Ferro-Alloy Resources Limited
Annual Report
for the year ended
3l December 2018
Fr rc-Al loy Ra o u rcq Li mlted
Contents
1
Report on operations
Directors'report
Responsibility statements
Governance statement
Independent Auditors' Report
Consolidated Statement of Profit or Loss and Other Comprehensive Income20
Consolidated Statement of Financial Position
2l
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
22
1l
23
14
12
6
Notes to the Consolidated Financial Statements
24-53
Feno-Alloy Resources Limiled
Report on operations
for the year ended 3l December 2018
CEO's report on operations for the year to 31 December 2018 and 2019 to date
Introduction
In the past year, Ferro-Alloy has made significant progress in expanding its Existing Operations and
developing the Project. I am pleased to report our maiden final results following the commencement
of trading on the Main Market of the London Stock Exchange on 28 March 2019, alongside the
Kazakhstan Stock Exchange listing. As part of the London listing, we raised f5.2 million which will
be used to further develop and expand production from the existing operation to around 1,500 tonnes
per annum, as well as preliminary work on the main project to produce 22,500 tonnes per year from
the Balasausqandiq mine.
Production
By the beginning of 2018 the basic adaptation of the former pilot plant to treat low-grade purchased
concentrates had been completed and the required operating regimes had been worked out. I am
pleased to report that operations largely carried on without major interruption throughout 2018 and
production increased over the period, amounting to 125 tonnes ofvanadium pentoxide for the year
(2017:33 tonnes) contained in ammonium metavanadate ("AMV"), resulting in a significant increase
in revenue to US$ 4.22m(2017: US$l.l3m) and profitability of US$2.96m (2017: loss US$1.08m).
Production increased to around I 2 tonnes per month by the end ofthe second quarter and shipments
to customers in 20 I 8 totalled I 30 tonnes compared with 52 tonnes in 2017 .
The plant operated for 80% ofavailable time during the year but averaged around 85% for the second
half. Down-time was used to make improvements to the plant and install new equipment.
As indicated at the time of the listing in London, operations have been historically intenupted by
short term power outages and power instability. Permission has been granted to connect to an existing
high-power line and the expansion plans discussed below include the cost of connection to the
existing adjacent high voltage line which are expected to resolve any issues and result in a much
lower cost of power.
Vanadium prices
The price of vanadium pentoxide started the year at around Us$9.75llb and by 3l December 2018
was US$15.50/lb, having reached a high of over Us$28llb in November and averaging just over
US$ l8/lb in the year. The Company's only product during the year was AMV, a precursor product
from which vanadium pentoxide is made by heating in a dissociation oven. AMV is sold on the basis
ofthe content ofvanadium pentoxide, less a discount to standard vanadium pentoxide.
Within the vanadium market there are favourable supply/demand dynamics that are anticipated to
impact upon pricing in the long term. Heightened standards of construction in emerging economies,
particularly in China, have resulted in greater quantities of vanadium being used in the production of
steel due to its strengthening and fire resistant qualities. A key potential future market for vanadium
is clean energy storage in the form of vanadium redox flow batteries, essential technology for the
long-term storage of renewable power.
Since the start of 2019, the price of vanadium pentoxide has been declining, trading at around
Us$g/lb as at 30 April 2019, although this remains above the long term average.
As is the norm in the industry, revenue, and the conesponding trade receivable, are recognised at the
time of transfer of control to the customer, but the final pricing determination is based on assay and
prices around the time of anival of the goods at the port of destination. Therefore, shipments from
the fourth quarter of 2018, for which revenue has been recognised at the year end price, may be
subject to a downward price adjustment on delivery.
Fen*Alloy Resources Limited
Repor! on opera!ions
for the year ended 3 I December 20 ]8
Earnings and cashflow
The Group generated revenues of US$4.2m for the period compared to US$ l.l m in20l7, reflecting
the increased production and sales volumes and average pricing detailed above. Cost of sales
increased to US$ I .7m from US$ I . I m in 2017 primarily reflecting the increased volumes with gross
margins increased to 60oh ftom 4o/o.
Administrative expenses of US$1.3m (2017: US$0.9m) principally comprised employee costs,
listing costs, audit and professional services and increased due to a general raising ofsuch activities
in preparation for listing on the London Stock Exchange.
The Group's intangible assets, exploration and evaluation assets and property, plant and equipment
relating to the Balasausqandiq vanadium deposit and processing operations were impaired in prior
periods due to the vanadium pricing environment at that time and uncertainties regarding future plans
for the assets. The Group reassessed the recoverable value ofthese assets at 3 I December 2018 in
the light of the performance of the processing operation, the improved pricing environment and
outlook and the plans for the assets as set out in the Prospectus issued on Admission to the London
Stock Exchange, together with the underlying independent Competent Person's Report. As a result
of the reassessment, the Board concluded that it was appropriate to reverse the previous impairments,
net of depreciation and amortisation that would have arisen since the date of impairment, resulting
in a net reversal of US$l .775m.
Net finance costs decreased to US$0.036m (2017: US$0.084m) as a result of the elimination of
interest costs after the repayment of loans in 2017 .
The Group made a net profit before tax of US$2.96m (2017 : loss of US$ I . I m).
The Group made a net profit of US$2.96m in the year after providing for costs associated with the
Company's reorganisation and preparations for listing on the London Stock Exchange (LSE) of
US$0. l64m and the reversals of impairments of US$ I .775m.
Net cash from operating activities totalled US$ I . I m (2017: US$ I .0m outflow) principally reflecting
the increase in production volumes and selling prices, net of increased working capital associated
with increased inventories and receivables at the year end.
Net cash outflows from investing activities included US$0.9m (2017:US$0.183m) of capital
expenditure associated with expanding the processing operation.
Net cash inflows from financing activities comprised subscriptions for shares amounting to
US$416,738 (before costs), yielding US$410,488 net of costs.
The Group had cash of US$892,000 at 3 I December 2018 (2017: US$267,000). On 28 March 20 I 9
the Company received gross proceeds from its public offers of US$6.8m, US$6.3m net of issue costs.
Key pedormance indicators
The Group is in a period of development and its current operations, the processing of bought-in
secondary vanadium-containing materials for extraction of vanadium, are relatively small in
comparison with the main objectives of the Group - to develop the Balasausqandiq mine and
processing facility. Moreover, the current operations are themselves undergoing a significant
expansion which means that operations are not in a steady state capable of inter-period comparisons.
The directors are therefore of the opinion that Key performance Indicators may be misleading if not
considered in the context of the development of the operation as a whole for which the information
for shareholders is better given in a descriptive manner than in tabular form.
Furthermore, the existing processing business of the company is complex and the business model
has been developed to allow maximum flexibility in the type of raw-materials treated so that market
variations in raw material prices can be moderated by the ability to select raw materials which may
be more profitable to treat notwithstanding they may involve a lower level of production.
Nevertheless, the directors consider that the main indicator of performance, although subject to
2
Ferro-Allolt Resources Limiled
Report on operations
for the year ended 3l December 2018
interpretation as described above, is the level of production. This has been dealt with in the section
"Production" above.
Environmental matters are of paramount importance to the Group. Up to this date most ofthe residues
from the main raw-material treated have been used for the construction of evaporation ponds and
there are opportunities for the sale of future residues. No significant mining operations have yet been
canied on. The Group aims to ensure that all residues are sold or safely and responsibly contained
and that plans are developed in good time to ensure the highest standards for site rehabilitation at the
sites of future mining.
Balance sheel review
Total non-current assets increased to US$2.773m from US$0.224m principally due to the reversal of
impairment and the capital expenditure noted above, together with an increase in VAT receivable
and prepayments.
Current assets increased by US$1.025m to US$1.95m principally reflecting additional inventories
due to higher levels ofraw materials and finished goods on site at the year end and increased cash.
Current liabilities increased to US$ l.l93m from US$0.608m primarily reflecting increased salaries
payable.
The reduction in long term provisions of US$92,000 in the year reflected changes in estimates of site
restoration costs and foreign translation effects on such estimates.
As a result of the devaluation in the Kazakh tenge by l4% during 20 I 8 an unrealised foreign cunency
exchange retranslation movement was recorded in respect of the retranslation of the equity of the
Group's Kazakh subsidiary and long term intercompany loans, into US dollars.
Development plan
Throughout 2018 the Company has been working towards a major expansion of the existing
processing operation and the addition of equipment to convert AMV to vanadium pentoxide.
Production of around I ,500 tonnes per year of production of vanadium pentoxide is targeted. Whilst
all the essential technology is now already in operation, expansion to this level will require all aspects
of the plant and infrastructure to be upgraded at an anticipated total cost of some US$10.3m. A re-
estimation ofthe remaining amount to be spent after certain items have been completed, some carried
out in-house and some more recent quotations and estimations amounts to US$7m. Production is
expected to continue during the upgrade with only minor stoppages, with production increasing
incrementally over 2019 and early 2020. Part of the cost will therefore be covered by earnings during
the construction period in addition to the US$6.3m (net) raised during the recent LSE listing.
In April 2018 a new roaster was commissioned, together with a separate leaching and precipitation
circuit for the treatment of higher grade purchased secondary materials. Although further testing of
a wide variety of materials will continue in parallel with operations, production from this separate
line was started at a small scale in July 2018. Additional equipment is being installed to build up this
production to a significant scale.
Permission to connect to the adjacent high voltage power-line has been obtained, the engineering
design work for the connection is complete, and contracts are being finalised.
Production during the first quarter of 20 I t has continued at the rate of around I 2 tonnes per month,
similar to the production in the three previous quarters of 2018, although a shutdown in March to
install new equipment reduced production slightly and production for the quarter was 3l tonnes.
Work on the expansion plan gained momentum in 2019, financed by operating eamings and the
raising of additional finance at the LSE listing.
Temporary accommodation for 24 construction workers has been installed, a 25 tonne mobile crane
and vehicles to transport site workers have been procured to enable construction to progress. In
recent months the detailed design of the 990 square metre extension of the plant building and
3
Ferro-Alloy Resources Limiled
fo r t h e ye a r r r, # !i' ;:: r": ;::' ;3i;
electrometallurgical and recrystallisation equipment have been completed. The contracts for
construction, supply of steelwork, sandwich panels and manufacture of equipment have all been
signed and construction work has started.
Various items of equipment have already started arriving on site, including a rotating pre-roasting
oven, six new l6 cubic metre leach tanks for the acid leaching of the low-grade wastes, and a further
receiving tank for roasted material from the main roaster has been installed. A larger capacity
generator has been acquired to ensure more stable production pending connection to the high voltage
line and continuing as back-up thereafter.
Balasausqandiq
In parallel with existing operations discussed above, and using the resulting cash flows, the Company
plans to continue development of the Balasausqandiq vanadium deposit. The feasibility study
indicates that capital costs of some US$ 100 million will be required as a first stage of development
to mine and treat one million tonnes per year of ore, producing some 5,600 tonnes per year, measured
on the basis of the vanadium pentoxide content, plus by-products which are likely to amount to
around a third of revenue. A subsequent expansion is planned which will increase vanadium
pentoxide production to22,400 tonnes per year plus by-products.
Although the Balasausqandiq mine and processing plant will be separate and independent from the
Existing Operation, they will operate from the same site and much of the work on the current
development plan, in pafticular, the improved power, railway sidings, accommodation and offices,
will benefit both operations.
During the first half of 2018 the plan to mine and process one million tonnes per year of ore up to
the year 2043 was approved by the Central Commission for the Exploration and Development of
Mineral Deposits of the Ministry of Natural Resources of the Republic of Kazakhstan and in
December 201 8 the changes were reflected in an addendum to the Company's subsoil-use agreement,
giving a revised exploitation period to 2043.It is expected that once the first phase of operations
have begun, the Company will apply to increase the mining rate to four million tonnes per year. The
next steps are to complete testing of certain improvements which were not trialled in the pilot plant
study and then to progress to detailed engineering.
Corporale
In July 2018 the Company's shareholders voted by ordinary resolution to subdivide each share into
200 new shares of no par value so that the listed shares would be of a value within the normal range
for companies listing on the London Stock Exchange. On 28 March 2019 the Company was admitted
to listing on the London Stock Exchange, raising f,5.2m gross, equivalent to US$6.8m, or US$6.3m
net of issue costs.
Description of principal ris/a, uncertainties and how they are managed
(a) Current processing operations:
Current processing operations make up a small part of the Group's expected future value but provide
useful cash flows in the near term. The principal risk of this operation is the price of its product,
vanadium. The price of vanadium pentoxide is volatile and has risen from historic lows at the
beginning of 2016 to a near-record high of some Us$28llb near the end of 2018. Currently, the price
of vanadium pentoxide is at c. Us$g/lb which is still higher than the ten-year average to date. Most
forecasters anticipate that vanadium will remain in deficit in the short to medium term but
uncertainty, particularly over the world economy and Chinese enforcement of its new construction-
steel standards, rnakes forecasting difficult. The Company acquires raw-materials at a cost that is
related to the price ofvanadium so there is a natural hedge, but there is a risk ofchanges in vanadium
prices between acquisition of the raw materials and sale of the product which cannot be avoided.
