Ferro-Alloy Resources Limited
Annual Report
for the year ended
31 December 2019
Contents
Report on operations
Directors’ report
Responsibility statements
Governance statement
Independent Auditors’ Report
Ferro-Alloy Resources Limited
1
9
15
16
18
Consolidated Statement of Profit or Loss and Other Comprehensive Income 24
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
25
26
27
28-58
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2019
Report on operations
Introduction
2019 was an eventful year for the Group. On 28 March 2019 Ferro-Alloy Resources Limited was
admitted to listing on the London Stock Exchange, raising $6.9m before expenses for the purpose of
expanding production from the existing process plant and upgrading the feasibility study of the
Balasausqandiq project to Western Bankable standards.
In spite of the dual headwinds of a steep fall in the price of vanadium and the Covid-19 crisis, the
Company has made significant progress, with production now running at a rate nearly three times
higher than in the first quarter of 2019 and capacity for significantly more as power availability is
increased and the relaxation of Covid-19 government measures in Kazakhstan allow for full
utilisation.
Production
During 2019 a significant amount of new equipment was installed. Although, for various reasons,
this capacity has not yet been fully utilised, the installed processing capacity of the plant has now
increased to around 60 tonnes of vanadium pentoxide per month, depending on the grade of raw
material. Full utilisation of this capacity is being limited by Covid-19 issues and by the availability
of power which is currently being expanded, so the full benefit of this increase in capacity has not
yet been realised. This significant increase in capacity was achieved without any long-term stoppage
of operations, with production in 2019 amounting to 152 tonnes, up 21.6% from 125 tonnes in 2018.
All production figures in this report refer to tonnes of vanadium pentoxide contained in ammonium
metavanadate, “AMV”.
The increase in capacity has been achieved by the commissioning of an entirely new
pyrometallurgical production process aimed at treating higher grade vanadium-containing secondary
materials which require an initial roasting step and a different leaching approach. At the same time,
significant improvements have been made to the existing process line resulting in product quality
improving.
The creation of the pyrometallurgical line accounted for the largest proportion of investments in
2019. The first of two roasting ovens had been purchased in 2018 and initial testing guided the
installation of a second oven in 2019 and the installation of new leach equipment and press filters to
greatly improve and expand this operation. Production from this line was limited during 2019 to
around 20 tonnes whilst a single oven was in operation and the line tested, but the pyrometallugrical
line will account for the bulk of the expansion from 2020 onwards.
Preparatory work has also been completed on the next stage of expansion, planned to take capacity
up to around 1,500 tonnes per year. A new 1,000 m² building has been constructed to house the
decomposition oven to convert the AMV to vanadium pentoxide and an electric arc furnace which
will allow the production directly of ferro-vanadium.
Work on the construction of a link, with appropriate transformer capacity, to the adjacent high
voltage power line has started. It was planned to finalise it in the second quarter of 2020 but little
work has been done in the second quarter as a result of the Covid-19 crisis. In the fourth quarter of
2019 we experienced significant outages of power due to heavy winter conditions affecting the
existing line which resulted in high costs for back-up power generation and reduced production. The
new high voltage power line will increase reliability, the cost of power will reduce by half, and
existing plant capacity can be better utilised.
Production and shipments by quarter in 2019 were:
1
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2019
Quarter
Production
Shipments
(tonnes of vanadium
pentoxide contained in AMV)
(tonnes of vanadium
pentoxide contained in
AMV)
Q1
Q2
Q3
Q4
Total
32,093
39,037
38,253
43,073
152,456
39,066
40,551
40,032
35,701
155,350
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 of the content of
vanadium pentoxide, less a discount to standard vanadium pentoxide. All production figures are
therefore quoted in terms of the content of vanadium pentoxide.
Covid-19
Kazakhstan has been less affected by Covid-19 than many European countries but nevertheless, there
have been over 31,000 detected cases and, sadly, over 140 people have died. With a population some
28% of that of the UK, this is a relatively small but still serious outbreak. Kazakhstan was quick to
respond and declared a state of emergency on 16 March 2020. Measures taken to control the spread
have included a complete lock-down of several major cities, the temporary closure of non-essential
businesses and industries, and an almost complete standstill on international and domestic travel
which is only recently beginning to be relaxed. International flights are restarting from a limited
number of countries but most categories of visitors are still prohibited from entry.
The protection of the health and safety of our employees is our paramount concern and the Company
has implemented all the measures recommended and required by the Kazakhstan authorities. So far,
none of our employees has been affected and our operations have continued. However, the
restrictions on travel have disrupted and curtailed operations in a number of ways which have reduced
output and progress with our projects.
The Company’s main operation in Kazakhstan is manned by two teams of workers, each working for
half of the month while residing on site, followed by half of the month on leave. During the lock-
down it was not possible to rotate staff as usual, or to bring some professional managers to site from
their homes which in many cases are long distances from the operation. Bringing some
subcontractors and their equipment to site was also impossible.
The Company responded to these challenges by keeping some personnel on site for longer than their
usual rotation but the more technically difficult production circuit that treats iron concentrates was
closed in March 2020 and only reopened at the beginning of June 2020, resulting in a loss of
production of around 30 -33 tons of vanadium pentoxide.
The state of emergency was ended on 11th May 2020 and the lock-down conditions were relaxed on
the 3rd of June, with industrial and construction sectors and most types of services reopening. The
Company brought the new rotation of staff on 1st June 2020 and immediately re-started production
from the iron concentrates with the new team, so that production is now taking place from both lines.
The overseas supplier of a recently installed major item of new equipment is currently unable to visit
to make commissioning rectifications which is reducing current output.
2
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2019
Progress on our feasibility study has likewise been slowed. Visits by specialists to site have not been
possible, and although there is no curtailment of the shipment of samples, the necessary radiological
examination in order to complete transport and import documentation has not yet been possible. The
relevant institute is now slowly returning to work and we expect the samples to be shipped shortly.
It is not possible to forecast the course of the Covid-19 outbreak, but Kazakhstan’s early intervention
and relatively strong countermeasures have enabled an early relaxation of controls and we are now
returning to more efficient operations.
Production outlook
Production during the first quarter of 2020 amounted to 49.1 tonnes of vanadium pentoxide (in
AMV), having been affected by the closure of the iron-concentrates line and other Covid-19 issues,
as well as winter power outages. The iron-concentrates line was restarted on 1 June 2020 so both
lines are now in production. There remain some difficulties in bringing appropriate staff and
contractors to site, so some limitations are expected to continue for some time.
As mentioned above, a major piece of equipment that was recently installed is not working optimally
but the European suppliers are unable to visit site to make repairs because of Covid-19 restrictions
on entry of foreign specialists. The Company has ordered the necessary parts independently of the
manufacturers, with delivery and installation expected over the next two months.
Production from iron-concentrates is likely to stabilise at around 11 or 12 tonnes per month and from
the pyrometallurgical line at an initial restricted rate of 15 - 20 tonnes per month, rising over time as
the new power-line is installed and the ongoing commissioning repairs and the release from other
Covid-19 restrictions allow a better use of the existing capacity. Depending on the grade of raw
material input, we expect to have the potential to reach over 60 tonnes per month of overall
production from both lines.
As finance permits, the second major phase of expansion to the existing plant will be re-started,
taking the plant potential capacity to 1,500 tonnes of vanadium pentoxide output per year.
Feasibility study
The Company has selected SRK international to produce the upgraded feasibility study, and Coffey
Geotechnics Limited, a Tetra Tech group company, to carry out the processing part of the study.
Coffey’s work is well underway but Covid-19 has prevented the sending of samples outside
Kazakhstan because it has been impossible to obtain the required content and safety certificates from
government institutes which have closed. The relevant institutes have now reopened and the work
is in hand.
Vanadium prices
The price of vanadium pentoxide fell from extreme highs of approaching $30/lb in November 2018
to around US$16/lb by the start of 2019 and to just over US$5 by the end of 2019. The average was
around US$9 for 2019, down from US$18 in 2018. The unusually high price in 2018 and early 2019
was caused by production cut-backs during a long period of low prices combined with increases in
demand, particularly from the implementation by China of new construction standards which
necessitated much higher use of the types of steels that require vanadium. The very high prices
resulted in some substitution with what was then cheaper niobium, and some production increases,
resulting in an overcorrection which caused the price to fall below its expected long run level. The
price so far in 2020 has been more stable in the range $5 - $7 and some forecasters are optimistic that
prices will improve as substitution by niobium is reversed and the high-cost production, instigated
by the exceptionally high prices, proves uneconomic to sustain.
It is important to note that the high prices of 2018 and early 2019 were exceptional. The Company
has been and continues to use a long-term forecast price of around US$7.50/lb, a little higher than
today’s level, but lower than external forecasters and other vanadium project companies are using.
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Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2019
Both the current market price and our long-term estimate provide an exceptionally high margin to
the Company’s forecast cash cost of production of US$1.54, contained in the Competent Person’s
Report on our Balasausqandiq project by GBM.
