KEFI Gold and Copper Plc
Annual Report 2018

Plain-text annual report

E M E R G I N G G O L D M I N E R 2018 ANNUAL REPORT KEFI Minerals Plc ANNUAL REPORT 2018 Focused on the Arabian-Nubian Shield Page 1 Table of Contents Mission and Approach ............................................................................................................................................ 2 Executive Chairman’s Report ................................................................................................................................. 3 Tulu Kapi - Open Pit Production Targets ............................................................................................................4 KEFI’s Exploration Programs ...............................................................................................................................5 Capital Management ..........................................................................................................................................5 Annual General Meeting ....................................................................................................................................6 Finance Director’s Report ....................................................................................................................................... 7 Equity Funding ....................................................................................................................................................7 Partnering with Local Investors at the Project Level ..........................................................................................7 Tulu Kapi Development Funding ........................................................................................................................8 KEFI Working Capital Funding .......................................................................................................................... 10 Organisational Development ................................................................................................................................11 Social Licence .......................................................................................................................................................13 Ethiopia .................................................................................................................................................................14 Tulu Kapi - Background .................................................................................................................................... 14 Tulu Kapi – Permits and Mining Agreement .................................................................................................... 14 Tulu Kapi - Geology .......................................................................................................................................... 15 Tulu Kapi – Resources and Reserves ............................................................................................................... 15 Tulu Kapi - Definitive Feasibility Study and Subsequent Optimisation ........................................................... 16 Tulu Kapi - Development ................................................................................................................................. 17 Tulu Kapi – Potential for Underground Mine .................................................................................................. 18 Tulu Kapi –Exploration Licence Applications ................................................................................................... 19 Saudi Arabia .........................................................................................................................................................22 Saudi Arabia - Hawiah ...................................................................................................................................... 23 Saudi Arabia - Jibal Qutman ............................................................................................................................ 27 Glossary and Abbreviations ..................................................................................................................................29 Competent Person Statement ..............................................................................................................................30 Directors, Secretary and Advisers ........................................................................................................................31 Consolidated Financial Statements ......................................................................................................................32 Note: All $’s in this report are US$’s. KEFI Minerals Plc ANNUAL REPORT 2018 Page 1 Mission and Approach KEFI’s mission is to cost-effectively discover or acquire economic mineralisation and to follow through with responsible mine development and production in compliance with local laws and international best practice. The geological region of focus is the Arabian-Nubian Shield, due to its world-class prospectivity combined with our expertise both locally and internationally. KEFI partners with appropriate local organisations of standing, such as ARTAR in the Kingdom of Saudi Arabia and, in Ethiopia, local investment company ANS Mining and the Ethiopian government. Operationally, we align with industry specialists such as Lycopodium and Ausdrill/African Mining Services - selected as our principal project contractors for KEFI’s first development project, Tulu Kapi Gold Project in Ethiopia. KEFI was initially led by exploration specialists and now our organisational development has seen the appointment of management teams with long-standing track records in mine development and operation in Africa and elsewhere. Our specific purpose at the Tulu Kapi Gold Project is set out in the Tulu Kapi Mining Agreement between the Ethiopian Government and KEFI, which incorporates several foundation documents including development and operating plans, an Environmental and Social Impact Assessment and the Community Resettlement Action Plan and Development Plan which comply with International Finance Corporation (World Bank) Performance Standards and Equator Principles. Upon triggering Tulu Kapi’s full development, KEFI intends to launch exploration programs in the district surrounding Tulu Kapi. We have already mobilised field programs at Hawiah in Saudi Arabia within the Wadi Bidah Mineral District, which contains large-scale VMS targets for gold and copper. We are confident in our mission, assets, partners, and team. We look forward with great determination and anticipation to proceed with our next chapter from KEFI’s pole position in both Ethiopia and Saudi Arabia, after what can only be described as a long and tough establishment period with challenging geopolitics and markets. KEFI Minerals Plc ANNUAL REPORT 2018 Page 2 Executive Chairman’s Report It is with great sorrow that I report the recent passing of our Chairman, Mr Mark Wellesley-Wood. He was a gentleman of the highest integrity and discipline, a true professional who made a great contribution to the industry internationally over decades. Mark also made a significant contribution towards the development of KEFI. Mark joined our Board of Directors in mid-2016, eighteen months after KEFI entered Ethiopia to take control of the Tulu Kapi Gold Project, which had over US$40 million spent on it by the previous controllers and was in need of an overhaul both technically and financially. Mark made a significant contribution to guiding that overhaul and was also a great morale- builder and supporter. What initially appeared to us to be an 80,000 oz per annum gold project is now planned to be 140,000 per annum gold producer. We progressed the project despite the challenges around us such as the Ethiopian political unrest from late 2015 with States of Emergency introduced in October 2016 and finally lifted in June 2018. In short, since taking control of Tulu Kapi, we spent a further US$20 million on what is now a robust project. Various development activities have already started – the Government of Ethiopia has committed US$20 million (Ethiopian Birr equivalent) to install the offsite infrastructure in exchange for earning project equity and has started the detailed design and tender preparation process. We expect to shortly see full development programs initiated by the project subsidiary Tulu Kapi Gold Mines Share Company (“TKGM”) with the support of the three project partners – KEFI, the Ethiopian Government and our Ethiopian private sector partner, ANS Mining Share Company (“ANS Mining”), which has committed a total of US$38 million (Ethiopian Birr equivalent) staged in two tranches. The next step is community resettlement and detailed engineering and procurement for the on-site infrastructure. Then full funding can be closed and major construction works can commence. Subject to receiving a confirmatory letter from the Ethiopian central bank as regards already-agreed project finance terms, we will have received all regulatory consents and financial commitments to trigger the development program (starting with community resettlement and detailed engineering and procurement). What remains then is for TKGM’s next equity funding round to close with ANS Mining. The terms for the first tranche of US$11.4 million (Ethiopian Birr equivalent) have already been agreed and we are assembling the updates to TKGM shareholder agreements on already-agreed terms and liaising with the regional government to grant permission to start the resettlement of the community. Whilst KEFI remains reliant on the performance of its counterparties, this intertwined set of steps is now in hand. KEFI now sits at the forefront of our sector in one of the world’s great under-developed minerals provinces – the Arabian- Nubian Shield (“ANS”). We have established a solid platform to pursue our ambition to discover and develop profitable mining opportunities in Ethiopia and Saudi Arabia and thus build shareholder value. This has been done despite a time of weak geopolitics and market cycle. There have been consequential timetable slippages and increases in the cost of capital that has resulted in shareholder dilution. I would like now to look forward and refer to certain aspects of the environment that we work within, as well as the specifics about our own situation and plans. Firstly, the wider environment for gold and the companies within the junior gold mining sector: according to the World Gold Council, central banks lifted their gold purchases by 68% in the first quarter of 2019 and we have concurrently seen a sharp recovery in investor sentiment in both equity and debt markets. On the other hand, it is obvious to KEFI shareholders that this recovery has not flowed through to our sector of explorer-developers as indicated by the VanEck Junior Gold Miners ETF - which is still trading at levels of only circa 20% of when the gold price peaked in 2011. So, whilst it appears that the current global macro environment is now conducive for an increase in gold sector indices from current cyclical lows, such an increase has yet to occur. With regards to the geopolitical environment of the countries within which we operate: - with hindsight we can see that the political and regulatory environment of Ethiopia and Saudi Arabia severely restricted our progress until recently. Not only did we have the States of Emergency in Ethiopia, but in Saudi Arabia minerals tenements were effectively frozen pending an overhaul of many aspects of the Saudi Government. It is a relief that we can can also see that both countries took major steps forward during 2018, with newly-appointed pro-development Government leadership in both countries making huge improvements including within our sector. Fortunately KEFI’s standing in both countries is that of a steadfast and respected operator of joint ventures with strong local partners and exciting ground positions. Thus we are well positioned to benefit from this new environment. In our view KEFI has control of the most attractive project in each country : in Ethiopia we control the only ready to develop project which also comes with a reserved area of 1,900 square kilometres of the surrounding district containing many advanced drill-out targets for satellite deposits. In Saudi Arabia we control a 120 kilometre long belt containing 24 Volcanogenic Massive Sulphide (“VMS”) systems, any one of which has the potential to be a company maker. KEFI Minerals Plc ANNUAL REPORT 2018 Page 3 Against this improving backdrop of a great land position, improved markets and geopolitics, KEFI will push forward and should, we believe, be in a more supportive environment than has been evident for some time. We believe that we have the opportunity to make rapid progress and to stand-out in what will sooner or later be a cyclical turnaround for the sector. This targeted success will have resulted from our focus and tenacity over the past years and should be opportune timing for the start up of our first operating unit and for us to also go onto the front foot with exploration in both Ethiopia and Saudi Arabia. Our first production is planned at Tulu Kapi in the Oromia Region of Western Ethiopia. The planned Tulu Kapi open pit gold mine and processing facility is typical of many such “open-pit-CIL-gold-projects” around the world and uses standard technology and industry practices long-applied in mature highly-regulated mining jurisdictions such as Scandinavia, Australia and North America. Tulu Kapi has a 1.0 million ounce gold ore reserve and 1.7 million ounce mineral resource. Tulu Kapi will also provide an operating base in the heart of Ethiopia’s most prolific gold district where gold has been mined for millenia. From a social-licence viewpoint, it is notable that the KEFI-controlled licencee and operating company TKGM is a joint Ethiopian-KEFI company with long-standing community support and a strong commitment to maximising local participation in the workforce and supply chain. TKGM, like KEFI, emphasises transparency in all dealings and compliance with leading international standards for social and environmental