4
Ferro-Alloy Resources Limited
p, n, y,or rra#PSI';::r::;::';,ii
The processing operation is also dependent on the continuing availability of raw materials which are
subject to competition from other processors. The Company is mitigating this risk by positioning
itself to treat a wide variety of potential raw-materials and maintaining low treatment costs.
The level ofprofitability ofthe current processing operation is also dependent on production levels.
The currently achieved level is some l2 tonnes per month (vanadium pentoxide content). This level
of production could be impacted by unanticipated production difficulties, power outages and raw-
material delivery limitations. The Company aims to keep a stockpile of raw-materials and has
recently installed alarger capacity generator to maintain production during outages. The Company
is currently carrying out an expansion project which will lower the average cost of production and as
part of this project, will be connecting to a larger capacity and more reliable power supply as
described above.
(b) Balasausquandiq project:
The Balasausqandiq project is a much larger contributor to the Group's value and is primarily
dependent on long term vanadium prices. The Company's long-term assumption is US$7.50/lb of
vanadium pentoxide, but the forecast very low cost of production means that the Group would remain
profitable at very much lower price levels. The project is also dependent on raising finance to meet
capital costs anticipated to amount to some US$100m but this cost is a fraction of costs typical of
other vanadium projects and the production costs are similarly lower, so the financial retums on such
investment are extremely high.
Acknowledgements
I wish to take this opportunity to thank the Board and management team, in addition to our advisors
in the period, for the work in preparation of the listing on the London Stock Exchange. Thanks also
to our staff on site that have overseen operations resulting in record production, as well as highly
innovative process design work for the existing operation. Finally, I would like to thank our
shareholders for their support and I look forward to updating them with our progress as we continue
to capitalise on Balasausqandiq's outstanding potential.
5
Ferro-Alloy Resources Limited
Directors' Reporl
for lhe year ended 3l Decenber 2018
DIRECTORS' REPORT
The Directors present their annual report and the financial statements of the Group for the year ended
3l December 2018.
General
The Company was incorporated as a limited liability company with company registration
number383395 in the British Virgin Islands on l8 April 2000 and re-domiciled to Guernsey as a
Guernsey non-cellular limited company with company registration number 63449 on l2 April 2017.
The Company's principal place of business is Guernsey. The Company is subject to the City Code.
The Existing Ordinary Shares of Ferro-Alloy Resources Limited have been listed on the Kazakhstan
Stock Exchange (KASE) since 26 June 2017. On 28 March 2019, its shares were listed on the
Standard segment of the Main Market of the London Stock Exchange.
Principal Activity
The Company is the holding company of a mining and mineral processing business with operations
located at the Balasausqandiq vanadium/polymetallic mineral deposit in Kyzylordinskaya Oblast in
Southern Kazakhstan.
Business Model
The main objective ofthe Company is to bring into production the Balasausqandiq mine and to build
a processing plant to treat one million tonnes of ore per year (Phase I ) and later increase to a total of
four million tonnes per year (Phase 2). Phase I is expected to take two years to design and build, and
Phase 2 will be started as soon as commissioning of Phase I has been successfully concluded.
Production is expected to be 5,600 tonnes per year and 22,400 tonnes per year ofvanadium pentoxide
respectively, and further income is expected from by-products which will account for around one
third of revenue. Owing to the unique type of ore, the capital and operating costs of this operation
are expected to be a fraction ofthose ofother vanadium projects and producers. The project's net
present value is estimated to be around US$2 billion at conservative forecast vanadium prices.
As part of the feasibility study into the Balasausqandiq project a pilot plant with a capacity of 15,000
tonnes per year of ore was build and operated successfully. After completing the test programme it
was converted to production from bought-in concentrates which, being of higher grade than mined
ore, enabled it to produce at a commercial level. Having proven the technology in2017, it moved
into profitability in 2018 and is now being expanded around tenfold to make it a fully commercial
plant, potentially making a significant contribution to the capital costs of Phase I of the
Balasausqandiq project whilst being a separate operation in its own right. The existing operation and
Phase I together are expected to provide sufficient finance for Phase 2.
Business Review
A review of the business during the year is included in the Report on Operations. The Group's
business and operations and the results thereofare reflected in the attached financial statements. In
addition, refer to note 25 of the financial statements for financial instrument risks.
Business Risks
A review of the key risks to the Company is set out in the Report on Operations.
6
Feno-Alloy Resources Limited
Directors' Reporl
for the year ended 3 I December 20 I 8
Advisers
The Company's advisers are set out below:
Financial advisor and broker
-UK
Kazakhstan
Lawyers - UK
Lawyers - Guemsey
Auditors
Bankers
Registrars
Financial PR & Investor Relations
Shard Capital partners LLP
20 Fenchurch Street
London
EC3M 3BY
www.shardcapital.com
Tengri CapitalMB JSC
l7 Al-Farabi Avenue
Almaty 050059
Kazakhstan
www.tengricap.com
Smithfi eld Partners Limited
Temple Chambers
3-7 Temple Avenue
London
EC4Y OHP
Collas Crill LLP
Clategny Court, Glategny Esplanade
St Peter Port, Guernsey
GYI 4EW
BDO LLP
55 Baker Street
London
WIU 7EU
Barclays Bank PLC
Le Marchant House
St Peter Port
Cuemsey
GYI 3BE
Computershare Investor Services (Guemsey) Limited
The Pavilions,
Bridgwater Road,
BristolBS99 6ZY
United Kingdom
www.comDutershare. com
St Brides Partners Limited
Salisbury House
London Wall
London EC2M 5QQ
www.stbridesoartners.co. uk
Tel: +44 (0)207 236 ll77
7
Ferro-Alloy Resou rces Limited
Direclors' Reporl
for the year ended 3l December 2018
Financial Results
During the l2 months ended 3 I December 20 I 8, the Company reported a profit of US$2.96m (20 I 7
loss of US$l.lm).
No dividends have been declared in respect ofthe years ending 2018 or 2017.
Directors
The Board ofthe company comprises two executive directors and two non-executive directors whose
biographical details are as follows:
Nicholas Bridgen, Chief Executive
Nick started his career in 1975 as a Chartered Accountant at Peat Marwick Mitchell & Co (now
KPMG). ln 1979, he moved to the Rio Tinto Group, becoming senior group accountant in l98l . He
then moved to the Business Evaluation Department forthe Group in 1985 and was Croup Planning
Manager for the RTZ Pillar Group which held the engineering, building products and chemical
companies. Nick spent 14 years with Rio Tinto. In the rnid-I990s, he was finance director at
Bakyrchik Gold Plc. and in 1998, Nick founded Harnbledon Mining Plc which acquired the
Sekisovskoye gold project, listing the company on AIM and taking the project from exploration,
through construction and into a producing mine.
Since 2006, Nick has been a director and more recently, CEO of Ferro-Alloy Resources Limited. He
holds a Bachelor's degree with honours from Exeter University, is a Chartered Accountant and has
also studied corporate finance at London Business School. He is a fluent Russian speaker.
Andrey Kuznetsov, Director of Operations
Andrey started his career in l98l as an industrial engineer at Kirov Engineering Plant in Alrnaty.
After three years he became Chief of the Scientific Department in Central Commiftee of Youth
(Comsornol). In 1987, Andrey became generaldirector of the Almaty NTTM "Kontakt" centre. In
1995-1996, he was the CEO of the Kazakhstan subsidiary of Alfa-Bank. Andrey has been the general
director of TOO Firma Balausa since 2006. He holds a Specialist's degree in electrical engineering
from Bauman Moscow State Technical University and a PhD in inforrnal mathematical logic. He has
also studied management at Coventry University.
Chris Thomas, Non-executive chairman, chairman of the remuneration committee and
member of the audit committee
Chris Thomas has nearly 35 years' experience in the communications industry. He has held various
high-level management positions including CEO of Proximity London from 2003 to 2006 - one of
the largest direct and digital agencies in Londorr. ln 2006, Chris was appointed Chairman & CEO of
BBDO and Proximity in Asia, subsequently adding the Middle East and Africa to his responsibilities.
He worked with rnajor multinational cornpanies across the growth markets of SE Asia, China, India
and Africa. In May 2015, Chris moved to New York to take up the role of CEO of BBDO in the
Americas, with responsibility for 2l agencies in the U.S., Canada and Latin America. In February
2019 he stepped down from his Americas role and remains Chairman of I&S BBDO in Japan. He
also served as a non-executive director on the board of Harnbledon Mining from 2004 to 201 I .
8
Ferro-Alloy Resou rces Limiled
Dit'eclors' Reporl
for the year ended 3l December 2018
James Turian, Non-executive Director, chairman of the audit committee and member of the
audit committee
James started his career in 1986 and has a background in accounting, trust and management. James
has previously been involved with several mining companies in Perth, Australia, including assisting
Cooper Energy in their restructuring in the early 2000s. From 2000 to 20ll James owned and
operated a trust company in Guernsey which he sold to concentrate on accountancy and currently is
a director of "Accounts For You Limited", a Guernsey accountancy firrn. He holds several other
directorships. James is a Chartered Fellow of the Securities lnstitute IAQ and is a Fellow of the
Institute of Directors.
Directors' Remuneration
l{on-Executive
Non-Executive director
Chief executive director
Operations director
Total
Salary/ fees
(us$'000)
Benefits
(us$'000)
Pension
(us$'000)
Bonus/other
(us$'000)
Total
(us$'000)
30
2017 2018 2017 2018 2017 2018 2017
nil
nil
nil
nil
nil
30
nil
nil
nil
30
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
30
30
nil
nil
60
nil
nil
nil
nil
nil
420
220
140
30
2018
2017 2018
nil
nil
nil
30
30
nil
nil
60
30
30
250
140
450
In 2018 the Non-Executive Chairman's fees were wholly settled through the issue of 26,200 shares
(2017:55,200 shares). In 2018, the Non-Executive director's fees were wholly settled through the
issue of 26,200 shares (2017 : US$5,668 was settled through the issue of I 0,400 shares). Refer to note
30 for details.
Principal shareholders
A list of shareholders who beneficially hold more than 5% of the Company's shares at 29 April2019
is as follows:
Name of shareholder
Number of ordinary shares
Percentage of voting rights
Andrey Kuznetsov
Nicholas Bridgen
Citadel Equity Fund Limited
70,184,000
64,738,800
41,913,600
22.4
20.7
13.4
9
Ferro-Alloy Resou rces Limited
Direclors' Report
lor the year ended 3 I December 201 I
Interests ofdirectors
The interests (all of rvhich are beneficial and include related parties) of the Directon in the
Company's issued share capital at 3 I December 20 I 8 and at 29 April 2019 are as follows:
3l Dec 2018
Number of
Ordinary
Shares
3l Dec
2018 o/o of
Share
Capital
29 April20l9
Number of
Ordinary Shares
29 April
2019 o/o
of Share
Capital
64,738.800
21.2
64 738
20.7
70,184,000
23,0
70,184,000
22.4
162,687
62,687
0.1
0.0
162,687
62
0.r
0.0
Name of director
Position
icholas Bridgen
Kuznetsov
hief
ve
rons
tve
hairman
ames Turian
Website Publication
The Directors are responsible for ensuring that the annual report and the financial statements are
made available on a website. Financial statements are published on the Company's website
(rvwu,.ferro-alloy.corn) in accordance with applicable legislation in Cuernsey governing the
preparation and dissemination of financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the
Directols. The Directors' responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Going Concern
The Directors have revierved the Group's cash flow forecasts for at least l2 rnonths following the
reporting date, sensitivities and mitigating actions. After taking into account available cash follorving
the IPO and forecast cash florv from operations. the Directors consider that the Group has adequate
resources to continue its operational existence for the foreseeable future. For this reason, they
continue to adopt the going concem basis in preparing the financial statements.
Auditor
BDO LLP was appointed at auditors to the Cornpany in the period. BDO LLP has expressed its
willingness to continue in office as auditors and a resolution to re-appoint BDO LLP will be proposed
at the forthcoming annual general meeting.
Signed on behalf of the Board of Directors on
30 April2019
JA/ueS 'nil)a^l
l0
Ferro-Alloy Resources Limited
Responsib il ity statements
for the year ended 3l December 2018
Responsibility statements
Directors' Responsibility Statement
The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial statements for each
financial period, which give a true and fair view of the state of affairs of the Group for that period
and of the profit or loss of the Croup for that period. Under that law they have elected to prepare the
financial statements in accordance with International Financial Reporting Standards as adopted by
the EU and applicable law. In preparing those financial statements the Directors are required to:
r Select suitable accounting policies and then apply them consistently;
r Make judgments and estimates that are reasonable and prudent;
o State whether applicable accounting standards have been followed, subject to any material
.
departures disclosed and explained in the financial statements; and
Prepare the financial statements on the going concem basis unless it is inappropriate to presume
that the Group will continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable
accuracy at any time the financial position of the Group and to enable them to ensure that the financial
statements have been properly prepared in accordance with the Companies (Guemsey) Law, 2008.
