade loan of US$146.5 million will need to be extended or refinanced before 20 December 2020,
the $90 million loan will need to be extended or refinanced by 8 December 2020, and the Group forecasts it will
not require further funding to meet operational commitments and overheads. The forecasts also show that if
COVID 19 had an adverse impact on the Pakrut mine operations ,the Group would require further funding if the
Pakrut mine was temporarily suspended for more than two months.
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. The Directors have also ensured that the ultimate parent has sufficient funds to provide such
support.
Taking into account the above measures and after assessing the Group’s current and future cash flow positions,
the directors of the Company are satisfied that the Group will be able to meet their financial obligations when
they fall due. Accordingly, the directors of the Company are of the opinion that it is appropriate to prepare the
consolidated financial statements on a going concern basis.
At the beginning of the year, all units and departments of the Company closely centered on the production
center to overcome adverse factors such as weather, equipment and ore nature changes, and organized
production in a scientific, reasonable and coordinated manner. The annual production of gold was 1,168 kg,
and revenue generated by the Group is $49.16m, providing financial guarantee for the Company's continued
49
CHINA NONFERROUS GOLD LIMITED
Accounting Policies (continued)
operation. Looking forward to 2020, the Company's main operating goal is to limit operating losses, and for the
Pakrut Gold Project to strengthen operating cash flow position.
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.
Revenue
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is
recognised. It 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.
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 (based on the opening market price in London –
http://www.lbma.org.uk/precious-metal-prices#/), net of buyer’s discount, treatment charges, freight costs and
value added tax.
Other income
In the current year other income of US$0.12 million has been generated, which was derived from Pakrut’s sale
of surplus stock materials (2018: US$2.8 million, being compensation from the insurance provider following the
snowfall disaster in early 2017).
50
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 the
mine produces sufficient quantities of gold to be self-sufficient. The Group currently finances itself through
the issue of equity share capital and the secured loan facilities from CNMIM, CNMC and CCB.
Management monitors its cash and future funding requirements through the use of cash flow forecasts. All
cash not immediately required for working capital purposes is held on short term deposit. The Group’s
exposure to interest rate fluctuations on cash balances is restricted to the rate earned on these short-term
deposits. The potential impact of such fluctuations is not considered material to the financial statements.
The Group’s interest rate risk arises from long-term borrowings. The Group has both variable and fixed
rate borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which
is partially offset by cash invested at variable rates. The annual fixed interest rate for the CNMIM loan is
9% for all USD and RMB denominated tranches. All payments of principal and interest in respect of the
RMB denominated tranche are repayable at a fixed RMB: USD exchange rate. The interest rate on the
CCB loan of US$75 million is 2.10% per annum over the quarterly LIBOR rate and the loan is repayable in
US$. The interest rate on the new CCB loan of US$20 million is 1.20% per annum over the quarterly
LIBOR rate and the loan is repayable in US$. The interest rate on the CNMC loan of US$90 million taken
out in 2018 is fixed at 5.8% per annum, calculated and paid on a half yearly basis. The interest rate on
CNMCTC loans totaling $146.5 million is 3.70% per annum over the six month LIBOR rate and the loan is
repayable in US$.
At 31 December 2019, the potential impact of fluctuations in interest rates is not considered material to the
financial statements.
b) Foreign Currency Risk
The Group operates internationally and is exposed to foreign exchange risk arising from currency
exposures. Currency risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates. The Group has cash assets denominated in UK
51
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
Sterling, United States Dollars, Tajik Somoni and PRC Renminbi and incurs liabilities for its working
capital expenditure in all of these denominations. Payments are made in all of these denominations at the
pre-agreed price and converted (if necessary) as soon as payment needs to occur. Currency conversions
and provisions for expenditure are only made as soon as debts are due and payable. The Group is
therefore exposed to currency risk in so far as its liabilities are incurred in UK Sterling, PRC Renminbi and
Tajik Somoni, and fluctuations occur due to changes in the exchange rates against the functional and
presentational currency of US Dollar. The table below details the split of the cash held as at 31 December
2019 between the various currencies.
Somoni
GBP Sterling US Dollar
Renminbi
Total US$000
482
35
10,461
142
11,120
Due to the different nature of assets and liabilities, changes in asset value caused by exchange rate
changes have different ways of affecting a Company's free cash flow. Therefore, it must be considered
separately when evaluating the value of an enterprise. The first is the monetary items in the corporate
balance sheet. Typical monetary items include monetary funds, loans, accounts receivable and accounts
payable. When the exchange rate changes, the above-mentioned assets or liabilities of the enterprise
accounted in foreign currencies will increase or depreciate accordingly. For example, in the context of the
depreciation of the Renminbi, the foreign currency deposits (Somoni/USD) held by enterprises will
appreciate, which in itself has a substantial impact on the present value of cash. The foreign currency-
settled bonds or other debts issued by companies can be repaid at a lower RMB cost, which can save
companies more funds that can be used for free distribution, thereby promoting the enhancement of
corporate value.
