Ferro-Alloy Resources Limited
Annual Report
for the year ended
31 December 2020
Contents
Report on operations
Directors’ report
Responsibility statements
Governance statement
Independent Auditors’ Report
Ferro-Alloy Resources Limited
1-8
9-14
15
16-17
18-25
Consolidated Statement of Profit or Loss and Other Comprehensive Income 26
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
27
28
29
30-61
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2020
Report on operations
Introduction
Despite the challenges resulting from the Covid-19 pandemic and consequent economic turmoil,
the Company has made significant progress towards the expansion of the existing operation and,
most importantly, continued the work to put Balasausqandiq into production including the
feasibility study and infrastructure development.
In March 2021 the Company entered into an Investment Agreement with Vision Blue Resources
under which Vision Blue has invested $3.1m in equity and has an option to invest a further $9.5m
at the agreement price of £0.09 per share plus up to a further $30m at higher prices to finance
construction of Phase 1 of the Balasausqandiq vanadium project.
Production
During the year ended 31 December 2020, production of vanadium pentoxide (V2O5) amounted to
237 tonnes, some 56% above 2019. Whilst this is a very solid increase, without the disruptions
experienced due to the Covid-19 pandemic and previously reported interruptions to power supply,
production would have been significantly higher.
Quarter (2020)
Production of Vanadium
Pentoxide
(tonnes of vanadium
pentoxide contained in
AMV*)
Growth vs last year
Production of Molybdic
Oxide
(tonnes of molybdic
oxide
in
contained
calcium molybdate)
Q1
Q2
Q3
Q4
49.1
48.9
89.8
49.5
2020 total
237.3
* AMV: ammonium metavanadate
+53%
+25%
+135%
+15%
56%
-
-
-
12.0
12.0
The focus of the Existing Operation during 2020 was the commissioning and expansion of the new
pyrometallurgical process line which is designed to treat a different type of concentrate from that
which was previously treated.
In February, the second roasting oven was installed and the pyrometallurgical line completed. Over
the course of the first half of the year this new process became the most important contributor to
the production, bringing the total capacity of the combined plant to some 80 tonnes per month
depending on the grades of concentrates treated, six times more than 2019 production. Actual
production has lagged significantly behind this level as a result of both Covid-19 restrictions,
which have affected both the Company and its suppliers, power supply issues which are being
resolved by the commissioning of the new power line, and a mix of raw-materials including some
lower grades.
1
It is expected that the connection to the adjacent high-voltage power-line will take place during
July 2021, further details of which are set out below.
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2020
impact of Covid-19 has been seen particularly in
The
technically difficult
hydrometallurgical production process which has been temporarily halted several times, primarily
as a result of the inability to bring specialist staff to site. This has resulted in some five months of
lost production from this part of the operation. The Company has prioritised the pyrometallurgical
operations, not only because it is technically simpler, but also because the prices paid for the raw
materials flex with the vanadium price so margins are less affected by low prices than for the
hydrometallurgical line where the price is fixed.
the more
The Covid-19 travel bans also made installation, commissioning and fault rectification much more
difficult. The Company has, using substantially its own workforce, completed commissioning work
on two of the three new press filters which would normally have required site visits from the
suppliers, and completed the installation of the oven to convert ammonium metavanadate to
vanadium pentoxide.
in
the fourth quarter was disappointing, with
Production
the
hydrometallurgical line and restricted deliveries from the Company’s main high-grade concentrate
supplier, attributed to the effects of the Covid-19 restrictions on their operation.
little contribution from
Production outlook
Although the progression to higher production slowed towards the end of 2020, the equipment is
now in place to achieve significantly higher production, assisted by the near-term connection to the
high-voltage power-line and as the global vaccination programme starts to lessen the restrictions
caused by the Covid-19 pandemic.
Supplies of raw materials continued to be restricted below contracted levels throughout the first
half of 2021, attributed by suppliers to Covid-19 related restrictions and container shortages. The
delayed supplies have now started to arrive and enough material is on site and in transit for over
four months of production at the planned level. Contracts are in place for regular monthly
deliveries which should enable the Company to maintain sufficient stocks of raw materials to avoid
shortages in future.
Looking further ahead, the Company is planning to procure an electric arc furnace which can
double production capacity again. This furnace has been designed, contracts agreed and will take
some six months to build. The furnace will be used to produce ferro-vanadium directly from raw-
material concentrates without first producing vanadium pentoxide, and it will also be used for the
production of by-product ferro-nickel, utilising the nickel content of our raw-materials which is
currently sold at very low prices as a low-grade concentrate.
Other developments
Conversion of AMV to vanadium pentoxide
The equipment to convert AMV to vanadium pentoxide has been commissioned and trial
production of vanadium pentoxide powder has commenced. This product is suitable for chemical
uses and often attracts higher prices than standard vanadium pentoxide depending on the purity.
Calcium molybdate production
Commercial production of calcium molybdate started in October 2020, with 20 tonnes of calcium
molybdate (CaMoO4), containing 12 tonnes of molybdic oxide (MoO3) produced by the end of the
year. Calcium molybdate production, although small scale, is highly profitable because it provides
additional recovery as a by-product from the same raw-materials and with relatively low processing
costs. The Company now has the option to source molybdenum-bearing raw-materials with
molybdenum as the primary content where it is more profitable to do so.
2
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2020
Electrolyte for batteries
In September we reported that the Company’s specialists had developed a new process for the
production of electrolyte for vanadium flow batteries directly from ammonium metavanadate, a
more economical process. .
Connection to high-voltage powerline
As previously reported, the Company’s operations have up to now been severely impacted by the
unreliability of the existing power supply with power delivered over a long distance on a low
voltage line with wooden poles. It is subject to frequent unplanned outages, voltage and phase
instability, and is expensive. The instability damages our equipment and causes long interruptions
as restart procedures can take far longer than the power interruption.
The Company has been constructing a link to draw power from an adjacent high voltage (110kV)
line, including the connection, transformers, some three km of line and necessary communications
and switching. This US$2.5m project has now been completed on budget and substantially on
time, but delays by the supplier of power-measurment equipment required by the owners of the line
mean that first power is expected to be drawn only in late July 2021.
The new power supply will also be used for Phase 1 of the large Balasausqandiq vanadium project,
although some augmentation of transformer capacity will be required.
Balasausqandiq project - feasibility study
Development of the large Balasausqandiq vanadium deposit is on-going in parallel with the
Company's Existing Operations.
The main components of the feasibility study into Phase 1 of the project had already been
completed as part of the locally required Kazakhstan study but parts require upgrade or further
review to meet the requirements of a western bankable feasibility study. The remaining parts of the
study have been significantly delayed by Covid-19 restrictions, including a prohibition on overseas
specialists visiting site and an inability to export samples but the process plant design work has
continued remotely by Coffey International, a Tetra Tech group company, whose work was
initiated, including a site visit, before the lock-downs.
The innovative process developed and refined in our commercial demonstration plant in
Kazakhstan has been adapted to produce a high purity V2O5 product from the black shale mined at
Balasausqandiq. Flow sheet development, the associated mass and energy balance, and the process
design criteria, are complete. In parallel Coffey International have specified confirmatory
metallurgical test work that will be completed at an accredited international laboratory. The sample
material has been collected and is ready to ship.
Coffey International’s engineering team has specified the major mechanical equipment, designed
the process areas and completed a 3D CAD model of the general arrangement of the plant. The
model includes the buildings that will house the process equipment. Budget price enquiry, in
support of the capital cost estimate, is underway and is approximately 50% complete.
Following the investment by Vision Blue, and consequently the greater funds expected to be
available to the Company in due course, it has been decided to expand the scope of the study to
include not just Phase 1 of the Group’s development plans (1 million tonnes of ore treated per year)
but also, so far as appropriate, Phase 2 (increase to 4 million tonnes of ore per year) and the by-
product revenues. This will involve some additional drilling to upgrade ore-bodies 2, 3 and 4 to the
Indicated level (under JORC 2012) and, with the addition of mine planning, to the probable reserve
standard. The Directors believe that although this will delay the publication of the feasibility study
until mid-2022, it will facilitate a focussed development of the resource, more properly reflect the
Company’s value and potential which will result in the most optimal financing arrangements for
the project.
Covid-19
3
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2020
The Covid-19 pandemic had a negative impact on the Company’s operations in 2020. While cases
started to decline towards the end of Q3 2020, Kazakhstan experienced a second wave during Q4
2020, albeit at lower levels than in Europe. Kazakhstan has maintained restrictions on visitors from
overseas and implemented lock-downs on a selective basis. A third wave started in March 2021 but
actions taken by the Government have prevented a major outbreak and currently, there are around
one thousand cases per day.
Kazakhstan started vaccinations on 1 February 2021 using the Russian Sputnik-V vaccine and
Kazakhstan QazVac vaccine. During 2021 the plan is to vaccinate some 6 million people in
Kazakhstan starting with front line medical professionals followed by education providers and then
higher risk individuals. The current level of vaccination is now approaching 10% of the population.
Environment & changing climate
On the 2-13 December 2019 the UN Climate Change Conference was held in Madrid. During the
annual conference, countries' approaches to the implementation of actions in the field of climate
change, based on the provisions of the United Nations Framework Convention on Climate Change,
the Kyoto Protocol and the Paris Agreement, were agreed. Kazakhstan participated in the
conference and reconfirmed that its is commitment to reduce greenhouse gas emissions by 15% by
2030 (compared with the levels of 1990). In addition, Kazakhstan is planning to develop a concept
of low carbon development by 2050 which is expected to be finalised and published in June 2021.