They are also responsible for safeguarding the assets ofthe Group and hence for taking reasonable
steps for the prevention and detection offraud and other irregularities.
The Directors confirm that they have complied with the above requirements in preparing the financial
statements.
So far as each of the Directors are aware, there is no relevant audit information of which the Group's
auditor is unaware; having taken all the steps the Directors ought to have taken to make themselves
aware of any relevant audit information and to establish that the Group's auditor is aware of that
information.
To the best of the Directors' knowledge:
a) the financial statements, prepared in accordance with International Financial Reporting
Standards as adopted by the EU and applicable law, give a true and fair view of the assets,
liabilities, financial position and profit or loss of Feno-Alloy Resources Limited and the
undertakings included in the consolidation as a whole; and
b) the management report includes a fair review of the development and performance of the
business and the position of Ferro-Alloy Resources Limited and the undertakings included
in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face.
ll
Ferro-Alloy Resources Limited
Governance statemenl
for lhe year ended 3l December 2018
Governance statement
General
As a consequence ofthe Ordinary Shares being admitted to the standard segment of the Official List,
the Comply or explain requirements of the UK Corporate Governance Code, published by the
Financial Reporting Council (the "Corporate Governance Code"), do not apply to the Company. The
Guernsey Corporate Governance Code does not apply to the Company since the Company is not
regulated by the Guernsey Financial Services Commission. However, the Board recognises the
importance of good corporate governance and has implemented corporate governance practices
having consideration to the recommendations and principles of the UK Corporate Governance Code
and DTR 7.2 in accordance with the listing rules as far as is appropriate whilst considering the size
and nature ofthe business.
The Board of Directors of the company is responsible for the overall corporate governance of the
consolidated Group, guiding and monitoring the business and affairs of the company on behalf of the
shareholders by whom they are elected and to whom they are accountable.
Composilion of the Board
The number of Directors as specified in the Articles of Incorporation of the Company is a minimum
of one and up to a maximum of seven. Having regard to the Company's stage of development, the
directors believe that the size of the current board comprising four directors, two of whom are
executive and two are non-executive, is appropriate. The directors intend that there will always be
at least as many non-executive directors as there are executive directors.
Board Commirtees
The Company has created an audit committee that will be responsible for considering all financial
reporting matters and ensuring that they are properly reported and monitored. It is also responsible
for the review and assessment ofthe independence ofthe external auditors and approval ofany non-
audit services, review ofthe external audit strategy and findings, assessment ofwhether an internal
audit function is necessary considering the activities and size of the business and oversight of
significant financial reporting matters. The committee it chaired by Mr James Turian and Mr Chris
Thomas is a member. Mr Turian has a background in accounting, trust and management and is a
director of a firm of accountants in Guernsey which the board considers to be recent and relevant
experience to carry out his responsibility as chairman.
The Company has also created a remuneration committee to consider all matters related to salary and
benefits of senior staff and executive directors. The remuneration of non-executive directors is a
matter for the board as a whole. No director will take part in discussions conceming his own
remuneration package. Mr Chris Thomas has been appointed chairman of the committee and Mr
James Turian is a member.
The directors are of the opinion that due to the nature and size of the Company and its cunent board
of directors, the functions often canied out by a nomination committee can be more successfully
conducted by the full board of directors so no such committee has been created.
Code ofconduct
The goal of establishing the Company as a significant mining and processing Company is
underpinned by its core values of honesty, integrity, common sense and respect for people.
t2
Ferro-Alloy Rqources Limited
Governance statemenl
for lhe year ended 3 I December 20 18
The Company desires to remain a good corporate citizen in all the jurisdictions within which it
operates, and appropriately balance, protect and preserve all stakeholders' interests. In particular,
the Company gives paramount concem to the safety of its employees and the maintenance of high
environmental standards.
Shar e holde r c ommunic at i on
The Board aims to ensure that shareholders and investors have equal access to the Company's
information.
The company aims to promote effective communication with shareholders and encourage effective
participation at general meetings through a policy of open disclosure to shareholders, regulatory
authorities and the broader community of all material information with respect to the company's
affairs.
Internal conlrol and risk management systems
The Company's accounting and finance team is small and subject to close control by the executive
directors. For this reason the Audit Committee and the Board are of the opinion that it is not
appropriate for there to be a separate internal control department or internal audit function but has
implemented various procedures and intemal controls to provide assurance to directors that
accounting and financial risks are adequately controlled. These include:
r The preparation and regular updating ofcash flow forecasts, changes to which are closely
monitored by executive directors who discuss necessary changes on almost a daily basis
o There is a Kazakhstan group finance manager, employed in a Group services company, to
oversee and control the quality of financial reporting of operating companies in Kazakhstan
and perform group accounting and financial roles
o Significant contracts require approval by members of the Board
r All Group payments must be authorized by a director and Feno-Alloy Resources Limited
has opened new banking facilities which require two directors' signatures on all payments
o The board of directors has formed an audit committee.
l3
Ferro-Alloy Resources Limiled
I n dep e ndent aud ilo r's repo rt
for lhe year ended 3l Decenber 2018
INDEPENDENT AUDITOR'S REPORT TO MEMBERS OF FERRO-ALLOY RESOURCES
LIMITED
Opinion
We have audited the financial statements of Ferro-Alloy Resources Limited (the "Company") and its
subsidiaries ("the Group") for the year ended 3l December 2018 which comprise the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of financial
position, the consolidated statement of changes in equity and 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
Intemational Financial Reporting Standards (lFRSs) as adopted by the European Union.
In our opinion, the financial statements:
a
a
a
give a true and fair view of the state of the Group's affairs as at 3 I December 2018 and of its
profit for the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been properly prepared in accordance with the requirements of the Companies (Guernsey)
Law,2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (lSAs (UK))
and applicable law. Our responsibilities under those standards are further described in the Auditor's
responsibilities for the audit of the financial statements section of our report. We are independent of
the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as applied to listed entities and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK)
require us to report to you where:
a
a
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.
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) that 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.
t4
Kev Audit Matter
The risk that judgments and estimates
associated with assessment of the
carrying value of Properly, Plant &
Equipment and exploralion and
evaluation assets, including any reversal
of previous impairments, are
inappropriate
The Group had historically impaired its
exploration assets (Balasausqandiq
Project), and impaired PP&E associated
with its processing operations.
At 3l December 2018, the Board
concluded that indicators existed that the
impairment loss had decreased or no
longer existed given the performance of
the processing operation, improved
vanadium pricing environment and clear
plans for the assets set out in the IPO
Prospectus. Accordingly, the Board
assessed the recoverable amount of the
relevant assets as detailed in note 2 and
3(i)(ii). The Board concluded that the
recoverable amount on a fair value less
cost to sell ("FVLCS") basis exceeded
the carrying amount of the assets net of
depreciation that would have been
recognised had no impairment taken
place. Accordingly a reversal of
impairment has been recorded of
$ I .775m as detailed in notes 6,12, 13 and
14.
This assessment required judgment in the
assessment ofindicators that a reversal of
impairment was
applicable.
Subsequently, significant estimates were
required in determining inputs to forecast
net present value calculations underlying
the assessment of FVLCS, including
vanadium prices; future production;
operating costs; capital expenditure and
discount rates.
Given the estimates and judgments
required this area was considered to
represent a significant audit risk and key
audit matter.
Feno-Alloy Resources Limited
I ndep e nde n I aud ilo r's report
for the year ended 3 I December 20 I 8
How the matter was addressed in our audit
We reviewed the Board's assessment that indicators existed
that the conditions that triggered the impairments in prior
periods no longer applied and formed our own assessment of
whether such indicators existed. In doing so, we made
inquiries of management, reviewed the Group's trading
results, IPO Prospectus, the Competent Person's Report and
underlying strategic plans ofthe business.
We obtained management's NPV forecasts for the
Balasausqandiq Project and processing operation and
evaluated the appropriateness ofthe use ofthe fair value less
cost to sell methodology, which includes future capital
expenditures for expansion and development when such
expenditure would reasonably be incurred by a market
participant.
We reviewed the Competent Person's Report and compared
inputs in the forecasts to the report including reseryes (in the
case of the Balasausqandiq Project), production and in
particular growth assumptions, operating and capital costs.
In placing reliance on the Competent Person, we evaluated
their independence and competence.
We compared price forecasts to FY 2018/ 2019 actual data,
market commentary and the terms of contracts.
We recalculated the discount rate and formed our own
assessment of specific risk premiums associated with
Kazakhstan and the nature ofthe assets.
We performed sensitivity analysis on key inputs such as
pricing, production, capital costs and discount rates to
confirm that headroom remained under reasonably possible
sensitivities.
We reviewed the IPO Prospectus and associated strategic
plans and considered the consistency of judgments and
estimates with the assessments of recoverable value for the
exploration and processing operation assets.
l5
Ferro-Alloy Resources Limiled
I ndep eilden t aud i to r's report
for the year ended 3 I Decenber 20 I 8
Key observotions
We found the Board's conclusion that reversal of the impairment of $1.775m was applicable to be
appropriate. We found the disclosures in the notes to be sufficient and in line with accounting standards.
How the matter was addressed in our audit
We assessed the revenue recognition policy for the key
AMV revenue stream against the 5-step model of IFRS l5 to
determine whether the policy is compliant with IFRS 15.
We obtained and reviewed sales agreements and terms with
material customers to assess the appropriateness and
application of the revenue recognition policy with specific
consideration ofthe relevant performance obligations and the
point at which they are satisfied per the agreements. We
evaluated the accounting treatment of quality / quantity
estimates and compared the estimates to actual outcomes
both in the year for previously completed sales and post year
end for the open sales.
We evaluated the appropriateness of management's
accounting treatment of the provisional pricing clauses for
open sales against the relevant accounting standards, which
gave rise to and contract liabilities held at fair value. We
obtained supporting shipping, delivery and other relevant
sales documents to confirm the sales which had been
recorded but remained subject to final price determination.
In respect ofthe fair value of contract liabilities we evaluated
the valuation methodology, having consulted with our
valuations specialists. We recalculated the fair values using
market data.
We agreed a sample of revenue in the year to supporting
documentary evidence. We performed cut off procedures by
obtaining evidence such as shipping documents to confirm
that revenue was recorded in the correct period.
We reviewed disclosures and accounting policies for
compliance with IFRS 15.
Key Audit Matter
The risk that the Group's revenue
recognition policies are nol compliant
with IFRS 15 'Revenue from contracts
with customers' and the risk that revenue
is not recorded in the correct period
The Group generated revenues of $4.22m
and this was the first year of application
of IFRS 15 as detailed in note 3. The
Group recorded and contract liabilities of
$264k(note 24) held at fair value through
profit and loss associated with its
contracts.
In particular, in applying IFRS l5 to the
Group's contracts consideration was
required regarding:
. The identification of the performance
obligations within the contracts and the
point at which performance obligations
are satisfied and revenue is recorded
(cut off;;
. The accounting for variable
consideration associated with quality /
quantity estimates required for sales
close to the year end based on test data
which are subject to subsequent final
quality / quantity determination post
year end; and
. The accounting treatment for
provisional pricing that applies under
the contracts, particularly given the
absence of forward market prices for
AMV and the subsequent estimates
required in determining the fair value
of contract receivables and payables.
Given the above factors we considered
this area to represent a significant audit
risk and key audit maffer.
Key observations
We found the revenue recognition policies to be compliant with IFRS and the presentation in the financial
statements to be acceptable. We found the estimates used in determining the fair value of contract
receivables and payables to be acceptable.
l6
Feno -Al I oy Res o u rces Limit ed
Independent auditor's report
for the year ended 3 I Decenber 20 18
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the
effect of misstatements. We consider materiality to be the magnitude by which misstatements,
including omissions, could influence the economic decisions of reasonable users that are taken on
the basis of the financial statements. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occunence, when evaluating their effect on
the financial statements as a whole.
5% ofprofit before tax
We have determined a profit based measure to be appropriate given the Group's listing on the London
Stock Exchange and the profitable nature of its processing operations during the year. We consider
profit before tax to be the most significant determinant of financial performance used by members
of the Group.
Whilst materiality for the financial statements as a whole was $150,000, each of the two significant
components of the group was audited to a lower materiality of $67,000.