During 2019, the Group’s principal revenue, costs, assets and liabilities, including interCompany loans
were denominated in USD. The Group manages foreign currency risk by matching receipts and payments
and monitoring movements in exchange rates. The Group does not currently hedge its exposure to foreign
currencies and recognises the profits and losses resulting from currency fluctuations as and when they
arise. At the year end the Group did not have material exposure to foreign exchange risk relating to its
non-US$ denominated bank deposits and as such this not disclosed. The year end exchange rates used
in the preparation of the financial statements for 2018 and 2019 were as follows:
Somoni to USD
GBP to USD
Renminbi to USD
31 December 2019
9.6872
1.31162
31 December 2018
9.4210
1.2741
6.9762
6.8632
52
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 to fund operations, 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.
Between
Less than
1 and 2
1 Year
Years
Between
2 and 5
Over
Carrying
Years
5 Years
Total
amount
US$000
US$000
US$000
US$000
US$000
US$000
Year ended
31 December 2019
Interest-bearing
borrowings
267,527
103,586
Trade and other
payables
77,050
Provisions for other
liabilities
-
-
-
344,577
103,586
-
-
-
-
-
-
371,113
371,113
77,050
77,050
2,481
2,481
913
2,481
450,644
449,076
53
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
Year ended
31 December 2018
Interest-bearing
borrowings
162,724
117,285
65,000
Trade and other
payables
82,194
Provisions for other
liabilities
-
-
-
-
-
-
-
345,010
345,010
82,194
82,194
2,481
2,481
837
244,918
117,285
65,000
2,481
429,685
428,041
The Group holds bank accounts with banks in the UK, PRC and Tajikistan with the following credit ratings:
Credit rating
A
No independent credit rating available
2019
2018
US$000
US$000
5,314
7,216
5,806
992
11,120
8,208
If a bank has no credit rating, the Group assesses the credit quality through local knowledge and past
experience in the particular jurisdiction.
54
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 Producing mines (Note 12)
The Group tests annually whether exploration, evaluation and licensing assets and producing mines have
suffered any impairment. The recoverable amounts of the cash generating units (“CGUs”) have been
determined based on value in use calculations which require the use of estimates and assumptions such
as long-term commodity prices, gold recovery rates, discount rates, operating costs and therefore
expected margins, future capital requirements and mineral resource estimates (see below). These
estimates and assumptions are subject to risk and uncertainty and therefore there is a possibility that
changes in circumstances will impact the recoverable amount. Management has assessed its CGUs as
being individual exploration and mine sites, which is the lowest level for which cash inflows are
independent of those of other assets or CGUs.
In assessing the carrying amounts of its exploration, evaluation and licensing assets and producing mines
at Pakrut, the Directors have used an independently prepared and Director approved bankable feasibility
study
(http://www.cnfgold.com/projects/pakrut-gold-project). The period used
in management’s
55
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
assessment is the anticipated life of the mine to the expiration of the license in 2030 with revenues being
generated from full production from January 2019.
The calculation assumes a mining capacity of 2,000 tonnes of ore daily increasing to 4,000 tonnes per day.
Estimated production volumes are based on detailed life-of-mine plans and take into account development
plans for the mines agreed by management as part of the long-term planning process. Production
volumes are dependent on a number of variables, such as: the recoverable quantities; the production
profile; the cost of the development of the infrastructure necessary to extract the reserves; the production
costs; the contractual duration of mining rights; and the selling price of the commodities extracted. Gold
revenues have been estimated over that period at a price of US$1,600 based on management’s estimates,
which are derived from forward price curves and long-term views of global supply and demand, building
on past experience of the industry and consistent with external sources.
The total cost per ounce is estimated to be around US$780 with a gross margin of circa 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 and direct costs, the gold price, and the discount
rate. An impairment to the mine value would occur if the discount rate were to increase to 17%, gold
prices fell by 14% or direct costs were to increase by 43%.
56
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 ‘Producing mines’ (see below), is based upon the total quantity of JORC compliant
resources of which part falls outside the area covered by the mining license and still subject to formal
approval, as noted above. Failure to obtain this approval would lead to an impairment of ‘Mines under
Construction’, together with inventories, and also impact the going concern basis of preparation of the
Financial Statements. The Group has made the judgement that this approval will be forthcoming. No
provision for impairment has been recognised in these Financial Statements relating to this uncertainty.