Covid-19 is likely to affect both world production and supply in the short term, with no clear price-
direction. Longer term, the implementation of higher standards for construction steel throughout the
world and increasing use of other alloys using vanadium are likely to increase demand for vanadium
from its traditional markets. The roll-out of vanadium redox flow batteries for renewable energy
storage, which was stalled by the exceptionally high vanadium price in 2018 and 2019, is now
expected to resume and grow to be a very significant additional market for vanadium.
Earnings and cash flow
The Group reported revenues of US$1.8m for the period compared to US$4.2m in 2018, reflecting
the considerable fall in vanadium prices.
Revenue, and the corresponding trade receivable, are recognised at the time of transfer of control to
the customer but, as is common in the industry, the final pricing determination is often based on
assay and prices after arrival of the goods at the port of destination. Therefore, revenues recognised
at the time of shipment are subject to adjustment to prices prevailing up to four months later.
Typically, the customer makes a provisional payment based on volumes, quantities and spot prices
at the date of shipment and makes a final payment once the product has reached its final destination.
As a result, when prices are rising, the final receipt can exceed the initial revenue recorded and vice
versa. Where prices decrease significantly, this can result in the Company being in a net payable
position if a downward adjustment to the consideration exceeds the provisional payment received.
Amounts receivable from or payable to customers for sales which are still subject to final price
determination are initially recorded at the estimated fair value at the time of shipment, with changes
in fair value recorded as other revenue. Changes in this fair value during the year and, for those sales
where the final determination has not been made, fair values assessed on the basis of prices
prevailing at the year end, reduced revenue by US$0.6m to US$1.8m (2018: by US$0.3 to US$4.2m).
In periods of rising prices this adjustment would be expected to be positive and in the long run such
pluses and minuses can be expected to even out. The final price determinations made after the end
of 2019 in respect of sales made before the end of the year were not significantly different from the
fair value assessed at the end of the year.
US$000
Revenue from shipments recorded at the price
at time of dispatch
2019
2,391
2018
4,543
Adjustments to revenue after final price
determination and fair value changes
(550)
(323)
Revenue
1,841
4,220
Cost of sales increased to US$3.2m from US$1.7m in 2019 primarily reflecting the increased
volumes (+22% impact) and increases in the price of the vanadium concentrate purchased at the high
prices prevailing in 2018 and early 2019 (+61% impact). The largest part of cost of sales is the
purchase of raw materials, the price for which is determined as a percentage of the value of the
content of vanadium at prices prevailing at the time of purchase. Since such materials are purchased
up to several months before processing, and sales price determination is made several months after
shipment, the prices used as a basis for the calculation of raw material prices were significantly higher
than the price used as a basis for product sales. This means that the operating margin was squeezed
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Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2019
as prices fell in 2019. Again, during times of rising prices this effect would be reversed and is likely
to even out in the long term as prices move up and down.
Administrative expenses of US$1.8m (2018: US$1.3m) principally comprised employee costs,
listing costs, audit, listing costs and professional services. The professional costs directly relating to
the listing on the London Stock Exchange amounted to US$0.304m (2018: US$0.164m).
Net finance cost was US$0.183m (2018: net finance costs US$0.036m) as a result of the tenge
devaluation and sales in USD and RUR.
The Group made a loss before tax of US$3.34m (2018: net profit before tax of US$2.96m).
Net cash outflows from operating activities totalled US$2.5m (2018: US$1.3m inflow) principally
reflecting the effects of decreases in vanadium prices as described above and listing costs.
Net cash outflows from investing activities included US$2.3m (2018:US$0.9m) of capital
expenditure associated with expanding the processing operation.
Net cash inflows from financing activities comprised subscriptions for shares amounting to US$6.9m
(before costs), yielding US$6.6m net of costs, arising from the placing at the time of the listing of
the Companies shares on the London Stock Exchange on 28 March 2019 .
The Group had cash of US$0.648m at 31 December 2019 (2018: US$0.892m).
Key performance 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 objective 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 meaningful 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 be of lower grade and result in a lower level of
production. Nevertheless, the directors consider that the main indicator of performance, although
subject to 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 of the residues
from the main raw materials treated have been used for the construction of evaporation ponds and
the Company has started to sell the waste products from the high grade raw-materials as a low-grade
nickel concentrate. There are opportunities for the sale of future residues from the low-grade iron-
concentrates as well, so that the aim of the Company is to have no significant residues remaining on
site from the current operation. No significant mining operations have yet been carried out but plans
are being developed at an early stage to ensure the highest standards for site rehabilitation at the sites
of future mining.
Balance sheet review
Total non-current assets increased to US$5.089m from US$2.773m principally due to the rise in
capital expenditure, together with an increase in VAT receivable and prepayments for equipment.
The increase in prepayments for equipment is largely related to prepayments made for construction
of the new Power Line (US$1m).
5
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2019
The increase in VAT receivables is related to an increase in the import of raw materials resulting
from the increase of production, and to the increase in capital investments in equipment.
Current assets increased from US$1.95m to US$2.47m, principally reflecting additional inventories
due to higher levels of raw materials and finished goods on site at the year end. The increase in
inventories is related to the increase in production as well as building raw materials at the end of
autumn in order to have sufficient stock during winter months when transportation is more
complicated.
Current liabilities decreased to US$0.7m from US$1.2m primarily as the prior year included a
US$0.3m payables at fair value through profit or loss (“FVTPL”) as a result of the sharp reduction
in prices between shipments in Q4 2018 and 31 December 2018 which reduced to US$59,000 for the
current period.
Development plan – existing operation
Throughout 2019 the Company has been working towards a major expansion of the existing
processing operation to around 1,500 tonnes per year of production of vanadium pentoxide.
Although significant steps have been taken towards this figure, progress on the remaining capacity
has been delayed, principally by the Covid-19 situation. Whilst all the essential technologies in
hydrometallurgical and pyrometallurgical lines are now already in operation, expansion to this level
will require finalisation of the connection to the high voltage power line, installation of the
dissociation oven
the
to convert AMV
electrometallurgical line for the production of ferro-vanadium.
into vanadium pentoxide and
installation of
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 western bankable
feasibility study has been initiated with leading consulting companies in the industry. The current
study is for Phase 1 of the development plan, including construction of a process facility to treat one
million tonnes per year of ore, producing some 5,600 tonnes per year of vanadium pentoxide, 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 to 22,400 tonnes per year, plus by-
products, but this will not be included in the currently ongoing feasibility study.
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 infrastructure work which
forms part of the current development plan will benefit both operations.
Corporate
On 28 March 2019 the Company was admitted to listing on the London Stock Exchange, raising
£5.2m gross, equivalent to US$6.9m, or US$6.6m net of issue costs. The Company listed on the new
Astana International Stock Exchange (AIX) on 6 January 2020 and consequently delisted from the
Kazakhstan stock exchange (KASE) on 21 February 2020.
On 6 April 2020 the Company issued 500,000 shares to a provider of financial services as payment
for their services. On 14 May 2020 the Company issued 3,846,154 shares to raise £0.25m, and on 5
June 2020 the Company issued unsecured corporate bonds with an interest rate of 7.5% to raise a
further US$0.3m.
Description of principal risks, 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 and allow the group to gain valuable experience of the vanadium
6
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2019
industry. 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 nearly US$30/lb near the end of 2018. Currently, the price of vanadium pentoxide is
at around US$6/lb which is a little less than the ten-year average to date. Most forecasters anticipate
that vanadium will be in deficit in the short to medium term, resulting in some recovery in current
prices, and will return to the long-run marginal cost of production in the longer term which may be
substantially higher. The Company acquires raw-materials at a cost that is related to the price of
vanadium so there is a natural hedge but there is a risk of changes in vanadium prices between the
time of acquisition of the raw materials and sale of the product which cannot be entirely avoided.
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 of profitability of the current processing operation is also dependent on production levels
sufficient to generate profits to cover fixed overheads. The 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 installed a larger 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. Although a substantial part of this expansion has already been completed,
the plans include completion of the link to the adjacent high voltage powerline and the installation
of an electric arc furnace. The full benefits of the expansion depend upon the raising of sufficient
finance and the successful completion of these projects.
(b) Covid-19:
There remains a risk that the Covid-19 crisis worsens in Kazakhstan. This could cause further
disruption to supply-lines, staffing and subcontractors as has already occurred, but it is also possible
that a case might arise on site requiring a temporary shutdown of operations. In addition, Covid-19
may impact the availability of finance or the terms which are available. Whilst it is not possible to
guard against this, the Company continues to take all recommended precautions and will aim to
maintain higher than normal stores of essential supplies on site. In terms of funding, cash flows are
monitored on a continuous basis to enable the Company to take proactive measures to safeguard
liquidity.
(c) Risks associated with the developing nature of the Kazakh economy:
According to the World Bank Kazakhstan has transitioned from lower-middle-income to upper-
middle-income status in less than two decades. Kazakhstan’s regulatory environment has similarly
developed and the Company believes that the period of rapid change and high risk is coming to an
end. Nevertheless, the economic and social regulatory environment continues to develop and there
remain some areas where regulatory risk is greater than in developed economies.
(d) Balasausqandiq 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 low cost of production means that the project would remain
profitable at lower price levels.