Performance materiality is used to determine the financial statement areas that are included within
the scope of our audit and the extent of sample sizes during the audit. Performance materiality is
applied at the individual account or balance level set at an amount to reduce to an appropriately low
level the probability that the aggegate of uncorrected and undetected misstatements exceeds
materiality for the financial statements as a whole. Performance materiality was set at 75o/o of
materiality levels for each component.
We agreed with the Board that we would report to them all individual audit differences identified
during the course of our audit in excess of $3,000. We also agreed to report differences below that
threshold that, in our view, warranted reporting on qualitative gtounds.
An overview of the scope of our audit
In setting our Group audit strategy we obtain an understanding of the Group, its environment and
assessed the risks of material misstatement in the financial statements at the Group as a whole.
Our Group audit strategy focused on the principal operating subsidiary Firma Balausa LLC and the
parent company Feno-Alloy Resources Limited. Each of the significant components was subject to
a full scope audit with the audit work performed by overseas component auditors under our direction
and supervision. The Group consolidation was also subject to a full scope audit by the Group audit
team. These components represent the principal business units and account for 100% of the Group's
revenue, 100% ofthe Group's profit before tax and 100% ofthe Group's total assets.
The audits of each ofthe significant components were principally performed in Kazakhstan by a non-
BDO network firm. As part of our audit strategy, as Group auditors:
a
Detailed Group reporting instructions were sent to the component auditor, which included
the significant areas to be covered by the audit (including areas that were considered to be
key audit matters as detailed above), and set out the information required to be reported to
the Group audit team.
t7
Ferro-Alloy Resources Limited
I ndepe nden t audilor's repo rt
for the year ended 3l Decenber 2018
a
a
a
A senior member of the Group audit team visited Kazakhstan to meet with the component
auditors and review the component audit files.
We reviewed Group reporting submissions received from the component auditors and held
calls and meetings with the component audit team during the completion phases of their audit
to discuss significant findings from their audit.
We held calls and meetings with members of Group and component management to discuss
accounting and audit matters arising.
The Group audit team was actively involved in the direction of the audits performed by the
component auditor for Group reporting purposes, along with the consideration of findings
and determination of conclusions drawn. We performed our own additional procedures in
respect of certain of the significant risk areas that represented Key Audit Matters in addition
to the procedures performed by the component auditor.
The remaining four components of the Group were considered non-significant and these components
were principally subject to analytical review procedures.
Other information
The Directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor's report
thereon. Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, 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.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law,
2008 requires us to report to you if, in our opinion:
o proper accounting records have not been kept by the Company; or
o the financial statements are not in agreement with the accounting records; or
a
we have failed to obtain all the information and explanations which, to the best of our knowledge
and belief, are necessary for the purposes ofour audit.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities statement, the Directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view
and for such internal control as the Directors determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
l8
Ferro-Alloy Resou rces Limited
Independent auditor's reporl
for the year ended 3 I Decenber 20 18
In preparing the financial slatements, the Directors are responsible for assessing the Group's ability
to continue as a going concem, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to liquidate the Company or
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 ofassurance, 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 ofusers
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: htlpslra4uu.frc-org&ldaud{q1qggpqclbl,!{ics. This
description forms part of our auditor's report.
Use ofour report
This report is made solely to the Company's members, as a body, in accordance with Section 262 of
the Companies (Guernsey) Law, 2008. 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 repoft, or for the opinions we have formed.
tual
Ryan Ferguson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Chartered Accountants
London,
United Kingdom
30 April20l9
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
oc30st27).
l9
FerrtAlloy Resoarces Limited
Consolidated Statemenl of Protit or l-oss and Olher Conprehensive lncotne
lor the year ended 3l December 2018
Revenue
Cost ofsales
Gross profit
Impairment reversal(charge)
Other income
Administrative expenses
Distribution expenses
Other expenses
Profit (loss) from operating activities
Net fi nance income(costs)
Profit (loss) before income tax
Income tax
Profit (loss) for the period
Note
4
5
6,8
6
7
8
l0
ll
Other comprehensive income (loss)
Items tha wlll never be reclossilied to proflt or
loss
Exchange differences arising on translation of
foreign operations
Totel comprehensive income (loss) for the
pedod
EamingV(loss) per share (basic and diluted), US$ 20
2018
$000
20t7
$000
4,220
( r,68E)
2,532
1,775
l0
(t,271)
(t l)
(3s)
3,000
(36)
2,964
(l)
2,963
(2e3)
21670
0.009
1,132
(1,084)
d8
(124)
52
(e08)
(64)
(ee6)
(E4)
(1o80)
(r,080)
2
(t,078)
(0.004)
These consolidated financial statements were approved by directors on 30 April 2019 and were
signed on its behalf by:
Turian
Director
The notes on pages 24 to 53 form part ofthese consolidated financial statements.
20
Feno-Alloy Raources Limited
Consolidated Statement of Financial Position as at 3l December 2018
Note
3l Deccmber 2018
$000
31 December 2017
$000
ASSETS
Non-current assets
Property, plant and equipment
Exploration and evaluation assets
Intangible assets
Long-term VAT receivable
Prepayments
Total non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Additional paid-in capital
Foreign cuffency translation reserye
Accumulated losses
Total equity
Non-current liabilities
Provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Contract liability
Total current liabilities
Total liabilities
Total equity and liabilities
t2
l3
t4
t7
l8
l6
t7
t8
l9
20
20
22
23
24
2,203
59
25
237
249
2,773
929
38
9l
892
1,950
4,723
27,330
380
(2,965)
(21,275)
3,470
60
60
929
264
I,193
1,253
4,723
79
2
9l
52
224
s96
47
l5
267
925
1,149
l5
26,904
380
(2,672)
(24,238)
389
152
ts2
608
60E
760
I,149
2l
FtuAlWR6ow6Drttqt
Cwll&led Slalemcnl ofclnng$lil Dquitf lu the ycu en&d 3l Dcccnber 2018
Shrro
c.pitrl
s000
Shrrc
prcniun
s0m
Additlonrl prld
in c.pia.l
s000
Forclgn currcncy
lranlhtlon rc3crvc
s000
Accumuklcd
lo$e3
s000
Tot l
s000
Belance at I January 2017
Loss for the year
Olhcr conprcbcruivc inconc
Exchangc diffcrcnccs arising on translation offoreign
operations
Told comprchcnrlvo lnconc (lorr) for thc y.rr
Tr.nsrcalon! wiab owncn, rtcordcd dlrectly in cquity
Shares issued (net of€osts U$142,000)
Olher Eansaclions rccosnized dircctly in equity
Brhncc ri 3l Dcccnbcr 2017
Balanccat I January2018
Profit for lho ycar
Olhcr conrprchcnsivo c:pcnlc
Exchange dilferences arising on trarslation offoreign
operations
Total conprchcruivc incomc (loss) for lhe ycrl
Tranlaclioru wilh owncr!, r.cotdcd dircclly in cqui6t
Sharos isucd (na ofcosts U86,000) (note 20)
Reorganisation ofsharo capital to nil par value (note 20)
B.hnccrt3l Dcccnbcr 20lt
t5
25,030
(2,674)
(23,158)
(1,080)
(1,0t0)
2
2
1,874
26,9U
26,904
t5
l5
380
380
380
(2,672'
Q,672:-)
(2d2it8)
"t,#2
___
Q93,
(2e3)
-
2963
245
27,070
27,330
t66
(27,070'
380
(2,965)
(21,275)
(787\
(r,080)
2
(1,078)
t,874
380
389
389
2,963
(2e3)
2,670
4ll
tAtD
22
Ferro-Alloy Ruoarces Limited
Consolidated Statement of Cash Flows for the year ended 3 I December 20 I 8
Cash flows from operating activities
Income (loss) for the year
Adjustments for:
Depreciation and amortisation
(Reversal of impairment) / impairment of property,
plant and eouiDment and intaneible assets
(Reversal of impairment) / impairment of exploration
and evaluation assets
Impairment of VAT receivables
Write-down of inventories to net realisable value and
obsolescence
Expenses on credit loss provisions and impairment of
prepayments
Income tax
Net finance costs / (income)
Cash from operating activities before changes in
working capital
Change in inventories
Change in trade and other receivables
Change in prepayments
Change in trade and other payables
Change in contract liability
Net cash from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Transaction costs on shares subscription
Proceeds from borrowings
Repayment of loans and borrowings
Net cash from linancing activities
Net increasc in cash and cash equivalents
Cash and cash equivalents at the beginning ofyear
Effect ofmovements in exchange rates on cash and cash
equivalents
Cash and cash equivalents at the end ofyear
2018
$000
20t7
$000
2,963
(1,080)
46
(1,613)
(t62)
ll
2t
36
1t03
(4sl)
(241)
(87)
320
264
27
l19
5
4
39
45
84
(757)
(44)
(43)
(47)
(144)
I,108
(r,035)
(886)
(2)
(888)
417
(6)
4tt
631
267
(6)
892
(l 82)
(l)
(183)
1,889
(142)
20
(368)
1,399
l8l
72
t4
267
23
Ferro-Alloy Resources Limited
Noles lo the Consolidated Financial Statemenls for the year ended 3 I Decenber 20I 8
Note to the consolidated financial statements for the year ended 31 December 2018
1
Basis of preparation
Ferro-Alloy Resources Limited (the "Company") is incorporated in Guernsey and has its registered
address at Noble House, Les Baissieres, St. Peter Port, Guernsey, GYI 2UE. The consolidated
financial statements for the year ended 3l December 2018 comprise the Company and the following
subsidiaries (together referred to as the "Group"):
Company
Location
Company's share
in charter capital
Ferro-Alloy
Products Limited
Energy Metals
Limited
Vanadium Products
LLC
British Virgin
Islands
UK
Kaz-akhstan
Firma Balausa LLC
Kazakhstan
Balausa Processing
Company LLC
Kazakhstan
(a) Statement of compliance
l00o/o
lOOo/o
100%
l00o/o
l00o/o
Primary activities
Canies out the treasury and
finance activities for the Group
Manages processing activity and
performs management service
Performs services for the Group
Production and sale ofvanadium
and associated by-products
Development of processing
facilities
These financial statements have been prepared in accordance with International Financial Reporting
Standards as adopted by the EU ("IFRSs").
(b) Basis of measurement
The consolidated financial statements are prepared on the historical cost basis except as otherwise
noted below.
(c) Functional and presentation currency
The national cunency of Kazakhstan is the Kazakhstan tenge ("KZT) which is also the functional
currency ofthe Group's operating subsidiaries. Prior to I January 2018 the functional currency of
the Company was also KZT.The functionalcurrency of the Company was reassessed at I January
2018 and it was concluded that US$ represented a more appropriate functional currency given the
changes in circumstances and conditions within the business with the cost base increasingly US$
based, intercompany balances redenominated in US$ and future dividend income to be denominated
in US$ following the re domiciliation to Guemsey and listing on the Kazakh Stock Exchange.
The revised functional curency has been applied prospectively from I January 2018. All financial
information presented in US$ has been rounded to the nearest thousand US$.
(d) Going concern
The consolidated financial statements are prepared in accordance with IFRS on a going concern
basis.
The Directors have reviewed the Group's cash flow forecasts for at least l2 months following the
reporting date, sensitivities and mitigating actions. After taking into account available cash following
the IPO and forecast cash flow from operations, the Directors consider that the Group has adequate
resources to continue its operational existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the financial statements.
24
Ferro-Alloy Resources Limited
Noles lo the Consolidated Financial Statements for the year ended 3 I December 2018
2
Use of estimates and judgements
Preparing the financial statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and
liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimates are revised and in any future periods
affected. Key sources ofjudgment and estimation uncertainty are as follows:
Reversal of impairment of exploration and evaluation assets (note 6 and 13)
The Group historically impaired its exploration and evaluation assets as a result of a lack of clear
plans for future exploration and development and the vanadium price environment at the time. As
at 3 I December 2018, management identified triggers for potential reversal of impairment given the
advanced stage of the proposed listing on the London Stock Exchange and associated plans for
exploration and development of its vanadium deposit, the results of an independent Competent
Person's Report which estimates ore resources of 24m tonnes and a net present value of US$2 billion
for the project, and the improved pricing environment. This assessment required judgment. The
recoverable value of the project is considered to exceed the carrying value post impairment reversal
based on the Competent Person's Report. In determining the fair value less cost to develop of thc
vanadium deposit significant estimates include resources and future production, vanadium prices of
US$7.50/lb long term, operating costs, capital development and discount rates. Given the implied net
present value there are no reasonably possible changes in these estimates that would result in the
recoverable amount being less than the carrying value. Accordingly, a reversal of impairment was
recorded as detailed in note 6.
Reversal of impairment of PP&E (note 6 and 12)
The Group historically impaired PP&E associated with its processing operations given uncertainty
regarding the future plans for the plant and the vanadium pricing environment at the time.