During 2020, the Company’s operations emitted 24.21 tonnes of carbon oxides, compared with the
permitted level of 50.33 tonnes during the year. The Company will be reviewing the Government
report on low carbon development after its publication and will develop its strategy related to
Climate Change accordingly while ensuring that it is in line with leading international practice.
Product prices
At the start of 2020 the price of vanadium pentoxide in Europe was a little over US$5/lb, having
fallen from around US$16/lb at the start of 2019 and a high of US$29/lb in late 2018. The fall from
the exceptionally high levels of 2018 had been expected but overshot and remained below historic
average prices throughout 2020, most likely as a result of reduced world-wide construction during
the Covid-19 pandemic. The price has been rising since the start of 2021 and is now at over
US$8.00 per lb.
The Directors expect demand in the longer-term to be strong for a number of reasons:
Post Covid-19 stimulus infrastructure development expected around the world, especially
with the stimulus programme in the USA, causing a significant rise in consumption of
vanadium-containing structural steel;
Increasing use of vanadium for micro-alloying of steel, enabling smaller sections to be used
to obtain the same strength and thereby reducing the CO2 emissions caused by
construction;
Growing penetration of vanadium redox flow batteries for long-term grid energy storage;
and
Whilst this demand can be met from vanadium projects currently under evaluation, the cash cost of
production of this new capacity and the associated capital costs implies the need for a significantly
higher vanadium price than today’s, giving an expectation that the price will need to rise before
such projects become financeable. By contrast, the Company’s Balasausqandiq deposit is expected
to be able to produce vanadium pentoxide at a cost of less than half that of other primary producers.
Earnings and cash flow
4
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2020
The Group reported revenues of US$2.4m for the period compared to US$1.8m in 2019, reflecting
the considerable increase in production and shipping.
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 price 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, increased revenue by US$0.07m to US$2.37m (2019: decrease by
US$0.55 to US$1.84m). 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 2020 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
Adjustments to revenue after final price
determination and fair value changes
2020
2019
2,300
2,391
73
(550)
Revenue
2,373
1,841
Cost of sales increased to US$3.8m from US$3.2m in 2020 primarily reflecting the increased
volumes and increases in the price of the vanadium concentrate purchased at the high prices
prevailing in 2019 and utilised in 2020. 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 as prices
were kept low in 2020. 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$2.2m (2019: US$1.8m) principally comprised employee costs,
listing costs, audit and professional services. The costs directly relating to the listing on the London
Stock Exchange amounted to US$0.103m (2019: US$0.304m).
Net finance costs were US$0.133m (2019: net finance costs US$0.183m) as a result of the tenge
devaluation and sales in USD and RUR. US$0.03m costs are related to bonds’ coupons.
The Group made a loss before tax of US$3.94m (2019: loss before tax of US$3.34m).
Net cash outflows from operating activities totalled US$1.3m (2019: US$4.5m) with the reduction
principally reflecting tight management of working capital. Changes in trade receivables increased
to US$0.1m (2019: minus US$0.4m). Changes in trade payables increased to US$0.5m (2019:
5
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2020
minus US$0.4m) by making payment terms with suppliers of raw materials more favourable for the
Company and change in inventory which generated a cash inflow of $1.0m (2019: $1.0m outflow).
Net cash outflows from investing activities totalled US$1.1m (2019:US$2.3m) and included
US$0.73m (2019:US$2.3m) of capital expenditure associated with expanding the processing
operation and US$0.33 (2019: nil) of expenditure on the feasibility study for the exploration and
evaluation asset.
Net cash inflows from financing activities included subscriptions for shares amounting to US$1.6m
and bonds amounting to US$0.9m.
The Group had cash of US$0.707m at 31 December 2020 (2019: US$0.648m).
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 produce low grade nickel concentrate as by-product from the
residues of high grade vanadium concentrate and signed long term contract for selling it. As a
result no residues from the production of ammonium metavanadate, calcium molybdate and low
grade nickel concentrate are left. 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$5.101m from US$5.089m principally due to the
capitalisation of the feasibility study as exploration and evaluation assets. The increase in
prepayments for equipment is largely related to prepayments made for construction of the new
Power Line (US$1m).
Current assets decreased from US$2.47m to US$1.66m, principally reflecting decrease in
inventory.
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.
6
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2020
During 2020 the Company raised equity finance of US$1.7m (US$1.6m after expenses) and issued
bonds to the value of US$0.9m. Since the start of 2021 the Company has raised US$475,829 from
further issues of 242 bonds, with 58 issued in February and a further 184 issued on 12 March 2021.
All the bonds have been issued on the Astana Stock Exchange ("AIX") with a nominal value of
US$2,000 each, have a coupon of 5.8% payable twice-yearly, are unsecured and are repayable on
17 March 2023. Some of the bonds issued in 2020 (256) had an early redemption right for the
holders. Each issue is made at a premium or discount as negotiated at the time of issue.
On the 7 June 2021, pursuant to the Investment Agreement signed in March 2021, Vision Blue
Resources invested a further US$1.6m in equity in addition to the investment of US$1.5m already
made.
During 2020 the Group’s main operating company in Kazakhstan was audited by the tax authorities
for the purpose of receiving a reimbursement of excess VAT for the period from 2015 to 31 March
2020. Following the completion of the audit, a repayment of 116,000,000 KZT (approximately
US$276,000) was received. VAT of $301,000 was written off as non-refundable. During 2020
VAT receivables increased by $230,000, mainly due to VAT on imports and a reduction of
$101,000 in the VAT receivable was made to reflect a decision by the tax authorities, resulting to
the ending balance of $205,000. In 2021 the Company applied for a refund of this amount. It is
expected that VAT receivable will be reimbursed on a quarterly basis.
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 industry. The principal risk of this operation is the price of its product, vanadium. The
price of vanadium pentoxide is volatile and rose 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$8.00/lb which is close to the ten-year average to date. Most forecasters
anticipate that vanadium will be in deficit in the short to medium term, resulting in some increase
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:
7
Ferro-Alloy Resources Limited
Report on operations
for the year ended 31 December 2020
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 and create
further pricing volatility. 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) Financing risk:
The Company is in stronger financing position relative to the prior year. In March of 2021 the
Company signed an investment agreement with Vision Blue Resources. Under the terms of this
agreement, an initial investment of $3.1m has been made which will fund capital projects and
Vision Blue has the right to subscribe further amounts which, if exercised, will bring the total up to
$12.6m. Since the current share price is greatly in excess of the option price, the directors expect
this investment to be made. However, as detailed in note 1, a material uncertainty in respect of
going concern is considered to exist as a result of the risks and uncertainties associated with Covid-
19.
(d) Climate change risk:
On the 2-13 December 2019 the UN Climate Change Conference was held in Madrid. During the
annual conference, countries' approaches to the implementation of actions in the field of climate
change, based on the provisions of the United Nations Framework Convention on Climate Change,
the Kyoto Protocol and the Paris Agreement, were agreed. Kazakhstan participated in the
conference and reconfirmed that as a part of the international community focusing on reducing risk
of climate change it is committed to reduce greenhouse gas emissions by 15% by 2030 (from the
levels of 1990). Additionally, Kazakhstan is planning to develop a concept of low carbon
development by 2050 which is expected to be finalised and published during June 2021.
The Company is following the development of Government strategy in relation to the Global
Climate Change. During 2020 the Company emitted 24.21 tonnes of carbon oxides compared with
the permitted level of 50.33 tonnes. The Company will be reviewing the Government concept of
low carbon development after its publication and will develop its strategy related to Climate
Change accordingly.
(e) Risks associated with the developing nature of the Kazakhstan 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.
(f) Balasausqandiq project:
The Balasausqandiq project is a much larger contributor to the Group’s value than current
operations 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 in
excess of 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
8
confidence 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 2020
Signed on behalf of the Board of Directors on 25 June 2021
9
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2020
DIRECTORS’ REPORT
The Directors present their annual report and the financial statements of the Group for the year
ended 31 December 2020.
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 2020 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
in
Kyzylordinskaya Oblast in Southern Kazakhstan.
the Balasausqandiq vanadium/polymetallic mineral deposit
located at
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.
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. 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.
10
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2020
Advisers
The Company’s advisers are set out below:
Broker
UK
Kazakhstan
Other
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
Financial PR & Investor Relations
St Brides Partners Limited
100 Bishopsgate
London
EC2N 4JL
www.stbridespartners.co.uk
11
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2020
Financial Results
During the 12 months ended 31 December 2020, the Company reported a loss of US$3.9m (2019:
loss of US$3.3m).
No dividends have been declared in respect of the years ending 2020 or 2019.
Directors
After completion of the Initial Investment in June 2021 by Vision Blue Resources, the Board of the
Company has change and now comprises of two executive directors and four non-executive
directors whose biographical details are as follows:
Sir Mick Davis, Non-executive Chairman
Sir Mick Davis holds a number of directorships at private companies and is a highly successful
mining executive accredited with building Xstrata plc into one of the largest mining companies in
the world prior to its acquisition by Glencore plc. Before listing Xstrata on the LSE as CEO he was
CFO of Billiton plc and Chairman of Billiton Coal which he joined from the position of Eskom
CFO.
During his career in mining he has raised almost US$40bn from global capital markets and
successfully completed over US$120bn of corporate transactions, including the creation of the
Ingwe Coal Corporation in South Africa; the listing of Billiton on the LSE; the merger of BHP and
Billiton; as well as numerous transactions at Xstrata culminating in the sale to Glencore plc.