The project is also dependent on raising finance to meet capital costs anticipated to amount to circa
US$100m for the first phase. Raising this money will be dependent on the successful outcome of
the western bankable feasibility study which is ongoing. The favourable financial and other
characteristics of the project determined by studies so far completed give the directors confidence
7
that the outcome of the study will be successful. Initial discussions with the providers of finance,
including with the Development Bank of Kazakhstan for which our project has passed through initial
screening, have been encouraging.
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2019
Signed on behalf of the Board of Directors on
27 June 2020
8
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2019
DIRECTORS’ REPORT
The Directors present their annual report and the financial statements of the Group for the year ended
31 December 2019.
General
The Company was incorporated as a limited liability company in the British Virgin Islands on 18
April 2000 and re‐domiciled to Guernsey as a Guernsey non‐cellular limited company with company
registration number 63449 on 12 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 in the Standard segment of the London Stock Exchange since
28 March 2019. On 6 January 2019 its shares were listed on the Astana International Stock Exchange
(“AIX”) having previously been listed on the Kazakhstan Stock Exchange. On 21 February 2020 it
delisted from the Kazakhstan 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.
Development plan
The main objective of the 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 1) and later increase to a total of
four million tonnes per year (Phase 2). Phase 1 is expected to take two years to design and build, and
Phase 2 will be started as soon as commissioning of Phase 1 has been successfully concluded.
Production is expected to be 5,600 tonnes per year and 22,400 tonnes per year of vanadium pentoxide
from Phases 1 and 2. Further income is expected from by-products which will account for around
one third of revenue. Owing to the unique type of ore and the level of infrastructure already existing,
the capital and operating costs of this operation are expected to be a fraction of those of other
vanadium projects and producers. The net present value of Phases 1 and 2 combined is estimated to
be around US$2 billion using a long-term assumption of USD7.5/lb for vanadium pentoxide.
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 built 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. It is now being expanded to make it a fully
commercial plant, potentially making a significant contribution to the capital costs of Phase 1 of the
Balasausqandiq project whilst being a separate operation in its own right. The existing operation and
Phase 1 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 thereof are 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.
9
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2019
Advisers
The Company’s advisers are set out below:
Financial advisor and broker
UK
Kazakhstan
Financial adviser
Lawyers – Guernsey
Auditors
Bankers
Registrars
Shore Capital Stockbrokers Limited
57 St James Street, Cassini House
London
SW1A 1LD
www.shorecap.co.uk
Tengri Partners Investment Banking (Kazakhstan) JSC
17 Al-Farabi Avenue
Almaty 050059
Kazakhstan
www.tengricap.com
VSA Capital Group Limited
15 Eldon St.
London
EC2M 7LD
www.vsacapital.com
Collas Crill LLP
Glategny Court, Glategny Esplanade
St Peter Port, Guernsey
GY1 4EW
BDO LLP
55 Baker Street
London
W1U 7EU
Barclays Bank PLC
Le Marchant House
St Peter Port
Guernsey
GY1 3BE
Computershare Investor Services (Guernsey) Limited
The Pavilions,
Bridgwater Road,
Bristol BS99 6ZY
United Kingdom
www.computershare.com
10
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2019
Financial Results
During the 12 months ended 31 December 2019, the Company reported a loss of US$3.3m (2018:
profit of US$2.96m).
No dividends have been declared in respect of the years ending 2019 or 2018.
Directors
The Board of the 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). In 1979, he moved to the Rio Tinto Group, becoming senior group accountant in 1981. He
then moved to the Business Evaluation Department for the Group in 1985 and was Group 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 mid-1990s, he was finance director at
Bakyrchik Gold Plc. and in 1998, he founded Hambledon 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 1981 as an industrial engineer at Kirov Engineering Plant in Almaty.
After three years he became Chief of the Scientific Department in Central Committee of Youth
(Comsomol). In 1987, Andrey became general director 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 informal 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 London. In 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 major multinational companies 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 21 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 Hambledon Mining from 2004 to 2011.
11
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2019
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 2011 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 firm. He holds several other
directorships. James is a Chartered Fellow of the Securities Institute IAQ and is a Fellow of the
Institute of Directors.
Directors’ Remuneration
Salary/ fees
Pension
Total
(US$’000)
(US$’000)
(US$’000)
2018 2019 2018 2019 2018 2019 2018 2019 2018 2019
Bonus/other
(US$’000)
Benefits
(US$’000)
Non-Executive
Chairman
Non-Executive director
Chief executive director
Operations director
Total
30
30
220
140
420
30
30
235
155
450
nil
nil
30
nil
30
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
30
30
250
140
450
30
30
235
155
450
Principal shareholders
A list of shareholders who beneficially hold more than 5% of the Company’s shares at 26 June 2020
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
22.1
20.4
13.2
12
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2019
Interests of directors
The interests (all of which are beneficial and include related parties) of the Directors in the
Company’s issued share capital at 31 December 2019 and at 26 June 2020 are as follows:
Name of director
Position
Nicholas Bridgen
Andrey Kuznetsov
Christopher
Thomas
James Turian
Chief
executive
Operations
director
Non-executive
Chairman
Non-executive
director
31 Dec 2019
Number of
Ordinary
Shares
31 Dec
2019 % of
Share
Capital
26 June 2020
Number of
Ordinary Shares
26 June
2020 %
of Share
Capital
64,738,800
20.7
64,738,800
20.4
70,184,000
22.4
70,184,000
22.1
162,687*
62,687**
0.1
0.0
162,687*
62,687**
0.1
0.0
* Assiduous Group Ltd holds 4,193,800 Ordinary Shares (1.32%). Assiduous Group Ltd is the investment
vehicle for a family trust created for the benefit of the children of Christopher Thomas and his wife, Fleur
Thomas.
**James Turian’s shareholding is held in his wholly owned company Panda Holdings Limited.
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
(www.ferro-alloy.com) in accordance with applicable legislation in Guernsey 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
Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Going Concern
The Directors have reviewed the Group’s cash flow forecasts for at least 12 months from the date of
approval of the financial statements, together with sensitivities and mitigating actions. In addition,
the Directors have given specific consideration to the risks and uncertainties associated with the
COVID-19 pandemic and considered reverse stress test scenarios to assess the potential impact on
liquidity in line with recent guidance.
The Company completed a share placing in May 2020 to raise £250,000 before expenses and most
recently raised US$300,000 before expenses through the issue of unsecured corporate bonds which
mature in 11 June 2023, with the right to receive early repayment after a minimum period of 12
months and bear a 7.5% coupon. In addition, the Group’s forecasts indicate that at current vanadium
pentoxide prices and the planned production levels following the relaxation of COVID-19
restrictions in Kazakhstan that the Group will generate sufficient cash flows to meet operational costs
and maintain liquidity. Whilst the Group plans to continue its expansion of the existing processing
facilities the required capital expenditure, which is discretionary or can be deferred without
significant penalty, will require additional funding. Accordingly, the Directors are progressing
proposals to secure such funding.
13
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2019
Notwithstanding the current cash position and forecast operational cash flow in the base case and the
relatively low number of COVID-19 cases and fatalities to date in Kazakhstan compared with other
countries, the potential impact on the Group of the pandemic remains inherently uncertain. There is
potential for further government restrictions if the pandemic escalates in Kazakhstan, which may
again impact the Group’s operations including supply chain disruption, mine site workforce rotations
and travel to the mine site in particular, together with the potential for volatility in commodity prices.
Stress test scenarios indicate that in the event of a sustained further period of restrictions impacting
production levels or significant reduction in vanadium pentoxide prices additional funding would be
required.
After review of these forecasts the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future based on the recent
funds raised and the operational cash flow generation of the processing operations, whilst in the event
of further impacts from COVID-19 the Directors anticipate being able to raise funds if required given
the value contained in the Group’s assets and the expansion plans. Accordingly, the Directors
continue to adopt the going concern basis in preparing the consolidated financial statements.
However, at the date of approval of these financial statements, the potential future impact of COVID-
19 and the resulting requirement for additional funding should such adverse scenarios materialise
indicate the existence of a material uncertainty which may cast significant doubt about the Group’s
ability to continue as a going concern and therefore it may be unable to realise its assets and discharge
its liabilities in the normal course of business. The financial statements do not include the adjustments
that would result if the Group was unable to continue as a going concern.
Auditor
BDO LLP was appointed at auditors to the Company 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
27 June 2020
14
Ferro-Alloy Resources Limited
Responsibility statements
for the year ended 31 December 2019
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 Group 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:
Select suitable accounting policies and then apply them consistently;
Make judgments and estimates that are reasonable and prudent;
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 concern 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 (Guernsey) Law, 2008.
They are also responsible for safeguarding the assets of the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors 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 Ferro-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.
15
Ferro-Alloy Resources Limited
Governance statement
for the year ended 31 December 2019
Governance statement
General
As a consequence of the Ordinary Shares being admitted to the standard segment of the Official List,
the 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 of the
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.
Composition 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 Committees
The Company has created an audit committee that is 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 of the independence of the external auditors and approval of any non-
audit services, review of the external audit strategy and findings, assessment of whether an internal
audit function is necessary considering the activities and size of the business and oversight of
significant financial reporting matters. The committee is 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 concerning 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 current board
of directors, the functions often carried out by a nomination committee can be more successfully
conducted by the full board of directors so no such committee has been created.