57
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
2. Critical Accounting Estimates, Assumptions and Judgments (continued)
Mineral resource and reserve estimates
Reserves are estimates of the amount of resources that can be economically and legally extracted from
the Group’s mining properties. The Group estimates its mineral resources based on information compiled
by appropriately qualified persons relating to the geological and technical data on the size, depth, shape
and grade of the ore body and suitable production techniques and recovery rates. This analysis requires
complex geological judgments to interpret the data. The estimation of the recoverable amount is based
upon factors such as estimates of commodity prices, future capital expenditure and production costs along
with geological assumptions made in estimating the size and grade of the resources. Details of the mineral
resources and reserve estimates can be found on www.cnfgold.com.
The Group estimates and reports mineral resource estimates in line with the principles contained in the
Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (December
2004), which is prepared by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of
Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia, known as
the “JORC Code”. The determination of a JORC resource is itself an estimation process that involves
varying degrees of uncertainty depending on how the resources are classified (i.e. measured, indicated or
inferred).
As additional geological information is produced during the operation of a mine and through additional
exploration activity, mineral resource estimates may change. Such changes may impact on the Group’s
reported financial position which includes the carrying value of property, plant and equipment and
inventories.
Estimated economically recoverable reserves are used
in determining the depreciation and/or
amortisation of mine-specific assets. This results in a depreciation/amortisation charge proportional to the
depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at
least annually, has regard to both its physical life limitations and present assessments of economically
recoverable reserves of the mine property at which the asset is located. These calculations require the
use of estimates and assumptions, including the amount of recoverable reserves and estimates of future
capital expenditure. The calculation of the UOP rate of depreciation/amortisation could be impacted to the
extent that actual production in the future is different from current forecast production based on
economically recoverable reserves, or if future capital expenditure estimates change. Changes to
economically recoverable reserves could arise due to changes in the factors or assumptions used in
estimating reserves, including:
• The effect on economically recoverable reserves of differences between actual commodity prices
and commodity price assumptions;
• Unforeseen operational issues.
58
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
2.
Critical Accounting Estimates, Assumptions and Judgments (continued)
Depreciation/Amortisation (Note 12)
As the mine entered full production during the period, 2019 was the first period for which depreciation /
amortisation was charged in respect of the producing mine assets. As mentioned in the judgement above
judgement is required in the calculation of this amount with the key estimates considered to be
surrounding the amount of economically recoverable resources and the lifespan of the asset. The
economically recoverable reserves are considered to be those detailed out on the website (see above for
link) and the lifespan of the mine is considered to be 18 years. As mentioned above the Group currently
only has a mining license that is valid until November 2030 which is less than the 18 year period used
within the depreciation/amortisation calculation. After considering the information available to them which
includes discussions with Tajik officials and the required timing for extending the mining licence,
management have made the judgement that they will be able to secure the necessary extensions and
therefore continue to the mine for a period of 18 years. If a 10 year licence period were to be used then
depreciation for 2019 would be approximately $17.6 million.
59
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 the beginning of 2019 that
the mine’s plant was available for use as intended by management, as it was at the end of 2018 that production
levels were stable, process technologies improved to ensure target mineral recoveries of reliable and high-
quality gold were achieved in line with budgeted levels.
Therefore, in the 2019 financial year, the mine assets in the consolidated financial statements have been
presented as producing mines.
Changes in estimates are accounted for prospectively.
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 mining activities are located in Tajikistan, principally within the Pakrut Gold Project. Support and
administration services are provided from the UK and PRC. Inter-segment revenue is eliminated on
consolidation and is conducted on mutually agreed terms between Group companies.
60
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
2019
US$000
US$000
US$000
Tajikistan
UK and PRC
Pakrut
Total
Revenue
Cost of sales
Administrative expenses (including foreign
exchange)
Other operating expenses
Impairment
Other operating income
Operating profit/(loss)
Finance costs
Finance income
Income tax
Loss for the year
Total assets
Total liabilities
Depreciation
Additions to property, plant and equipment
-
49,157
49,157
-
(32,842)
(32,842)
(4,536)
(12,705)
(17,241)
(136)
(136)
-
116
-
116
-
-
(4,536)
3,590
(947)
(20,796)
270
-
-
-
(508)
(20,796)
270
(508)
(25,062)
3,082
(21,981)
8,787
426,504
435,291
414,609
34,467
449,076
22
-
2,544
5,842
2,566
5,842
Revenue of Pakrut generated in the period was from two customers, the government of Tajikistan and an
independent bank. The revenue from this party during the year was TJS 463,551 (USD 47,841).