aspects including World Bank IFC Principles and the Equator Principles. Whenever civil unrest has affected our area, the local community and authorities have protected TKGM. From a price-risk viewpoint, we have designed the development and finance plans to withstand a flat gold price for the next ten years of US$1,050/oz – which is the lowest gold price experienced in the past five years. The average gold price during the past five years was approximately US$1,300/oz and that has been adopted as KEFI’s base case flat gold price assumption for financial projections for the next ten years. From an upside maximisation viewpoint, it is notable that KEFI has reserved the exploration rights to an area of 1,900 square kilometres of prospective ground with walk-up drill targets within trucking distance of Tulu Kapi. It is also notable that a 10% increase in either production or gold price above our base case assumption of 140,000 oz p.a. and US$1,300/oz, increases project NPV by c. 50%. And it is also notable that the upside potential of our ground position in Ethiopia is actually surpassed by that in Saudi Arabia, albeit earlier days for those projects. Our current schedule is to commence the full development program in Ethiopia as soon as possible upon closing of the next project-equity injection and to trigger the first phase of community resettlement when so instructed by the Regional Authorities, to target commissioning Tulu Kapi towards the end of 2020, with full gold production from mid-2021 at an average annual rate of 140,000 ounces from the open pit. Because of recent looting and isolated incidents of inter-ethnic violence, we liaise with the authorities to ensure safe processes at all times commencing with resettlement phase I. Tulu Kapi - Open Pit Production Targets KEFI’s financial targets for the Tulu Kapi open-pit include: • Gold production of 140,000 ounces per annum for seven years; • At a flat average gold price of US$1,300/oz: o All-in Sustaining Costs of c. US$800/oz (ignoring financing charges); o All-in Costs (“AIC”) c. US$1,000/oz; o After-tax, leveraged IRR of 56%; o After-tax, leveraged NPV (8% discount rate) of US$117 million at start of construction; o After-tax, leveraged NPV (8% discount rate) of US$193 million at start of production; o Payback of 3 years; and o Average EBITDA of US$80 million per annum and average net cash flow (after debt repayments and all planned commitments) of US$30 million per annum. • A circa 50% increase in NPV results from either a 10% increase in gold price or a 10% increase in product output. Our development plan reflects, among other things, a fixed price, lump-sum processing plant “design and supply contract” with Lycopodium and a warranted ore processing rate of 1.9-2.1 million tonnes per annum. The plant assembly aspect of the development is planned as a reimbursable cost-based arrangement. The overall contractual package for the process plant includes incentives and penalties for performance and ongoing operational support as required. The mining services agreement is a conventional schedule of rates agreement under which Ausdrill subsidiary African Mining Services provides the mining equipment, systems and operators and gets paid for performing according to the KEFI/TKGM plans and directions. KEFI Minerals Plc ANNUAL REPORT 2018 Page 4 KEFI bases the finance structure on the numbers and schedules in the 2018 Plan, founded on the JORC (2012) based Ore Reserve Report (Snowden 2015), and the refined Definitive Feasibility Study as optimised with the principal contractors. We have then run a range of sensitivity analyses to ensure robust coverage of fixed obligations under a range of scenarios. The plans and sensitivity analyses have then been reviewed by the Independent Technical Expert (Micon 2018). KEFI’s Exploration Programs The ANS has been the Company’s primary focus since 2008 when KEFI was invited to be the operator of an exploration joint venture in the Kingdom of Saudi Arabia. Our experience since then has reinforced our excitement by the opportunity provided and we have since established our pole position in the region. KEFI has, through its local-joint venture companies, a nearly 3,000 square kilometre portfolio of exploration properties at various stages within the highly prospective ANS. We have formulated an ambitious exploration program to advance in parallel with the development at Tulu Kapi. In Saudi Arabia exploration of the Wadi Bidah Mineral District (“WMBD”) is our primary focus as this provides the potential for discovery of world-class gold-copper deposits. The WMBD is a large area with 24 large VMS systems having been identified. Field work has commenced at the Hawiah Exploration Licence with drilling scheduled for later in 2019. Other VMS systems have already been developed within the ANS in recent years, with several being of a scale many times that of our Tulu Kapi Gold Project. As usual since our entry into Saudi Arabia in 2008, the tenement applications are made by ARTAR on behalf of our joint venture company Gold & Minerals Limited (“G&M”), which is owned 40% by KEFI and 60% by ARTAR. This has proved efficient for a number of reasons and KEFI has the right to instruct that the tenements be transferred to G&M. Early on, we demonstrated the prospectivity of our tenements by discovering gold at Jibal Qutman in Saudi Arabia and quickly delineated Mineral Resources totalling 733,000 ounces of near-surface gold. That was a good start and further drilling has a very good chance of increasing oxide gold resources on the granted Exploration Licence (“EL”) and surrounding pending ELAs. But, in the meantime, that project is on hold awaiting Mining Licence tenure confirmation whilst we focus on the much bigger play at WBMD. In Ethiopia, we are also keen to test VMS prospects on our application areas under KEFI subsidiary KEFI Minerals (Ethiopia) Limited (“KME”) in which high-grade copper and gold has been drilled. The most advanced exploration target is the continuation of the Tulu Kapi deposit below the planned open pit. There is significant potential to expand Tulu Kapi’s Mineral Resource as it remains open along strike, down plunge and at depth. The economic potential is also enhanced by the gold grades increasing with depth as well as the ore lenses thickening, making underground mining potentially attractive. Average grade of the Mineral Resource below the planned open pit is 5.7 grammes per tonne. A number of other gold prospects have been identified within trucking distance of Tulu Kapi. Proposed exploration activity will be significantly expanded with this focus, as these prospects have the scope and potential to add substantial value by providing additional ore to the Tulu Kapi processing facility. The potential of the ANS has recently been more widely recognised and the world’s two largest gold companies, Barrick Gold and Newmont Mining, are now active in Saudi Arabia and Ethiopia respectively. Capital Management The business model of the Company has always been to raise equity capital to fund the next stage of exploration and development. At the same time, KEFI has worked hard to minimise Tulu Kapi’s development funding requirements through engineering, contracting and project finance, which have been designed to provide an economically robust project and an appropriate financing plan. Nearly all capital requirements are to be met at the project level by the combination of project contractors, partners and financiers. Looking forward, the Company’s projections show significant value generating upside to shareholders from Tulu Kapi alone, let alone from the pipeline of other value-adding opportunities. KEFI Minerals Plc ANNUAL REPORT 2018 Page 5 Annual General Meeting We are extremely grateful for the patience and support of the community in Tulu Kapi, the contractors Ausdrill and Lycopodium, our hard-working small organisation of highly-experienced personnel and, of course, our extremely patient shareholders. We run a tight and low-cost operation with all our key people and their families are themselves shareholders. We would welcome the opportunity to meet shareholders at the Annual General Meeting at 11am on Friday 28 June 2019 at Marlin Hotel, 111 Westminster Bridge Road, Waterloo, London, SE1 7HR. After the formal meeting, we will have an informal presentation and discussion. Those of you who are unable to attend are encouraged to submit questions to info@kefi-minerals.com. Yours faithfully, Harry Anagnostaras-Adams Executive Chairman. 4 June 2019 KEFI Minerals Plc ANNUAL REPORT 2018 Page 6 Finance Director’s Report Before reporting our activities and plans, I would like to set out some of the foundations of our financing philosophy. First, because of the weak stock market for our sector in recent years, we have arranged nearly all of the capital for the development of Tulu Kapi at the project level, in TKGM. And because of our tight cost control, we run our corporate office in Nicosia at a fraction of what the cost would be in London. The management and control and the substance of the Company is located in Cyprus. Other than our Nicosia-based corporate management and financial control and corporate governance team, all operational staff are based at the sites for project works. In order to further reduce cash outflows and align management and shareholders, all senior management and some other service providers agreed to take KEFI shares in lieu of a significant portion of salary or fees. The delays over the past few years, during which both Ethiopia and Saudi Arabia have undergone substantive political changes, cost KEFI dearly in having to raise capital at disappointingly low share prices to fund our activities. And whilst we cannot underestimate the work ahead to close all our financings and start development, we can certainly say that we have assembled a first-class platform to complete the task. Equity Funding KEFI’s acquisition of the Tulu Kapi Gold Project in 2014 also brought to our Company all the shareholders of the previous project owner. To strengthen the share register at that time, we introduced two major UK financial institutions as KEFI shareholders. Those particular institutions have since liquidated their junior mining portfolio including their KEFI holdings. Today we have a number of smaller institutional shareholders such as African-focused investment funds and the only shareholders with over 10% of the Company are the combined holdings of management and contractors. In June 2018, KEFI completed a £5.5 million placing of ordinary shares at 2.5p per share, with existing and new shareholders, contractors and senior management. In December 2018, KEFI shareholders approved a £4 million secured working facility convertible at 2p per share, with long- standing shareholder Sanderson Capital Partners Limited, with fees payable in shares at 2 pence per share, in lieu of interest. Partnering with Local Investors at the Project Level Project level funding arrangements are summarised in the chart below. Proposed Finance Structure KEFI Minerals Plc ANNUAL REPORT 2018 Page 7 Partnering in Saudi Arabia In the Kingdom of Saudi Arabia, KEFI conducts all its activities through Gold and Minerals Co. Limited (“G&M”), our joint venture company with Abdul Rahman Saad Al Rashid and Sons Limited (“ARTAR”). KEFI is operator with a 40% interest and ARTAR has 60%. KEFI is fortunate to have such a large and strong Saudi group as a partner. G&M has assembled a large and prospective portfolio of exploration licences and applications. Having made a gold discovery at Jibal Qutman and pegged a large prospective portfolio of targets elsewhere, the joint venture looks forward to development and expansion in the minerals sector which the Saudi Government has made a national strategic priority. Partnering in Ethiopia KEFI has signed agreements to establish joint venture companies in Ethiopia, with partners from both the Government sector and private sector. KEFI’s wholly-owned subsidiary KEFI Minerals (Ethiopia) (“KME”) and the Government of Ethiopia formed Tulu Kapi Gold Mines Share Company (“TKGM”) in 2017 as the project company for developing Tulu Kapi. The exploration projects outside the Tulu Kapi Mining Lease area are not part of TKGM and remain within KME. In May 2017, the Government of Ethiopia formally committed to a US$20 million equity investment in TKGM. In February 2018, the Ethiopian Ministry of Mines, Petroleum and Natural Gas formally transferred the Mining Licence from KME to TKGM in accordance with the agreed plan. In September 2018, KEFI reached agreement with an Ethiopian investment syndicate named ANS Mining Share Company (“ANS Mining”) for a proposed equity investment in TKGM for the Ethiopian Birr equivalent of US$30 million. ANS Mining has subsequently agreed to increase its equity commitment from US$30 million to US$38 million. Two-thirds of the ANS Mining investment is for a 22% equity interest in TKGM and the remaining one-third is for a 20% equity interest in KME. Based on current estimates of capital spending and capital contributions, KEFI will be majority owner of KME which in turn will be majority shareholder of TKGM. Upon closing of project finance, the ownership of the Tulu Kapi Gold Project via TKGM would be circa: • • • 22% by the Ethiopian Government; 22% by ANS Mining; and 56% by KME. KME would be owned 80% by KEFI and 20% by ANS, which results in KEFI’s beneficial ownership of TKGM being c. 45% and ANS Mining’s beneficial ownership of TKGM being c.33%. The Government has approved its budget allocations for the TKGM investment and has started the associated works it needs to fund. Project equity investment by ANS Mining is the next step in the plan and will allow project development to commence with equity funds from the three partners in TKGM (KEFI, Government and ANS Mining) to forestall the schedule for drawing down (and in due course repaying) the non-equity funding. Tulu Kapi Development Funding The Tulu Kapi Gold Project consortium now includes KEFI, the Government of Ethiopia, the project contractors Lycopodium and Ausdrill, ANS Mining, and the proposed infrastructure financiers. Excluding the past investment of c. US$55-US$60 million to the end of 2018 and also excluding the