Code of conduct
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.
16
Ferro-Alloy Resources Limited
Governance statement
for the year ended 31 December 2019
The Company desires to remain a good corporate citizen in all the jurisdictions within which it
operates, and to appropriately balance, protect and preserve all stakeholders’ interests. In particular,
the Company gives paramount concern to the safety of its employees and the maintenance of high
environmental standards.
Shareholder communication
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 control 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 internal controls to provide assurance to directors that
accounting and financial risks are adequately controlled. These include:
The preparation and regular updating of cash flow forecasts, changes to which are closely
monitored by executive directors who discuss necessary changes on almost a daily basis
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
Significant contracts require approval by members of the Board
All Group payments must be authorised by a director and Ferro-Alloy Resources Limited
has opened new banking facilities which require two directors’ signatures on all payments
over US$5,000
The board of directors has formed an audit committee.
17
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2019
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 31 December 2019 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
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
give a true and fair view of the state of the Group’s affairs as at 31 December 2019 and of its
loss for the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been 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) (ISAs (UK))
and applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of
the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty in relation to going concern
We draw attention to note 1(d) in the financial statements which sets out the Directors’ considerations
of the potential impact of the COVID-19 pandemic, including on its operations and volatility in
commodity prices, which may require the Group to obtain additional funding. As stated in note 1(d),
these circumstances along with other matters set out in note 1(d) indicate that a material uncertainty
exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our
opinion is not modified in respect of this matter.
We have highlighted going concern as a key audit matter as a result of the uncertainty created by
the COVID-19 pandemic and resulting potential implications for our audit strategy. Our response
to this key audit matter is shown below:
• We discussed the potential impact of Covid-19 with management and the Audit Committee
including their assessment of risks and uncertainties associated with areas such as production
disruption and commodity price volatility. We formed our own assessment of risks and
uncertainties based on our understanding of the business and mining sector in Kazakhstan.
• We considered reverse stress test scenarios to assess the potential impact on liquidity of
reasonably possible scenarios including production disruption and adverse changes in commodity
prices. We evaluated management’s judgment that adequate funding would be available if
required, inspecting mandate letters for funding for the project and considering the history of fund
raising.
18
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2019
• We obtained management’s base case cash flow forecasts and critically assessed the key inputs
including commodity prices, production levels, operating costs and planned capital expenditure.
In doing so we compared the commodity price forecasts to market outlook reports, considered the
appropriateness of the production mix and growth plans against historical performance and the
effect of capital expansion works completed to date and planned, evaluated cost assumptions
against historic trends and compared the capital expenditure to feasibility studies.
• We agreed funds raised subsequent to year end to market announcements and bank.
• We reviewed the adequacy and completeness of the disclosure included within the financial
statements in respect of going concern.
Key audit matters
In addition to the matter described in the material uncertainty related to going concern section, 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.
Key Audit Matter
Assessment of impairment of Property,
Plant & Equipment (PP&E).
At 31 December 2019, management have
undertaken an impairment test on the
processing operation assets which form
The Board
the Group’s PP&E.
concluded that the recoverable amount
on a fair value
to sell
(“FVLCS”) basis exceeded the carrying
amount of the assets. Accordingly no
impairment has been recorded as detailed
in note 2 and 12.
less cost
This assessment required the Board to
form estimates in determining inputs to
forecast net present value calculations
underlying the assessment of FVLCS,
future
including commodity prices;
production; operating costs; capital
expenditure and discount rates.
the estimates and
judgments
Given
required this area was considered to
represent a significant audit risk and key
audit matter.
How the matter was addressed in our audit
We obtained management’s NPV
the
processing operation and evaluated the appropriateness of
the use of the 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.
forecasts for
We compared commodity price forecasts to FY 2019/ 2020
actual data and third party market outlook reports.
We evaluated the forecast growth in production and change
to production mix against historical performance and the
effect of capital expansion works included in the forecast.
We compared the operating costs to historical actuals and
made inquiries of management to assess the basis for changes
over time, considering the consistency of the assumptions
with the capital project plan.
We compared the forecast capital expenditure to the
Competent Person’s report which included an estimate of the
capital cost for the expansion of the processing operations.
We recalculated the discount rate and compared the rate used
in the impairment test to equity analyst reports.
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.
19
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2019
We reviewed the Competent Person’s Report and market
analyst reports to compare the implied net present values
included in those reports against the carrying value of the
asset.
We reviewed the disclosures in the financial statements
against the requirements of the relevant accounting
standards.
Key observations
We found the Board’s conclusion that no impairment is required to be appropriate. We found the
disclosures in the notes to be sufficient and in line with accounting standards.
Key Audit Matter
Revenue recognition
The Group generated revenues of $1.84m
as detailed in note 4 based on the group’s
revenue recognition policy as detailed in
note 3(l).
In particular, in applying IFRS 15 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
for
accounting
variable
consideration associated with quality /
quantity estimates required for sales
prior to year end based on test data
which are subject to subsequent final
quality / quantity determination post
year end; and
• The
treatment
accounting
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 matter.
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 15 to
determine whether the policy remains compliant with
accounting standards.
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 of the 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 payables 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 of the fair value of payables we evaluated the
valuation methodology and 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.
20
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2019
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 payables to be
acceptable.
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 occurrence, when evaluating their effect on
the financial statements as a whole.
Group materiality
Basis for determining
materiality
$115,000
1.5% of total assets
We have determined an asset based measure to be appropriate given the Group is focused on both its
exploration and production assets and is in an investment phase following its IPO. We consider total
assets to be the most significant determinant of financial performance used by users of the financial
statements.
Whilst materiality for the financial statements as a whole was $115,000 (2018: $150,000, based on
5% of profit before tax), each of the two significant components of the group was audited to a lower
materiality of $70,000 (2018: $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 aggregate of uncorrected and undetected misstatements exceeds
materiality for the financial statements as a whole. Performance materiality was set at 75% 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 (2018: $3,000). We also agreed to report
differences below that threshold that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
In setting our Group audit strategy we obtained an understanding of the Group, its environment and
assessed the risks of material misstatement in the financial statements of the Group as a whole.
We identified two significant components, being the principal operating subsidiary Firma Balausa
LLC and the parent company Ferro-Alloy Resources Limited. Our group audit strategy focused on
these and both of the significant components were subject to a full scope audit. 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% of the
Group’s profit before tax and 100% of the Group’s total assets.
21
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2019
The audits of both of the significant components were principally performed in Kazakhstan by a non-
BDO network firm under our direction and supervision. As part of our audit strategy, as Group
auditors:
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.
As a result of travel restrictions resulting from the COVID-19 pandemic, senior members of
the group audit team were unable to visit Kazakhstan to meet with the component auditors
as we have done historically. Accordingly, we performed a remote review of the component
audit files in Kazakhstan using online software platforms and held regular calls with the
component audit teams during the audit.
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:
proper accounting records have not been kept by the Company; or
22
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2019
the financial statements are not in agreement with the accounting records; or
we have failed to obtain all the information and explanations which, to the best of our knowledge
and belief, are necessary for the purposes of our 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.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to liquidate the 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 of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website: https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Use of our report
This report is made solely to the 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 report, or for the opinions we have formed.
Ryan Ferguson
For and on behalf of BDO LLP, Chartered Accountants
London,
United Kingdom
27 June 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
23
Ferro-Alloy Resources Limited
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2019
Note
2019
$000
2018
$000
Revenue from customers (pricing at shipment)
Other revenue (adjustments to price after
delivery and fair value changes)
Total revenue
Cost of sales
(Loss)/gross profit
Impairment reversal
Other income
Administrative expenses
Distribution expenses
Other expenses
(Loss)/profit from operating activities
Net finance income/(costs)
(Loss)/profit before income tax
Income tax
(Loss)/profit for the period
4
4
4
5
6
6
7
8
10
11
Other comprehensive income (loss)
Items that may be reclassified subsequently to
profit or loss
Exchange differences arising on translation of
foreign operations
Total comprehensive (loss) income for the
period
(Loss)/earnings per share (basic and diluted), US$
20
2,391
(550)
1,841
(3,178)
(1,337)
-
70
(1,841)
(42)
(9)
(3,159)
(183)
(3,342)
-
(3,342)
31
(3,311)
(0.011)
4,543
(323)
4,220
(1,688)
2,532
1,775
10
(1,271)
(11)
(35)
3,000
(36)
2,964
(1)
2,963
(293)
2,670
0.009
These consolidated financial statements were approved by directors on 27 June 2020 and were signed
on its behalf by:
_____________________________
James Turian
Director
The notes on pages 28 to 59 form part of these consolidated financial statements.