61
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
2018
US$000
US$000
US$000
Tajikistan
UK and PRC
Pakrut
Total
Revenue
Cost of sales
-
-
17,926
17,926
(17,926)
(17,926)
Administrative expenses (including foreign exchange)
(3,257)
(4,808)
(8,065)
Impairment
Other operating income
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
-
-
-
-
2,838
2,838
(3,257)
(1,970)
(5,227)
923
-
-
(179)
923
(179)
(2,334)
(2,149)
(4,483)
10,375
425,862
436,237
394,784
33,257
428,041
23
-
-
50
-
73
-
66,717
66,717
62
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
Operational staff
The aggregate costs of the above were:
Wages and salaries
Social security costs
2019
No.
129
574
703
2018
No.
121
375
496
2019
2018
US$000
US$000
4,721
861
5,582
3,380
693
4,072
As the mine was in full production for whole of 2019 no staff costs have been capitalised. US$ 2.045m of
staff costs were capitalised in 2018 within mines under construction.
63
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
5. Directors’ Emoluments
The Directors’ emoluments in respect of qualifying services were:
Salary and
Bonus and
Other
Termination
2019
US$
US$
US$
fees
holiday pay
benefits
Mr Boyi Liang****
Mr Xiang Wu**
Mr Yong Li
Mr Lixian Yu
Mr Delin Feng***
Mr Xiuzhi Shi
2018
Mr Xiang Wu
Mr Lixian Yu
Mr Yong Li
Mr Xiuzhi Shi
Mr Hao Zhang*
49,360
17,953
22,853
227,754
140,340
22,989
481,249
-
-
-
-
-
-
-
-
-
-
-
-
-
-
fees
US$
-
-
-
-
-
-
-
Salary and
Bonus and
Other
Termination
fees
holiday pay
benefits
US$
US$
US$
fees
US$
31,950
296,148
23,737
23,620
246,812
622,267
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
US$
49,360
17,953
22,853
227,754
140,340
22,989
481,249
Total
US$
31,950
296,148
23,737
23,620
246,812
622,267
Key management comprises Executive and Non-Executive Directors and all emoluments are short term in
nature.
64
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
5. Directors’ Emoluments
The following amounts were payable to Directors as at 31 December 2019 (2018: $Nil):
Mr Lixian Yu - $56,507
Mr Boyi Liang - $25,112
Mr Delin Feng - $47,081
* Mr Hao Zhang resigned on 22 November 2018.
** Mr Xiang Wu resigned on 30 July 2019.
*** Mr Delin Feng was appointed on 21 March 2019.
**** Mr Boyi Liang was appointed on 30 July 2019.
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
Total administrative expenses
65
2019
2018
US$000
US$000
6,057
2,530
186
94
2,566
3,526
-
(3,453)
338
232
911
289
5,721
1,232,354
159
1,077
922
142
16,337
6,192
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
6. Expenses by nature (continued)
Fees payable to the Company’s auditor for the audit of the consolidated
financial statements
104
110
2019
2018
US$000
US$000
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
-
104
3
113
2019
2018
US$000
US$000
508
-
508
179
-
179
No provision for income taxes arose in the Cayman Islands, the UK, British Virgin Islands. A current income tax
expense arose in Tajikistan during the year as LLC Pakrut sold gold in the amount of TJS 469,386,040 –
equivalent to US$ 49,156,539 (2018: TJS 164,152,371 – equivalent to US$ 17,926,000). 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.
66
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
7.
Income Tax (continued)
Factors Affecting Current Tax Charge
The tax assessed on the loss for the year is higher than the weighted average standard rate of corporation
tax of 20% (2018 – 20%).
Loss before income tax
2019
2018
US$000
US$000
(21,473)
(4,304)
Loss on ordinary activities by weighted average rate of tax at 20% (2018 – 20%)
(4,295)
(861)
Expenses not deductible for tax purposes
Tax losses for which no deferred income tax asset was recognised
513
4,289
508
73
967
179
The Group did not recognise deferred income tax assets of approximately US$4,289,000 (2018:
US$967,000). Unused Tajik tax losses amounting to approx. US$16,772,000 at 31 December 2018 can be
carried forward for three years from the year incurred and used against future taxable income at 15%.
67
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
8.
Finance Income and Costs
Finance Income
Interest income on short term bank deposits
270
923
2019
2018
US$000
US$000
Finance Costs
Interest expense on shareholder’s loans wholly repayable within
five years
16,304
11,871
Interest expense on bank borrowings wholly repayable within
five years
4,493
4,522
Less: Borrowing costs capitalised in qualifying assets
-
(16,393)
Finance costs
20,797
-
9. Earnings per Share
Basic and diluted earnings per share (cents)
(5.75)
(1.17)
2019
2018
US$
US$
The basic earnings per share is calculated by dividing the loss attributable to equity holders after tax of
US$21,981,000 (2018: loss $4,483,000) by the weighted average number of shares in issue and carrying the
right to receive dividend. For the year ended 31 December 2019 this was 382,392,292 (2018– 382,392,292)
shares.