c. US$50 million mining equipment supplied by the mining contractor, the overall US$242 million funding plan for Tulu Kapi is summarised in the tables in the table below: KEFI Minerals Plc ANNUAL REPORT 2018 Page 8 Application of Funds On-site Infrastructure Mining Off-site Infrastructure Owner's Costs (community, working capital, management, spares, contingency, Interest during grace and other finance effects Aggregate Funding Requirements Sources of Funds TKGM Equity 2019 - Government - ANS Mining - KEFI Sub-Total Working Capital Facility Infrastructure Finance Aggregate Sources US$ millions 106.3 28.6 20.0 54.5 32.8 GBP millions 81.8 22.0 15.4 41.9 25.2 242.2 186.3 US$ millions GBP millions 20.0 38.0 10.0 68.0 14.2 160.0 242.2 15.4 29.2 7.7 52.3 10.9 123.1 186.3 Note: The KEFI equity 2019 contribution sourced from cash, working capital facility and refunds on closing of full funding. In May 2018, KEFI announced that it formally mandated ACT Capital the bond arranger for the infrastructure finance, to be sourced from the placement of US$160 million of Listed Infrastructure Bonds (the “Bonds”). Having completed independent reviews of the project, this process is currently awaiting TKGM triggering the bond-implementation program which can proceed upon receipt of the final clearance of the structure from the Ethiopian central bank. Upon successful completion of all compliance procedures including due diligence, documentation and private placement of the Bond issue, the planned Luxembourg-listed Bonds will fund ownership by the Luxembourg-regulated Finance SPV of the gold processing plant and ancillary infrastructure at the Tulu Kapi Gold Project for lease to TKGM. Subscription of the planned infrastructure finance will be timed to accommodate project construction activities. Indicative terms for the infrastructure finance Bonds include a 9-year tenor with a 2.5-year grace period. The overall amount of the funding package includes planned safety buffers to protect the Bond Investors. The plant and ancillary infrastructure will be built and its performance guaranteed by Lycopodium, which is one of the leading gold plant specialist engineering groups and has an exemplary track-record in Africa, where it has built many such plants for over 20 years. The open pit mine will be built and operated by Ausdrill, through its wholly-owned subsidiary, African Mining Services Limited, which has been a leading African mining contractor for over 25 years. The off-site infrastructure will be built and operated by the Ethiopian Roads Authority and the Ethiopian Electric Power Corporation. Both of these Ethiopian Government entities have received budget approval and are readying sub-contractor tender documentation. Subject to receiving a confirmatory letter from the Ethiopian central bank as regards some already-agreed but formally outstanding matters, the Ethiopian Finance Ministry and Central Bank will have approved the terms of the proposed project finance package, subject to approving final closing documentation. These terms include the right to use leasing, a debt/equity capital ratio of up to 70/30, recognition of historical expenditure in the calculation of the capital ratio, the right to use gold price hedging and the application of market-based long-term fixed interest rates. Whilst these matters are conventional mining project finance terms, they are new to Ethiopia and it has been considered important to ensure all stakeholders are in full agreement before commencing activities on the ground. KEFI Minerals Plc ANNUAL REPORT 2018 Page 9 Once these closing requirements are confirmed by KEFI to ANS Mining, TKGM expects to receive the initial US$11.4 million (Ethiopian Birr equivalent) subscription. This will place TKGM in the position that all three of its shareholders (KEFI, Government and ANS Mining) are contributing to the equity funds being used to kick off the two-year development program. KEFI and the Government have already been contributing. The local Government has approved the community compensation and TKGM is preparing to trigger the first phase of community resettlement when cleared to do so by the Regional Government. Likewise, the infrastructure finance program must comply with its own regulatory compliance requirements. Whilst that process has already completed formal reports from the Independent Technical Expert (Micon) regarding the project technical aspects and associated risk reports, implementation is suspended and awaits KEFI/TKGM confirmation that it is ready to trigger full implementation. The planned sequence is to kick-off development with project equity capital and to close the balance of the full project funding package before starting major construction works. This sequencing serves a number of important purposes, including that it extends the production ramp-up period and consequential cash build-up before debt-service commitments commence at the end of the project-finance grace period. Whilst the challenges of structuring and implementing project financing in emerging or frontier markets have created the many reported delays and costs, the finance plan is reasonably conventional for mining project finance internationally and we are now in the stages of implementation for development start-up. The balance sheet of TKGM at full closing of all project finding will reflect all equity subscriptions which are currently estimated to exceed US$120 million (Ethiopian Birr equivalent) along with the all assets and liabilities in accordance with IFRS. Accounting Policy KEFI writes off all exploration expenditure. KEFI’s carrying value of the investment in KME, which hold the Company’s share of the Tulu Kapi Gold Project currently under development is £ 4.6 million as at 31 December 2018. It is important to note KEFI’s planned 45% beneficial interest in the underlying valuation of Tulu Kapi Gold Project is £41 million at 31 December 2018 based on project net present value. In addition, the balance sheet of TKGM at full closing of all project funding will reflect all equity subscriptions which are currently estimated to exceed £94 million or US$120 million (Ethiopian Birr equivalent). KEFI Working Capital Funding The planned project-level funding is all aimed at allowing TKGM to stand on its own feet when it is reasonably possible, with its three supportive shareholders along with its project financiers and contractors. Pending TKGM becoming self-sufficient, KEFI has continued to provide all management and financial support required and will continue to do so as required as TKGM establishes its structures. The ability of KEFI to maintain its support for TKGM whilst it establishes itself is based on its own support in the capital markets and an appropriate reference to going concern risk is provided in the Audit Report, as has been the case since the formation of the Company. The financial support provided by KEFI for TKGM has been sourced by KEFI from issues of ordinary equity capital and we recently introduced a convertible, secured working capital facility from a long-standing shareholder. From time to time we have availed ourselves of short-term bridging advances for working capital from other supportive shareholders. The KEFI Notice of Annual General Meeting include several proposed resolutions to provide Directors with requested refreshment and updating of delegated authorities and ensuring adequate flexibility in managing working capital whilst proceeding with the implementation of full project finance closing for Tulu Kapi Gold Project and other activities planned for the next twelve months. John Leach Finance Director 4 June 2019 KEFI Minerals Plc ANNUAL REPORT 2018 Page 10 Organisational Development As KEFI Minerals prepares to develop Tulu Kapi, the Company’s senior management team was expanded in early 2018 with the appointments of the following individuals to the senior team alongside the Executive Chairman and Finance Director: • David Munro, Operations – mining engineer who previously was Managing Director of Billiton BV and President Strategy and Development of BHP Billiton; • Eddy Solbrandt, Systems – founder of GPR Dehler, an independent, international management consultancy which specialises productivity improvement for mining companies worldwide; • Brian Hosking, Exploration and Technical Planning – originally a geologist, he founded Meyer Hosking and has also focussed on human resources for the mining industry; and • Norman Green, Head of Projects – founder of Green Team International, a longstanding project management consultancy to the extractive industries. The expanded senior executive team supports the subsidiary Boards and operating teams on the ground. Wayne Nicoletto is Managing Director, Ethiopia – a metallurgical engineer who has led the start-up and operation of mines in Africa and elsewhere over many years. Appointments have also been made within the team under Wayne including Project Manager AK Roux and Senior Site Services Manager Pete Smith who work with External Relations Head Dr Kebede Belete and others in our great social licence and project planning teams. Jeff Rayner is Exploration Adviser, since stepping down as Managing Director in 2014. The Boards of Directors of KEFI and the joint venture companies have also evolved over the past year as the Company prepares for its next chapter. KEFI • • TKGM In July 2018, KEFI separated the roles of Chairman and Managing Director. Mark Wellesley-Wood assumed the role of Non-Executive Chairman and Harry Anagnostaras-Adams the role of Managing Director. Following the passing of Mark Wellesley-Wood in late April 2019, Harry Anagnostaras-Adams resumed the role of Executive Chairman, and that role will be adjusted appropriately as we proceed. In September 2018, Mark Tyler was appointed to the KEFI Board as an additional independent Non-Executive Director. Mark was previously a mining investment banker in London and South Africa, including as co-head of Mining and Resources Finance at Nedbank, a South African bank. He is currently also a senior resources advisor to Exotix Capital and the London representative for Auramet International, a precious metal merchant financier. He therefore brings considerable mining finance expertise to the Board. The TKGM Board of Directors comprises four directors from KEFI (including the chairman with casting vote), two directors from each of the other two shareholders: • • • The directors from the Ministry of Finance of the Government of Ethiopia are Ato Getachew Negera, Ministerial Policy Adviser, and Ato Bochu Sentayehu, Director-Legal of Ministry of Finance; The directors from ANS Mining are Ato Hailemelekot Teklegeorgis (former Federal State Minister of Finance and current chairman of a major Ethiopian bank) and Ato Wondwossen Zeleke (long-standing natural resources senior executive in Ethiopia and internationally); and The directors from KEFI are Harry Anagnostaras-Adams (Chairman), John Leach, Wayne Nicoletto (Managing Director), Kebede Belete (external relations). KEFI Minerals Plc ANNUAL REPORT 2018 Page 11 ANS Mining has also nominated two special advisers to the TKGM Board: • Ato Zafu Eyessuswork Zafu (former chairman of Ethiopian Chamber of Commerce and current chairman of a major Ethiopian bank and insurance group); and • Major General Alemshet Degife (former head of the Ethiopian Air Force). An ANS foundation shareholder and Director, Ato Demissie, is a leading investment banker who has played a key role in various key business development initiatives in Ethiopia and is doing likewise in the case of the gold sector and TKGM specifically. G&M The G&M Board of Directors comprises three from ARTAR and two from KEFI: Sheik Abdulrahman al Rashid (Chair), Sulaiman al Rashid and Omran al Rashid; and • • Harry Anagnostaras-Adams and Brian Hosking (Chief Executive). The Boards are confident of our strategy and asset base. We have the appropriate mix of local leaders and industry- experienced technical and financial expertise to prudently progress our projects into profitable mines and we have an organisational development plan for each entity which will see requisite human resources added with recruitment as we progress. A key feature of the KEFI approach is for the operating companies to become truly local companies with maximum local employment to be developed as early as responsibly possible. For instance, at TKGM more than 1,000 jobs are being created through the region around Tulu Kapi during construction. KEFI Minerals Plc ANNUAL REPORT 2018 Page 12 Social Licence Corporate social responsibility is an often over-used term but in KEFI’s case it is a core function which today dominates our daily activities in Ethiopia in particular because of the profound changes we are about to introduce to a farming community in Western Ethiopia. Detailed plans have been set out and approved by the authorities and are designed to comply with Ethiopian law and also international standards, summarised in International Finance Corporation (a division of the World Bank) principles and the Equator Principles. The Tulu Kapi project has never been interrupted in the 14 years of its activities, including the recent years of civil unrest. This record reflects the great care and discipline applied in community engagement and participation. The community not only supports the project, but the project is integrated into the community very deliberately and consistently. The following conceptual summary slide captures some of the key aspects of our social licence. KEFI Minerals Plc ANNUAL REPORT 2018 Page 13 Ethiopia Following completion of the DFS in 2015, Tulu Kapi continued to progress towards development with the appointment of contractors and subsequent work to further improve project economics. Gold production is currently estimated to average 140,000 ounces per annum over the seven years of mining the open pit. Estimated All-in Sustaining Cost is in the order of US$800/ounce, much lower than the industry average. All aspects of the Tulu Kapi (open pit) gold project have been reported in compliance with the JORC Code (2012) and subjected to reviews by appropriate independent experts. These plans now also reflect agreed construction and operating terms with project contractors. Ore Reserves of 1.0 