As at 3 I December 2018, management identified triggers for potential reversal of impairment given
the advanced stage ofthe proposed listing on the London Stock Exchange and associated expansion
of the stand-alone processing operation, the results of an independent Competent Person's Report
which estimated a net present value on a fair value less cost to develop basis of US$73m for the
separate processing operation together with the improved pricing environment. This assessment
required judgment. The recoverable value of the project is considered to exceed the carrying value
post impairment reversal based on the Competent Person's Report. In determining the fair value less
cost to develop ofthe processing operation key estimates included:
o Production volumes of 12 tonnes per month of vanadium pentoxide (in AMV) at the
beginning of 2019 rising to 125 tonnes per month by mid-2020.
o Prices of US$l3/lb in 2019, US$I0/lb in 2020 and US$7.50/lb thereafter, reflecting
management estimates having consideration of market commentary and risk factors.
. Capitaldevelopment costs of US$10m.
o Discount rate of l0% post tax in real terms.
Given the implied net present value there are no reasonably possible changes in these estimates that
would result in the recoverable amount being less than the carrying value. Accordingly, a reversal of
impairment was recorded as detailed in note 6.
25
Feno-Alloy Raourcq Limited
Notes lo the Consolidated Financial Statemenls for the year ended 3 I December 2018
Functional currency
Judgment was required in assessing the functional currency of the company as detailed above. The
assessment included assessment of factors such as the currency of intercompany funding,
expenditure, future dividends and equity.
Fair value of payables classified atfair value less profit and loss (note 24 and 25)
Under the Group's accounting policy, the consideration receivable in respect of AMV sales, for
which performance obligations have been satisfied at year end and for which the Group has received
prepayment under the terms of the sale agreements, remained subject to pricing adjustments with
reference to market prices in the month following anival at the port of final destination. The fair
value of the consideration is determined and the remaining receivable is adjusted to reflect fair value,
or, if the final estimated consideration is lower than the amounts received prior to the year end, a
contract liability is recorded. In the absence of forward market prices for the commodity
management estimated the forward price based on: a) vanadium spot market prices at 3l December
2018 and applicable deductions for AMV; b) foreign exchange rates; c) risk free rates and d) carry
costs when material.
As at 3l December 2018 the Group recognised a contract liability at fair value of US$0.264m and a
change in revenue due to fair value movements of US$0.323m.
Inventories (note I6)
The Group holds material inventories which are assessed for impairment at each reporting date. The
assessment ofnet realisable value requires consideration offuture cost to process and sell and spot
market prices at year end less applicable discounts. The estimates are based on market data and
historical trends.
26
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 3 I December 2018
3 Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements and have been applied consistently by Group entities, except for
the implementation of new standards and interpretations.
(a) Basis of consolidation
(,
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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. The financial statements of subsidiaries are included
in the consolidated financial statements from the date that control commences until the date that
control ceases. The accounting policies ofsubsidiaries have been changed when necessary to align
them with the policies adopted by the Group.
(ir) Transactionseliminotedonconsolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-
group transactions, are eliminated in preparing the consolidated financial statements. Unrealised
losses are eliminated in the same way as unrealised gains, but only to the extent that there is no
evidence of impairment.
(b) Foreign currency
(r) Foreign currency lransactions
Transactions in foreign cunencies are translated to the respective functional currencies of Group
entities at exchange rates at the dates ofthe transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated
to the functional currency at the exchange rate at that date.
Non-monetary items in a foreign currency that are measured based on historical cost are translated
using the exchange rate at the date ofthe transaction.
Foreign currency differences arising in translation are recognised in profit or loss.
(ir) Presentationcurrency
The assets and liabilities of foreign operations are translated to US$ at the exchange rates at the
reporting date. The income and expenses of foreign operations are translated to US$ at the average
exchange rate for the period, which approximates the exchange rates at the dates ofthe transactions.
Where specific material transactions occur, such as impairments or reversals of impairments, the
daily exchange rate is applied when the impact is material.
Foreign currency differences are recognised in other comprehensive income and are presented within
the foreign currency translation reserve in equity.
Foreign currency differences arising on intercompany loans, where the loans are not planned to be
repaid within the foreseeable future and form part of a net investment, are recorded within other
comprehensive income and are presented within the foreign currency translation reserve in equity.
(c) Financialinstruments
Financial assets and financial liabilities are recognised in the Group's consolidated statement of
financial position when the Group becomes a party to the contractual provisions of the instrument.
Financial assets
Financial assets are classified as either financial assets at amortised cost, at fair value through other
comprehensive income ("FVTOCI") or at fair value through profit or loss ("FVPL") depending upon
27
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 3 I December 2018
the business model for managing the financial assets and the nature of the contractual cash flow
characteristics of the financial asset.
A loss allowance for expected credit losses is determined for all financial assets, other than those at
FVPL, at the end of each reporting period. The Group applies a simplified approach to measure the
credit loss allowance for trade receivables using the lifetime expected credit loss provision. The
lifetime expected credit loss is evaluated for each trade receivable taking into account payment
history, payments made subsequent to year end and prior to reporting, past default experience and
the impact ofany other relevant and current observable data. The Group applies a general approach
on all other receivables classified as financial assets. The general approach recognises lifetime
expected credit losses when there has been a significant increase in credit risk since initial
recognition.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership
of the asset to another party. The Group derecognises financial liabilities when the Group's
obligations are discharged, cancelled or have expired.
Customer conlracts
Under its customer sale anangements, the Group receives a provisional payment upon satisfaction
of its performance obligations based on the spot price at that date, which occurs prior to the final
price determination, with the Group then subsequently receiving or paying the difference between
the final price and quantity and the provisional payment. As a result of the pricing structure, the
instrument is classified at FVPL and measured at fair value with changes in fair value recorded as
other revenue.
Other receivables
Other receivables are accounted for at amortised cost. Other receivables do not carry any interest and
are stated at their nominal value as reduced by appropriate expected credit loss allowances for
estimated recoverable amounts as the interest that would be recognised from discounting future cash
payments over the short payment period is not considered to be material.
Cash and cash equivalenls
Cash and cash equivalents comprise cash balances in banks, call deposits and highly liquid
investments with maturities of three months or less from the acquisition date that are subject to
insignificant risk ofchanges in their fair value and pefty cash.
Financial Iiabilities
The Group has the following non-derivative financial liabilities: trade and other payables. Such
financial liabilities are recognised initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using
the effective interest method.
(iit) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
shares are recognised as a deduction from equity, net ofany tax effects.
(d) Property, plant and equipment
(, Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and
impairment losses. Land is measured at cost.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost ofmaterials and direct labour, any other costs directly attributable
28
Feno-Alloy Resources Limited
Notes to the Consolidated Financial Statenents lor the year ended 3 I December 20 I 8
to bringing the asset to a working condition for their intended use, the costs of dismantling and
removing the items and restoring the site on which they are located.
When parts of an item of property, plant and equipment have different useful lives, they are accounted
for as separate items (major components) of property, plant and equipment.
The gain or loss on disposal of an item of property, plant and equipment is determined by comparing
the proceeds from disposal with the carrying amount of property, plant and equipment, and is
recognised net within other income/other expenses in profit or loss.
(ir) Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying
amount of the item if it is probable that the future economic benefits embodied within the part will
flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is
derecognised. The costs ofthe day+o-day servicing ofproperty, plant and equipment are recognised
in profit or loss as incurred.
(ii, Depreciation
Depreciation is based on the cost of an asset less its residual value. Significant components of
individual assets are assessed and if a component has a useful life that is different from the remainder
ofthat asset, that component is depreciated separately.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of
each part of an item of property, plant and equipment, since this most closely reflects the expected
pattern of consumption of the future economic benefits embodied in the asset. Leased assets are
depreciated over the shorter ofthe lease term and their useful lives unless it is reasonably certain that
the Group will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and prior periods are as follows:
o Buildings
50 years;
o Plant and equipment 4-17 years;
. Vehicles
7 years;
o Computers
o Other
Depreciation methods, useful lives and residual values are reviewed at each financial year end and
adj usted prospectively if appropriate.
3 years;
5 years.
Assets under construction are not depreciated and begin being depreciated once they are ready and
available for use in the manner intended by management.
(e) Exploration and evaluation assets
Exploration and evaluation expenditure for each area ofinterest once the legal right to explore has
been acquired, other than that acquired through a purchase transaction, is carried forward as an asset
provided that one of the following conditions is met.
. Such costs are expected to be recouped through successful exploration and development ofthe
area of interest or, altematively, by its sale;
o Exploration and evaluation activities in the area of interest have not yet reached a stage which
permits a reasonable assessment of the existence or otherwise of economically recoverable
reserves, and active and significant operations in relation to the area are continuing.
Exploration and evaluation costs are capitalised as incurred. Exploration and evaluation assets are
classified as tangible or intangible based on their nature. Exploration expenditure which fails to meet
at least one of the conditions outlined above is written off. Administrative and general expenses
relating to exploration and evaluation activities are expensed as incurred.
29
Ferro-Alloy Resources Limited
Noles lo rhe Consolidated Financial Statemenls for lhe year ended 3 I December 2018
The exploration and evaluation assets shall no longer be classified as such when the technical
feasibility and commercial viability of extracting a mineral resource are demonstrable. This includes
consideration of a variety of factors such as whether the requisite permits have been awarded,
whether funding required for development is sufficiently certain of being secured, whether an
appropriate mining method and mine development plan is established and the results of exploration
data including internal and external assessments.
Exploration and evaluation assets will be reclassified either as tangible or intangible development
assets and amortised on a unit-of-production method based on proved reserves.
Exploration and evaluation assets are assessed for impairment when facts and circumstances suggests
that the canying amount of exploration and evaluation assets may exceed its recoverable amount,
which is the case when: the period of exploration license has expired and it is not expected to be
renewed; substantial expenditures on further exploration are not planned; exploration has not led to
the discovery of commercial viable reserves; or indications exist that exploration and evaluation
assets will not be recovered in full from successful development or by sale.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount.
(f)
(i)
Intangible assets
Intangible assets with finite useful lives
Intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost
less accumulated amortisation and accumulated impairment losses.
(i, Subsequentexpenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied
in the specific asset to which it relates. All other expenditure, including expenditure on internally
generated goodwill and brands, is recognised in profit or loss as incurred.
(iit) Amortisation
Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its
residual value.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of
intangible assets from the date that they are available for use since this most closely reflects the
expected pattern of consumption of future economic benefits embodied in the asset.
The estimated useful lives for the current and comparative periods are as follows:
o patents
r mineral rights
Amortisation methods, useful lives and residual values are reviewed at each financial year end and
adj usted if appropriate.
10-20 years;
20 years.
(g) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are
classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal
to the lower of its fair value and the present value of the minimum lease payments. Subsequent to
initial recognition, the asset is accounted for in accordance with the accounting policy applicable to
that asset.
Other leases are operating leases and the leased assets are not recognised on the Group's statement
of financial position.
30
Ferro-Alloy Resources Limited
Notes lo the Consolidated Financial Statements lor the year ended 3 I December 2018
(h) Inventories
Inventories are measured at the lower ofcost and net realisable value. The cost ofinventories is based
on first-in first-out method, and includes expenditure incuned in acquiring the inventories,
production or conversion costs and other costs incurred in bringing them to their existing location
and condition. In the case of manufactured inventories and work in progress, cost includes an
appropriate share ofproduction overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses.
Impairment
(i)
(t) Non-derivativelinanciolossets
For the year ended 3l December 2018
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as
opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the
Group to account for expected credit losses and changes in those expected credit losses at each
reporting date to reflect changes in credit risk since initial recognition ofthe financial assets. In other
words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
Specifically, IFRS 9 requires the Group to recognise a loss allowance for expected credit losses on
other receivables to which the impairment requirements of IFRS 9 apply.
Refer to note 3c for details of the impairment policy for the year ended 3 I December 2018 under
IFRS 9.
For the year ended 3l December 2017
Under IAS 39 A financial asset not carried at fair value through profit or loss is assessed at each
reporting date to determine whether there is any objective evidence that it is impaired. A financial
asset is impaired if objective evidence indicates that a loss event has occurred after the initial
recognition ofthe asset, and that the loss event had a negative effect on the estimated future cash
flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor,
restructuring of an amount due to the Group on terms that the Group would not consider otherwise,
indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of
borrowers or issuers in the Group, economic conditions that correlate with defaults or the
disappearance of an active market for a security.
Losses are recognised in profit or loss and reflected in an allowance account against receivables.
Interest on the impaired asset continues to be recognised through the unwinding of the discount.
When a subsequent event causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.