As the Group has incurred a loss for the year, no option or warrant is potentially dilutive, and hence the basic
and diluted earnings per share are the same. At the year end, there were nil (2018: nil) share options
outstanding that are potentially dilutive in the future.
68
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
10.
Intangible Assets
Exploration
and
evaluation
assets
US$000
Cost
At 1 January 2018, 31 December 2018 and 31 December 2019
9,941
Impairment
At 1 January 2018, 31 December 2018 and 31 December 2019
(9,941)
Net Book Value
At 31 December 2018 and 31 December 2019
-
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.
69
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
11. Mines under Construction
Cost
At 1 January 2018
Additions
Construction in
Mining rights
progress
US$000
US$000
Total US$000
35,022
296,138
331,160
-
68,240
68,240
At 31 December 2018 and 1 January
2019
35,022
364,378
399,400
Additions
Transfer to PPE
(35,022)
(364,378)
(399,400)
At 31 December 2019
-
-
-
Mining rights comprised of exploration and evaluation assets up to the date the Pakrut Gold Project was
determined to be technically feasible and commercially viable. All subsequent exploration and evaluation
expenditure at this site was capitalised within mining rights. Mining rights also included the subsoil
contract signature bonus and payments to obtain land use rights.
Construction in progress comprised the mine, smelting plant, tailings pond, power lines and road
construction work carried out at the Pakrut Gold Project by contractors and directly by the Group. It also
included the borrowing costs associated with the loan to finance the mine, construction from China
Nonferrous Metals Intl Mining Co. Limited (“CNMIM”) and China Construction Bank (“CCB”), together with
associated legal, professional and consultancy costs.
Mines under construction are not depreciated until construction is completed and the assets are available
for their intended use and signified by the formal commissioning of the mine for production. Construction
was completed at the end of the 2018 financial year with the mine being deemed to be fully operation at
the start of the 2019 financial year and therefore in the current accounting period all accumulated
capitalised costs have been transferred into Property, Plant and Equipment.
In 2018, 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. In 2019, the entire CIP amount of USD 399,400 has been transferred to
PPE.
70
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
12. Property, Plant and Equipment
Office
furniture
and
Motor
Plant
and
Producing
Assets under
Land
equipment
vehicles
machinery
mines
construction
Total
US$000
US$000
US$000
US$000
US$000
US$000
US$000
Cost
At 1 January 2018
32
851
8,868
14,817
Additions
114
1,904
-
-
-
(209)
-
-
242
-
(68)
Transfer from MUC
Disposals
At 31 December
2018
32
755
10,772
14,990
Additions
Transfer from MUC
Disposals
-
-
-
152
-
-
-
(320)
(2,074)
2,129
-
-
-
-
-
-
-
-
-
-
24,567
2,260
-
(278)
-
26,549
3,561
5,842
398,639
761
399,400
-
-
(2,394)
At 31 December
2019
32
587
8,698
17,119
398,639
4,322
429,396
71
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
12. Property, Plant and Equipment (continued)
Accumulated
Depreciation
At 1 January 2018
Charge for the year
At 31 December
2018
Charge for the year
Disposal
At 31 December
2019
Net Book Value
At 31 December
2019
At 31 December
2018
-
-
-
-
-
524
4,675
10,402
87
3,234
205
611
7,909
10,607
-
-
-
31
392
869
8,823
(320)
(2,074)
-
-
-
-
15,601
3,526
-
19,127
-
-
10,116
(2,394)
-
322
6,227
11,476
8,823
-
26,849
32
32
265
2,471
5,643
389,816
4,322
402,548
144
2,862
4,384
-
-
7,422
Depreciation of US$3,453,000 was capitalised within mines under construction in 2018.
In 2019 as the mine entered full production, mines under construction were transferred into Property, Plant
& Equipment under the sub-category of Producing mines as presented above, and depreciation/depletion
charged as per the accounting policies.
The carrying value of the PPE, most notably producing mines, and the depreciation / depletion
methodology used, are both considered to be key accounting judgements. Detail of these are disclosed in
Note 2 along with the related key estimates.