million ounces and Mineral Resources of 1.7 million ounces have significant upside potential. Tulu Kapi - Background is Tulu Kapi located approximately 360km due west of Ethiopia’s capital, Addis Ababa. A main road to Addis Ababa has now been sealed to within 12km of Tulu Kapi. The altitude of the project area is between 1,600m and 1,765m above sea level. The climate is temperate with annual rainfall averaging about 150cm. The surface topography around Tulu Kapi is hilly with deeply dissected river valleys. Subsistence farmers primarily grow coffee, crops and fruit. The Tulu Kapi gold deposit was discovered and mined on a small scale by an Italian consortium in the 1930s. Nyota Minerals Limited acquired the project in 2009 and then undertook extensive exploration which culminated in an initial DFS in December 2012. drilling and Location of Tulu Kapi in Ethiopia. Tulu Kapi – Permits and Mining Agreement The Tulu Kapi Mining Agreement (“MA”) between the Ethiopian Government and KEFI was also formalised in April 2015. The terms of the MA include: • Renewable 20-year Mining Licence covering an area of 7km2, with full permits for the development and operation of the Tulu Kapi gold project. Fiscal arrangements: • o 5% Government free-carried interest; o Royalty of 7%; o o Historical and future capital expenditure is tax deductible over four years; and o Stabilisation of fiscal arrangement to protect KEFI in case of future legislative changes. Income tax rate for mining of 25%; • Government undertaking to facilitate international financing arrangements for this new project in this new sector. Attachments to the MA include the Environmental and Social Impact Assessment, the Development and Production Work Programme and the Community Resettlement Action Plan. Some key approvals are now on the critical path for the project financing to close according to schedule. KEFI Minerals Plc ANNUAL REPORT 2018 Page 14 Tulu Kapi - Geology The Tulu Kapi region has typical Precambrian geology which is characterised by prominent hills of intrusive rocks and deeply incised valleys containing metasediments and metavolcanic rocks. Gold at the Tulu Kapi deposit is hosted in quartz-albite alteration zones as stacked sub-horizontal lenses in a syenite pluton into which a swarm of dolerite dykes and sills have been intruded. Gold mineralisation extends over a 1,500m by 500m zone and is open at depth (+550m). The mineralisation is characterised by a simple mineralogy comprising gold, silver, pyrite and minor sphalerite and galena. The gold is free milling with metallurgical recoveries averaging 93% for oxide and sulphide ore in the planned open pit. At depth beneath the main body of mineralised syenite there is a zone adjacent to the Bedele shear that is characterised by significantly higher gold grades, with occasional coarse visible gold, more base metal sulphides and a shallower dip than the main body above it. KEFI geologists have steadily increased their understanding of the Tulu Kapi orebody and utilising this knowledge as part of the systematic search for nearby gold deposits. Tulu Kapi – Resources and Reserves The Tulu Kapi Mineral Resources total 20.2 million tonnes at 2.65g/t gold, containing 1.72 million ounces. As summarised in the table below, c. 94% of the Mineral Resources are in the Indicated category. Resource Category Indicated Inferred Sub-Total Indicated Inferred Sub-Total Indicated Inferred Total Area Tonnes (millions) Above 1,400m RL Below 1,400m RL Overall 17.7 1.3 19.0 1.1 0.1 1.2 18.8 1.4 20.2 Gold (g/t) 2.49 2.05 2.46 5.63 6.25 5.69 2.67 2.40 2.65 Contained Gold (million ounces) 1.42 0.08 1.50 0.20 0.02 0.22 1.62 0.10 1.72 Note: Resources were estimated using cut-off grades of 0.45g/t gold above 1,400m RL and 2.50g/t gold below 1,400m RL. For further information, see KEFI announcement dated 4 February 2015. The Mineral Resources were split above and below the 1,400m RL to reasonably reflect the portions of the resource that may be mined via open pit and underground mining methods, respectively. The Tulu Kapi Ore Reserves were based on the Indicated Resource above 1,400m RL and total 15.4 million tonnes at 2.12g/t gold, containing 1.05 million ounces. As detailed in the table below, the high-grade portion of the Ore Reserve contains nearly all the contained ounces and totals 12.0 million tonnes at 2.52g/t gold, containing 0.98 million ounces. This split shows that 78% of the ore tonnes and 93% of the contained gold is contained in the higher-grade zones of the Ore Reserve which are processed preferentially in the eight production years. KEFI Minerals Plc ANNUAL REPORT 2018 Page 15 Reserve Category Cut-off (g/t gold) Tonnes (millions) Probable - High grade 0.90 Probable - Low grade 0.50 - 0.90 Total 12.0 3.3 15.4 Note: Mineral Resources are inclusive of Ore Reserves. Gold (g/t) 2.52 0.73 2.12 Contained Gold (million ounces) 0.98 0.08 1.05 The above Mineral Resources and Ore Reserves were estimated using the guidelines of the JORC Code (2012). Tulu Kapi - Definitive Feasibility Study and Subsequent Optimisation Following KEFI completing the 2015 Definitive Feasibility Study (“2015 DFS”) in June 2015, the cost estimates and mine plan were refined further and summarised in the 2017 DFS Update of May 2017. These refinements were the product of collaboration between the KEFI project management team, its specialist advisers and the project contractors - Ausdrill/African Mining Services and Lycopodium. The 2015 DFS and 2017 DFS Update planned to preferentially process higher-grade ore (mined above cut-off grade of 0.9g/t gold) and to stockpile ore mined at grade 0.5-0.9g/t gold. In May 2018, KEFI released the 2018 Plan which incorporated further refinements by the project funding consortium. Whilst resources and reserves and the mine plan remain essentially unchanged, the planned processing plant has been expanded to a nameplate of 1.9-2.1Mtpa, in order to expand early cash flows by reducing stockpiles. The 2018 Plan is supported by the: • • • • • draft mining services agreement with Ausdrill; draft plant design, supply and construction contracts with Lycopodium; confirmations of commitment and schedule for roads and power from Ethiopian Roads Authority and Ethiopian Electricity & Power Corporation; draft operational arrangements with the explosives, fuel, laboratory services, refiners and other ancillary support services; and the draft report by the independent technical experts for the lenders. The implementation plans have been agreed on a base schedule of 24 months from drawdown of project finance to first gold pour. Incentivised arrangements are proposed for faster start-up. This work has delivered even more robust gold project than in KEFI’s 2015 DFS as shown in the table below. KEFI Minerals Plc ANNUAL REPORT 2018 Page 16 Waste:ore ratio Processing rate warranted Total ore processed Average head grade Gold recoveries 2015 DFS 13-year LOM (owner mining) 7.4:1.0 1.2Mtpa 15.4Mt 2.1g/t gold 91.5% Annual steady-state gold production 95,000 ounces Total LOM gold production 961,000 ounces All-in Sustaining Costs $724/oz All-in Costs (incl. initial capex) Average net operating cash flow Payback Notes: $50M p.a. 3.5 years 2017 DFS Update 10-year LOM (contract mining) 7.4:1.0 1.5-1.7Mtpa 15.4Mt 2.1g/t gold 93.3% 115,000 ounces 980,000 ounces $801/oz $937/oz $60M p.a. 3 years 2018 Plan 8-year LOM (contract mining) 7.4:1.0 1.9-2.1Mtpa 15.4Mt 2.1g/t gold 93.3% 140,000 ounces 980,000 ounces $793/oz $973/oz $73M p.a. 3 years • The above metrics assume a gold price of $1,250/oz for the 2015 DFS and $1,300/oz for the 2017 DFS Update and 2018 Plan. • Life of Mine (“LOM”) is the time to mine the planned open pit only. • Gold production and net operating cash flow are for the first eight years of gold production. Tulu Kapi - Development Tulu Kapi will be a conventional open-pit mining operation with a CIL processing plant. The mine will be connected to Ethiopia’s electricity grid via a new 47km long, 132 kV dedicated power line relatively close to the country’s major hydro power-generation source. An emergency diesel power plant will also be installed to provide emergency backup power to critical process equipment in the event of a grid power failure. Tulu Kapi is permitted for development and operation. The work currently being undertaken should ensure construction can proceed quickly and efficiently once funding is in place. Ancillary licences and permits are expected to be dealt with expeditiously as development progresses. KEFI Minerals works closely with the various ministries and government organisations involved with the project. KEFI Minerals Plc ANNUAL REPORT 2018 Page 17 Trenching at Tulu Kapi Tulu Kapi – Potential for Underground Mine The Tulu Kapi orebody is amenable to underground mining as ground conditions are good, Ore Reserve gold grades increase and ore lenses thicken with depth. Gold mineralisation remains open along strike, down plunge and at depth. Notably, the most northerly hole drilled into the deepest portion of the deposit intersected 90m at 3g/t gold and demonstrates that the deposit remains open down plunge. An internal preliminary economic assessment (“PEA”) of Tulu Kapi’s underground mining potential was completed in March 2016. Based on the 2014 Mineral Resources, the current underground mining inventory of 1.3 million tonnes at 5.2g/t gold potentially adds gold production of c. 50,000 ounces p.a. for four years. The PEA considered the gold mineralisation below the base of planned open pit at a cut-off grade of greater than 2.5g/t gold, which is c. 1,450m RL (i.e. 50m higher than the 1400m RL division for the 2015 Mineral Resource Statement). It also considered economic lenses above 1,450m RL but outside of the planned open pit. KEFI Minerals Plc ANNUAL REPORT 2018 Page 18 The key outcomes of the PEA were that: • Underground mine development is economically justified based on the 2014 Mineral Resources; • • Combined gold production from the open pit and underground mine approaches 200,000 ounces p.a.; The underground mine adds an estimated $28 million to the project’s after-tax NPV (8%) at a gold price of $1,250/oz; and Subject to the results of a full DFS, underground mine development is targeted to commence in the first half of open-pit operations. • As the deposit remains open, KEFI has identified as yet untested exploration potential for tripling the current 330,000 ounce underground Mineral Resource to c. 1 million ounces. Tulu Kapi –Exploration Licence Applications Regional exploration is at an early stage but significant potential has already been identified for further gold orebodies to be discovered near Tulu Kapi as well as potential for VMS copper-gold orebodies. In October 2017, KEFI received confirmation from the Ethiopian Government that the area proposed to be explored by KEFI has been set aside with the intention of being granted to the KEFI group upon commencement of development of Tulu Kapi. This ELA covers c. 1,900 km2 covering known prospects within 50km of Tulu Kapi, which is considered an economic trucking distance to the planned processing plant. KEFI Minerals Plc ANNUAL REPORT 2018 Page 19 Location of ELA surrounding Tulu Kapi ML The area covered by this ELA covers a VMS copper-gold prospect named Kata. United Nations drilled six diamond holes at Kata in the 1970s along a 600m strike. Mineralisation is open along strike and at depth, and soil geochemistry defines a >2km copper anomaly (gold not assayed). This drilling intercepted high-grade copper with the best results of 14m at 3.2% copper and 53m of 0.7% copper. KEFI Minerals Plc ANNUAL REPORT 2018 Page 20 Geochemical and geophysical surveys have identified strong gold anomalies along three major shear zones parallel to the shear zone containing the Tulu Kapi gold deposit. One of these shear zones lies only a few kilometres to the west of Tulu Kapi where shallow gold mineralisation has been identified over +9km along the Guji-Komto Belt. Trenching and drilling results already indicate the potential for oxide gold mineralisation in a series of shallow open pits (c.40m depth). If proven up as economic by further drilling, this gold mineralisation may potentially be treated at the Tulu Kapi processing plant or, if scale and mineralogy warrant, say as stand-alone heap-leach operations which is supported by preliminary metallurgical testwork. Guji-Komto Belt: best trench and drill hole gold results KEFI Minerals Plc ANNUAL REPORT 2018 Page 21 Saudi Arabia Our priorities in cost effectively discovering economic gold and copper in Saudi Arabia remain: 1. Wadi Bidah Mineral District: a 120-kilometre-long VMS Belt. We start at Hawiah – to determine if a copper-gold- 2. zinc VHMS deposit lies beneath the 6km-long, gold-bearing gossanous ridge; Jibal Qutman: to increase oxide gold resources on the granted Exploration Licence (“EL”) and surrounding pending Exploration Licence Applications (“ELAs”); KEFI has a 40% beneficial interest in a large portfolio of ELAs and ELs in Saudi Arabia via G&M, our joint venture company with ARTAR, which is the official applicant on behalf of G&M. Location of G&M ELs and ELAs in Saudi Arabia, including the main gold and VMS copper deposits in the ANS. KEFI remains well placed to advance and develop our projects with the assistance of our partner ARTAR, a leading local industrial and international investment group owned by Sheikh Al Rashid and his family. The Kingdom of Saudi Arabia is a country with a long history of gold and copper mining that dates back over 3,000 years. As part of a broader strategy to diversify the country’s revenues away from oil, Saudi Arabia is looking to expand and develop its mineral sector. During 2016, the Saudi Government created the Energy, Industry and Mineral Resources Ministry. This new ministry has been preparing new mining policies in consultation with local mining industry participants. G&M has upgraded its portfolio of licence applications in preparation for the deregulation of the sector which should expedite mining development in the country. We await clarification of the new regulatory regime which is clear is now coming a head under new Government leadership and a newly appointed Ministry for our sector. KEFI Minerals Plc ANNUAL REPORT 2018 Page 22 