Sir Mick Davis is a Chartered Accountant by profession, and holds an honours degree in
Commerce from Rhodes University, South Africa and an Honorary Doctorate from Bar Ilan
University, Israel.
Nicholas Bridgen, Chief Executive
Nick Bridgen 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.
In the role of CEO Nick is ultimately responsible for all aspects of the Ferro-Alloy Resources
Group. 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 Kuznetsov 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.
12
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
As Director of Operations Andrey is responsible for the management of operations in Kazakhstan
and execution of the Company strategy and policies approved by the Board.
Chris Thomas, Non-executive Director, 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 remained Chairman of
I&S BBDO in Japan until April 2021. He also served as a non-executive director on the board of
Hambledon Mining from 2004 to 2011. He is an independent director of Clear Media Ltd, a
Chinese media business listed on the Hong Kong Stock Exchange
Chris is the chairman of the Remuneration Committee which considers and approves the
remuneration of all senior executives including that of the executive directors.
Peet Nienaber, Non-executive Director
Peet Nienaber has several decades of experience in the mining sector, most notably spending over
24 years with what became Xstrata plc. At Xstrata he was initially Head of Operations,
spearheading the earliest days of the company, including its growth to be the largest producer of
Ferrochrome. Thereafter he spent 10 years as CEO of Xstrata Alloys, one of the largest producers
of Ferrochrome and a leading producer of Vanadium, with some 20,000 people under Peet’s
leadership. After retiring from the position in 2012, Xstrata Alloys subsequently went on to be
acquired by Glencore plc.
Mr. Nienaber began his career as an engineer at Iscor Ltd before spending several years in the
Ferroalloys industry at Samancor and Anglo American Plc.
13
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2020
James Turian, Non-executive Director, chairman of the audit committee and member of the
audit committee
James Turian 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.
James is the chairman of the audit committee where he is responsible for chairing the audit
committee meetings.
Directors’ Remuneration
Salary/ fees
(US$’000)
Benefits
(US$’000)
Pension
(US$’000)
Bonus/other
(US$’000)
Total
(US$’000)
2019 2020 2019 2020 2019 2020 2019 2020 2019 2020
Non-Executive Chairman 30
30
Non-Executive director
235
Chief executive director
155
Operations director
450
Total
30
30
240
195
495
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
nil
nil
nil
nil
nil
30
30
235
155
450
30
30
240
195
495
In June 2020 the Company issued 764,050 ordinary shares of no par value at 8p per share in lieu of
fees in the amount of $75,000.
The directors remuneration in cash is paid in GBP, converted from USD at the exchange rate
prevailing at the time of payment.
Principal shareholders
A list of shareholders who beneficially hold more than 5% of the Company’s shares at 25 June
2021 is as follows:
Name of shareholder
Number of ordinary
shares
Percentage of voting rights
Andrey Kuznetsov
Nicholas Bridgen
Vision Blue Resources and co-
investors *
68,517,333
49,738,800
24,741,021
19.3
14.0
7.0
*Pursuant to the Investment Agreement signed with Vision Blue Resources Limited, Vision Blue
Resources Limited has acquired 15,961,948 shares, equal to 4.49% of the Company’s share capital
and
co-investors
8,779,073
acquired
shares,
equal
have
2.47%.
to
14
Ferro-Alloy Resources Limited
Directors’ Report
for the year ended 31 December 2020
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 2020 and at 25 June 2021 are as follows:
Name of director
Position
31 Dec 2020
Number of
Ordinary
Shares
31 Dec
2020 %
of Share
Capital
25 June 2021
Number of
Ordinary
Shares
25 June
2021 %
of Share
Capital
Sir Mick Davis
Chairman
-
-
15,961,948*
Nicholas Bridgen Chief executive
Andrey Kuznetsov Operations director
64,738,800
70,184,000
21.2
19.6
49,738,800
68,517,333
Christopher
Thomas
James Turian
Non-executive director
(formerly Chairman)
Non-executive director
4,738,512**
62,687
5,758,512**
444,712
0.1
4.5
14.0
19.3
1.6
0.1
* Sir Mick Davis is Chairman of Vision Blue Resources Ltd and the beneficiary of a Trust that is a
shareholder in Vision Blue Resources Ltd and therefore indirectly has an interest in that company’s
investment in Ferro-Alloy Resources Ltd arising from the agreement between both companies which was
signed on 15 March 2021 that is set out in the going concern paragraph below.
** Including shares of Assiduous Group Ltd which holds 5,203,800 Ordinary Shares (1.46%). Assiduous
Group Ltd is an investment vehicle in which Christopher Thomas is the sole shareholder and director.
The Company has issued 382,025 shares to each of Mr. Thomas and Mr. Turian for their services
as non-executive directors for the fourth quarter of 2019 and the whole of 2020, amounting to
$37,500 each.
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
Refer to note 1(d) for details of going concern including the identified material uncertainty
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
25 June 2021
15
Ferro-Alloy Resources Limited
Responsibility statements
for the year ended 31 December 2020
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.
16
Ferro-Alloy Resources Limited
Governance statement
for the year ended 31 December 2020
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”), does 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 considered appropriate by the
Board 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. Under the terms of the investment agreement
entered into with Vision Blue Resources, Sir Mick Davis will become the Chairman of the
Company (with Chris Thomas, the existing chairman, remaining as a non-executive director) after
completion of the initial investment, and Vision Blue Resources has the right to appoint a further
director subject to the Company’s consent. 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, with the addition of two further directors from Vision Blue
Resources, 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.
17
Ferro-Alloy Resources Limited
Governance statement
for the year ended 31 December 2020
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 payments by the Group parent
company, Ferro-Alloy Resources Limited, require two directors’ signatures on all
payments over US$5,000
18
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF FERRO-ALLOY
RESOURCES LIMITED
Opinion on the financial statements
In our opinion, the financial statements:
give a true and fair view of the state of the Group’s affairs as at 31 December 2020 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.
We have audited the financial statements of Ferro-Alloy Resources Limited (“the Company”) and
its subsidiaries (“the Group”) for the year ended 31 December 2020 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.
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 believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company and 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.
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 further 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 to proceed with the development of its assets. There is no certainty that the funding
required by the Group will be secured within the necessary timescale. 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.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate. We also considered
going concern to be a Key Audit Matter based on our assessment of the risk and the effect on our
audit. Our evaluation of the Directors’ assessment of the Group’s ability to continue to adopt the
going concern basis of accounting and in response to the key audit matter included:
19
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
• We discussed the further 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 sensitivity and reverse stress test scenarios to assess the potential impact on
liquidity of scenarios including production disruption and adverse changes in commodity prices
and management’s assessment of whether such scenarios were reasonably possible. We
evaluated management’s judgment that adequate funding would be available if required, which
included inspecting investor agreements for proposed funding for the project and considering
the history of fund raising.
• We held discussions with management and the Audit Committee regarding the status of
discussions with Vision Blue Resources regarding the timing and nature of the proposed
additional funding.
• We obtained management’s base case cash flow forecasts and 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 and approved
capital budgets.
• We agreed funds raised subsequent to year end to agreements and confirmed receipts to bank
and reviewed the terms of the Vision Blue Resources investment agreements to assess the extent
to which they remained conditional.
• We confirmed the terms of the existing contractual debt agreements, including the forecasted
maturities and confirmed that they were appropriately reflected in the forecasts based on their
earliest contractual maturity dates.
• We reviewed the adequacy and completeness of the disclosure included within the financial
statements in respect of going concern against the requirements of the relevant accounting
standards.
Our responsibilities and the responsibilities of the Directors with respect to going concern are
described in the relevant sections of this report.
Overview
Coverage
Key audit matters
Materiality
100% (2019: 100%) of Group loss before tax
100% (2019: 100%) of Group revenue
100% (2019: 100%) of Group total assets
Assessment of impairment of Property,
Plant & Equipment
Revenue recognition
Going concern
Group financial statements as a whole
2020 2019
☑
☑
☑
☑
☑
☑
$101,000 (2019: $115,000) based on 1.5% (2019: 1.5%) of
total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment,
including the Group’s system of internal control, and assessing the risks of material misstatement in
the financial statements. We also addressed the risk of management override of internal controls,
20
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
including assessing whether there was evidence of bias by the Directors that may have represented
a risk of material misstatement.
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 audits of both
of the significant components were principally performed in Kazakhstan by a local BDO member
firm under the direction and supervision of the Group audit team. The Group consolidation was
also subject to a full scope audit and was performed by the Group audit team. The remaining four
components of the Group were considered non-significant and these components were principally
subject to analytical review procedures by the Group audit team.
Our involvement with component auditors
For the work performed by component auditors, we determined the level of involvement needed in
order to be able to conclude whether sufficient appropriate audit evidence has been obtained as a
basis for our opinion on the Group financial statements as a whole. Our involvement with
component auditors included the following:
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), the level of component materiality, and set out the information
required to be reported to the Group audit team.
The Group audit team reviewed the component auditor’s work papers remotely, as a result of
Covid-19 travel restrictions, and held regular calls with the component audit teams during the
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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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. In addition to going concern, described in
the Material uncertainty related to going concern section above, we determined the matters
described below to be the key audit matters to be communicated in our report.