(it) Non-tinancialassets
The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax
assets are reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset's recoverable amount is estimated. An impairment loss
is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its
estimated recoverable amount.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less
costs to sell (otherwise referred to as fair value less cost to develop in the industry). Fair value less
costs to sell is determined by discounting the post-tax cash flows expected to be generated by the
cash-generating unit, net of associated selling costs, and takes into account assumptions market
participants would use in estimating fair value including future capital expenditure and development
cost. In assessing the value in use, the estimated future cash flows are adjusted for the risks specific
to the asseVcash-generating unit and are discounted to their present value that reflects the cunent
market indicators. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value
3t
Ferro-Alloy Resources Limiled
Notes to rhe Consolidaled Financial Statements for the year ended 3 I Decenber 2018
of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets
that cannot be tested individually are grouped together into the smallest group ofassets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets or
CGU.
The Group's corporate assets do not generate separate cash inflows. If there is an indication that a
corporate asset may be impaired, then the recoverable amount is determined for the cash generating
unit to which the corporate asset belongs.
An impairment loss is recognised if the canying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in profit or loss.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset's carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
0) Employee benefits
(r) DeJined contribution plans
The Group does not incur any expenses in relation to provision of pensions or other post-employment
benefits to its employees. In accordance with State pension social insurance regulations, the Group
withholds pension contributions from employee salaries and transfers them into state pension funds.
Once the contributions have been paid, the Group has no further pension obligations. Upon retirement
of employees, all pension payments are administrated by the pension funds directly.
(it) Short-termbenelits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided. A liability is recognised for the amount expected to be paid under
short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee, and the obligation
can be estimated reliably.
(ii{ Share-basedpayments
The grant-date fair value of equity-settled share-based payment arrangements granted to employees
is generally recognised as an expense, with a corresponding increase in equity, over the vesting
period of the awards. The amount recognised as an expense is adjusted to reflect the number of
awards for which the related service and non-market performance conditions are expected to be met,
such that the amount ultimately recognised is based on the number of awards that meet the related
service and non-market performance conditions at the vesting date. For share-based payment awards
with non-vesting conditions, the grant-date fair value of the share-based payment is measured to
reflect such conditions and there is no true-up for differences between expected and actual outcomes.
(k) Provisions
A provision is recognised if, as a result ofa past event, the Group has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will
be required to settle the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects cunent market assessments of the time value of money and
the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.
Site restoration
In accordance with the Group's environmental policy and applicable legal requirements, a provision
for site restoration is recognised when the land is disturbed as a result of pit development and plant
decommissioning with a corresponding increase in exploration and evaluation costs or property, plant
and equipment. Subsequent changes in the provision due to estimates are recorded as a change in the
relevant asset. The provision is discounted at a risk free rate with the costs incorporating risks
32
Ferro-Alloy Resources Limited
Notes lo the Consolidated [;inancial Statements for the year ended 3 I Decenber 2018
relevant to the site restoration and an unwinding charge is recognised within finance cost for the
unwinding of the discount.
(D
(i)
Revenue
Goods sold
Revenue from customers comprises the sale of vanadium products with other revenues from gravel
and waste rock etc. being non-significant. Revenue from vanadium products is recognised at a point
in time when the customer has a legally binding obligation to settle under the terms of the contract
when the performance obligations have been satisfied, which is once control of the goods has
transferred to the buyer at a designated delivery point at which point possession, title and risk
transfers.
The Group commonly receives a provisional payment at the date control passes with reference to
spot prices at that date. The final consideration is subject to quantity / quality adjustments and final
pricing based on market prices determined after the product reaches its port of destination. The
quantity / quality adjustments represent a form of variable consideration and revenue is constrained
to record amounts for which it is highly probable no reversal will be required. However, given the
short period to delivery post year end the final quantity / quality adjustments are known and revenue
for the period is adjusted to reflect the final quantity / quality occurring subsequent to year end if
material.
Transport costs to reach the delivery point are expensed as costs ofsale.
Changes in final consideration due to market prices is not determined to qualify as variable
consideration within the scope of the IFRS l5 'Revenue from Customers. Refer to note 3c for the
Group's accounting policy in this respect. Changes in fair value as a result of market prices are
recorded within revenue as other revenue.
(m) Other expenses
Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over
the term ofthe lease. Lease incentives received are recognised as an integral part ofthe total lease
expense, over the term ofthe lease.
Minimum lease payments made under finance leases are apportioned between the finance cost and
the reduction of the outstanding liability. The finance cost is allocated to each period during the lease
term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
(n) Finance costs
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions for
historical costs and site restoration, foreign currency losses. Borrowing costs that are not directly
attributable to the acquisition, construction or production of a qualifying asset are recognised in profit
or loss using the effective interest method.
Foreign cunency gains and losses are reported on a net basis as either finance income or finance cost
depending on whether foreign currency movements result in a net gain or loss.
(o) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised
in profit or loss except to the extent that they relate to items recognised directly in equity or in other
comprehensive income.
Cunent tax is the expected tax payable or receivable on the taxable income or loss for the year, using
tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in
respect ofprevious years. Deferred tax is recognised in respect oftemporary differences between the
canying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Defened tax is not recognised for temporary differences on the initial recognition
of assets or liabilities in a transaction that is not a business combination and that affects neither
33
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statementsfor the year ended 3l December 2018
accounting nor taxable profit or loss. Defened tax is measured at the tax rates that are expected to be
applied to the temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset ifthere is a legally enforceable right to offset current tax
assets and liabilities, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on
a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which
they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realised.
(p) Earnings per share
The Group presents basic and diluted eamings per share ("EPS") data for its ordinary shares. Basic
EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company
by the weighted average number of ordinary shares outstanding during the period, adjusted for own
shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding, adjusted for own
shares held, for the effects ofall dilutive potential ordinary shares.
(q) Segment reporting
An operating segment is a component of the Group that engages in business activities from which it
may eam revenues and incur expenses (including revenues and expenses related to transactions with
other components of the same Group); whose operating results are regularly reviewed by the chief
operating decision maker to make decisions about resources to be allocated to the segment and assess
its performance, and for which discrete financial information is available.
(D New and amended standards adopted
The Group has initially adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9
Financial Instruments from I January 20l8.The Group applied the modified retrospective approach
to transition for the standards. However, there were no material adjustments to opening retained
earnings as a result of adopting the new standards. The Group amended accounting policies applied
from I January 2018 are disclosed above.
IFRS I5 'Revenaefront contracts with customers'
The IASB has issued a new standard for the recognition of revenue. This replaced IAS 18 which
covers contracts for goods and services and IAS I I which covers construction contracts. The new
standard is based on the principle that revenue is recognised when control of a good or service
transfers to a customer.
To assess the impact of IFRS l5 on the Group's revenue recognition, a S-step model had been applied
to analyse sales contracts. There was no impact at the date of transition from the adoption of the new
standard on I January 2018 owing to the timing of sales in the prior year with final quality, quantity
and pricing having been determined in the period. Refer to note (l) above for details of the revised
accounting policy. Under the revised policy there has been no change in the point at which revenue
from customers is recorded.
IFRS 9 'Financial instruments'
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and
measurement of financial assets and financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting. The classification depends on the entity's
business model for managing the financial assets and the contractual terms of the cash flows.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have
expired or have been transfened and the group has transferred substantially all the risks and rewards
of ownership.
34
Feno-Alloy Resources Limiled
Notes to the Consolidated Financial Statements for the year ended 3 I December 20 l8
From I January 2018, the Group classifies its financial assets in the following measurement
categories:
Those to be measured al amortised cost
Other receivables are held to collect contractual cash flows and are expected to give rise to cash flows
representing solely payments of principaland interest. The Company analysed the contractual cash
flow characteristics of those instruments and concluded that they meet the criteria for amortized cost
measurement under IFRS 9. Therefore, reclassification for these instruments is not required.
IFRS 9 sets out a new forward looking 'expected loss' impairment model which replaces the incurred
loss model in IAS 39 and applies to financial assets classified at amortised cost, debt instruments
measured at FVOCI, contract assets under IFRS l5 Revenue from Contracts with Customers, lease
receivables, loan commitments and certain financial guarantee contracts. Under the IFRS 9 'expected
credit loss' model, a credit event (or impairment 'trigger') no longer has to occur before credit losses
are recognised. It was therefore appropriate that the Group's policy for recognition of trade and other
receivables was amended.
Based on the review ofthe historic occuffence ofcredit losses, consideration ofprospective factors
and given the short-term nature of other receivables and the Group's active management of credit
risk, the Group did not identify any credit losses requiring provision except for specific items in Note
25. The outlook for the industry is not expected to result in a significant change in the Group's
exposure to credit losses.
Those to be measured subsequently al fair value (either through OCI, or through profit or loss)
Previously, embedded derivatives associated with variability in pricing were bifurcated and recorded
at fair value with changes in fair value recorded within revenue. There were no material embedded
derivatives at 3 I December 2017 . Under IFRS 9 embedded derivatives are no longer bifurcated and
instead the trade receivable as a whole is classified as fair value through profit and loss with changes
in fair value recorded within revenue as other revenue.
(s) Financialliabilities
Financial liabilities held by the Group comprise trade and other payables. The Group has reviewed
its financial liabilities and there was no impact from the adoption of the new standard on I January
2018.
35
Feno-A Aoy Res o u rces Li mited
Notes b lhe Consolidated Financial Statements for the year ended 3 I Decenber 2018
4 Revenue
Revenue Iiom sales ofvanadium products
Sales ofgravel and waste rock
Other sundry
Total revenue from customers
Other revenues - change in fair value of customer
contract
2018
$000
2017
$000
4,540
J
4,543
(323)
4,220
l,l l0
l5
7
1,132
1,132
Vanadium products
Under certain sales contracts the single perfonnance obligation is the delivery of AMV to the
designated delivery point at which point possession, title and risk on the product transfers to the
buyer. The buyer makes an initial provisional payment based on volumes and quantities assessed by
the Company and market spot prices at the date of shipment. The final payment is received once the
product has reached its final destination with adjustments for quality / quantity and pricing. The final
pricing is based on the historical average market prices during a quotation period based on the date
the product reaches the port of destination and an adjusting payment or receipt will be made to the
initially received revenue. Where the final payment for a shipment made prior to the end of an
accounting period has not been determined before the end ofthat period, the revenue is recognised
based on the spot price that prevails at the end ofthe accounting period.
Other revenue related to the change in the fair value of amounts receivable under the sales contracts
between the date of initial recognition and year end resulting from market prices are recorded as
other revenue. Refer to note 24 and 25 for details of contract liabilities recorded at fair value.
5 Cost of sales
Materials
Wages, salaries and related taxes
Electricity
Depreciation
Taxes other than income
Raw materials obsolescence provision
Other
2018
$000
20t7
$000
9t6
530
144
30
l0
6
52
571
341
l0l
l5
t2
36
8
1,688
1,084
36
Feno-Alloy Resources Limited
Noles lo lhe Consolidated Financial Statements for the year ended 3 I December 2018
6 Other income and reversal of impairment
Reversal of impairment
Other
20lE
$000
2017
$000
1,775
l0
1,7E5
52
s2
Refer to note 2 for details of the reversal of impairment which relates to the Group's processing
operation of US$1.59m, patents of US$0.023m and exploration and evaluation assets of US$0.162m.
The reversal of impairment on PP&E is stated net of depreciation of US$0.84m that would have
occurred had the historic impairment provision not been recorded.
7 Administrative expenses
2018
$000
2017
$000
Wages, salaries and related taxes
Listing & reorganisation expenses
Audit
Professional services
Materials
Business trip expenses
Depreciation and amortization
Security
Communication and information services
Bank fees
Other
732
164
ll0
49
4t
26
l6
t7
t2
ll
93
1,271
47t
l14
55
64
39
ll
6
l8
3
l0
l7
908
37
Feno-Alloy Raourcq Limiled
Notes to the Consolidated Financial Statements for the year ended 3l December 2018
8 Other expenses
Impairment of property, plant and equipment
Impairment of exploration and evaluation assets
Impairment of intangible assets
Impairment of receivables
Write-off of materials
Other
2018
$000
2017
$000
r8
5
I
124
2t
5
9
35
The impairment of PP&E in 2017 related to buildings, plant & equipment and construction in
progress. In 201 8, the impairment of receivables relates to provision for write offs and expected credit
losses.
9 Personnel costs
Wages, salaries and related taxes
2018
$000
1,261
1,261
2017
$000
892
892
During 20 I 8 personnel costs of US$ 450 thousand (2017 : US$ 34 I thousand) have been charged to
cost of sales, US$ 732 thousand (2017: US$ 471 thousand) to administrative expenses and US$ 79
thousand (2017: US$ 80 thousand) were charged to cost of inventories which were not yet sold as at
the year-end.
10 Finance costs
Net foreign exchange costs
Unwinding of discount on site restoration provision
Interest expense on financial liabilities measured at
amortised cost
Net finance costs(income)
2018
$000
2017
$000
24
t2
36
25
t2
47
E4
1l Income tax
The Group's applicable tax rates in 2018 are the income ta>( rate of 20o/o for Kazakhstan subsidiaries
(2017:20%) and 0o/o (2017:07o) for Guemsey and BVI companies. The Kazakh tax rate has been
applied below as this is most reflective of the Group's trading operations and tax profile.