Key commercial advantages for KEFI in Saudi Arabia are: • • • • • • The G&M relationship between ARTAR and KEFI; The KEFI exploration team that was born out of the experience of discoveries in similar geological terrane in Western Australia; Saudi Arabia is a country under-explored for minerals with only a few companies exploring for gold and copper; The Precambrian ANS rocks being very prospective for gold and copper; Exploration, development and operating costs are low by industry standards, benefitting from low energy and labour costs; Saudi Industrial Development Fund provides loans for up to 75% of the capital cost of mine development at attractive interest rates; and • Being prepared for the soon-to-be promulgated modern mining code. Saudi Arabia - Hawiah Hawiah is the sort of prospect that makes us excited to be exploring the ANS. It has all the hallmarks of a copper-gold-zinc VMS deposit, which are typically quite valuable. As such we recently overhauled the G&M portfolio of applications in Saudi Arabia to cover most of the Wadi Bidah Mineral District (“WBMD”). The Hawiah prospect is located within the WBMD in the southwest of the Arabian Shield. The WBMD is a 120km-long belt which hosts over 24 VMS known occurrences and historic workings for copper and gold. ARTAR, on behalf of G&M, has applied for most of the prospective ground in the WBMD. Following the granting of the 95km2 Hawiah exploration licence (EL) in December 2014, KEFI commenced exploration of the unusually large 6km-long gossanous ridge for gold at the surface and a volcanogenic massive sulphide (“VMS”) copper- gold-zinc sulphide orebody at depth. Field activities were suspended during the initial term of the EL for local security and community relations issues. Once risks had been managed in close collaboration with local authorities and community leaders, and once community relations were satisfactorily established for long term stable operations, the field work was re-activated for a short period before the EL came up to its expiry date. The Hawiah EL (now renewed) remains one of KEFI’s higher priority ELs as the geological setting appears analogous to other large VMS deposits in the ANS that have well-preserved, mature oxidised zones enriched in gold at surface. Initial surface exploration has confirmed that the main gossanous ridgeline is enriched in gold and the mineralisation has good continuity along strike, as well as containing abundant secondary copper showings. Our initial geophysical survey indicates it is underlain by a large metal-bearing body. Field work has recommenced with follow-up trenching, geological mapping, geophysical survey (induced polarisation) and satellite imaging programs all underway. These programs are leading up to the drilling of this exciting target. KEFI Minerals Plc ANNUAL REPORT 2018 Page 23 Hawiah Geology and Exploration The planned exploration programme at Hawiah aims to: • Define a near-surface, economic gold resource in the gossanous ridge via trenching and RC drilling; and • Simultaneously search for a major copper-gold-zinc sulphide ore body along strike and/or at depth. The Hawiah EL covers a predominantly bimodal mafic and felsic volcaniclastic succession in a broad anticline, with an unusually large expression of surface mineralisation outcropping on the eastern limb. Hawiah’s silicified and gossanous horizon was mapped and trenched by France’s Bureau De Recherches Geologiques et Minieres (“BRGM”) in the 1980s, which identified its gold-bearing potential. In February 2015, KEFI completed a first-pass, wide-spaced trenching programme over the 6km-long gossanous horizon. KEFI’s trenches repeated all of the BRGM’s trenches, as well as extending the known (4km) exposure to the south and to the north. Almost all of KEFI’s trenches contained anomalous gold, including 6m at 2.2g/t gold, 2m at 8.7g/t gold, 6m at 1.9g/t gold, 3m at 5.8g/t gold, 2m at 7.5g/t gold and 8m at 3.0g/t gold. The BRGM and KEFI results both confirm that gold grades occur with good continuity along the strike length of this 6km- long gossanous horizon. In order to test the deeper VMS potential, KEFI is using geophysics and geochemistry to define drill targets. Self-potential (“SP”) geophysical surveys were completed over the 6 km-long gossanous horizon during 2015 and 2016. Two strong anomalies were identified: KEFI Minerals Plc ANNUAL REPORT 2018 Page 24 • An intense north-south trending SP anomaly with a continuous maxima of 350 millivolts, located between 125m and 300m below surface with an 800m strike length. The intensity of this anomaly is consistent with the presence of a massive sulphide source, or to a high and contiguous concentration of disseminated sulphides at depth; and • A parallel SP anomaly with a similar but less continuous intensity located 600m to the east. The targets generated by the SP survey are planned to be followed-up with a more detailed induced polarisation (“IP”) geophysical survey. The IP survey is designed to test for electrical conductors (i.e. massive sulphides) down to vertical depth of 600m below surface. The IP anomalies will provide targets with vertical depths that are planned to be tested by diamond drilling. G&M continues to ensure that the correct steps are taken with local stakeholders to ensure our licence to operate is robust both on the Hawiah EL and for other ELAs in the WBMD. Hawiah and WBMD Regional Prospectivity The WBMD is a 120km-long, north-south trending belt which hosts 36 prospects of three main types: • VMS deposits; • Volcano-sedimentary deposits associated with disseminated to sub-massive sulphides; and • Shear zone & quartz vein hosted deposits. KEFI has several other ELAs pending within the WBMD covering other existing targets and highly prospective ground. The BRGM assessed the gold potential of gossans in the entire WBMD in the 1980s. The BRGM estimated a total of 400,000 ounces of gold to be contained in the gossans that were assessed in the WBMD, with the average grades of some deposits ranging from 5g/t gold to 7g/t gold. The BRGM also carried out some geophysical surveys over the gossans and carried out limited drilling to test the anomalies generated. Some massive copper-zinc sulphides were intersected, but the drill core was not systematically assayed for base metal content, nor followed up by further drilling. VMS deposits are major sources of copper-lead-zinc-gold-silver ore bodies. Examples of large VMS deposits in the ANS include: • • • Eritrea - Bisha (Nevsun/Zijin) and Asmara (Sichuan Road & Bridge Mining Investment Development) deposits; Sudan - Hassaii (Ariab) deposits; and Saudi Arabia - Jabal Sayid (Barrick and Ma’aden) and Al Masane (Al Kobra Mining) deposits. The Hawiah EL and surrounding under-explored WBMD are considered to be very prospective for gold and VMS deposits. KEFI Minerals Plc ANNUAL REPORT 2018 Page 25 Gold and Copper Deposits in the WBMD. G&M has a granted Exploration Licence at Hawiah and has lodged Exploration Licence Applications over all G&M priority target areas throughout the 120 kilometre-long WBMD KEFI Minerals Plc ANNUAL REPORT 2018 Page 26 Saudi Arabia - Jibal Qutman Since the Jibal Qutman EL was granted in July 2012, KEFI Minerals advanced this project from grassroots exploration to assessing the best way to bring to account the gold mineralisation discovered to date. The Jibal Qutman EL is located in the central southern region of the Arabian Shield and covers an area of 99km2. The EL covers an important part of the prospective Nabitah-Tathlith Fault Zone, a 300km-long structure with over 40 gold occurrences and ancient gold mines. Drilling undertaken by G&M has identified gold resources in six areas - Main Zone, West Zone, South Zone, 3K Hill, 4K Hill and Red Hill. Given the established regional prospectivity for shallow oxide gold deposits, ELAs have been prepared for four additional areas near Jibal Qutman. These applications are pending to the overhaul of mining and exploration regulations and also the review by the Defence Ministry of activities in that area. Upon proceeding at Jibal Qutman, G&M will initially focus on testing the feasibility of developing a small heap-leach operation to self-fund G&M’s exploration activities in Saudi Arabia. Mineral Resource Estimates for Jibal Qutman The current Mineral Resource estimate for Jibal Qutman totals 28.4 million tonnes at 0.80g/t gold, containing 733,045 ounces. As summarised in the table below, the majority of the Mineral Resource is in the Indicated category. Category Indicated Inferred Sub-Total Indicated Inferred Sub-Total Indicated Inferred Grand Total Tonnes (millions) 8.3 2.8 11.1 9.7 7.6 17.3 18.0 10.4 28.4 Gold (g/t) 0.86 0.64 0.80 0.86 0.72 0.80 0.86 0.70 0.80 Contained Gold ('000 ounces) 229 58 287 269 176 446 498 235 733 Oxide Sulfide Oxide + Sulfide Note: For further information, see KEFI Minerals announcement dated 6 May 2015. The oxide gold mineralisation contained in the above Mineral Resource is estimated to total 11.1 million tonnes at 0.80g/t gold, containing 287,000 ounces. Internal Preliminary Economic Assessment for Jibal Qutman Metallurgical test work has confirmed that Jibal Qutman oxide mineralisation is amenable to heap leach (“HL”) processing. Accordingly, the Company is focusing on initially producing gold via an open cut, HL operation. The HL approach has the advantages of speeding up the potential development timetable and lowering capital requirements. KEFI Minerals Plc ANNUAL REPORT 2018 Page 27 Key outcomes from an internal Preliminary Economic Assessment for Jibal Qutman in May 2015 were: 1.5Mtpa HL operation; • • Gold production c. 140,000 ounces over an initial mine life of 4-5 years; • Oxide open-pit optimisation studies show a potential mineable resource of 6.6 million tonnes at 0.95g/t gold, for c. 200,000 contained ounces; • Waste:ore ratio of c. 2:1; • Average gold recovery of c. 70%; • • Cash operating cost of c. US$600/ounce; and Capital expenditure of c. US$30 million. Combined with the potential for development loans for up to 75% of capex requirements, it may be possible for KEFI to fund its share of the equity portion for less than US$5 million in equity. Following on-site meetings with regulators, the Mining Licence Application for the Jibal Qutman HL gold development was lodged with the Saudi Government in March 2017. Jibal Qutman Outlook Jibal Qutman’s business objectives over the coming year are to: • • • • Follow-up the Mining Licence Application with the regulatory authorities; Commence full feasibility studies upon grant of the ML; Explore the surrounding ELAs after their processing and grant, which have high prospectivity for additional near- surface oxide gold resources; and Prepare applications for construction and operating licences, if warranted. This strategy aims for Jibal Qutman becoming G&M’s foundation for a self-funding exploration program in Saudi Arabia. KEFI Minerals Plc ANNUAL REPORT 2018 Page 28 Glossary and Abbreviations AIC AISC All-in Costs All-in Sustaining Costs ANS Mining ANS Mining Share Company S.C Arabian-Nubian Shield or ANS The Arabian-Nubian Shield is a large area of Precambrian rocks in various countries surrounding the Red Sea ARTAR BRGM c. CIL DFS DMMR EL ELA Epithermal ESIA G&M g/t Gossan HL IP JORC Abdul Rahman Saad Al Rashid & Sons Company Limited Bureau de Recherches Géologiques et Minières – the Geological Survey of France Circa Carbon in Leach Definitive Feasibility Study Deputy Ministry for Mineral Resources – Kingdom of Saudi Arabia Exploration Licence Exploration Licence Application Hydrothermal mineral deposit formed within about 1 km of the Earth's surface and in the temperature range of 50 to 200 degrees Celsius, occurring mainly as veins Environmental and Social Impact Assessment Gold and Minerals Co. Limited Grams per tonne An iron-bearing weathered product overlying a sulphide deposit Heap leach Induced polarisation - a ground-based geophysical survey technique measuring the intensity of an induced electric current, used to identify disseminated sulphide deposits Joint Ore Reserves Committee JORC Code 2012 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves KME LOM KEFI Minerals (Ethiopia) Limited Life of mine Massive sulphide Rock comprised of more than 40% sulphide minerals MA ML Mt Mining Agreement Mining Licence Million tonnes KEFI Minerals Plc ANNUAL REPORT 2018 Page 29 Mtpa oz PEA PFS Precambrian RC drilling RL SP TKGM VMS deposits Million tonnes per annum Troy ounce of gold Preliminary Economic Assessment Pre-Feasibility Study Era of geological time before the Cambrian, from approximately 4,600 to 542 million years ago Reverse Circulation drilling. Percussion drilling method. Reverse circulation is achieved by blowing air down the rods, the differential pressure creating air lift of the water and cuttings up the "inner tube", which is inside each rod. Relative Level Self potential - a ground-based geophysical survey technique measuring the potential difference between any two points on the ground produced by the small, naturally produced currents that occur beneath the Earth's surface Tulu Kapi Gold Mines Share Company Limited Volcanogenic massive sulphides; refers to massive sulphide deposits formed in a volcanic environment with varying base metals (copper, lead and zinc) often with significant additional gold and silver WBMD Wadi Bidah Mineral District Competent Person Statement KEFI Minerals reports in accordance with the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the "JORC Code 2012"). The information in this annual report that relates to exploration results, Mineral Resources and Ore Reserves is based on information compiled by Mr Jeffrey Rayner. He is exploration adviser to KEFI, the Company’s former Managing Director and a Member of the Australian Institute of Geoscientists (“AIG”). Mr Rayner is a geologist with sufficient relevant experience for Group reporting to qualify as a Competent Person as defined in the JORC Code 2012. Mr Rayner consents to the inclusion in this report of the matters based on this information in the form and context in which it appears. The Mineral Resources and Ore Reserves in this report have been previously released as follows: Date of Release Project Subject Competent Persons 22 April 2015 