Key audit matter
of
Assessment
of
Property, Plant & Equipment
(PP&E).
impairment
See notes 2 and 12
How the scope of our audit addressed the key audit
matter
We obtained management’s NPV forecasts for the
processing operation and evaluated the appropriateness
of the use of the FVCS methodology, which includes
future
and
development when such expenditure would reasonably
be incurred by a market participant.
expenditures
expansion
capital
for
21
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
At 31 December 2020, management
have undertaken an impairment test
on the processing operation assets
which form the Group’s PP&E.
We compared commodity price forecasts to FY 2020 /
2021 actual data and third party market outlook reports.
This assessment required the Board
to form estimates in determining
inputs to forecast net present value
calculations
the
assessment of the fair value less cost
to
including
(“FVLCS”),
commodity prices; future production;
operating costs; capital expenditure
and discount rates.
underlying
sell
We evaluated the forecast growth in production and
changes
historical
performance and the effect of capital expansion works
included in the forecast.
production mix
against
to
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 and inspecting
raw material supply agreements.
Given the estimates and judgments
required this area was considered to
represent a significant audit risk and
key audit matter.
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, the Board approved capital budgets and
inspected contractual agreements where available.
We recalculated the discount rate using external source
data 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.
We reviewed the Competent Person’s Report, market
capitalisation 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 consider that the judgements and estimates made by
the Board in assessing the impairment of Property, Plant
& Equipment to be reasonable.
Revenue recognition
The Group generated revenues of
$2.37m as detailed in note 4 based on
the group’s
recognition
revenue
policy as detailed in notes 3(l) and 4.
In particular, in applying IFRS 15
“Revenue from Customers” to the
Group’s contracts consideration was
required regarding:
We assessed the revenue recognition policy for the key
AMV and Calcium Molybdate revenue streams against
the 5-step model of IFRS 15 to determine whether the
policy remains compliant with applicable accounting
standards.
We obtained and reviewed sales agreements and terms
for a sample of 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
22
• The
of
identification
the
performance obligations within the
contracts and the point at which
are
performance
satisfied and revenue is recorded
(cut off);
obligations
• The
/
for
accounting
variable
associated with
consideration
quality
estimates
quantity
required for sales prior to year end
based on test data which are subject
/
to
quantity determination post year
end; and
final quality
subsequent
• The
treatment
accounting
for
that applies
provisional pricing
under the contracts, particularly
given
forward
the absence of
for AMV and
market prices
the
and
Calcium Molybdate
subsequent estimates required in
determining
fair value of
the
contract receivables and payables.
the
Given
factors we
above
considered this area to represent a
significant audit risk and key audit
matter.
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
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 receivables and 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 receivables / 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. For a sample of sales around the
year end we reviewed evidence such as shipping
documents to check that revenue was recorded in the
correct period.
We reviewed disclosures and accounting policies for
compliance with IFRS 15.
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
the fair value of
[receivables / payables to be acceptable.
in determining
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.
In order to reduce to an appropriately low level the probability that any misstatements exceed
materiality, we use a lower materiality level, performance materiality, to determine the extent of
testing needed. 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.
23
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
Based on our professional judgement, we determined materiality for the financial statements as a
whole and performance materiality as follows:
Materiality
Basis for determining materiality
Rationale for the benchmark applied
Performance materiality
Basis for determining performance
materiality
Component materiality
Group financial statements
2019
2020
$115,000
$101,000
1.5% of total assets
The Group is focused on both its exploration
and production assets and is in an investment
phase. We consider total assets to be the most
the Group’s
relevant consideration of
financial performance as the Group continues
to focus on enhancing its assets.
$86,250
$75,750
75% of Group Materiality considering the
nature of activities and historic audit
adjustments
We set materiality for each component of the Group based on a percentage of 66% of Group
materiality dependent on the size and our assessment of the risk of material misstatement.
Component materiality was set at $67,000 (2019: $70,000). In the audit of each component, we
further applied performance materiality levels of 75% of the component materiality to our testing to
ensure that the risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences
in excess of $2,400 (2019: $3,000). We also agreed to report differences below this threshold that,
in our view, warranted reporting on qualitative grounds.
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. Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial statements themselves.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies (Guernsey) Law, 2008 reporting
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:
24
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
proper accounting records have not been kept by the Company; or
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’ responsibility statement within the Directors’ Report, 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 determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’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 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.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We
design procedures in line with our responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below:
Holding discussions with management and the audit committee to understand the laws and
regulations relevant to the Group and company. These included the significant laws and
regulations of Kazakhstan to be those relating to the mining industry, elements of financial
reporting framework, tax legislation and environmental regulations;
Holding discussions with management and the audit committee to determine any known or
suspected instances of non-compliance with laws and regulations or fraud identified by them;
Testing the appropriateness of journal entries made through the year by applying specific
criteria to detect possible irregularities and fraud;
Reviewing the licences to assess the extent to which the Group was in compliance with the
conditions of the licence and considering management’s assessment of the impact of instances
of non-compliance where applicable;
Performing a detailed review of the Group’s year-end adjusting entries and investigating any
that appear unusual as to nature or amount and agreeing to supporting documentation;
For significant and unusual transactions, particularly those occurring at or near year-end,
obtaining evidence for the rationale of these transactions and the sources of financial resources
supporting the transactions;
25
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
Assessing the judgements made by management when making key accounting estimates and
judgements, and challenging management on the appropriateness of these judgements (refer to
key audit matters above);
Reviewing minutes from board meetings of those charges with governance to identify any
instances of non-compliance with laws and regulations;
Communicating relevant identified laws and regulations and potential fraud risks to all
engagement team members and remaining alert to any indications of fraud or non-compliance
with laws and regulations throughout the audit; and
Directing the auditors of the significant components to ensure an assessment is performed on
the extent of the components compliance with the relevant local and regulatory framework.
Our audit procedures were designed to respond to risks of material misstatement in the financial
statements, recognising that the risk of not detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in
the audit procedures performed and the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial statements, the less likely we are to
become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s
website at: 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
25 June 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered
number OC305127)
26
Ferro-Alloy Resources Limited
Independent auditor’s report
for the year ended 31 December 2020
27
Ferro-Alloy Resources Limited
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2020
Note
2020
$000
2019
$000
Revenue from customers (pricing at shipment)
Other revenue (adjustments to price after
delivery and fair value changes)
Total revenue
Cost of sales
Gross loss
Other income
Administrative expenses
Distribution expenses
Other expenses
Loss from operating activities
Net finance costs
Loss before income tax
Income tax
Loss for the period
4
4
4
5
6
7
8
10
11
Other comprehensive income (loss)
Items that may be reclassified subsequently to
profit or loss
Exchange differences arising on translation of
foreign operations
Total comprehensive (loss) income for the
period
Loss per share (basic and diluted), US$
20
2,300
73
2,373
(3,779)
(1,406)
8
(2,233)
(178)
-
(3,809)
(133)
(3,942)
(2)
(3,944)
(528)
(4,472)
(0.012)
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)
These consolidated financial statements were approved by directors on 25 June 2021 and were
signed on its behalf by:
_____________________________
James Turian
Director
The notes on pages 30 to 61 form part of these consolidated financial statements.
28
Ferro-Alloy Resources Limited
Consolidated Statement of Financial Position as at 31 December 2020
29
Ferro-Alloy Resources Limited
Consolidated Statement of Financial Position as at 31 December 2020
Note
31 December 2020
$000
31 December 2019
$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
Additional paid-in capital
Foreign currency translation reserve
Accumulated losses
Total equity
Non-current liabilities
Loans and borrowings
Provisions
Total non-current liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Payables at FVTPL
Total current liabilities
Total liabilities
Total equity and liabilities
12
13
14
17
19
16
17
18
19
20
21
22
21
23
24
2,800
813
21
-
1,467
5,101
694
205
52
707
1,658
6,759
35,606
397
(3,462)
(28,561)
3,980
412
47
459
524
1,736
60
2,320
2,779
6,759
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
30
Ferro-Alloy Resources Limited
Consolidated Statement of Changes in Equity for the year ended 31 December 2020
Balance at 1 January 2019
Loss 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
Shares issued, net of issue costs
Warrants issued
Balance at 31 December 2019
Balance at 1 January 2020
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)
Balance at 31 December 2020
Share
capital
$000
27,330
-
-
-
6,635
-
33,965
33,965
-
-
-
1,641
35,606
Share
premium
$000
Additional paid
in capital
$000
Foreign currency
translation reserve
$000
Accumulated
losses
$000
Total
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
380
-
-
-
-
17
397
397
-
-
-
-
397
(2,965)
-
31
31
-
-
(2,934)
(2,934)
-
(528)
(528)
-
(3,462)
(21,275)
(3,342)
-
(3,342)
-
-
(24,617)
(24,617)
(3,944)
-
(3,944)
-
(28,561)
3,470
(3,342)
31
(3,311)
6,635
17
6,811
6,811
(3,944)
(528)
(4,472)
1,641
3,980
31
Ferro-Alloy Resources Limited
Consolidated Statement of Cash Flows for the year ended 31 December 2020
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation and amortisation
Loss on write-off of property, plant and equipment plant,
property and equipment
Loss on write-off of VAT non-refundable
Loss on write-off of prepayments
Loss on write-off of receivables
Write-down of inventories to net realisable value and
obsolescence provision
Expenses on credit loss provision
Share payments and issuance of call option
Income tax
Net finance costs
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 exploration and evaluation assets
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
Proceeds from borrowings
Interests paid
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
5, 7
7
7
7
5
7
20
11
10
12
13
14
12
20
21
21
19
2020
$000
2019
$000
(3,944)
(3,342)
431
-
301
7
15
-
15
75
2
133
(2,965)
1,044
90
(25)
517
7
428
(18)
-
-
208
-
17
-
183
(2,524)
(989)
(442)
53
(369)
(205)
(1,332)
(4,476)
(733)
(326)
(1)
-
(1,060)
1,649
(82)
924
(19)
2,472
80
648
(21)
707
(2,337)
(1)
18
(2,320)
6,939
(304)
-
-
6,635
(161)
892
(83)
648
32
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
Note to the consolidated financial statements for the year ended 31 December 2020
1 Basis of preparation
Ferro-Alloy Resources Limited (the “Company”) is incorporated in Guernsey and has its registered
address at Noble House, Les Baissieres, St. Peter Port, Guernsey, GY1 2UE. The consolidated
financial statements for the year ended 31 December 2020 comprise the Company and the
following subsidiaries (together referred to as the “Group”):
Company
Ferro-Alloy
Products Limited
Energy Metals
Limited
Location
British Virgin
Islands
UK
Vanadium Products
LLC
Kazakhstan
Firma Balausa LLC
Kazakhstan
Balausa Processing
Company LLC
Kazakhstan
(a)
Statement of compliance
Company’s share
in charter capital
Primary activities
100%
100%
100%
100%
100%
Dormant since 4 January 2021
Manages processing activity and
performs management service
Performs services for the Group
Production and sale of vanadium
and associated by-products
Development of processing
facilities
These financial statements have been prepared in accordance with International Financial
Reporting Standards as adopted by EU (“IFRSs”).