24
Ferro-Alloy Resources Limited
Consolidated Statement of Financial Position as at 31 December 2019
Note
31 December 2019
$000
31 December 2018
$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 currency translation reserve
Accumulated losses
Total equity
Non-current liabilities
Provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Payables at FVTPL
Total current liabilities
Total liabilities
Total equity and liabilities
12
13
14
17
18
16
17
18
19
20
20
22
23
24
3,206
59
24
652
1,148
5,089
1,750
35
38
648
2,471
7,560
33,965
-
397
(2,934)
(24,617)
6,811
64
64
626
59
685
749
7,560
2,203
59
25
237
249
2,773
929
38
91
892
1,950
4,723
27,330
-
380
(2,965)
(21,275)
3,470
60
60
929
264
1,193
1,253
4,723
25
Ferro-Alloy Resources Limited
Consolidated Statement of Changes in Equity for the year ended 31 December 2019
Share
capital
$000
Share
premium
$000
Additional paid
in capital
$000
Foreign currency
translation reserve
$000
Accumulated
losses
$000
Total
$000
Balance at 1 January 2018
Profit for the year
Other comprehensive expense
Exchange differences arising on translation of foreign
operations
Total comprehensive income (loss) for the year
Transactions with owners, recorded directly in equity
15
26,904
380
-
-
-
-
-
-
Shares issued (net of costs U$6,000)
245
166
Reorganisation of share capital to nil par value
27,070
(27,070)
Balance at 31 December 2018
Balance at 1 January 2019
Loss for the year
Other comprehensive income
Exchange differences arising on translation of foreign
operations
Total comprehensive income (loss) for the year
Transactions with owners, recorded directly in equity
Shares issued, net of issue costs (note 20)
Warrants issued
Balance at 31 December 2019
27,330
27,330
-
-
-
6,635
-
33,965
-
-
-
-
-
-
-
-
-
-
-
-
-
380
380
-
-
-
-
17
397
(2,672)
-
(24,238)
2,963
(293)
(293)
-
-
(2,965)
(2,965)
-
-
2,963
-
-
(21,275)
(21,275)
(3,342)
389
2,963
(293)
2,670
411
-
3,470
3,470
(3,342)
31
31
-
31
(3,342)
(3,311)
-
-
-
-
(2,934)
(24,617)
6,635
17
6,811
26
Ferro-Alloy Resources Limited
Consolidated Statement of Cash Flows for the year ended 31 December 2019
Cash flows from operating activities
(Loss)/profit for the year
Adjustments for:
Depreciation and amortisation
Reversal of impairment of property, plant and
equipment and intangible assets
Reversal of impairment of exploration and evaluation
assets
Loss on write-off of plant, property and equipment
Write-down of inventories to net realisable value and
obsolescence
Expenses on credit loss provisions and impairment of
prepayments
Issuance of call option
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 payables at FVTPL
Net cash from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from disposal of property, plant and
equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Transaction costs on shares subscription
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Effect of movements in exchange rates on cash and cash
equivalents
Cash and cash equivalents at the end of year
6
4
2019
$000
2018
$000
(3,342)
2,963
428
-
-
(18)
208
-
17
-
183
(2,524)
(989)
(442)
53
(369)
(205)
(4,476)
(2,337)
(1)
18
46
(1,613)
(162)
-
11
21
-
1
36
1,303
(451)
(241)
(87)
320
264
1,108
(886)
(2)
(2,320)
(888)
6,939
(304)
6,635
(161)
892
(83)
648
417
(6)
411
631
267
(6)
892
27
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
Note to the consolidated financial statements for the year ended 31 December 2019
1 Basis of preparation
Ferro-Alloy Resources Limited (the “Company”) is incorporated in Guernsey and has its registered
address at Noble House, Les Baissieres, St. Peter Port, Guernsey, GY1 2UE. The consolidated
financial statements for the year ended 31 December 2019 comprise the Company and the following
subsidiaries (together referred to as the “Group”):
Company
Ferro-Alloy
Products Limited
Energy Metals
Limited
Location
British Virgin
Islands
UK
Vanadium Products
LLC
Kazakhstan
Firma Balausa LLC
Kazakhstan
Balausa Processing
Company LLC
Kazakhstan
Company’s share
in charter capital
100%
100%
100%
100%
100%
Primary activities
Carries out the treasury and
finance activities for the Group
Manages processing activity and
performs management service
Performs services for the Group
Production and sale of vanadium
and associated by-products
Development of processing
facilities
(a)
Statement of compliance
These financial statements have been prepared in accordance with International Financial Reporting
Standards as adopted by the EU (“IFRSs”).
(b)
Basis of measurement
The consolidated financial statements are prepared on the historical cost basis except as otherwise
noted below.
(c) Functional and presentation currency
The national currency of Kazakhstan is the Kazakhstan tenge (“KZT) which is also the functional
currency of the Group’s operating subsidiaries. The functional currency of the Company is US$.
(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 12 months from the date of
approval of the financial statements, together with sensitivities and mitigating actions. In addition,
the Directors have given specific consideration to the risks and uncertainties associated with the
COVID-19 pandemic and considered reverse stress test scenarios to assess the potential impact on
liquidity in line with recent guidance.
The Company completed a share placing in May 2020 to raise £250,000 before expenses and most
recently raised US$300,000 before expenses through the issue of unsecured corporate bonds which
mature in June 2023, with the right to receive early repayment after a minimum period of 12 months,
and bear a 7.5% coupon. In addition, the Group’s forecasts indicate that at current vanadium
pentoxide prices and the planned production levels following the relaxation of COVID-19
restrictions in Kazakhstan that the Group will generate sufficient cash flows to meet operational costs
and maintain liquidity. Whilst the Group plans to continue its expansion of the existing processing
facilities the required capital expenditure, which is discretionary or can be deferred without
28
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
significant penalty, will require additional funding. Accordingly, the Directors are progressing
proposals to secure such funding.
Notwithstanding that the current cash position and forecast operational cash flow in the base case
and the relatively low number of COVID-19 cases and fatalities to date in Kazakhstan compared to
other countries, the potential impact on the Group of the pandemic remains inherently uncertain.
There is potential for further government restrictions if the pandemic escalates in Kazakhstan, which
may again impact the Group’s operations including supply chain disruption, mine site workforce
rotations and travel to the mine site in particular, together with the potential for volatility in
commodity prices. Stress test scenarios indicate that in the event of a sustained further period of
restrictions impacting production levels or significant reduction in vanadium pentoxide prices
additional funding would be required.
After review of these forecasts the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future based on the recent
funds raised and the operational cash flow generation of the processing operations, whilst in the event
of further impacts from COVID-19 the Directors anticipate being able to raise funds if required given
the value contained in the Group’s assets and the expansion plans. Accordingly, the Directors
continue to adopt the going concern basis in preparing the consolidated financial statements.
However, at the date of approval of these financial statements, the potential future impact of COVID-
19 and the resulting requirement for additional funding should such adverse scenarios materialise
indicate the existence of a material uncertainty which may cast significant doubt about the Group’s
ability to continue as a going concern and therefore it may be unable to realise its assets and discharge
its liabilities in the normal course of business. The financial statements do not include the adjustments
that would result if the Group was unable to continue as a going concern.
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.
Carrying value of processing operations
Given the decrease in vanadium pentoxide prices in the period, the Directors have tested the
processing operations PP&E for impairment (note 12) at 31 December 2019. In doing, so, net present
value cash flow forecasts were prepared using the fair value less cost to develop method which
required estimates including vanadium pentoxide prices, production including the impact of ongoing
and planned expansion to 1,500tpa and convert current AMV production to vanadium pentoxide and
ferro-vanadium, together with costs and discount rate. Key estimates included:
Production volumes of 12 tons per month of vanadium pentoxide from hydrometallurgical
line, 48 tons per month of vanadium pentoxide from pyrometallurgical line and 68 tons per
month of vanadium pentoxide from electrometallurgical line.
Prices of US$5.35/lb in 2020, US$6.75/lb in 2021 and thereafter, reflecting management
estimates having consideration of market commentary less a discount, and lower than the
US$7.50/lb used by the Company as a long-term assumption for other planning purposes.
Further capital development costs of US$5m.
Discount rate of 10% post tax in real terms.
29
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
Fair value of trade receivables and payables classified at fair value less profit and loss (note 17, 24
and 25)
The consideration receivable in respect of certain 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, remain subject to pricing adjustments with reference to market prices in the
month following arrival at the port of final destination. Under the Group’s accounting policies, 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 payable at FVTPL is recorded. In the absence of forward market prices for the commodity,
management estimated the forward price based on: a) spot market prices for vanadium pentoxide at
31 December 2019 less applicable deductions for AMV; b) foreign exchange rates; c) risk free rates
and d) carry costs when material.
As at 31 December 2019 the Group recorded trade receivables at fair value of US$0.030m (2018:
US$0,021m). As at 31 December 2019 the Group recognised a payable at FVTPL of US$0.059m
(2018: US$0.264m).
Inventories (note 16)
The Group holds material inventories which are assessed for impairment at each reporting date. The
assessment of net realisable value requires consideration of future 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.
Reversal of impairment of exploration and evaluation assets in 2018 (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 31 December 2018, management identified triggers for the potential reversal of this impairment
given the advanced stage of the proposed listing on the London Stock Exchange, associated plans for
development of its vanadium deposit, the results of an independent Competent Person’s Report
which estimates ore resources of 24m tonnes, 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 the 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 in 2018 (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 31 December 2018, management identified triggers for potential reversal of impairment given
the advanced stage of the proposed listing on the London Stock Exchange, 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 significantly in excess of historical
cost for the separate processing operation together with the improved pricing environment. This
assessment required judgment. The recoverable value of the project was 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 the processing operation key estimates at 31 December 2018
included:
30
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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.