Tulu Kapi Probable Ore Reserves 4 February 2015 Tulu Kapi Mineral Resource Frank Blanchfield Sergio Di Giovanni Simon Cleghorn Lynn Olssen 6 May 2015 Jibal Qutman Mineral Resource Jeffrey Rayner KEFI confirms that it is not aware of any new information or data that materially affects the information in the above releases and that all material assumptions and technical parameters, underpinning the estimates continue to apply and have not materially changed. KEFI confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcements. KEFI Minerals Plc ANNUAL REPORT 2018 Page 30 Directors, Secretary and Advisers Directors Harry Anagnostaras-Adams, Executive Chairman John Leach, Finance Director Norman Ling, Non-Executive Mark Tyler, Non-Executive Company Secretary Cargil Management Services Limited 27/28 Eastcastle Street London W1W 8DH United Kingdom Nominated Adviser and Joint Broker SP Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP United Kingdom www.spangel.co.uk Joint Broker Brandon Hill Capital Ltd 1 Tudor Street London EC4Y 0AH United Kingdom www.brandonhillcapital.com Joint Broker SVS Securities PLC 4th Floor, Princes Court 7 Princes Street London EC2R 8AQ United Kingdom www.svssecurities.com Lawyers Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2EG www.herbertsmithfreehills.com Auditors BDO LLP 55 Baker Street London W1U 7EU United Kingdom www.bdo.co.uk KEFI Minerals Registered Office 27/28 Eastcastle Street London W1W 8DH United Kingdom Share Registrar Share Registrars Limited The Courtyard 17 West Street Farnham GU9 7DR United Kingdom www.shareregistrars.com Public Relations Adviser IFC Advisory 24 Cornhill London EC3V 3ND United Kingdom www.investor-focus.co.uk KEFI Minerals Plc ANNUAL REPORT 2018 Page 31 Consolidated Financial Statements Year ended 31 December 2018 CONTENTS Group Strategic report Report of the board of directors Statement of directors’ responsibilities Independent auditor’s report Consolidated statement of comprehensive income Statements of financial position Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flows Company statement of cash flows Notes to the consolidated financial statements PAGE 33-38 39-48 49 50-53 54 55 56 57 58 59 60-97 KEFI Minerals Plc ANNUAL REPORT 2018 Page 32 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Group Strategic Report For the year ended 31 December 2018 KEFI Minerals PLC Company number: 05976748 The directors present their Group Strategic Report for the year ended 31 December 2018. Incorporation and principal activity KEFI Minerals PLC (‘KEFI” or the “Company”) or together with its subsidiaries (“the Group”) was incorporated on 24 October 2006 and was admitted to AIM in December 2006 with an initial market capitalisation of £2.7 million at the placing price. The principal activities of the Group are: • • • To explore for mineral deposits of precious and base metals and other minerals that show potential for commercial exploitation; To evaluate mineral deposits and determine their viability for commercial development; and To develop those mineral deposits and market the metals produced. Review of operations KEFI is focused primarily on the advanced Tulu Kapi Gold Project development project in Ethiopia, along with its pipeline of other projects within the highly prospective Arabian Nubian Shield. KEFI targets that production at Tulu Kapi will generate cash flows for capital repayments, further exploration and expansion as warranted and, when appropriate, dividends to shareholders. KEFI Minerals in Ethiopia KEFI owns 95% of the Tulu Kapi Gold Project in Ethiopia (TKGM). The Government of Ethiopia is entitled to a 5% free carried- interest and a 7% royalty on gold production. In May 2017, the Government of Ethiopia formally committed to a US$20 million equity investment in TKGM Based on current estimates of capital spending and capital contributions, KEFI will be majority owner of KME which in turn will be majority shareholder of TKGM. Upon closing of project finance, the ownership of the Tulu Kapi Gold Project via TKGM would be circa:22% by the Ethiopian Government including its 5% fee carried interest; The Government has approved its budget allocations for the TKGM investment. Ethiopia is Africa’s highest growth country and has, over the past six months, instituted positive progressive and transformative reforms on many levels throughout the country. The Federal Ministry of Mines, Petroleum and Natural Gas announced that it has drafted a new Proclamation for regulation of the mining industry, particularly with an eye to stimulating growth. The Ministry’s statement referred to the introduction of investment incentives and the removal of obstacles. The security situation for our Project in Ethiopia is considered better than most mining sites on the continent and KEFI/TKGM has strong government, business and community support, having earned and maintained strong social licence at Tulu Kapi. The Company has completed the independent technical reviews of the project as required by its bond arranger and exclusive placing agent, ACT Capital GmbH (“ACT Capital”). In light of the overall progress with Government clearances, Project due diligence and indicative structuring and pricing, the process is in suspension awaiting the final formal confirmations from the Ethiopian central bank before proceeding with the next stages which include the formation of KEFI’s Luxembourg-based company which would issue the planned listed bond. The bond issue will be subject to the satisfaction of compliance procedures, including those of the various institutions/banks and listing authorities, and then the successful private placement of the planned listed bond. All these processes are being co-ordinated with other Project matters by KEFI within the Project consortium which includes the principal contractors, Lycopodium (process plant), Ausdrill/AMS (mining) and MKS/PAMP (gold refining) and the Ethiopian Project equity partners in the Government and private sector. The finance is expected to have a 9-year tenor and 2.5-year non repayment grace period. After year-end ANS Mining Share Company S.C (“ANS Mining”) has confirmed receipt from its investors of its first Project-equity instalment commitments for US$11.4 million (Ethiopian Birr equivalent). The amount is higher than that previously anticipated US$9 million (Ethiopian Birr equivalent). The remainder of the US$38 million (Ethiopian Birr equivalent) ANS commitment will be subscribed at close of full development funding. It has also been agreed that, of the total commitment of US$38 million (Ethiopian Birr equivalent), one third will be invested via KEFI subsidiary KEFI Minerals (Ethiopia) Limited (“KME”) so that ANS Mining will be KEFI’s minority partner in KME which controls TKGM and the exploration areas in the Tulu Kapi district which are considered prospective for potential satellite and stand-alone deposits. The other two thirds of the ANS Mining investment will be directly into TKGM. The impact of this refined approach will mean that KEFI will have a strong partner at the KME table to consider potential new projects. We expect Ethiopia’s mining sector to become more active on the back of our first-mover initiative. The ownership levels will be that KEFI will own c. 80% of KME which in turn will hold c. 56% of TKGM and that KEFI’s beneficial ownership of TKGM will be c. 45% (both ownership levels in TKGM are net, after adjustment for the Government’s 5% free carried interest). KEFI Minerals Plc ANNUAL REPORT 2018 Page 33 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Group Strategic Report (continued) For the year ended 31 December 2018 KEFI Minerals in the Kingdom of Saudi Arabia Saudi Arabia has announced new industry policies and has yet to release the details of the associated regulations. These changes aim to spur development of its minerals sector. The security situation for our projects in Saudi Arabia, as with our sites in Ethiopia, is considered manageable with standard procedures and also derives largely from Gold and Minerals Limited (“G&M”) (the Project company of KEFI and partner ARTAR) ensuring and maintaining strong social licence with its local communities.The Hawiah Exploration Licence (refer to page 23)is held for KEFI’s local joint venture company Gold and Minerals Limited (“G&M”) by partner Abdul Rahman Saad Al Rashid & Sons Company Limited (“ARTAR”). Reconnaissance activities will now be re-activated by KEFI in its role as operator of G&M, with the focus on refining plans for a drilling campaign targeting gold at the surface and the underlying volcanogenic massive sulphide (“VMS”) copper-gold-zinc sulphide orebody. Whilst the work over the next six months is expected to be low-cost, it has a high potential impact on the effectiveness of drilling which is planned to commence in H2 2019 when the Company has also started the planned development activities at the Tulu Kapi Gold Project in Ethiopia (“Tulu Kapi”). This program follows a hiatus for G&M of over two years whilst the Saudi Government undertook a thorough review of its mining code to encourage external investment into its potentially prolific mining sector. Funding In summary, KEFI raised approximately GBP5.6million (After share issue costs). • During June and July 2018, the Company raised additional funds and settled a number of debts through the issue of 220,000,000 new ordinary shares of 1.7p each in KEFI (“Shares”) at a price of 2.5 pence as follows: o o o 120,000,000 new Shares to existing and institutional shareholders to raise £3 million cash (before expenses); 47,801,642 new Shares to certain project contractors and other third parties in settlement of outstanding invoices of approximately £1.2 million; and 52,198,358 new shares to certain directors and management of the Company following the publication of the Company's annual results to satisfy accrued fees and salaries of approximately £1.3 million. • In December 2018 the company issued 19,000,000 KEFI Ordinary shares to pay the convertible note facility fees of GBP380,000. In November 2018 the Company entered into a secured convertible loan facility for up to £4.0 million to provide the necessary working capital funds to progress its Tulu Kapi gold project in Ethiopia. The facility was signed with Sanderson Capital Partners Ltd, a long-term investor in the company. The Company has the right to borrow up to £4 million from the Lender, which is split into the First Facility (the initial £2 million working capital facility), the Second Facility (the optional additional working capital facility of £1 million) and the Third Facility (the optional additional working capital facility of £1 million). Amounts drawn under the Loan Facility are not subject to any interest payments. During the year the Company assembled equity development capital at the project level, based on significant local financial institutional support for project equity investment. ANS Mining, has an investment commitment subject to certain conditions to subscribe to new shares in the project company TKGM and KME totalling US$38 million. The Group considers that, despite extensive delays due to political change in both of its host countries, its primary projects in Ethiopia and Saudi Arabia continue to progress satisfactorily and careful monitoring and control has been carried out in respect of cash management. This includes the periodic review of the Group’s cash flow needs through cash flow projection, appraisal of technical reports monitoring the marketplace and the Group’s physical presence in the Kingdom of Saudi Arabia and the Federal Democratic Republic of Ethiopia. The Group also holds regular board meetings. Based on the results, the Board concluded that significant local ownership was appropriate as a risk-mitigant, which has been arranged, and that no changes are required to the current overall strategy. Key Performance Indicators Key Performance Indicators for the Group for the year ended 31 December 2018 are those relevant to the exploration, acquisition, project evaluation and early-stage finance phases of its activities. Key Performance finance and non-financial Indicators include: • Cash Flow Forecasts: Regular cash flow monitoring to ensure project development targets are met and that working capital is maintained. • Operational Success: Advancing projects through cost-effective exploration into development and production • Environmental, Health & Safety: Ensuring that all efforts are made to reduce adverse personal, corporate and environmental outcomes, through best practice training and implementation. KEFI Minerals Plc ANNUAL REPORT 2018 Page 34 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Group Strategic Report (continued) For the year ended 31 December 2018 The following progress was achieved in FY 2018: • • • KEFI’s Ethiopia Government sector co-investor in TKGM, Ministry of Finance, commenced its activities for construction of the infrastructure it is obliged to provide as its US$20 million (Ethiopian Birr equivalent) project equity contribution Ethiopian private sector investor, ANS Mining became KEFI’s second local partner, committing US$38 million (Ethiopian Birr equivalent) To KME and TKGM Board and Management has been strengthened for project implementation, in KEFI and in operating joint venture companies • • • Mandated ACT Capital the bond arranger for the infrastructure finance (planned to be sourced from the placement of $160 million of Listed Bonds), completed independent reviews of the project, and now currently sits awaiting TKGM triggering the bond-implementation program upon receipt of the final clearance of the structure from the Ethiopian central bank. The Independent Technical Expert signed the Tulu Kapi Gold Project due technical diligence reports Financing policy of TKGM permitted as regards capital ratios, hedging of gold produced once in production, banking) and some residual aspects currently await formalization by Ethiopia central bank Exploration rights were applied over a large number of large VMS targets in the Saudi Arabian Wadi Bidah Mineral District, starting at Hawiah where the Exploration Licence was renewed on 30 November 2018 KEFI working capital provided by shareholders via equity placing, secured convertible working capital facility and short term bridging advances. • • Focus for FY 2019: • Continuing Government-sponsored engineering works and construction of off-site infrastructure at an estimated total cost of US$20M, in exchange for equity in TKGM • Closing the project equity required to fund the small first phase of the development program and then to also trigger subscription of non-equity capital for the large second phase of the development program; • Closing the non-equity funding for Tulu Kapi, after obtaining remaining regulatory clearance of project debt finance and • contract documentation; Trigger the development program and proceed with community resettlement, construction and commencement of district exploration • Maximise local employment and supply chain participation in TKGM activities • Management to ensure that the Group’s projects comply with relevant social, environmental, employment and other legislation in the applicable jurisdiction along with relevant international standards. Results Operating Expenses Exploration expenditure Administrative expenses, mainly on project development preparations Investigatory, pre-decisional project finance transaction costs Warrants issued costs Share based payments Share of loss from jointly controlled entity Loss on revaluation of financial Asset- Receivable from Lanstead Sharing Agreement Foreign exchange gain/(loss) Interest cost Loss for the year The Group's results for the year are set out on page 54. Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 (93) (2,440) (1,599) (23) (158) (161) 2 (24) (459) (4,955) (146) (2,535) (865) - (93) (286) (2,280) 14 (75) (6,266) As at 31 December 2018, the Group market capitalisation was £8.86 million (2017: £9.32 million). At the year end the Group had equity of £15,352,000 (2017: £14,470,000). During 2018, the Group has incurred exploration expenditure of £93,000 (2017: £146,000) from operations and an operating loss of £4,474,000 (2017: £3,925,000). KEFI Minerals Plc ANNUAL REPORT 2018 Page 35 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Group Strategic Report (continued) For the year ended 31 December 2018 The focus during the year has been the preparation of project funding and development of the Tulu Kapi Gold Project in Ethiopia (“Tulu Kapi” or the “Tulu Kapi project”) with our partner the Government of Ethiopia, contractors Lycopodium and Ausdrill/African Mining Services and preferred project financiers. The increased activity levels resulted in higher administrative expenditure and project transaction expenses in comparison to the previous year. All exploration expenditure incurred in the Group’s projects in the Kingdom of Saudi Arabia is written off when incurred in accordance with IFRS 6, pending the Directors’ decision to commence project development. The Company made placements during the year raising £5.6 million in cash for goods and services and is made up of the following placements: Issued Share Equity June 2018 at 2.5p Share Equity July 2018 at 2.5p Share Equity December 2018 at 2p Funds raised before expenses Less Share Issue Costs £’000 1,662 3,838 380 5,880 (237) 5,643 In December 2018 the Company entered into a Convertible Loan Facility with Sanderson Capital Partners Limited, the Company has the right to borrow up to £4,000,000 from the Lender, which is split into the First Facility (the initial £2,000,000 working capital facility), the Second Facility (the optional additional working capital facility of £1,000,000) and the Third Facility (the optional additional working capital facility of £1,000,000. Organisation overview The Corporate Head Office of the Group is located in Nicosia, Cyprus, and provides corporate and management and support services to the overseas operations. East African operations are managed out of Addis Ababa, Ethiopia. The Saudi Arabia exploration is managed out of Riyadh. Field facilities are also maintained as required. Strategic approach The Board’s strategic intent is to maximize shareholder value through the development of a focused portfolio of operations and projects at various stages, while at the same time managing the significant risks faced by companies in the evaluation, exploration and development stage. Our risk management approach places a clear focus on discovering and exploiting mineral wealth through multiple ventures within a focused framework, thus increasing the odds of success. We continuously monitor and review our investment strategies and are quick to relinquish licences which we believe will be uneconomic. We introduce partners in certain circumstances to minimise risk and broaden the human and financial resources available. The Group has to date financed its activities mainly through periodic equity capital raisings. Business model The following business model sets out how the Group will deliver on its strategic aims: Secure funding for each worthwhile project; • Define additional reserves and resources in Saudi Arabia and Ethiopia; • • Develop profitable metals production; • Maintain strong social licence generally and good local community relationships; and • Employ good environmental and other operational and corporate governance practices. KEFI Minerals Plc ANNUAL REPORT 2018 Page 36 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Group Strategic Report (continued) For the year ended 31 December 2018 Principal risks and uncertainties The Group’s operations are exposed to a variety of risks, many of which are outside of the Group’s control. The Group has put in place controls to minimise these risks where possible. Exploration industry risks: Mineral exploration is speculative in nature, involves many risks and is typically unsuccessful in any one target. Following any discovery, it can take a number of years from the initial phases of drilling and identification of mineralisation until production is possible, during which time the economic feasibility of production may change. Substantial expenditure is required to establish ore reserves through drilling, to determine metallurgical processes to extract minerals from the ore and to construct mining and ore processing facilities. As a result of these uncertainties, no assurance can be given that the exploration programmes undertaken by the Group will result in any new commercial mining operations being brought into operation. Government activity, which could include non-renewal of licences, and may result in any income receivable by the Group being adversely affected. In particular, changes in the application or interpretation of mining and exploration laws and/or taxation provisions in the countries in which the Group operates could adversely affect the value of its interests. Political risks: All of the Group’s operations are located in foreign jurisdictions. As a result, the Group is subject to political, economic and other uncertainties, including but not limited to changes in policies or the personnel administering them, terrorism, nationalisation, appropriation of property without fair compensation, cancellation or modification of contract rights, foreign exchange restrictions, currency fluctuations, export quotas, royalty and tax increases and other risks arising out of foreign governmental sovereignty over the areas in which these operations are conducted, as well as risks of loss due to civil strife, acts of war, guerrilla activities and insurrection. KEFI’s activities have been unaffected with regards to its daily interface with the various government agencies and with the community at Tulu Kapi. Everyone that the Group deals with appears to regard the appointment of a new Prime Minister as a positive step towards the facilitation of broader democratic representation in Government. The Group enjoys a good working relationship with the relevant authorities in Ethiopia and Kingdom of Saudi Arabia and has a permanent management team in these countries to monitor developments and manage the situation. Community relations Mutual support between the Group’s operations and the communities around them is vital to the success of our activities and for maintaining our social licence to operate. KEFI regards its host communities as one of the most important of its primary stakeholders and contributing to these groups in a meaningful, sustainable and long-term manner is therefore central to its strategy. Our community development will be focused on: sustainable job creation; skills transfer (education and training); and infrastructure development. Retention of key personnel The successful achievement of the strategies, business plans and objectives depend upon its ability to attract and retain certain key personnel. Achievement of its objectives help to propagate a positive Company culture, in which employees feel they can directly contribute to the Company’s success. The Group’s employment policies and terms are designed to attract, incentivise and retain individuals of the right caliber. Partner risk Any joint venture arrangement contains an element of counterparty risk. The Company maintains good working relationships with its Joint Venture partners in Ethiopia and Saudi Arabia and monitors performance on a regular basis. KEFI Minerals Plc ANNUAL REPORT 2018 Page 37 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Group Strategic Report (continued) For the year ended 31 December 2018 Principal risks and uncertainties(continued) Tulu Kapi gold project During the year the Group carried out and an independent technical due diligence risk review of Tulu Kapi gold project in Ethiopia. The purpose of the review was to identify any fatal flaws or critical technical issues that would result in a significant negative effect on the Project economics, significant environmental damage, or serious danger to health and safety. Overall, the identified risks are manageable and capable of mitigation. Financial risks: Commodity risk: A potential fall in commodity prices which could lead to it becoming uneconomic for the Group to mine its assets. The Group’s principal interest is in gold. The Group will consider the use of appropriate hedging products to mitigate this risk as it approaches production. Foreign currency risk: The Group’s results are sensitive to foreign currency movements and in particular with its exposure to the Ethiopian Birr, arising from the Group’s primary operations being in Ethiopia. The Group finances its overseas operations by transferring Pounds Sterling from the UK to meet local operating costs which are generally either denominated in Ethiopian Birr or US Dollars. The Group maintains the majority of its cash in Pounds Sterling and monitors relevant currency movements and takes action where needed. Funding risk: To date the Group has relied upon shareholder funding of its activities. Future exploration and development activities may be dependent upon the Group’s ability to obtain further financing through equity financing or other means. Although the Group has been successful in the past in obtaining equity finance there can be no assurance that the Group will be able to obtain adequate financing in the future or that the terms of the financing will be favourable. The Group’s other financial risks and use of financial instruments are described in Note 3 to the consolidated financial statements. Other risks are described in the Chairman’s and Finance Director’s Reports. Future developments The Group will continue to focus efforts in Ethiopia and Kingdom of Saudi Arabia with the objective of identifying mineral prospects for further exploration and development. By Order of the Board John Edward Leach Finance Director Cargil Management Services Limited 27/28 Eastcastle Street London United Kingdom Company Secretary 4 June 2019 KEFI Minerals Plc ANNUAL REPORT 2018 Page 38 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors For the year ended 31 December 2018 The Board of Directors presents its report for KEFI Minerals PLC and its subsidiaries together with the financial statements of the Group for the year ended 31 December 2018. General information The following information is set out in the Group Strategic Report due to its strategic importance; Incorporation and Principal Activity, Review of Operations, Funding, Key Performance Indicators, Results, Issued, Organisation Overview, Strategic Approach, Business Model, Principal risks and uncertainties and Future Developments. Board of Directors- Current The members of the Board of Directors of the Company as at 31 December 2018 and at the date of this report are shown on page 31. In accordance with the Company's Articles of Association, one third of the board of directors must resign each year. The remaining directors, presently members of the Board, will continue in office. The Board comprises five Directors: Harry Anagnostaras-Adams Managing Director, and Executive Chairman since 29 April 2019 Mr Anagnostaras-Adams (B.Comm, MBA) has been Executive Chairman since 2014 and was previously Non- Executive Chairman. Mr Anagnostaras-Adams is the Chairman of the Physical Risks Committee. He holds a Bachelor of Commerce (Finance and Systems) from the University of New South Wales, Australia and a Master of Business Administration from the Australian Graduate School of Management where he was awarded the John Story Memorial Prize as outstanding graduate. He qualified as a Chartered Accountant while working with PricewaterhouseCoopers . Mr Anagnostaras-Adams founded AIM and TSX - listed Atalaya Mining PLC (previously EMED Mining Public Ltd). Mr Anagnostaras- Adams has previously served as the Managing Director of Atalaya Mining PLC, ASX and AIM-listed, Devex Limited (later Gympie Gold Limited), Executive Director of investment company Pilatus Capital Ltd., General Manager of the resources investment group Clayton Robard Limited Group, Senior Investment Manager of Citicorp Capital Investors Australia Ltd. and serves (or has served) as a non-executive Director of many other public and private companies across a range of industries. He has overseen many successful start-ups. Mark Wellesley-Wood Non-Executive Chairman, until his passing 29 April 2019 Mr Mark Wellesley-Wood is a mining engineer, with over 40 years’ experience in both the mining industry and investment banking. He has been closely involved in