(b)
Basis of measurement
The consolidated financial statements are prepared on the historical cost basis except as otherwise
noted below.
(c) Functional and presentation currency
The national currency of Kazakhstan is the Kazakhstan tenge (“KZT) which is also the functional
currency of the Group’s operating subsidiaries. The functional currency of the Company is US$.
The presentation currency of the consolidated financial statements 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 a period of 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 continued 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.
On 8 February and 12 March 2021 the Company issued bonds for consideration totalling $476,000
with a three-year maturity term, bearing interest of 7.0%, payable twice-yearly.
The Company signed an investment agreement with Vision Blue Resources and their co-investors
on 15 March 2021. In pursuit of this agreement, on 19 March 2021, the Company issued
24,741,021 ordinary shares for cash at a price of 9 pence per share to raise $3.1m to finance the
33
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
further expansion of the existing process plant and completion of the bankable feasibility study.
The Initial Investment by Vision Blue has been completed by June 2021. A further investment of
$7m is anticipated to be received imminently with discussions at an advanced stage with Vision
Blue for $4.2m to be received as a nil coupon convertible loan note and $2.8m to be received
through an equity subscription. Additionally, a further $2.5m will be invested at Vision Blue’s
option two months after the feasibility study for the development of Phase 1 of the Balasausqandiq
project is released – expected around the end of this year. These funds will be sufficient to bring
the existing processing factory to the level of 1500 tonnes of V2O5 production per year, generating
forecast cash flow of up to $10m per year. In addition, the investments will be used for finalising
the Western Bankable Feasibility Study.
Although the remaining funds to be invested remains at the option of Vision Blue Resources and
therefore cannot be guaranteed, in view of the current share price which is substantially in excess
of the agreed exercise price and advanced discussions with Vision Blue, the Directors are confident
that the $7m funding will be received imminently and the further $2.5m investment will be made.
The agreement also provides for further investments at higher share prices to be made at the option
of Vision Blue Resources to finance the construction of the Phase 1 project, but these further
options are likely to come beyond the time under consideration for current Going Concern
purposes.
For the purpose of making an assessment of going concern, the cash flow forecasts reviewed by the
Board exclude funding which is not contractually committed and also exclude discretionary
expenditure in relation to the capital developments and associated production enhancements. The
Group’s forecasts indicate that at current vanadium pentoxide and molybdic oxide prices and the
planned production levels 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 the additional funding above.
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 further potential impact on the Group of the pandemic remains inherently
uncertain. There is further potential for volatility in commodity prices, supply chain disruption,
mine site workforce rotations and travel to the mine site if the pandemic escalates. Stress test
scenarios indicate that in the event of a sustained further period of restrictions impacting production
levels or a significant reduction in vanadium pentoxide price additional funding would be required.
In case of a reduction in vanadium pentoxide prices from $7.5/lb to 5.55/lb and molybdic oxide
prices from $11.97/lb to $8.86/lb additional funding would be required in December 2021.
After review of these forecasts and scenarios 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 operational cash flow generation of the processing operations at
forecast prices. The Directors anticipate completion of the anticipated $7m funding from Vision
Blue shortly which would, having considered the forecasts and COVID-19 stress case scenarios
above, provide adequate headroom. 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, until such time as the anticipated
$7m funding is received, the potential future impact of COVID-19 and the resulting requirement
for funding should such possible 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.
34
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
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 remaining low in vanadium pentoxide prices in the period, the Directors have tested the
processing operations PP&E for impairment (note 12) at 31 December 2020. In doing so, net
present value cash flow forecasts were prepared using the fair value less cost to develop method
which required key estimates including vanadium pentoxide and molybdic oxide prices, production
including the impact of ongoing and planned expansion together with costs and discount rate. Key
estimates included:
Production volumes of 48 tonnes per month of vanadium pentoxide from pyrometallurgical
line and 86 tonnes per month of vanadium pentoxide from electrometallurgical line from
2022 with flat production thereafter.
Average prices of vanadium pentoxide of US$7.5/lb and molybdic oxide of US$11.97/lb in
2021 and thereafter, reflecting management estimates having consideration of market
commentary less a discount, and used by the Company as a long-term assumption for
other planning purposes.
Further capital development costs of US$7.6m.
Discount rate of 10% post tax in real terms.
Based on the key assumptions set out above, the recoverable amount of PP&E ($48m) exceeds its
carrying amount ($2.8m) by $45m and therefore PP&E were not impaired.
Sensitivity analysis
Any impairment is dependent on judgement used in determining the most appropriate basis for the
assumptions and estimates made by management, particularly in relation to the key assumptions
described above. Sensitivity analysis to potential changes in key assumptions has therefore been
provided below.
The impact on the impairment calculation of applying different assumptions to vanadium pentoxide
prices, production volumes, future capital expenditure and post-tax discount rates, all other inputs
remaining equal, would be as follows:
Impact if vanadium pentoxide prices:
Impact if production volumes:
Impact if future capital expenditure:
Impact if post-tax discount rate:
increased by 30%
reduced by 30%
increased by 10%
decreased by 10%
increased by 20%
reduced by 20%
increased by 2 percentage points
decreased by 2 percentage points
Increase/(decrease)
in headroom
$’000
30,143
(30,143)
10,006
(10,006)
(4,661)
4,661
(7,371)
9,264
35
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
Fair value of trade receivables and payables classified at fair value through profit and loss (note
24)
The consideration receivable in respect of certain 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
of arrival at the port of final destination for AMV and month of shipment from the port for calcium
molybdate. 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 and molybdic oxide at 31 December 2020
less applicable deductions for AMV or calcium molybdate; b) foreign exchange rates; c) risk free
rates and d) carry costs when material.
As at 31 December 2020 the Group recognised a payable at FVTPL of US$0.06m (2019: payable
at FVTPL US$0.059m).
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.
Exploration and evaluation assets (note 13)
The Group holds material exploration and evaluation assets and judgment is applied in determining
whether impairment indicators exist under the Group’s accounting policy. In determining that no
impairment indicator exists management have considered the Competent Person’s Report on the
asset, the strategic plans for exploration and future development and the status of the licence.
Judgment was required in determining that the application for deferral of obligations under the
licence (note 26) will be granted and management anticipate such approvals being provided given
the impact of Covid-19, their understanding of the Kazakh market and plans for the asset.
36
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
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
37
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
upon 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: borrowings and 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.
Long-term borrowings
After initial recognition, interest-bearing borrowings are subsequently measured at amortised cost
using the effective interest rate method. Gains and losses are recognised in profit or loss. Amortised
cost is calculated by taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the effective interest rate. The effective interest rate amortisation is
included as finance costs in the statement of profit or loss.
(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.
38
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(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 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
10-50 years;
Plant and equipment
4-20 years;
Vehicles
Computers
Other
4-7 years;
3-6 years;
3-10 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;
39
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
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.
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
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
40
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
in-substance fixed payments), less any lease 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.
41
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(j) Employee benefits
(i) Defined contribution plans
The Group does not incur any expenses in relation to provision of pensions or other post-
employment benefits to its employees. In accordance with State pension social insurance
regulations, the Group withholds pension contributions from employee salaries and transfers them
into state pension funds. Once the contributions have been paid, the Group has no further pension
obligations. Upon retirement of employees, all pension payments are administrated by the pension
funds directly.
(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 and molybdenum 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.
42
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
The Group commonly receives a provisional payment at the date control passes with reference to
spot prices at that date. The final consideration is subject to quantity / quality adjustments and final
pricing based on market prices determined after the product reaches its port of destination. The
quantity / quality adjustments represent a form of variable consideration and revenue is constrained
to record amounts for which it is highly probable no reversal will be required. However, given the
short period to delivery post year end the final quantity / quality adjustments are known and
revenue for the period is adjusted to reflect the final quantity / quality occurring subsequent to year
end if material.
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
(o)
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, this includes
exchange gains and losses that arise on trade and other receivables and trade and other payables in
foreign currency.