72
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
13. Subsidiary Undertakings
The Group had the following subsidiary undertakings as at 31 December 2019:
Country of
Proportion of
Incorporatio
Voting Rights
Nature of
Registered
Holding
n
held
Business
addresses
Name of
Company
Directly held
Kryso Resources
Ordinary shares
British Virgin
Holding
nd Cayman, KY1-
(BVI) Limited
(CNG)
Islands
100%
Company
9005, Cayman Islands
190 Elgin Avenue, Gra
Kryso Resources
Ordinary shares
Holding
Unit 2.24, the Plaza
Limited
(CNG)
UK
100%
Company
535 Kings Road
Indirectly held
International
Mining Supplies
and Services
Limited (BVI holds
100% share)
Ordinary shares
Service
Unit 2.24, the Plaza
(BVI)
UK
100%
Company
535 Kings Road
LLC Pakrut (BVI
Ordinary shares
development
Bahor district, Vahdat,
holds 100% share)
(BVI)
Tajikistan
100%
and mining
Tajikistan
Mineral
exploitation,
73
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
14. Financial Instruments by category
31 December 2019
Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments
Cash and cash equivalents
Total
31 December 2019
Liabilities per Statement of Financial Position
Borrowings
Provisions for other liabilities and charges
Trade and other payables, excluding non-financial liabilities
Total
74
Financial assets
at amortised
cost
US$000
4,766
11,120
15,886
Financial
liabilities at
amortised
cost
US$000
371,113
913
77,050
449,076
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
14. Financial Instruments by category (continued)
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
75
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
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
15.
Inventories
2019
2018
US$000
US$000
Gold
-
49
Construction materials and processing equipment
16,856
17,294
16,856
17,343
The inventory balance in 2019 relates to raw materials and semi-finished products used in gold production.
16. Trade and Other Receivables
Other receivables
Prepayments and deposits
Total
Group
Group
2019
2018
US$000
US$000
3,137
1,629
4,766
2,984
725
3,709
None of the receivables are past due. The fair values are equal to the carrying amounts.
Other receivables includes $2,758,418 due from related party CNMIM in relation to funds received from
the insurance provider after the snowfall disaster, which were received on behalf of CNG.
76
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
17. Borrowings
Bank borrowings
Other loans
Total
2019
2018
US$000
US$000
95,000
85,000
276,113
260,010
371,113
345,010
Non-current portion
103,586
182,285
Current portion
267,527
162,724
The fair value of borrowings equals their carrying amounts, as the impact of discounting is not significant.
CNMIM loan
In accordance with the terms of the Subscription Agreement and Warrant Instrument dated 27 July 2010
between Kryso Resources Limited (formerly Kryso Resources Plc) and CNMIM, a subsidiary Company of
significant shareholder China Nonferrous Metals Mining (Group) Co. Limited (“China Nonferrous”),
CNMIM was required to use its best endeavors to secure mine funding for the construction and
development of the Pakrut Gold Project.
The USD tranche of the loan has been settled in full and US$Nil was outstanding as at 31 December 2019
(2018: US$Nil). The amount outstanding on the RMB tranche of the loan as at 31 December 2019 was
US$12,683,599 (2018: US$12,683,599).
77
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
CNMC loans
The loan agreement between CNMC International Capitals Company Limited (“CNMICC”) and China
Nonferrous Gold Limited was signed on 20 September 2017. Under this agreement, CNMICC 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.
During 2019, the loan was transferred from CNMICC to another member of the group, CNMCTC. On 15
July 2020, a loan extension agreement was signed extending the repayment date until 20 December 2020.
The extension agreement incurs interest at a rate of 6 months LIBOR + 3.7%.
A loan agreement between CNMC International Capitals Company Limited (“CNMICC”) and China
Nonferrous Gold Limited was signed on 27 April 2016. Under this agreement, CNMICC 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 was for development, operations
and management of the Pakrut Gold Project, including operating and related expenses.
The full amount of the loan was drawn down on the 27 April 2016. The loan contains annual fixed interest
at 4%, however where the loan is used for a purpose other than that stated in the contract (Pakrut Mine –
see comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum.
Payment of interest will be made biannually in June and December.
During 2019, the loan was transferred from CNMICC to another member of the group, CNMCTC. On 15
July 2020, a loan extension agreement was signed extending the repayment date until 20 December 2020.
The extension agreement incurs interest at a rate of 6 months LIBOR + 3.7%.
78
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
The Group has pledged its 100% equity interest in China Nonferrous Gold Limited to CNMC as security
for repayment of the loan.
A loan agreement between CNMC and 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.The loan contains a fixed interest rate of
4% per annum, which is calculated on a monthly basis from the 21st of the month to the 20 of the following
month.
During 2018, the loan was transferred from CNMC to another member of the group, CNMCTC. A further
extension has been signed extending the repayment date until 26 November 2020.
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.
CCB loans
The first loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited
was signed on 14 June 2016. Under this agreement CCB provided a loan facility of US$100,000,000 to
China Nonferrous Gold Limited. This loan was used to refinance a previous loan from CNMC of
79
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
US$55,000,000, with the remainder used for development, operations and management of the Pakrut
Gold Project, including operating and related expenses. This use is in line with the terms of the agreement.
The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation,
Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate
amount of not less than US$103,092,783.51, with validity of not less than 60 months in favor of CCB.