During the years ended 3l December 2018 and 2017 the Group incurred tax losses and therefore did
not recognise any curent income tax expense except in relation the provision of Group services
where an income tax charge of US$1,000 was incurred in 2018 (2017: nil). Unrecognised defened
tax assets are described in Note 15.
38
Ferro-Alloy Resowces Limited
Notes to the Consolidated Financial Statements for the year ended 3 I Decenber 201 8
Reconciliation of effective tax rate:
Profit before tax
Income tax at the applicable tax rate
Effect ofunrecognised deferred tax assets
Net non-deductible expenses/non-taxable
income
2018
$000
2964
593
(420)
(r74\
(r)
o/o
100
20
(14)
(6)
20t7
$000
fl,0E0)
o/o
(216)
126
90
100
20
(t2)
(8)
39
12 Property, plant and equipmcnt
Cofi
Balmce at I January20lT
Additions
Disposals
Forcign cunency translation dilferencc
Brlancc rt 3t Dcccnbcr 2017
Balanccat I Janudy20lS
Additions
Disposals
Foreign currency translation differcnce
Degeclatlon
Bslancc at I January 20 I 7
Deprccistion for thc period
Disposals
lmpairment
For€ign cunilcy translation dilference
B.l.nce rt 3l Dccembcr 2017
Balance at I January 2018
Dcpreciation for thc period
Disposals
Rcversal ofimpairment
Foreign cunency translation dilference
Balrncc .t 3l Dcccmbcr 2018
Catrylng amounE
Al I Jrnurry20lT
At3l Dcccnbcr20lT
At3l D.ccnbcr20lt
FrcAlloy RaourcaUrtd
Noles ,o lhe Consolidated l;lmciql Slatenenlslor Itp ycil etded 3l Deenber 2018
Lrnd and
bulldings
s000
Plrna rnd
cquipmcnt
s000
Vchiclc!
Compuacrs
$000
Othcr
f000
Conitrucdon in
progrcsr
s000
Tot l
s000
1,844
3
1,996
t8
(4)
r.8s3 __3p!g
t,853
9
2,0t5
t3t
Q?)
/283\
1,836
1,96
(4)
t8
2,01s
2,015
l0
Q7)
(393)
070l
rJ35
(25 l)
t,6tt
t,844
t.8s3
r,853
(t,022,
(2s0)
58r
t.030
s0l
35t
37
(26)
2
t64
364
t23
(61)
426
295
25
(r:)
295
295
29
(421
282
56
69
144
_zg
t2
I
13
t3
l3
(3)
2t
l2
t3
t3
:
Q\
l2
11
32
il
n)
42
42
47
(4)
(lo)
30
n
32
5
107n
(21
202
202
350
(17)
(6r)
t07
97
(2)
202
-4
(s)
t2--2@
(r75)
(27\
2
l0
43
174
4,342
166
(30)
lt
4,4t9
4,489
673
(48)
(669)
4,2U
27
(30)
u8
u
4.410
4,4t0
45
QN
(r,5e0)
(s96)
5t
79
2,20t
During 2018 deprecialion expens€ of US$ 24 thousand (2017: US$ 15 thousand) has been charged to cost of sales, US$ 15 thousand (2017: US$ 6 thousand) - to
administrative expenses, and US$ 6 thousand has been charged to cost of finished goods that were not sold at the year-end (20t7: US$ 6 thousand). Construction in
progress relates to upgrades to the processing plant associaled with the expansion of the facility. Additions include change in estimates in decommissioning cost.
40
Ferro-Alloy Resources Limited
Noles to the Consolidated Financial Stalementsfor the year ended 3l December 2018
13 Exploration and evaluation assets
The Group's exploration and evaluation assets relate to Balasausqandiq deposit. During the year
ended 3 I December 2018 the Group did not capitalise any exploration and evaluation assets (in 2017:
US$Nil). As at 3l December 2018 the carrying value of exploration and evaluation assets was
US$0.059m (2017: US$NiD with the movement representing the reversal of impairment of
US$0.162m detailed in note 2less a reduction in the asset due to a change in estimate of
decommissioning costs.
14 Intangible assets
Mineral
rights
$000
Patents
$000
Computer
software
s000
Total
$000
Cost
Balance atl January 2017
Additions
Foreign cuffency translation difference
Balance at 31 December 2017
Balance at I January 20 I 8
Additions
Foreign currency translation difference
Balance at 3l December 2018
Amorlisalion
Balance atl January 2017
Amortisation for the year
Impairment loss
Foreign currency translation difference
Bafance at 3l December 2017
Balance at I January 2018
Amortisation for the year
Reversal of impairment
Foreign currency translation difference
Balance at 3l December 2018
Carrying amounts
At I January 20 I 7
At 31 December 2017
At 3l December 2018
l14
ll5
l15
(16)
99
l14
il5
I l5
06)
99
36
(l)
36
36
2
(5)
33
36
(l)
36
36
(23)
(4)
9
25
J
;
4
4
(l)
3
2
2
2
I
l)
2
2
53
I
I
155
155
I
(21)
135
52
153
ls3
I
(23)
(21)
ll0
2
25
During 20 I 8 and 20 I 7 amortisation of intangible assets was charged to administrative expenses. The
immaterial reversal of impairment on patents refers to patents associated with the processing
operation.
4t
Feno-A I loy Reso u rces L i mi I ed
Notes lo the Consolidated Financial Statementsfor the year ended 3l Decenber 2018
15 Deferred tax assets and liabilities
Unrecognised deferred tax assets
Temporary deductible differences
Tax losses carried forward
3l December
2018
$000
31 December
2017
$000
126
I,136
1,262
537
1,145
1,682
15 Deferred tax assets and liabilities, continued
Unrecognised deferred tax assets, continued
Deferred tax assets have not been recognised in respect of these items because the Kazakhstan
processing operations benefit from a tax incentive agreement which reduces the tax payable to nil
and it is therefore uncertain that future taxable profit will be available against which the Group can
utilise the benefits therefrom. The tax incentive agreement is effective for ten years starting from
2018.
Temporary deductible differences mostly relate to property, plant and equipment. Unutilised tax
losses expire after l0 years from the year of origination.
Expiry dates of unrecognised deferred tax assets in respect of tax losses canied forward at 3I
December 2018 are presented below:
Expiry year
20t9
2020
2021
2022
2023
2024
2025
2026
2027
2028
$000
65
94
86
8l
258
132
63
223
t34
I,136
Unrecognised deferred tax assets above are calculated based on Kazakh tax rate of20o/o.
l6 Inventories
Raw materials and consumables
Finished goods
Goods in transit
17 Trade and other receivables
Non-current
VAT receivable
Provision for VAT receivable
3l December 2018
$000
3l December 2017
$000
527
184
218
929
3t2
284
596
3l December2018
$000
3l December 2017
$000
s94
(3s7)
237
s06
(415)
9l
42
Ferro-Alloy Raources Limited
Notes to the Consolidated Financial Statementsfor lhe year ended 3l Decenber 2018
Current
Trade receivables from third parties
Due from employees
Other receivables
Expected credit loss provision
3l December 2018
$000
3l Dccember20lT
$000
2t
24
t4
59
1oI\
38
44
28
2
74
(27)
47
The expected credit loss provision relates to credit impaired receivables which are in default and the Group
considers the probability ofcollection to be remote given the age ofthe receivable and default status.
18 Prepayments
Non-current
Prepayments for equipment
Current
Prepayments for goods and services
19 Cash and cash equivalents
Bank balances and other cash deposits
Petty cash
Cash and cash equivalents
20 Equity
(a) Share capital and share premium
3l December 2018
$000
31 December2017
$000
249
249
9l
9r
52
52
l5
l5
3l December 2018
$000
31 December 2017
$000
88s
7
E92
267
267
Number of shares unless olherwise slaled
Ordinary shares
Par value
Outstanding at beginning ofyear
Shares issued prior to share split
Share reorganisation (split)
Shares issued post share split
Outstanding at end of year
3l December2018 31 December2017
0.01 us$
1,523,732
1,493
305,045,000
426,087
305,471,087
1,503,796
19,936
1,523,732
Shares issued per the Consolidated Statement of Changes in Equity in20l7 exceeds the proceeds
from issue of share capital in the Consolidated Statement of Cash Flows due to shares issued to settle
liabilities.
43
Ferro-Alloy Resources Limited
Noles to the Consolidated Financial Statements for the year ended 3l December 2018
Ordinary shares
All shares rank equally. The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the Company.
In July the Company's shareholders voted by ordinary resolution to subdivide each share into 200
new shares of no par value so that the listed shares will be of a value within the normal range for
listing companies. As a result the share premium was transferred to share capital in 2018.
Reserves
Share capital: Value of shares issued less costs of issuance. Prior to the share restructuring share
capital related to the nominal value of shares issued.
Share premium: Amounts subscribed for shares in excess of nominal value less share issue costs,
prior to the share restructuring. Subsequent to share restructuring no share premium applies.
Additional paid in capital: Amounts due to shareholders which were waived.
Foreign currency translation reserve: Foreign currency differences on retranslation of results from
functional to presentational cunency and foreign exchange movements on intercompany balances
considered to represent net investments which are permanent as equity.
Accumulated losses: Cumulative net losses.
(b) Dividends
No dividends were declared for the year ended 3l December 2018.
(c) Earnings (loss) per share (basic and diluted)
The calculation of basic and diluted earnings / (loss) per share has been based on the following profit
(loss) attributable to ordinary shareholders and weighted-average number of ordinary shares
outstanding.
O ProJit (loss) attributable to ordinary shareholders (basic and diluted)
2018
$000
Profit (loss) for the year, attributable to owners of the
Company
Profit (loss) attributable to ordinary shareholders
2,963
2,963
(it) lVeighted-average number of ordinary shares (basic and diluted)
2017
$000
(1,080)
(1,080)
Shares
Issued ordinary shares at I January (after subdivision)
Effect of shares issued (weighted)
Weighted-average number of ordinary shares at
31 December
2018
2017 Restated
304,746,400
300,759,200
366,750
I,397,800
305,1 13.150
302.157.000
Earnings (loss) per share of common stock attributable to
the Company (basic and diluted)
0.009
(0.004)
The 2017 comparative has been revised to reflect the share split as if it had occurred on I January
2017 for comparability purposes. There are no dilutive or potentially dilutive instruments.
44
Feno-Alloy Resources Limited
Notes lo lhe Consolidaled [;inancial Statements for lhe year ended 3 I December 2018
2l Loans and borrowings
There were no outstanding loans at 3 I December 2018 (31 December 2017: nil) and no bonowings
or loan repayments in 20 I 8 (in20l7: the bonowing was US$20 thousand and the repayment of loans
totalled US$368 thousand including amounts settled in shares).
22 Provisions
Balance at I January
Unwinding of discount
Change in estimate
Foreign currency translation difference
Balance at 31 December
Non-current
Site restoration
2018
$000
2017
$000
t52
l2
(e2)
(12\
60
60
60
135
t2
5
152
ts2
t52
A provision was recognised in respect of the Group's obligation to rectify environmental damage in
the Balasausqandyq mine, Kyzylorda region.
In accordance with Kazakhstan environmental legislation, land contaminated by the Group in the
Kyzylorda region must be restored before the end of 2043. The provision was estimated by
considering the risks related to the amount and timing of restoration costs based on the known level
of damage. Because of the long-term nature of the liability, the main uncertainty in estimating the
provision is the costs that will be incurred. In particular, the Group has assumed that the site will be
restored using technology and materials that are available currently. The amount for 2018 was
updated in the recently signed addendum to the subsoil contract based on independent advice by an
environmental consultant. A fund to cover this liability will be collected via annual statutory
contributions to the special liquidation fund at the rate of I % of mining expenses as stipulated in the
Subsoil contract. Based on the working program which forms the part of the Subsoil contract the
total amount is expected to reach KZT 675m or US$ 1,838,000. The present value of restoration
costs was determined by discounting the estimated restoration cost using a Kazakh risk-free rate for
the respective period, and inflation of 5.3% (31 December 2017:8.4%). The estimated period for
discounting was 25 years (2017: 6 years). Environmental legislation in Kazakhstan continues to
evolve and it is difficult to determine the exact standards required by the current legislation in
restoring sites such as this. Generally, the standard of restoration is determined based on discussions
with the Government officials at the time that restoration commences.