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.
43
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(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.
(r) New and amended standards adopted
None of the amendments that are effective as of 1 January 2020 had significant impact on the
Group’s consolidated financial statements. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective as at 1 January 2020.
Several amendments and interpretations apply for the first time in 2020, but do not have an impact
on the Group’s consolidated financial statements.
Amendments to IAS 1 and IAS 8: Definition of material
The amendments provides a new definition of material that states “information is material if
omitting, misstating or obscuring it could reasonably be expected to influence decisions that the
primary users of general purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific reporting equity. “
The amendments clarify that materiality will depend on the nature or magnitude of information,
either individually or in combination with other information, in the context of the financial
statements. A misstatement of information is material if it could reasonably be expected to
influence decisions made by the primary users. These amendments had no impact on these
consolidated financial statements and nor is there expected to be any future impact to the Group.
Amendments to IFRS 3: Definition of a business
The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities
and assets must include, at a minimum, an input and a substantive process that together
significantly contribute to the ability to create output. Furthermore, it clarified that a business can
exist without including all of the inputs and processes needed to create outputs. These amendments
had no impact on these consolidated financial statements of the Group but may impact future
periods if the Group enter into any business combinations.
Amendments to IFRS 7, IFRS 9 and IAS 39: Interest rate benchmark reform
The amendments to IFRS 9 and IAS 39 Financial instruments: Recognition and Measurement
provide a number of reliefs, which apply to all hedging relationships that are directly affected by
interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to
uncertainties to about the timing and or amount of benchmark-based cash flows of the hedged item
or the hedging instrument. These amendments had no impact on these consolidated financial
statements of the Group as it does not have any interest rate hedge relationships.
Amendments effective in 2021
Amendment to IFRS 16 Lease: COVID-19 related rent concessions
This amendment will provide relief to lessees from applying from IFRS 16 guidance on lease
modifications to rent concessions arising as a direct consequence of COVID-19 pandemic. These
amendment had no impact on these consolidated financial statements of the Group as there is no
COVID-19 related rent concessions held by the Group.
Conceptual framework for financial reporting
44
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
The purpose of the conceptual framework is to assist IASB in developing standards, to help
prepares developing consistent accounting policies where there is no applicable standard in place
and to assist all parties to understand and interpret standards.
The revised conceptual framework includes some new concepts, provide updated definitions and
recognition criteria for assets and liabilities and clarifies some important concepts.
45
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
Amendments effective in 2022
Amendments to IAS 37 Provisions contingent liabilities and contingent assets
These amendments specify the a company includes when assessing whether a contract will be loss-
making and therefore recognized as an onerous contract. These amendments are expected to result
in more contracts being accounted for as onerous contracts because they increase the scope of costs
that are included in the onerous contract assessment.
Amendments to IAS 16 Property, plant and equipment
These amendments prohibit a company from deducting amounts received from selling items
produced while the company is preparing the asset for its intended use from the cost of property,
plant and equipment. Instead, a company will recognize such sales proceeds and any related costs
in profit and loss.
46
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
4 Revenue
Revenue from sales of vanadium products
Revenue from sales of molybdate calcium
Sales of gravel and waste rock
Service revenue
Total revenue from customers under IFRS 15
Other revenue - change in fair value of customer contract
Total revenue
Vanadium and molybdenum products
2020
$000
2019
$000
2,197
2,376
68
8
27
2,300
73
2,373
-
15
-
2,391
(550)
1,841
Under certain sales contracts the single performance obligation is the delivery of AMV or calcium
molybdate 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 of vanadium pentoxide for AMV and
molybdic oxide for calcium molybdate 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 for AMV and the month of shipment from the port
for calcium molybdate 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 17 and 24 for details of trade receivables and
payables at FVTPL recorded in 2020 and 2019.
The Company has started production and sales of calcium molybdate in the end of 2020. The
amount is not yet significant but the product is demanded by the market.
5 Cost of sales
Materials
Wages, salaries and related taxes
Depreciation
Write-down of inventories to net realisable value
Electricity
Professional service
Transportation cost
Taxes other then income
Raw materials obsolescence provision
Other
2020
$000
2019
$000
2,523
1,674
435
405
-
145
117
97
31
-
26
541
400
172
133
134
37
15
36
36
3,779
3,178
47
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
6 Other income
Other
7 Administrative expenses
Wages, salaries and related taxes
Professional services
Loss on write-off of VAT non-refundable
Expenses on credit loss provision
Taxes other than income tax
Listing & reorganisation expenses
Audit
Materials
Rent
Depreciation and amortization
Insurance
Bank fees
Business trip expenses
Write-off of bad debts
Security
Research
Communication and information services
Write-off of prepayments
Other
2020
$000
2019
$000
8
8
2020
$000
2019
$000
909
312
301
15
114
103
152
57
55
26
21
16
19
15
14
14
9
7
74
70
70
959
159
-
-
12
273
144
82
12
28
16
18
83
-
15
11
8
-
21
2,233
1,841
During 2020 the group’s main operating company in Kazakhstan was audited by the tax authorities for the
purpose of to receiving reimbursement of excess VAT for the period from 2015 to 31 March 2020. Following
the completion of the audit a repayment of 116,000,000 KZT (approximately US$276,000) was received.
VAT of $301,000 was written off as non-refundable. During 2020 VAT receivables increased by $230,000,
mainly due to VAT on import and $101,000 reduced our VAT receivable as a decision by Tax authorities,
resulting to the ending balance of $205,000. In 2021 the Company applied for the refund of this amount. It is
expected that VAT receivable will be reimbursed on a quarterly basis.
8 Other expenses
Other
2020
$000
2019
$000
-
-
9
9
48
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
9
Personnel costs
Wages, salaries and related taxes
2020
$000
1,286
1,286
2019
$000
1,505
1,505
During 2020 personnel costs of US$ 351 thousand (2019: US$ 596 thousand) have been charged to
cost of sales, US$ 909 thousand (2019: US$ 959 thousand) to administrative expenses and US$ 26
thousand (2019: US$ 84 thousand) were charged to cost of inventories which were not yet sold as
at the year-end.
10 Finance costs
Net foreign exchange costs
Unwinding of discount on site restoration provision
Interest expense on financial liabilities (bonds)
Net finance costs
11
Income tax
2020
$000
2019
$000
98
4
31
133
179
4
-
183
The Group’s applicable tax rates in 2020 are the income tax rate of 20% for Kazakhstan
subsidiaries (2019: 20%) and 0% (2019: 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 2020 and 2019 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$2,000 was incurred in 2020. Unrecognised deferred tax assets
are described in Note 15.
Reconciliation of effective tax rate:
Loss 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
2020
$000
(3,942)
(788)
502
284
(2)
%
100
20
(13)
(7)
-
2019
$000
(3,342)
(669)
%
100
20
295
374
-
(9)
(11)
-
49
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
12 Property, plant and equipment
Cost
Balance at 1 January 2019
Additions
Transfers
Disposals
Foreign currency translation difference
Balance at 31 December 2019
Balance at 1 January 2020
Additions
Foreign currency translation difference
Balance at 31 December 2020
Depreciation
Balance at 1 January 2019
Depreciation for the period
Disposals
Foreign currency translation difference
Balance at 31 December 2019
Balance at 1 January 2020
Depreciation for the period
Foreign currency translation difference
Balance at 31 December 2020
Carrying amounts
At 1 January 2019
At 31 December 2019
At 31 December 2020
Land and
buildings
$000
Plant and
equipment
$000
Vehicles
$000
Computers
$000
Other
$000
Construction in
progress
$000
Total
$000
1,611
2
62
-
12
1,687
1,687
-
(158)
1,529
581
53
-
5
639
639
51
(61)
629
1,030
1,048
900
1,836
183
28
(48)
15
2,014
2,014
28
(189)
1,853
1,335
312
(14)
12
1,645
1,645
294
(160)
1,779
501
369
74
426
157
-
-
4
587
587
10
(56)
541
282
46
-
2
330
330
42
(32)
340
144
257
201
23
15
-
-
1
39
39
1
(4)
36
12
6
(1)
-
17
17
7
(2)
22
11
22
14
75
28
-
-
1
104
104
5
(10)
99
32
9
(2)
-
39
39
12
(3)
48
43
65
51
474
1,053
(90)
-
8
1,445
1,445
255
(140)
1,560
-
-
-
-
-
-
-
-
-
474
1,445
1,560
4,445
1,438
-
(48)
41
5,876
5,876
299
(557)
5,618
2,242
426
(17)
19
2,670
2,670
406
(258)
2,818
2,203
3,206
2,800
During 2020 depreciation expense of US$380 thousand (2019: US$394 thousand) has been charged to cost of sales, excluding cost of finished goods that were not sold
at year-end, US$25 thousand (2019: US$ 26 thousand) – to administrative expenses, and US$1 thousand has been charged to cost of finished goods that were not sold at
the year-end (2019: US$25 thousand). Construction in progress relates to upgrades to the processing plant associated with the expansion of the facility.
The Company is planning to procure an electric arc furnace which will be used in production of ferro-vanadium and ferro-nickel. This furnace has been designed,
contracts agreed and will take some six months to build once the order is placed.
50
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
13 Exploration and evaluation assets
The Group’s exploration and evaluation assets relate to Balasausqandiq deposit. During the year
ended 31 December 2020 the Group capitalised the expenses on services of Coffey Geotechnics
Ltd regarding development of a feasibility study as exploration and evaluation assets (in 2019:
US$Nil). As at 31 December 2020 the carrying value of exploration and evaluation assets was
US$0.8m (2019: US$0.059m).