The full amount of the loan was drawn down on 30 June 2016. The loan incurs interest at a rate of 3
months LIBOR + 2.1% and is payable in arrears at the end of each applicable interest period.
The loan is repayable in 8 installments commencing 18 months from drawdown date and every 6 months
thereafter as follows:
31/12/17 – US$5,000,000
30/06/18– US$5,000,000
31/12/18 – US$5,000,000
30/06/19 – US$5,000,000
31/12/19 – US$5,000,000
30/06/20 – US$5,000,000
31/12/20 – US$5,000,000
30/06/21 (or 14 working days prior to expiry date of relevant Standby Letter(s) of Credit – whichever is
earlier) – Balance of loan
The second loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold
Limited was signed on 29 January 2019. Under this agreement CCB provided a loan facility of
US$20,000,000 to China Nonferrous Gold Limited. This loan was used for the purpose of working capital
for Pakrut Gold Project. This use is in line with the terms of the agreement.
80
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation,
Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of
not less than US$20,620,000, with validity of not less than 12 months in favor of CCB.
The full amount of the loan was drawn down on 29 January 2019. The loan incurs interest at a rate of 3 months
LIBOR + 1.2% and is payable quarterly in arrears.
18. Trade and other payables
2019
2018
US$000
US$000
Trade and other payables
77,050
82,194
Trade and other payables include amounts due of US$61,010,581 (2018: US$65,906,519) in relation to mine
77,050
82,194
development.
19. Provisions for Other Liabilities and Charges
At 1 January 2019
Unwinding of discount
Rehabilitation
Total
US$000
US$000
838
75
838
75
At 31 December 2019
913
913
All provisions are non-current.
81
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
19. Provisions for Other Liabilities and Charges (continued)
The Group makes full provision for the future cost of rehabilitating the mine site and associated production
facilities on a discounted basis at the time of constructing the mine and installing those facilities.
The rehabilitation provision represents the present value of rehabilitation costs relating to the Pakrut mine
site, which are expected to be incurred up to 2030, which is the expiration date of the mining license. The
provision has been created based upon the feasibility study. Assumptions based upon the current
economic environment within Tajikistan have been made, which management believes are a reasonable
basis upon which to estimate the future liability and will be reviewed regularly to take into account any
material changes to the assumptions. The actual rehabilitation costs and works required will ultimately
depend upon future market prices for the necessary rehabilitation works required, changes in future
regulatory requirements and the timing on when the mine ceases to operate commercially.
The discount rate used in the calculation of the provision as at 31 December 2019 is 9% per annum. The
value of the undiscounted provision is US$2,481,000 (2018: 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.
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.
82
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
21. Share Capital
2019
2019
2018
2018
No. of
Share
No. of
Share
ordinary
Capital
ordinary
Capital
shares
US$000
shares
US$000
At 1 January (Ordinary shares
of $0.0001) each
382,392,292
38
382,392,292
Issued during the year
-
-
-
38
-
At 31 December (Ordinary
shares of US$0.0001 each)
382,392,292
38
382,392,292
38
All shares are authorised for issue and fully paid.
83
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
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:
2019
2018
Weighted
Weighted
No. of
average
No. of
average
share
exercise
share
exercise
options
price
options
price
Share Option Scheme
(pence)
(pence)
Outstanding at beginning of
year
Expired during the year
Outstanding at end of year
Exercisable at 31 December
-
-
-
-
-
-
-
-
50,000
50,000
30.00
30.00
-
-
-
-
There were no share options outstanding at the year end.
84
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
23. Cash flow information
31 December
31 December
2019
2018
US$000
US$000
Cash flows from Operating Activities
Loss before income tax
(21,473)
(4,304)
Adjustments for:
Finance income
Finance costs
Depreciation
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
(270)
(923)
20,796
7,722
905
487
(904)
(7,039)
(154)
3,554
3,624
-
73
-
873
(172)
(766)
(2,908)
11,684
3,556
85
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
23. Cash flow information (continued)
Net debt reconciliation
Cash and cash equivalents
31 December
31 December
2019
2018
US$000
US$000
11,120
8,363
Borrowings – repayable within one year
(267,527)
(162,724)
Borrowing – repayable after one year
(103,586)
(182,285)
Net debt
(359,993)
(336,646)
Cash and cash equivalents
31 December
31 December
2019
2018
US$000
US$000
11,120
8,363
Borrowings – fixed interest rates
(116,685)
(260,010)
Borrowings – variable interest rates
(254,429)
(85,000)
Net debt
(359,993)
(336,647)
86
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
23. Cash flow information (continued)
Cash at bank
US$000
Borrowings
Borrowings
due within 1
due after 1
year
year
US$000
US$000
Total
US$000
Net debt as at 1 January 2018
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)
Cash flows
Interest accrued
Movement between current and
non-current
2,757
10,000
(14,705)
(1,948)
-
-
-
(21,400)
(21,400)
(114,803)
114,803
-
Net debt as at 31 December 2019
11,120
(267,527)
(103,586)
(359,993)
87
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:
2019
2018
US$000
US$000
Capital expenditure contracted for but not provided for in respect of
new treatment facilities, electrical upgrades and construction design
fees (2018: acquisition of mines under construction and
property, plant and equipment)
-
5,029
Capital commitments categorised within mines under construction relate to construction of the Pakrut gold
mine.