23 Trade and other payables
Due to directors/key management
Due to employees
Trade payables
Other taxes
Advances received
3l December 2018
$000
3l December 2017
$000
547
44
302
3l
5
929
297
50
r64
83
l4
608
24 Contract liability (trade and other payables at FVPL)
3l December 2018
$000
3l December 2017
$000
Contract liability (trade and other payables at FVPL)
264
264
45
Ferro-Alloy Resources Limiled
Noles to the Consolidated Financial Stalements for lhe year ended 3 I Decenber 2018
25
(a)
Financial instruments and risk management
Overview
The Group has exposure to the following risks from its use of financial instruments:
o credit risk;
. liquidity risk;
o market risk.
This note presents information about the Group's exposure to each of the above risks, the Group's
objectives, policies and processes for measuring and managing risk, and the Group's management of
capital. Further quantitative disclosures are included throughout these consolidated financial
statements.
Risk management framework
The Chief Executive has overall responsibility for the establishment and oversight of the Group's
risk management framework.
The Group's risk management policies are established to identify and analyse the risks faced by the
Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed to reflect changes in market conditions and the
Group's activities. The Group aims to develop a disciplined and constructive control environment in
which all employees understand their roles and obligations.
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group's
receivables from customers.
O Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum
exposure to credit risk at the reporting date was:
Trade and other receivables, excluding amounts due from
employees and VAT receivable
Cash and cash equivalents
Carrying amount
3l December
2018
$000
3l December
2017
$000
t4
885
899
l9
267
286
The maximum exposure to credit risk for trade and other receivables at the reporting date by
geographic region was:
Kazakhstan
3l December
2018
$000
t4
t4
amount
3l December
2017
$000
l9
19
46
Ferro-Alloy Raourcq Limited
Noles to the Consolidated Financial Statements for the year ended 3 I December 20 I 8
The maximum exposure to credit risk for trade and other receivables at the reporting date by type of
customer was:
Trade receivables:
Wholesale customers
Olher receivables
Other
3l December
2018
s000
amount
3l December
2017
$000
l4
t4
l7
2
l9
The ageing oftrade and other receivables at the reporting date was:
Not past due
Past due
more than
180 days
Gross
2018
$000
t4
Impairment Net
2018
$000
l4
2018
$000
Gross
20t7
$000
l9
Impairment
2017
$000
Net
2017
$000
2t
35
(2t)
Qr)
t4
46
(27',)
Q7)
The movement in the allowance for expected credit losses in respect of other receivables during the year was
as follows:
Balance at beginning ofthe year
Expected credit loss change
Balance at end ofthe year
2018
$000
2017
$000
27
(6)
2t
24
3
2t
47
Feno-Alloy Resources Limited
Notes lo the Consolidated Financial Statements for the year ended 3 I December 20 I 8
(it) Cash and cash equivalents
As at 3 I December 20 I 8 the Group held cash of US$ 892 thousand (3 I December 2017: US$ 267
thousand), of which bank balances of US$ 885 thousand (31 December 2017: US$ 267 thousand)
represent its maximum credit exposure on these assets, which excludes petty cash. l4Yo (31
December 2017: 84%) is held in banks with credit ratings of A+ to AA-, 86yo in banks with credit
ratings of B to BB (31 December 2017: l3%). Credit ratings are provided by the rating agency Fitch.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated
with its financial liabilities that are settled by delivering cash or another financial asset. The Group's
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and stressed conditions, without incuning
unacceptable losses or risking damage to the Group's reputation.
The following are the contractual maturities of financial liabilities. It is not expected that the cash
flows included in the maturity analysis could occur significantly earlier, or at significantly different
amounts.
2018
Carrying Contractual
amount cash flows On demand 0-6 mths
$000
$000
$000
$000
Financial liabilities
Trade and other payables (excluding due to
employees, advances received and salary related
taxes) and contract liabilities
2017
Financial liabilities
Trade and other payables (excluding due to
employees, advances received and salary related
taxes) and contract liabilities
(d) Market risk
s66
s66
s66
s66
566
s66
Carrying
amount
$000
Contractual
cash flows
$000
On demand
s000
0-6 mths
s000
164
r64
164
t64
164
164
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates
and equity prices will affect the Group's income or the value of its holdings of financial instruments.
The objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising the return.
48
Feno-Alloy Resoutc* Limited
Noles to the Consolidated Financiol Slatements for the year ended 3l December 2018
O Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a
cunency other than the respective functional currency ofGroup entities.
In respect of monetary assets and liabilities denominated in foreign currencies, the Group ensures
that its net exposure is kept to an acceptable level by buying or selling foreign cunencies at spot rates
when necessary to address short-term imbalances.
Exposure to currency risk
The Group's exposure to foreign currency risk was as follows based on notional amounts:
US$-
GBP-
HKD-
RUB.
denominated denominated denominated denominated
Cash and cash equivalents
Trade and other payables
Net exposure
2018
$000
830
(64s)
l8s
2018
$000
l3
(145)
(132)
2018
$000
2018
$000
I
(2)
(2)
us$-
denominated
GBP-
denominated
HKD-
denominated
RUB.
denominated
2017
$000
20t7
$000
2017
$000
2017
$000
KZ:t-
denominated
20t8
$000
4l
(137)
(e6)
t(tr-
denominated
2017
$000
Cash and cash equivalents
Trade and other payables
Net cxposure
t64
(74)
90
20
(s2)
(32)
2l
2l
(22)
(22)
62
(460)
(398)
The following significant exchange rates applied during the year:
in US$
Average rate
KZT I
CBP I
RUB I
HKD I
2018
2017
0.0029
1.3325
0.0160
0.1276
0.0031
1.2888
0.0171
0.r283
Reporting date spot rate
20lE
20t7
0.0026
1.2705
0.0144
0.t277
0.0030
1.2642
0.0168
0.12s9
49
Feno-AIIoy Resources Limited
Notes lo the Consolidated Financial Statements for the year ended 3 I December 2018
(it) Interest rate fisk
Changes in interest rates do not significantly impact the Group's position as at 3l December 2018.
Management does not have a formal policy of determining how much of the Group's exposure should
be to fixed or variable rates. However, at the time of raising new loans or borrowings management
uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable
to the Group over the expected period until maturity.
Changes in interest rates at the reporting date would not significantly affect profit or loss.
(e) Fair values versus carrying amounts
Management believes that the fair value of the Group's financial assets and liabilities approximates
their carrying amounts.
The basis for determining fair values is disclosed below.
Following the adoption of IFRS 9, trade receivables and contract liabilities are recorded at fair value
through profit and loss as they fail the criteria for amortised cost owing to the variability due to final
pricing adjustments. Previously trade receivables and contract liabilities were determined at
amortised cost with embedded derivatives separated when applicable. No material embedded
derivatives existed at 3l December 2017 and therefore trade receivables were recorded at amortised
cost.
Financial instruments measured at fair value are presented by level within which the fair value
measurement is categorized. The levels of fair value measurement are determined as following:
o Level l: quoted prices (unadjusted) in active markets for identical assets or liabilities.
o Level 2: inputs other than quoted prices included in Level I that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
e Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The Group's contract liabilities at 3 I December 2018 are recorded at fair value through profit and
loss and fair valued based on the estimated forward prices that will apply under the terms of the sales
contracts on the product reaching the port of destination. The trade receivable fair value reflects
amounts receivable from the customer adjusted for forward prices expected to be realised. The
contract liability arose because the downward movement in the forward price compared to the price
applicable at the date of the initial sale recognition and provisional payment is such that the Group
will be required to make payment to the customer.
In the absence of observable forward prices the forward price is estimated using a valuation
methodology which is based on vanadium spot prices at 3l December 2018 adjusted for the discount
for AMV versus vanadium pentoxide, time value of money and carry costs. Given the short period
to final pricing the time value of money and carry costs are not significant and the forward price
materially approximates the spot price at year end with the adjustment to reflect the difference
between vanadium pentoxide prices and AMV.
A l0% change in the forward price would give rise to a US$26.4 thousand movement in fair value.
26 Commitments
Commitments for training of Kazakhstan employees
Under the conditions of the subsoil use contract the Group is obliged to train Kazakh employees.
According to the contract, the annual training expense should equal to l% of the Group's capital
expenditures on subsoil activity. Yuzhkaznedra, the government body, responsible for regional
inspection of subsoil protection and usage, approves the minimum required size of the expense to be
paid annually. Total training expense in 2018 is US$ 4 thousand (2017: US$ I thousand).
50
Feno-Alloy Res'oarces Limited
Notes to the Consolidated Financial Statemenlstor lhe year ended 3l December 2018
27
(a)
Contingencies
Insurance
The insurance industry in the KazakAstan is in a developing state and many forms of insurance
protection common in other parts of the world are not yet generally or economically available. The
Group does not have full coverage for its plant facilities, business intenuption, or third party liability
in respect of property or environmental damage arising from accidents on Group property or relating
to Group operations. There is a risk that the loss or destruction of certain assets could have a material
adverse effect on the Group's operations and financial position.
(b) Taxationcontingencies
The taxation system in Kazakhstan is relatively new and is characterised by frequent changes in
legislation, official pronouncements and court decisions which are often unclear, contradictory and
subject to varying interpretations by different tax authorities. Taxes are subject to review and
investigation by various levels of authorities which have the authority to impose severe fines,
penalties and interest charges. A tax year generally remains open for review by the tax authorities
for five subsequent calendar years but under certain circumstances a tax year may remain open
longer.
These circumstances may create tax risks in Kazakhstan that are more significant than in other
countries. Management believes that it has provided adequately for tax liabilities based on its
interpretations of applicable tax legislation, official pronouncements and court decisions. However,
the interpretations of the relevant authorities could differ and the effect on these consolidated
financial statements, if the authorities were successful in enforcing their interpretations, could be
significant.
There are no tax claims or disputes at present.
5l
Feno-Alloy Rsources Limited
Notes to lhe Consolidated Financial Statementsfor the year ended 3l Decenber 2018
28 Segment reporting
The Group's operations are split into three segments based on the nature of operations: processing,
subsoil operations (being operations related to exploration and mining) and corporate segment for
the purposes of IFRS 8 Operating Segments. The Group's assets are primarily concentrated in the
Republic ofKazakhstan and the Group's revenues are derived from operations in, and connected
with, the Republic of Kazakhstan.
2018
Revenue
Cost of sales
Other income
Impairment reversal
Administrative expenses
Distribution & other expenses
Finance costs
Profit before tax
2017
Revenue
Cost of sales
Other income
Impairment charge
Administrative expenses
Distribution & other expenses
Finance costs
Profit before tax
Processing
$000
Subsoil
$000
Corporate
$000
Total
$000
4,220
(1,688)
l0
1,775
(463)
(46)
tt7
3,925
Processing
$000
1,132
(1,084)
52
(t24)
(400)
(64)
(loe)
(se7)
4,220
(1,688)
l0
1,775
(1,271)
(46)
(36)
2,964
Total
$000
1,132
(1,084)
52
(t24)
(e08)
(64)
(84)
(1,080)
(55)
(r2)
(67)
(7s3)
(l4l)
(8e4)
Subsoil
$000
Corporate
$000
(42)
(r2)
(s4)
(466)
37
(42e)
Included in revenue arising from Processing are revenues ofUS$ 4m which arose from sales to the Group's
largest customer. No other single customer contributes l0 per cent or more to the Group's revenue.
29
(c)
Related party transactions
Transactions with management and close family members
Manage ment remune rat ion
Key management personnel received the following remuneration during the year, which is included
in personnel costs (see Note 9):
Wages, salaries and related taxes
2018
$000
2017
$000
363
264
Refer to note 23 for details of payables to key management and note 30 and the Directors' Report for
shares issued to key management.
52
Ferro-Alloy Resources Limited
Noles lo the Consolidated Financial Statementsfor lhe year ended 3l December 2018
(b) Transactions with other related parties
There were no Group's other related party transactions.
30 Share-basedpayments
At 3l December 2018, the Group had an arrangement whereby the Company's non-executive
directors ("NEDs") and a part-time employee were remunerated for their services by the issue of the
number of the Company's ordinary shares equal in value, taking the value to be the latest price at
which shares were subscribed for by third parties, to the agreed remuneration. In 2018,393 shares
were issued prior to the subdivision of the company's shares, equivalent to 78,600 shares post
subdivision, and 52,174 shares were issued after the subdivision. The cost of services received from
NEDs and the part-time employee was measured as a product of the number of shares issued and the
fair value ofthose shares. The fair value ofshares was determined by reference to the consideration
received for share subscriptions from third-party subscribers during the year being US$75,195 in
2018 and US$35,668 in20l7.
As a result, during 2018 the Group recognised an increase in share capital / premium of US$ 75
thousand (2017: US$ 36 thousand) as administrative expenses in the statement of profit or loss and
other comprehensive income.
3l Subsequent events
From I January 2019 until I April 2019, the Company issued 7,507,761 shares for a consideration
of US$ 6.3m after expenses.
On 28 March 2019 the Company's shares were admitted to listing on the London Stock Exchange.
53