Balance at 1 January
Additions (feasibility study)
Change in estimate (asset restoration obligation)
Foreign currency translation difference
Balance at 31 December
2020
$000
59
770
(14)
(2)
813
2019
$000
59
-
-
-
59
14 Intangible assets
Mineral
rights
$000
Patents
$000
Computer
software
$000
Total
$000
Cost
Balance at 1 January 2019
Additions
Foreign currency translation difference
Balance at 31 December 2019
Balance at 1 January 2020
Additions
Foreign currency translation difference
Balance at 31 December 2020
Amortisation
Balance at 1 January 2019
Amortisation for the year
Foreign currency translation difference
Balance at 31 December 2019
Balance at 1 January 2020
Amortisation for the year
Foreign currency translation difference
Balance at 31 December 2020
Carrying amounts
At 1 January 2019
At 31 December 2019
At 31 December 2020
99
-
1
100
100
-
(9)
91
99
-
1
100
100
-
(9)
91
-
-
-
33
1
-
34
34
1
(3)
32
9
2
(1)
10
10
1
-
11
25
24
21
3
-
-
3
3
-
-
3
2
-
1
3
3
-
-
3
-
-
-
135
1
1
137
137
1
(12)
126
110
2
1
113
113
1
(9)
105
25
24
21
During 2020 and 2019 amortisation of intangible assets was charged to administrative expenses.
51
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
15 Deferred tax assets and liabilities
Unrecognised deferred tax assets
Temporary deductible differences
Tax losses carried forward
Unrecognized tax deferred tax assets
31 December
2020
$000
31 December
2019
$000
320
10,511
229
3,256
(10,831)
(3,485)
-
-
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.
The increase in carried forward tax losses comprises the tax loss for the period and the effect of
resubmissions of previous tax filings which contributed to an increase in tax losses.
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 2020 are presented below:
Expiry year
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
$000
339
322
1,020
521
251
881
528
566
2,362
3,721
10,511
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
31 December 2020
$000
31 December 2019
$000
434
75
185
-
694
1,575
172
-
3
1,750
During 2020 inventories expensed to profit and loss amounted to $2,580 thousand (2019: $1,756
thousand)
52
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
17 Trade and other receivables
Non-current
VAT receivable
Provision for VAT receivable
Current
Trade receivables from third parties
Due from employees
VAT receivable
Other receivables
Expected credit loss provision for receivables
31 December 2020 31 December 2019
$000
$000
-
-
-
1,012
(360)
652
31 December 2020 31 December 2019
$000
$000
18
10
205
8
241
(36)
205
30
17
-
9
56
(21)
35
The expected credit loss provision for receivables 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.
During 2020 the group’s main operating company in Kazakhstan was audited by the tax authorities for the
purpose of to receiving reimbursement of excess VAT for the period from 2015 to 31 March 2020. Following
the completion of the audit a repayment of 116,000,000 KZT (approximately US$276,000) was received.
VAT of $301,000 was written off as non-refundable. During 2020 VAT receivables increased by $230,000,
mainly due to VAT on import and $101,000 reduced our VAT receivable as a decision by Tax authorities,
resulting to the ending balance of $205,000. In 2021 the Company applied for the refund of this amount. It is
expected that VAT receivable will be reimbursed on a quarterly basis.
18 Prepayments
Non-current
Prepayments for equipment
Current
Prepayments for goods and services
31 December 2020
$000
31 December 2019
$000
1,467
1,467
52
52
1,148
1,148
38
38
The prepayments for equipment is related mainly to high-voltage powerline connection. For more details see
Report on production.
53
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
19
Cash and cash equivalents
Cash at current bank accounts
Cash at bank deposits
Petty cash
Cash and cash equivalents
20 Equity
(a)
Share capital
31 December 2020
$000
31 December 2019
$000
688
14
5
707
647
-
1
648
Number of shares unless otherwise stated
Ordinary shares
Par value
Outstanding at beginning of year
Shares issued
31 December 2020
31 December 2019
-
312,978,848
17,610,204
-
305,471,087
7,507,761
Outstanding at end of year
330,589,052
312,978,848
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.
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).
During 2020 the Company issued 16,846,154 ordinary shares of no par value by way of a direct
subscription into the Company for cash at prices from 6.5 to10 pence per share, raising a total of
£1,300,000.
In June 2020 the Company issued 764,050 ordinary shares of no par value at 8 pence per share in
lieu of fees in the amount of $75,000 to pay salary to non-executive directors.
Reserves
Share capital: Value of shares issued less costs of issuance.
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.
54
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(b) Dividends
No dividends were declared for the year ended 31 December 2020.
(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.
There are no convertible bonds and convertible preferred stock, so basic and diluted losses re equal.
55
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(i)
Loss attributable to ordinary shareholders (basic and diluted)
Loss for the year, attributable to owners of the Company
Loss attributable to ordinary shareholders
2020
$000
(3,944)
(3,944)
2019
$000
(3,342)
(3,342)
(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
2020
2019
312,978,848
305,471,087
6,812,878
5,718,240
319,791,726
311,189,327
Earnings (loss) per share of common stock attributable to
the Company (basic and diluted)
(0.012)
(0.011)
21 Loans and borrowings
In 2020 the Company issued unsecured corporate bonds with effective interest rates of 7.5%, 7.0%
and 5.8%. Investors have subscribed for a total of 464 of the Company’s bonds with a nominal
value of US$2,000 each but are issued at a premium or discount to achieve the effective interest
rates agreed. The bonds are unsecured, have a three-year term, and bear the coupon rate of 5.8%,
paid twice-yearly. The bonds have been listed on AIX with identifier FAR.0323 and ISIN number
KZX000000336. The investors in cerntain bonds have the right to receive early repayment after a
minimum period of 12 months.
31 December 2020
$000
31 December 2019
$000
Non-current liabilities
Bonds payable
Current liabilities
Bonds payable (early repayment rights)
Interest payable
412
412
512
12
524
-
-
-
-
-
Terms and conditions of outstanding bonds in 2020 were as follows:
USD
Currency
Bonds payable
Bonds payable
Bonds payable
USD
USD
USD
Effective
interest
rate
7.5%
7.0%
5.8%
Nominal
amount
506
402
20
Actual
amount
504
400
20
928
924
Coupon
rate
Coupon
paid
Interest
5.8%
5.8%
5.8%
10
9
-
19
16
14
1
31
56
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
During 2020 the Group sold bonds to subscribers and received cash from subscribers in the total
amount of USD 924,000 (2019: $nil).
Details of tranches of the bonds
Tranche date
05.06.2020
11.06.2020
01.09.2020
09.09.2020
30.09.2020
10.11.2020
23.11.2020
14.12.2020
22.12.2020
Total
Bond
denomina
tion
Actual
price per
bond
Number of
bonds
Nominal
amount
Actual
amount
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2053
2001
1951
1985
2021
1958
1981
50
100
5
150
26
51
5
52
25
100,000
200,000
10,000
300,000
52,000
102,000
10,000
104,000
50,000
100,000
200,000
10,264
300,114
50,717
101,229
10,105
101,833
49,537
928,000
923,799
Earliest
repayment
date
Maturity
date
05.07.2021 17.03.2023
17.03.2023 17.03.2023
01.10.2021 17.03.2023
09.10.2021 17.03.2023
17.03.2023 17.03.2023
10.12.2021 17.03.2023
17.03.2023 17.03.2023
17.03.2023 17.03.2023
17.03.2023 17.03.2023
Non-cash transactions from financing activities are shown in the reconciliation of liabilities from
financing transactions overleaf.
Loans and borrowings
At 1 January
Cash flows:
-Interest paid
-Proceeds from loans and borrowings
Total
Non-cash flows
-
- Bond discount/premium
Interest accruing in period
At 31 December
22 Provisions
Balance at 1 January
Unwinding of discount
Change in estimate
Foreign currency translation difference
Balance at 31 December
Non-current
Site restoration
2020
$000
-
(19)
924
905
33
(2)
936
2020
$000
2019
$000
64
4
(14)
(7)
47
47
47
2019
$000
-
-
-
-
-
-
60
4
-
-
64
64
64
A provision was recognised in respect of the Group’s obligation to rectify environmental damage in
the Balasausqandiq mine, Kyzylorda region.
In accordance with Kazakhstan environmental legislation, land contaminated by the Group in the
Kyzylorda region must be restored before the end of 2043. The provision was estimated by
considering the risks related to the amount and timing of restoration costs based on the known level
of damage. Because of the long-term nature of the liability, the main uncertainty in estimating the
provision is the costs that will be incurred. In particular, the Group has assumed that the site will be
57
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
restored using technology and materials that are available currently. A fund to cover this liability
will be collected via annual statutory contributions to the special liquidation fund at the rate of 1%
of mining expenses as stipulated in the Subsoil contract. Based on the working program which
forms the part of the Subsoil contract the total amount is expected to reach KZT 675m or US$
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 7.5% (31
December 2019: 5.9%). The estimated period for discounting was 23 years (2019: 24 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
Debt to directors/key management (Note 29)
Debt to employees
Other taxes
31 December 2020
$000
31 December 2019
$000
1,035
522
57
122
1,736
256
212
105
53
626
Majority of trade payables ($444 thousand) are related to feasibility study to Coffey/Tetratech
Group. The rest of trade payables are related for the raw material contracts that have 30 payment
days after delivery.