Prices of US$13/lb in 2019, US$10/lb in 2020 and US$7.50/lb thereafter, reflecting
management estimates having consideration of market commentary and risk factors.
Capital development costs of US$10m.
Discount rate of 10% post tax in real terms.
Given the implied net present value there were 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.
31
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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
(i)
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 of subsidiaries have been changed when necessary to align
them with the policies adopted by the Group.
(ii) Transactions eliminated on consolidation
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
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group
entities at exchange rates at the dates of the 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 of the transaction.
Foreign currency differences arising in translation are recognised in profit or loss.
(ii) Presentation currency
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 of the 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) Financial instruments
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
32
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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 of any 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 contracts
Under its customer sale arrangements, 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 equivalents
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 of changes in their fair value and petty cash.
Financial liabilities
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.
(iii) 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 of any tax effects.
(d) Property, plant and equipment
(i)
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 of materials and direct labour, any other costs directly attributable
33
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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.
(ii) 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 of the day-to-day servicing of property, plant and equipment are recognised
in profit or loss as incurred.
(iii) 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
of that 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 of the 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:
Buildings
50 years;
Plant and equipment
4-17 years;
Vehicles
Computers
Other
7 years;
3 years;
5 years.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and
adjusted prospectively if appropriate.
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 of interest 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 of the
area of interest or, alternatively, by its sale;
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.
34
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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 carrying 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.
(ii) Subsequent expenditure
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.
(iii) 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:
patents
mineral rights
10-20 years;
20 years.
Amortisation methods, useful lives and residual values are reviewed at each financial year end and
adjusted if appropriate.
(g) Leased assets
As per IFRS 16 Leases the Group have applied the simplified transition approach for recognising
liabilities. On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which
had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining lease payments, discounted using the
incremental borrowing rate as of 1 January 2019. Until the 2019 financial year, leases of property,
plant and equipment were classified as either finance leases or operating leases. From 1 January
2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which
the leased asset is available for use by the Group. Assets and liabilities arising from a lease are
initially measured on a present value basis. Lease liabilities include the net present value of the
following lease payments: fixed payments (including in-substance fixed payments), less any lease
35
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
incentives receivable and variable payments based on index or rate ´ amounts expected to be payable
by the Group under residual value guarantees ´ payments of penalties for terminating the lease, if the
lease term reflects the Group exercising that option. Lease payments to be made under reasonably
certain extension options are also included in the measurement of the liability. The lease payments
are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used,
being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain
an asset of similar value to the right-of-use asset in a similar economic environment with similar
terms, security and conditions.
(h)
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based
on first-in first-out method, and includes expenditure incurred 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 of production 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.
(i)
Impairment
(i)
Non-financial assets
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 asset/cash-generating unit and are discounted to their present value that reflects the current
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
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 of assets 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 carrying 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.
(j) Employee benefits
(i) Defined contribution plans
36
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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.
(ii) Short-term benefits
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.
(iii) Share-based payments
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 of a 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 current 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
relevant to the site restoration and an unwinding charge is recognised within finance cost for the
unwinding of the discount.
(l) Revenue
(i) 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
37
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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 of sale.
Changes in final consideration due to market prices is not determined to qualify as variable
consideration within the scope of the IFRS 15 “Revenue from Customers”. Changes in fair value as
a result of market prices are recorded within revenue as other revenue.
(m) 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 currency 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.
Current 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 of previous years. Deferred tax is recognised in respect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred 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
accounting nor taxable profit or loss. Deferred 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 if there 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 earnings 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 of all 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 earn 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.
38
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(r) New and amended standards adopted
The Group has adopted IFRS 16 Leases from 1 January 2019.
IFRS 16 ‘Leases’
The IASB issued a new standard how to recognize, measure, present and disclose leases. This
replaced IAS 17 which covers leases transactions. The new standard provides a single lessee
accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease
term is 12 months or less or the underlying asset has a low value.
The Group have undertaken an assessment of its leases and service contracts and applied the modified
retrospective approach on transition to IFRS 16. In applying IFRS 16 for the first time, the Group
has used the following practical expedients permitted by the standard: ´ accounting for operating
leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases
´. Based on analysis of the contracts, all of the arrangements were either of insignificant value or
qualified as short term leases.
39
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
4 Revenue
Revenue from sales of vanadium products
Sales of gravel and waste rock
Total revenue from customers
Other revenues – change in fair value of customer
contract
2019
$000
2018
$000
2,376
15
2,391
(550)
1,841
4,540
3
4,543
(323)
4,220
Vanadium products
Under certain sales contracts the single performance 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 of that period, the revenue is recognised
based on the spot price that prevails at the end of the accounting period.
Other revenue related to the change in the fair value of amounts receivable and payable under the
sales contracts between the date of initial recognition and the period end resulting from market prices
are recorded as other revenue. Refer to note 12, 24 and 25 for details of trade receivables and payables
at FVTPL recorded in 2019 and 2018.
5 Cost of sales
Materials
Wages, salaries and related taxes
Depreciation
Write-down of inventories to net realisable value
Electricity
Raw materials obsolescence provision
Taxes other than income
Other
2019
$000
2018
$000
1,674
675
400
172
133
36
-
88
916
530
30
-
144
6
10
52
3,178
1,688
40
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
6 Other income and reversal of impairment
Reversal of impairment
Other
2019
$000
2018
$000
-
70
70
1,775
10
1,785
Refer to note 2 for details of the impairment reversals in 2018.
7 Administrative expenses
Wages, salaries and related taxes
Listing & reorganisation expenses
Professional services
Audit
Business trip expenses
Materials
Depreciation and amortization
Bank fees
Security
Communication and information services
Other
8 Other expenses
Impairment of receivables
Write-off of materials
Other
2019
$000
2018
$000
959
273
159
144
83
82
28
18
15
8
72
732
164
49
110
26
41
16
11
17
12
93
1,841
1,271
2019
$000
2018
$000
-
-
9
9
21
5
9
35
41
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
9
Personnel costs
Wages, salaries and related taxes
2019
$000
1,639
1,639
2018
$000
1,261
1,261
During 2019 personnel costs of US$ 596 thousand (2018: US$ 450 thousand) have been charged to
cost of sales, US$ 959 thousand (2018: US$ 732 thousand) to administrative expenses and US$ 84
thousand (2018: US$ 79 thousand) were charged to cost of inventories which were not yet sold as at
the year-end.
10 Finance costs
Net foreign exchange (income) costs
Unwinding of discount on site restoration provision
Net finance costs/(income)
2019
$000
2018
$000
179
4
183
24
12
36
11 Income tax
The Group’s applicable tax rates in 2019 are the income tax rate of 20% for Kazakhstan subsidiaries
(2018: 20%) and 0% (2018: 0%) for Guernsey 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 31 December 2019 and 2018 the Group incurred tax losses and therefore did
not recognise any current income tax expense except in relation the provision of Group services
where an income tax charge of US$1,000 was incurred in 2018. Unrecognised deferred tax assets are
described in Note 15.
Reconciliation of effective tax rate:
(Loss)/profit before tax (Group)
Income tax at the applicable tax rate
Effect of unrecognised deferred tax assets /
(utilisation of previously unrecognised
losses)
Net non-deductible expenses/non-taxable
income or loss
2019
$000
(3,342)
(669)
295
374
-
%
-
20
(9)
(11)
-
2018
$000
2,964
593
%
100
20
(420)
(174)
(1)
(14)
(6)
-
42
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
12 Property, plant and equipment
Cost
Balance at 1 January 2018
Additions
Disposals
Foreign currency translation difference
Balance at 31 December 2018
Balance at 1 January 2019
Additions
Transfers
Disposals
Foreign currency translation difference
Balance at 31 December 2019
Depreciation
Balance at 1 January 2018
Depreciation for the period
Disposals
Reversal of impairment
Foreign currency translation difference
Balance at 31 December 2018
Balance at 1 January 2019
Depreciation for the period
Transfer
Disposals
Foreign currency translation difference
Balance at 31 December 2019
Carrying amounts
At 1 January 2018
At 31 December 2018
At 31 December 2019
Land and
buildings
$000
Plant and
equipment
$000
Vehicles
$000
Computers
$000
Other
$000
Construction in
progress
$000
Total
$000
1,853
9
-
(251)
1,611
1,611
2
62
-
12
1,687
1,853
-
-
(1,022)
(250)
581
581
53
-
-
5
639
-
1,030
1,048
2,015
131
(27)
(283)
1,836
1,836
183
28
(48)
15
2,014
2,015
10
(27)
(393)
(270)
1,335
1,335
312
-
(14)
12
1,645
-
501
369
364
123
-
(61)
426
426
157
-
-
4
587
295
29
-
-
(42)
282
282
46
-
-
2
330
69
144
257
13
13
-
(3)
23
23
15
-
-
1
39
13
1
-
-
(2)
12
12
6
-
(1)
-
17
-
11
22
42
47
(4)
(10)
75
75
28
-
-
1
104
32
5
-
-
(5)
32
32
9
-
(2)
-
39
10
43
65
202
350
(17)
(61)
474
474
1,053
(90)
-
8
1,445
202
-
-
(175)
(27)
-
-
-
-
-
-
-
-
474
1,445
4,489
673
(48)
(669)
4,445
4,445
1,438
-
(48)
41
5,876
4,410
45
(27)
(1,590)
(596)
2,242
2,242
426
-
(17)
19
2,670
79
2,203
3,206
During 2019 depreciation expense of US$394 thousand (2018: US$24 thousand) has been charged to cost of sales, excluding cost of finished goods that were not sold at
year-end, US$26 thousand (2018: US$ 15 thousand) – to administrative expenses, and US$6 thousand has been charged to cost of finished goods that were not sold at the
year-end (2018: US$6 thousand). Construction in progress relates to upgrades to the processing plant associated with the expansion of the facility.