88
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
26. Contingent Liabilities
During 2018, a contract was entered into between LLC Pakrut & LLC WenJian, a Company set up by a
former employee of Pakrut (Dept. 2), to provide outsourced services including the extraction of ore,
delivery of ore to smelting plant, cleaning of mine, mine development and construction works. LLC
WenJian is not considered to be a related party.
Although LLC WenJian hold the relevant license for the construction works, the Company does not hold a
license in accordance with the laws of Tajikistan “On subsoil” and “On licensing of certain types of
activities” for implementing the other services they have been contracted to perform. This is a breach of
Tajik laws and regulations which could result in penalties being imposed on both parties to the contract.
The outcome of this situation is unclear and could result in fines imposed with the worst-case scenario
being that Pakrut could have their own license rescinded by the Tajik government. There is no visibility
surrounding the value or nature of any penalty at this time.
27. Related Party Transactions
The amount paid by the Company and Kryso Resources Limited to CNMIM for interest on the loan in 2019
amounted to US$Nil (2018:US$Nil). The amount due to CNMIM as at 31 December 2019 was
US$18,586,242 (2018: US$17,299,431). CNMIM is a significant shareholder of China Nonferrous Gold
Limited and Boyi Liang and Lixian Yu are CEO and President of CNMIM respectively. During 2019, CNG
did not pay any interest to CNMC.
The amount payable by the Company to CNMC for interest on the loans in 2019 amounted to
US$5,989,013 (2018: US$9,857,378). The amount due to CNMC as at 31 December 2019 was
US$101,402,291 (2018: US$221,913,278). CNMC is the ultimate parent of China Nonferrous Gold Limited
and Feng Delin is Chief Accountant of CNMC.
During the year, the loan amount of US$126,500,000 and interest payable of US$7,761,698.75 due to
CNMC was transferred to being due to CNMCTC, a related party to China Nonferrous Gold Limited
through being a subsidiary of CNMC, the Company’s ultimate controlling party.
89
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
27. Related Party Transactions (continued)
During 2019, 15MCC (a related party to CNG through being a subsidiary of CNMC, the Company’s
ultimate controlling party) provided equipment and materials, together with installation and construction
work to the Group amounting to US$Nil (2018: $20,462,214) and the Group advanced payments to
15MCC amounting to US$3,945,580 (2018: $20,462,214). As at 31 December 2019, the total liability due
to 15MCC was $28,541,552 (2018: US$33,976,176).
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 the year of 2019 CNMC provided a guarantee for standby letters of credit amounting to
US$134,020,629 as security for the Group’s bank loan facility with China Construction Bank. During the
year of 2018, CNMC provided a guarantee from standby letters of credit amounting to US$103,092,784 as
security for the Group’s bank loan facility with China Construction Bank.
90
CHINA NONFERROUS GOLD LIMITED
Notes to the Financial Statements (continued)
27. Related Party Transactions (continued)
During 2019, there is a total receivable amount of $2,739,702 (2018: US$2,739,702) 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$25,079 payable by the entities within the group owed to CNMIM as at 31 December 2019
(2018: US$25,079).
As at 31 December 2019, there is a total payable amount of $226,080 (2018: $Nil) owed to Daye
Nonferrous Metal Group Holding Co., Ltd, a subsidiary of the ultimate controlling party, CNMC.
28. Events after the Reporting Period
In April 2020, the Company drew down US$14.50 million on a new US$30 million loan facility with China
Construction Bank (Asia) Corporation Limited, which is being used for general working capital purposes to
fund the Pakrut gold mine.
The Group has continued production throughout 2020 despite the outbreak of COVID-19, enabling it to
raise sufficient working capital. As announced on 15 July 2020, in order to ensure the repayment of
existing loans can be made, a broader refinancing will be 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 parent Company CNMC has committed to supporting the CNG group should this be required for
a period of at least 12 months from the date of approval of these financial statements.
The Company extended the repayment period of loans in place with CNMC Trade Company Limited
(CNMC Trade), totalling US$146.50 million, to December 2020. The Company currently has total
debt facilities (including banking facilities), before interest, of c.US$353.7 million (being the
US$341m announced on 15 July 2020, plus the CNMIM loan of US$12.7m.
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