The balance was paid for feasibility study in March 2021.
24 Payables at FVPL
Payables at FVPL
31 December 2020
$000
31 December 2019
$000
60
60
59
59
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
58
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
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.
(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
2020
$000
31 December
2019
$000
-
702
702
18
647
665
The maximum exposure to credit risk for trade and other receivables at the reporting date by
geographic region was:
Kazakhstan
Carrying amount
31 December
2020
$000
-
-
31 December
2018
$000
18
18
The maximum exposure to credit risk for trade and other receivables at the reporting date by type
of customer was:
Carrying amount
31 December
2020
$000
31 December
2019
$000
Trade receivables:
Wholesale customers
Other receivables
Other
-
-
-
1
The ageing of trade and other receivables at the reporting date was:
Not past due
Past due
more than
180 days
Gross
2020
$000
Impairment
2020
$000
Net
2020
$000
Gross
2019
$000
Impairment
2019
$000
-
36
36
-
(36)
(36)
-
-
-
18
21
39
-
(21)
(21)
9
9
18
Net
2019
$000
18
-
18
59
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
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
2020
$000
2019
$000
21
15
36
21
-
21
Amounts due from customers at year end have been subsequently collected in 2021, except for
credit impaired amounts. No additional expected credit loss provision has been applied.
(ii) Cash and cash equivalents
As at 31 December 2020 the Group held cash of US$ 707 thousand (31 December 2019: US$ 648
thousand), of which bank balances of US$ 702 thousand (31 December 2019: US$ 647 thousand)
represent its maximum credit exposure on these assets, which excludes petty cash. 64% (31
December 2019: 96%) is held in banks with credit ratings of A+ to AA-, 36% in banks with credit
ratings of B to BB (31 December 2019: 4%). 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.
60
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
2020
Financial liabilities
Carrying
amount
$000
Contractual
cash flows
$000
On demand
$000
0-6 mths
$000
6 months - 1
year
$000
1-3 years
$000
Trade and other payables and
payables at FVTPL
1,674
1,674
Loans and borrowings
936
1,015
2,610
2,689
9
-
9
1,665
23
1,688
-
540
540
-
452
452
2019
Financial liabilities
Trade and other payables and
payables at FVTPL
Loans and borrowings
(d) Market risk
Carrying
amount
$000
Contractual
cash flows
$000
On demand
$000
0-6 mths
$000
6 months - 1
year
$000
1-3 years
$000
632
-
632
632
-
632
-
-
-
632
-
632
-
-
-
-
-
-
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.
As the basis for the market risk the Company has analyzed the impact of different levels of
vanadium pentoxide prices on profitability. The Company is very closely monitoring the market
circumstances with leading international organizations in vanadium industry. The sensitivity
analysis showed that the price below $4/lb on vanadium pentoxide is critical for the Company in
the current operations.
Current level of vanadium pentoxide prices is sufficient to keep the Company in the stable
profitable level.
(i)
Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in
a currency other than the respective functional currency of Group entities.
In respect of monetary assets and liabilities denominated in foreign currencies, the Group ensures
that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot
rates when necessary to address short-term imbalances.
61
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
Exposure to currency risk
The Group’s exposure to foreign currency risk was as follows based on notional amounts:
US$-
denominated
GBP-
denominated
EUR-
denominated
RUB-
denominated
KZT-
denominated
2020
$000
2020
$000
2020
$000
2020
$000
2020
$000
Cash and cash equivalents
Trade and other payables
Loans and borrowings
Net exposure
248
(700)
(936)
(1,388)
198
(497)
-
(299)
-
(31)
-
(31)
-
(34)
-
(34)
260
(412)
-
(152)
US$-
denominated
GBP-
denominated
EUR-
denominated
RUB-
denominated
KZT-
denominated
2019
$000
2019
$000
2019
$000
2019
$000
2019
$000
Cash and cash equivalents
Trade and other payables
Loans and borrowings
Net exposure
141
(316)
-
(175)
478
(116)
-
362
-
-
-
-
3
(2)
-
1
25
(192)
-
(167)
The following significant exchange rates applied during the year:
in US$
KZT 1
GBP 1
RUB 1
EUR 1
(ii)
Interest rate risk
Average rate
Reporting date spot rate
2020
2019
2020
2019
0.0024
1.2827
0.0139
1.1414
0.0026
1.2764
0.0155
0.1195
0.0024
1.3576
0.0134
1.2268
0.0026
1.3117
0.0162
1.1198
Changes in interest rates do not significantly impact the Group’s position as at 31 December 2020.
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.
The bonds interest rates are fixed by agreements.
Changes in interest rates at the reporting date would not significantly affect profit or loss.
Other risks
IAS 1 requires to disclose the risks and measures to meet these risks related to external
requirements to the capital. There are no external requirements to the capital effective at present.
Group’s external borrowings are bonds which do not require special capital requirements.
62
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(e) Fair values versus carrying amounts
Management believes that the fair value of the Group’s financial assets and liabilities approximates
their carrying amounts.
Categories of financial instruments
Financial assets (includes cash)
Trade and other receivables at amortized cost
Cash at amortised cost
Financial liabilities – measured at amortized cost
Trade and other payables at amortized cost
Trade payables at fair value through profit and loss
Loans and borrowings at amortized cost
2020
$’000
2019
$’000
-
702
702
1,614
60
936
2,610
18
647
665
573
59
-
632
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.
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 2020 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 2020 adjusted for the
discount for AMV / calcium molybdate versus vanadium pentoxide / molybdic oxide, 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 / molybdic oxide prices
and AMV / calcium molybdate. Fair value of this trade receivables and payables at FVTPL is
categorized at Level 3. During the year there were no transfers between levels of fair value
hierarchy.
63
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
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
2024
Tonnes
15,000
15,000
15,000
15,000
15,000
545,000
763,000
2025 onwards
Increase to 1,000,000 per
year starting from 2025
Training costs should be equal to 1% of the Group’s capital expenditures on subsoil
activities. Training costs in 2020: US$ 2,000 (2019: US$ 4,000)
Research and Development should be equal to 1% of income from subsoil activities. Costs
in 2020: US$ 13,700 (2019: US$ 11,000)
The addition to the liquidation fund should be equal to 1% of the costs of mining ore: 2020:
US$ 12,000 (2019: US$ 12,000)
Expenditure on social development of the Shieli region should be equal to 1.5% of the
costs of mining ore. 2020 costs: US$ 400 (2019: US$ 500).
All obligations have been complied except for certain exploration work programme obligations The
Company has applied for the changes in the Subsoil Use contract given the force-majeure situation
because of the Covid-19 in 2020. The changes that the Company has requested are related to
transfer of 15 thousand tons mining ore from 2020 and 2021 to 2022 and 2023. As the result the
obligation for mining in 2020 and 2021 will be equal to 0 tons; 2022-2024 will be equal to 15 K
tons and starting from 2025 1 million tons of ore per year. The request is in the process of review
with the government.
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.
64
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(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.
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.
2020
Revenue
Cost of sales
Other income
Administrative expenses
Distribution & other expenses
Finance costs
Loss before tax
2019
Revenue
Cost of sales
Other income
Impairment charge
Administrative expenses
Distribution & other expenses
Finance costs
Loss before tax
Processing
$000
Subsoil
$000
Corporate
$000
Total
$000
2,373
(3,779)
8
(990)
(178)
(68)
-
-
-
-
-
-
2,373
(3,779)
8
(25)
(1,218)
(2,233)
-
-
-
(65)
(178)
(133)
(2,634)
(25)
(1,283)
(3,942)
Processing
$000
Subsoil
$000
Corporate
$000
Total
$000
1,841
(3,178)
20
-
(556)
(51)
(203)
(2,127)
-
-
-
-
(49)
-
-
(49)
-
-
50
-
1,841
(3,178)
70
-
(1,236)
(1,841)
-
20
(51)
(183)
(1,166)
(3,342)
65
Ferro-Alloy Resources Limited
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
Included in revenue arising from processing are revenues of US$ 2,3m (2019: US$1.5m) which
arose from sales to two Group’s largest customers. No other single customer contributes 10 per
cent or more to the Group’s revenue.
The sales to two largest customers were (in US$) in 2020:
London Chemicals (UK)
2.0m (87%) (2019: 2.2m (87%));
Sideralloys SA (Switzerland)
0.3m (12%) (2019: nil)
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
2020
$000
2019
$000
527
450
Refer to note 24 for details of payables to key management and the Directors’ Report for shares
issued to key management. Amount of wages and salaries that are outstanding at 31 December
2020 equal to $0.5m.
(b) Transactions with other related parties
The Company has issued 382,025 shares to each of Mr. Thomas and Mr. Turian for their services
as non-executive directors for the fourth quarter of 2019 and the whole of 2020, amounting to
$37,500 each.
30 Subsequent events
Investment agreement
On 15 March 2021 the Company signed an Investment Agreement with Vison Blue Resources
Limited under the terms of which Vision Blue Resources has agreed to make investments of
$10.1m subject to certain conditions, and has options to invest a further $32.5m at varying prices
per share. In pursuit of this agreement, the Company issued 24,741,021 ordinary shares for cash at
a price of 9 pence per share to raise $3.1m to finance the further expansion of the existing process
plant and completion of the bankable feasibility study.
Subscription for bonds
On 8 February 2021 investors subscribed for 58 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 7.0%, paid
twice-yearly.
On 12 March 2021 investors subscribed for 184 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 7.0%, paid
twice-yearly.
66