43
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
13 Exploration and evaluation assets
The Group’s exploration and evaluation assets relate to Balasausqandiq deposit. During the year
ended 31 December 2019 the Group did not capitalise any exploration and evaluation assets (in 2018:
US$Nil). As at 31 December 2019 the carrying value of exploration and evaluation assets was
US$0.059m (2018: US$0.059m). In 2018 the Group reversed an impairment of US$0.16m with the
movement for the year net of a change in estimate on provisions for rehabilitation.
14 Intangible assets
Mineral
rights
$000
Patents
$000
Computer
software
$000
Total
$000
Cost
Balance at 1 January 2018
Additions
Foreign currency translation difference
Balance at 31 December 2018
Balance at 1 January 2019
Additions
Foreign currency translation difference
Balance at 31 December 2019
Amortisation
Balance at 1 January 2018
Amortisation for the year
Reversal of impairment
Foreign currency translation difference
Balance at 31 December 2018
Balance at 1 January 2019
Amortisation for the year
Foreign currency translation difference
Balance at 31 December 2019
Carrying amounts
At 1 January 2018
At 31 December 2018
At 31 December 2019
115
-
(16)
99
99
-
1
100
115
-
-
(16)
99
99
-
1
100
-
-
-
36
2
(5)
33
33
1
-
34
36
-
(23)
(4)
9
9
2
(1)
10
-
25
24
4
-
(1)
3
3
-
-
3
2
1
-
(1)
2
2
-
1
3
2
-
-
155
2
(22)
135
135
1
1
137
153
1
(23)
(21)
110
110
2
1
113
2
25
24
During 2019 and 2018 amortisation of intangible assets was charged to administrative expenses. The
immaterial reversal of impairment on patents refers to patents associated with the processing
operation.
15 Deferred tax assets and liabilities
Unrecognised deferred tax assets
Temporary deductible differences
Tax losses carried forward
Unrecognized tax deferred tax assets
31 December
2019
$000
31 December
2018
$000
229
3,256
(3,485)
-
219
2,945
(3,164)
-
44
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
Deferred tax assets have not been recognised in respect of these items given the taxable loss in the
year and 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 10 years from the year of origination.
Expiry dates of unrecognised deferred tax assets in respect of tax losses carried forward at 31
December 2019 are presented below:
Expiry year
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
$000
94
86
81
258
132
63
223
134
2,185
-
3,256
Unrecognised deferred tax assets above are calculated based on Kazakh tax rate of 20%.
16 Inventories
Raw materials and consumables
Finished goods
Work in progress
Goods in transit
17 Trade and other receivables
Non-current
VAT receivable
Provision for VAT receivable
Current
Trade receivables from third parties
Due from employees
Other receivables
Expected credit loss provision
31 December 2019
$000
31 December 2018
$000
1,575
172
-
3
1,750
527
184
-
218
929
31 December 2019 31 December 2018
$000
$000
1,012
(360)
652
594
(357)
237
31 December 2019 31 December 2018
$000
$000
30
17
9
56
(21)
35
21
24
14
59
(21)
38
The expected credit loss provision relates to credit impaired receivables which are in default and the Group
considers the probability of collection to be remote given the age of the receivable and default status.
45
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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
31 December 2019
$000
31 December 2018
$000
1,148
1,148
38
38
249
249
91
91
31 December 2019
$000
31 December 2018
$000
647
1
648
885
7
892
Number of shares unless otherwise stated
Ordinary shares
Par value
Outstanding at beginning of year
Shares issued prior to share split
Share reorganisation (split)
Shares issued
31 December 2019
31 December 2018
-
305,471,087
-
-
-
7,507,761
-
1,523,732
1,493
305,045,000
426,087
-
Outstanding at end of year
312,978,848
305,471,087
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 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 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.
46
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
On 28 March 2019 the Company was admitted to listing and on the same day issued the following
ordinary shares in a placing carried out simultaneously on the London Stock Exchange (“LSE”) and
the Kazakhstan Stock Exchange (“KASE”):
London Stock Exchange
28.03.2019
7,492,853
0.916384
6,866,331
Kazakhstan Stock Exchange
28.03.2019
14,908
0.916384
13,661
Date
No of shares Price per share, $ Subscription amount, $
7,507,761
6,879,992
Costs of US$304 thousand were incurred as transaction fees on the share issues and were recorded
against the share capital.
On 14 May 2020 the Company has allotted 3,846,154 ordinary shares of no par value by way of a
direct subscription into the Company for cash at a price of 6.5 pence per share, raising a total of
£250,000.
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 currency 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 31 December 2019.
(c)
(Loss) earnings per share (basic and diluted)
The calculation of basic and diluted (loss) / earnings per share has been based on the following loss
attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding.
(i)
Loss attributable to ordinary shareholders (basic and diluted)
Loss for the year, attributable to owners of the Company
Loss attributable to ordinary shareholders
2019
$000
(3,342)
(3,342)
2018
$000
2,963
2,963
(ii) Weighted-average number of ordinary shares (basic and diluted)
Shares
Issued ordinary shares at 1 January (after subdivision)
Effect of shares issued (weighted)
Weighted-average number of ordinary shares at
31 December
2019
2018
305,471,087
304,746,400
5,718,240
366,750
311,189,327
305,113,150
Earnings (loss) per share of common stock attributable to
the Company (basic and diluted)
(0.011)
0.009
47
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
On 28 March 2019 the Company issued warrants to its lawyers as part of the remuneration for
services provided in relation to the Company listing on the London Stock Exchange. See note 30.
The warrants are anti-dilutive given the loss for the year.
21 Loans and borrowings
There were no outstanding loans at 31 December 2019 (31 December 2018: nil) and no borrowings
or loan repayments in 2019 (in 2018: no borrowing or loan repayments).
22 Provisions
Balance at 1 January
Unwinding of discount
Change in estimate
Foreign currency translation difference
Balance at 31 December
Non-current
Site restoration
2019
$000
2018
$000
60
4
-
-
64
64
64
152
12
(92)
(12)
60
60
60
A provision was recognised in respect of the Group’s obligation to rectify environmental damage in
the Balasausqandiq mine, Kyzylorda region.
In accordance with Kazakhstan environmental legislation, land contaminated by the Group in the
Kyzylorda region must be restored before the end of 2043. The provision was estimated by
considering the risks related to the amount and timing of restoration costs based on the known level
of damage. Because of the long-term nature of the liability, the main uncertainty in estimating the
provision is the costs that will be incurred. In particular, the Group has assumed that the site will be
restored using technology and materials that are available currently. The amount for 2019 was
updated in the recently signed addendum to the subsoil contract based on independent advice by an
environmental consultant. A fund to cover this liability will be collected via annual statutory
contributions to the special liquidation fund at the rate of 1% of mining expenses as stipulated in the
Subsoil contract. Based on the working program which forms the part of the Subsoil contract the
total amount is expected to reach KZT 675m or US$ 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 5.9% (31 December 2018: 5.3%). The estimated period for
discounting was 24 years (2018: 25 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
Trade payables
Due to directors/key management
Due to employees
Other taxes
Advances received
31 December 2019
$000
31 December 2018
$000
256
212
105
53
-
626
302
547
44
31
5
929
48
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
24 Payables at FVPL
Payables at FVPL
31 December 2019
$000
31 December 2018
$000
59
59
264
264
25 Financial instruments and risk management
(a) Overview
The Group has exposure to the following risks from its use of financial instruments:
credit risk;
liquidity risk;
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.
49
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(i) 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
31 December
2019
$000
31 December
2018
$000
18
647
665
14
885
899
The maximum exposure to credit risk for trade and other receivables at the reporting date by
geographic region was:
Kazakhstan
Carrying amount
31 December
2019
$000
18
18
31 December
2018
$000
14
14
The maximum exposure to credit risk for trade and other receivables at the reporting date by type of
customer was:
Trade receivables:
Wholesale customers
Other receivables
Other
Carrying amount
31 December
2019
$000
31 December
2018
$000
9
9
18
1
-
14
14
The ageing of trade and other receivables at the reporting date was:
Not past due
Past due
more than
180 days
Gross
2019
$000
Impairment
2019
$000
Net
2019
$000
Gross
2018
$000
Impairment
2018
$000
Net
2018
$000
18
21
39
-
(21)
(21)
18
-
18
14
21
35
-
(21)
(21)
14
-
14
50
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
The movement in the allowance for expected credit losses in respect of other receivables during the
year was as follows:
Balance at beginning of the year
Expected credit loss change
Balance at end of the year
2019
$000
2018
$000
21
-
21
27
(6)
21
Amounts due from customers at year end have been subsequently collected in 2020, except for
credit impaired amounts. Accordingly, no additional expected credit loss provision has been
applied.
(ii) Cash and cash equivalents
As at 31 December 2019 the Group held cash of US$ 648 thousand (31 December 2018: US$ 892
thousand), of which bank balances of US$ 647 thousand (31 December 2018: US$ 885 thousand)
represent its maximum credit exposure on these assets, which excludes petty cash. 96% (31
December 2018: 14%) is held in banks with credit ratings of A+ to AA-, 4% in banks with credit
ratings of B to BB (31 December 2018: 86%). 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 incurring
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.
51
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
2019
Financial liabilities
Trade and other payables, excluding due to
employees, advances received and salary related
taxes and payables at FVTPL
2018
Financial liabilities
Trade and other payables, excluding due to
employees, advances received and salary related
taxes and payables at FVTPL
Carrying
amount
$000
Contractual
cash flows
$000
On demand
$000
0-6 mths
$000
315
315
315
315
-
-
315
315
Carrying
amount
$000
Contractual
cash flows
$000
On demand
$000
0-6 mths
$000
566
566
566
566
-
-
566
566
(d) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates
and equity prices will affect the Group’s income or the value of its holdings of financial instruments.
The objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising the return.
(i)
Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a
currency other than the respective functional currency of Group entities.
In respect of monetary assets and liabilities denominated in foreign currencies, the Group ensures
that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates
when necessary to address short-term imbalances.
52
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
Exposure to currency risk
The Group’s exposure to foreign currency risk was as follows based on notional amounts:
US$-
denominated
GBP-
denominated
HKD-
denominated
RUB-
denominated
KZT-
denominated
2019
$000
2019
$000
2019
$000
2019
$000
2019
$000
Cash and cash equivalents
Trade and other payables
Net exposure
141
(316)
(175)
478
(116)
362
-
-
-
3
(2)
1
25
(192)
(167)
US$-
denominated
GBP-
denominated
HKD-
denominated
RUB-
denominated
KZT-
denominated
2018
$000
2018
$000
2018
$000
2018
$000
2018
$000
Cash and cash equivalents
Trade and other payables
Net exposure
830
(645)
185
13
(145)
(132)
1
-
1
-
(2)
(2)
41
(137)
(96)
The following significant exchange rates applied during the year:
in US$
KZT 1
GBP 1
RUB 1
HKD 1
(ii)
Interest rate risk
Average rate
Reporting date spot rate
2019
2018
2019
2018
0.0026
1.2764
0.0155
0.1276
0.0029
1.3325
0.0160
0.1276
0.0026
1.3117
0.0162
0.1284
0.0026
1.2705
0.0144
0.1277
Changes in interest rates do not significantly impact the Group’s position as at 31 December 2019.
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.
Trade receivables and payables at FVTPL 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.
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:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
53
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The Group’s contract receivables and liabilities at 31 December 2019 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.
In the absence of observable forward prices the forward price is estimated using a valuation
methodology which is based on vanadium spot prices at 31 December 2019 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.
26 Commitments
Under the conditions of the subsoil use contract under which the Company has the right to develop
and exploit the Balasausqandiq deposit the Group is obliged to undertake a minimum level of mining
and to make certain levels of expenditure on the training of Kazakh employees, Research &
Development and the development of the Shieli region. There is also an obligation set aside funds to
provide for the eventual costs of mine closure and or site reclamation.:
Minimum quantity of ore to be mined:
Year
2018
2019
2020
2021
2022
2023
Tonnes
15,000
15,000
15,000
15.000
15.000
545.000
2024 onwards
1.000.000
starting from 2025
per
year
Training costs should be equal to 1% of the Group’s capital expenditures on subsoil
activities. Training costs in 2019: US$ 4,000 (2018: US$ 4.000)
Research and Development should be equal to 1% of income from subsoil activities. Costs
in 2019: US$ 11,000 (2018: US$ 3 thousand)
The addition to the liquidation fund should be equal to 1% of the costs of mining ore: 2019:
US$ 12,000 (2018: US$ 0.2 thousand)
54
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
Expenditure on social development of the Shieli region should be equal to 1.5% of the costs
of mining ore. 2019 costs: US$ 500 (US$2018: US$ 0.2 thousand).
All obligations have been complied with.
27 Contingencies
(a)
Insurance
The insurance industry in the Kazakhstan 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 interruption, 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) Taxation contingencies
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.
55
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
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 of Kazakhstan and the Group’s revenues are derived from operations in, and connected
with, the Republic of Kazakhstan.
2019
Revenue
Cost of sales
Other income
Impairment reversal
Administrative expenses
Distribution & other expenses
Finance costs
Profit before tax
2018
Revenue
Cost of sales
Other income
Impairment charge
Administrative expenses
Distribution & other expenses
Finance costs
Profit before tax
Processing
$000
Subsoil
$000
Corporate
$000
1,841
(3,178)
20
-
(556)
(51)
(203)
-
-
-
-
-
-
50
-
Total
$000
1,841
(3,178)
70
-
(49)
(1,236)
(1,841)
-
-
-
20
(51)
(183)
(2,127)
(49)
(1,166)
(3,342)
Processing
$000
Subsoil
$000
Corporate
$000
Total
$000
4,220
(1,688)
10
1,775
(463)
(46)
117
3,925
-
-
-
-
(55)
-
(12)
(67)
-
-
-
-
(753)
-
(141)
(894)
4,220
(1,688)
10
1,775
(1,271)
(46)
(36)
2,964
Included in revenue arising from processing are revenues of US$ 1,5m (2018: US$3.9) which arose from sales
to the Group’s largest customer. No other single customer contributes 10 per cent or more to the Group’s
revenue.
29 Related party transactions
Transactions with management and close family members
Management remuneration
Key management personnel received the following remuneration during the year, which is included
in personnel costs (see Note 9):
Wages, salaries and related taxes
2019
$000
2018
$000
450
363
Refer to note 23 for details of payables to key management and note 30 and the Directors’ Report for
shares issued to key management.
56
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(b) Transactions with other related parties
There were no Group’s other related party transactions.
30 Share-based payments and warrants
During 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
of those shares. The fair value of shares was determined by reference to the consideration received
for share subscriptions from third-party subscribers during the year being US$75,195 in 2018. This
arrangement was not continued in 2019.
As a result, the Group recognised an increase in share capital of US$ 75 thousand in 2018 as
administrative expenses in the statement of profit or loss and other comprehensive income. There
was no effect in 2019.
On 28 March 2019 the Company issued warrants to its lawyers as part of the remuneration for
services provided in relation to the Company listing on the London Stock Exchange. The principle
terms of those warrants are that the holder is entitled to acquire shares in the Company at a fixed
price per share at any time during the three years from the date of issue
Exercisable into number of shares (as issued and currently outstanding): 64,285
Exercise price: £0.70 per share
Period of exercise: At any time up to 28 March 2022
The warrants are freely transferable
The warrants were valued at the time of issue by means of the Black-Scholes valuation model. The
volatility was estimated at 50% based on peer analysis. The risk-free interest rate was estimated as
2.43%. It was assumed that no dividends would be paid during the exercise period. On this basis
the fair value of the warrants issued was USD17,323 which was charged to the income statement
and was credited to Additional Paid In Capital.
31 Subsequent events
On 6 January 2020 the Company’s shares were admitted to listing on the Astana International Stock
Exchange (AIX).
From 23 January 2020 the Company’s shares were delisted from the Kazakh Stock Exchange
(KASE).
On 6 April 2020 the Company issued 500,000 fully paid shares to a financial service provider in
consideration for their retained services.
On 14 May 2020 the Company issued 3,846,154 ordinary shares for cash at a price of 6.5 pence per
share to raise £250,000 to finance operation processes.
In June 2020 the Company issued unsecured corporate bonds with an interest rate of 7.5% to raise a
further $300,000
Investors have subscribed for 150 of the Company’s bonds with a nominal value of
US$2,000 each. The bonds are unsecured, have a three-year term, and bear interest of 7.5%,
paid twice-yearly. The bonds have been listed on AIX with identifier FAR.0323 and ISIN
number KZX000000336.
57
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
50 bonds were issued on 5th June 2020 with a maturity date of 5 June 2023, and 100 bonds
issued on 11th June 2020 with a maturity date of 11 June 2023. The investors have the right
to receive early repayment after a minimum period of 12 months.
At the date of approval of these consolidated financial statements, Covid-19 continues to spread
internationally, contributing to a sharp decline in global financial markets and a significant
decrease in global economic activity. On 11 March 2020, the Covid-19 outbreak was declared a
global pandemic by the World Health Organization and has since then resulted in numerous
governments and companies, including Ferro-Alloy Resources Limited, introducing a variety of
measures to contain the spread of the virus. The outbreak has also created significant volatility in
financial markets and is considered to have negatively impacted commodity prices and caused
disruption to operations, which is relevant to financial performance since year end.
58