mining activities in Africa, having started his career on the Zambian copper-belt passed away in April 2019. Mark was a former Executive Chairman and CEO of South African gold miner, DRDGold Limited, and a former director of Investec Investment Banking and Securities in London and Chairman of AIM-quoted Tri-Star Resources plc. John Edward Leach Finance Director Mr Leach was appointed Non-Executive Director and part-time Finance Director in December 2006 with responsibility for oversight of the Company’s finance and accounting functions. In August 2016, he assumed a full-time role as Finance Director as part of the Company’s transition towards gold production. Mr Leach holds a Bachelor of Arts (Economics) and a Masters of Business Administration. Mr Leach is a member of the Institute of Chartered Accountants (Australia), the Canadian Institute of Chartered Accountants and a Fellow of the Australian Institute of Directors. He has over 30 years’ experience in senior financial and executive director positions within the mining industry internationally. Mr Leach has served on the Board of AIM and TSX listed Atalaya Mining PLC (2007 to 2014), and is a former member of the boards of Pan Continental Oil & Gas NL (2017) Resource Mining Corporation Limited (2006 to 2007) and Gympie Gold Limited (1995 to 2003). KEFI Minerals Plc ANNUAL REPORT 2018 Page 39 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Norman Ling Non-Executive Independent Director Mr Norman Ling holds a BA (Hons) German and Economic History and has previously served as a non-executive director of Nyota Minerals Limited. He has held a series of appointments at the UK Foreign and Commonwealth Office in a career spanning more than 30 years. Mr Ling's last post was as the British Ambassador to Ethiopia, Djibouti and the African Union from 2008 to 2011, when he retired from government service. Mark Tyler Non-Executive Independent Director. Appointed to Board on 5 September 2018. Mark Tyler was previously a mining investment banker in London and South Africa, including as co-head of Mining and Resources Finance at Nedbank, a South African bank. He is currently a senior resources advisor to Exotix Capital and the London representative for Auramet International, a precious metal merchant financier. Directors’ indemnities The Group maintains directors’ and officers’ liability insurance providing appropriate cover for any legal action brought against its Directors. Remuneration report This remuneration report for the year ended 31 December 2018 outlines the remuneration arrangements of the Company and the Group. The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company. Details of key management personnel of the Parent and Group are set out below. Remuneration philosophy The objective of the Company’s remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders. The Board believes that executive remuneration satisfies the following key criteria: Competitiveness and reasonableness Acceptability to shareholders Performance linkage/alignment of executive compensation Transparency These criteria result in a framework which can be used to provide a mix of fixed and variable remuneration, and a blend of short and long-term incentives in line with the Company’s limited financial resources. Fees and payments to the Company’s Non- Executive Directors and Senior Executives reflect the demands which are made on, and the responsibilities of, the Directors and the senior management. Such fees and payments are reviewed annually by the Board. The Company’s Executive and Non- Executive Directors, Senior Executives and Officers are entitled to receive options under the Company’s Employee Share Option Scheme. While the Group’s operations have been in the project development stage, the objective of the Board has been to minimise the number of senior executives it employs to maintain the total remuneration of such executives at a level that is commensurate with the resources of the Group and the level of activity undertaken. KEFI Minerals Plc ANNUAL REPORT 2018 Page 40 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Non-executive director remuneration arrangements The Board seeks to set remuneration of non-executive Directors at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is appropriate at this stage of the Company’s development. The Chairman’s fee is set at £50,000 p.a. and Non-Executive Director fees at £25,000 p.a. The Company has assumed responsibility for any potential liability to National Insurance Contributions (NICs) for Non-Executive director Mr. Norman Ling, both employer and employee contributions in respect of, or by any reason of, the payment of fees. At present, no Committee fees are paid to Directors. Non-Executive Directors are entitled to be paid reasonable travelling, accommodation and other expenses incurred as a consequence of their attendance at meetings of Directors and otherwise in the execution of their duties as Directors. Non- executive Directors are also entitled to additional remuneration for extra services or special exertions. Executive director and key management personnel (“KMP”) remuneration arrangements Service agreements Remuneration and other terms for KMP are formalised in contractor agreements. Details of these agreements are set out below: Executive directors and other key management personnel Executive remuneration packages comprise a mix of the following components: Fixed remuneration and other benefits and long-term incentives provided by the issuing of options under the Employees and Contractors Option Plan. Fixed remuneration and other benefits The level of fixed remuneration is set so as to provide a base level of remuneration, which is both appropriate to the position and competitive in the market. Fixed remuneration for most executives is comprised of base salary, and in some cases includes other benefits such as housing, medical care and vehicles. The Company does not have a retirement benefit scheme for executive directors. Long term share incentives The Employees and Contractors Option Plan of the Group was established in 2014. The Company's full Share Option Plan 2014 is available on the Company website. The objective of the Plan is to provide an opportunity for senior executives and contractors to participate as equity owners in the Company and to reward key executives and contractors in a manner which aligns this element of remuneration with the creation of shareholder wealth. At the discretion of the Board and subject to the Rules of the Plan, executives may be granted options under the Plan. Directors and Key Management Personnel Managing Director and Finance Director Consulting Services Rolling forward arrangement 12 Months’ Agreement type Term Notice Period Other Benefits General Manager Ethiopia Consulting Services Rolling forward arrangement International Mining Performance: Head of Operations, Head of Systems, Head of Human Resources and Technical Planning Consulting Services Rolling forward arrangement until 30 December 2020 12 Months’ 6 Months’ Medical/Air tickets home; and Share Options. The Managing Directors life insurance and accident insurance premiums are paid. Medical/Air tickets home. In country accommodation; and Share Options. 50% of the Fees paid in Shares and 50% in cash; and Share Options. KEFI Minerals Plc ANNUAL REPORT 2018 Page 41 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Directors’ interests The interests of the Directors and their immediate families (all of which are beneficial unless otherwise stated) and of persons connected with them in the existing ordinary shares as at date of this report are as follows: Director H Anagnostaras-Adams J Leach N Ling Grant Date Expiration Date 01-Feb-18 31-Jan-24 22-Mar-17 21-Mar-23 05-Aug-16 04-Aug-22 19-Jan-16 18-Jan-22 20-Mar-15 19-Mar-21 12-Sep-14 11-Sep-20 27-Mar-14 26-Mar-20 Number of existing ordinary shares 12,737,848 5,602,223 295,486 % of issued share capital 1.98% 0.87% 0.05% Exercise Price Pence H. Anagnostaras- Adams J. Leach N. Ling M. Wellesley - Wood 4.5 7.5 10.2 7.14 22.44 29.92 39.1 1,200,000 1,200,000 1,200,000 3,442,184 674,083 - 882,353 - - - 882,353 588,235 943,412 314,471 314,471 - 382,353 58,824 117,647 - - 132,353 - - 382,353 132,353 - - 6,350,302 3,262,084 1,764,471 1,470,588 Directors’ emoluments In compliance with the disclosure requirements of the listing requirements of AIM, the aggregate remuneration paid to the Directors of KEFI for the year ended 31 December 2018 is set out below: 31 December 2018 Executive H. Anagnostaras-Adams J. Leach Non-Executive N. Ling M Wellesley-Wood¹ M Tyler¹ Salary and fees £’000 Other compensation £’000 Bonus Paid in Shares £’000 Share based benefit incentive options² £’000 2018 Total £’000 223 155 55 44 10 487 19 16 - - - 35 97 63 - - - 160 32 24 7 14 - 77 371 258 62 58 10 759 KEFI Minerals Plc ANNUAL REPORT 2018 Page 42 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Directors’ emoluments (continued) 31 December 2017 Executive H. Anagnostaras-Adams J. Leach Non-Executive I. Plimer-Retired¹ N. Ling M Wellesley-Wood¹ Salary and fees £’000 Other compensation £’000 Bonus Paid in Shares Share based benefit incentive options² £’000 £’000 240 176 23 67 41 547 ³80 14 - - - 94 - - - - - - 32 19 - 3 13 67 2017 Total £’000 352 209 23 70 54 708 ¹Appointments and Retirement as Director: During 2017 Mr. Plimer resigned as director in November 2017. In July 2018 the board roles were changed and Mr. Wellesley-Wood was appointed as Non-Executive Chairman. Mr. Mark Tyler was appointed In September 2018 as Non-Executive director. ² Share based benefit incentive options: The figure is based on the valuation at the date of grant. The figure recorded relates to the amount relating to the current year as a proportion of the vesting period. Vesting is subject to a number of vesting conditions which may or may not be achieved. This figure is not a cash payment. ³Other compensation includes, life insurance and accident insurance premiums for 2014,2016 and 2017. Corporate governance statement The Directors of the Company have elected to follow the main principles of the QCA Corporate Governance Code. The QCA Corporate Governance Code identifies ten principles that focus on the pursuit of medium to long-term value for shareholders without stifling the entrepreneurial spirit in which the company was created. In addition to the details provided below, governance disclosures can be found on the Company’s website https://www.kefi-minerals.com/about/corporate-governance Board of Directors The Group supports the concept of an effective Board leading and controlling the Group. The Board is responsible for approving Group policies and strategies. It meets at least every three months and is supplied with appropriate and timely information and the Directors are free to seek any further information they consider necessary. All Directors have access to advice from the Group Secretary and independent professionals at the Group's expense. Training is available for new Directors and other Directors as necessary. The Managing Director, in conjunction with the executive team, ensures that the Directors’ knowledge is kept up to date on key issues and developments pertaining to financial and governance matters, its operational environment and to the Directors’ responsibilities as members of the Board. During the course of the year, the Chairman received updates and advice from the Company Secretary and the NOMAD to ensure the Company’s compliance to the Rule 26 disclosures which became effective from the 28 September 2018. The Group's key strategic and operational decisions are reserved exclusively for the decision of the Board. The Board consists of two full time Executive Directors who hold key operational positions in the Company (the Managing Director and Finance Director), and three Non-Executive Directors. The Non-Executive Directors, Mark Wellesley-Wood, Norman Ling and Mark Tyler bring a breadth of experience and knowledge to the Company. They are considered to be independent of management and any other business relationships do not interfere with the exercise of their independent judgment. Mark Wellesley-Wood was appointed as Non-Executive Chairman in July 2018. The Board regularly reviews key business risks, including the financial risks facing the Group in the operations of its business. The Directors are of the opinion that the Board composition contains a suitable balance. The Board maintains regular contact with its advisers and public relations consultants in order to ensure that the Board develops an understanding of the views of shareholders about the Company. Mr. Mark Wellesley-Wood On the 29 April 2019 Mr. Mark Wellesley-Wood passed away and Mr. Harry Anagnostaras-Adams resumed the role of Executive Chairman, which has been held until July 2018. KEFI Minerals Plc ANNUAL REPORT 2018 Page 43 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Board meetings The Board meets regularly throughout the year. The Board is responsible for formulating, reviewing and approving the Company's strategy, financial activities and operating performance. Day to day management is devolved to the Executive Directors who are charged with consulting the Board on all significant financial and operational matters. All Directors have access to the advice of the Company’s solicitors. Necessary information is supplied to the Directors on a timely basis to enable them to discharge their duties effectively, and all Directors have access to independent professional advice, at the Company’s expense, as and when required. Board Committees The Board has established the following committees, each of which has its own terms of reference: Audit Committee The Audit and Financial Risk Committee considers the Group’s financial reporting (including accounting policies) and internal financial controls. The Audit and Financial Risk Committee comprised two Non-Executive Directors: Mark Wellesley-Wood (Chairman) and Mark Tyler, and is responsible for ensuring that the financial performance of the Company is properly monitored and reported on and in this capacity interacts as needed with the Company’s External Auditors. The Finance Director is invited and attends the committee meetings to provide his skills and knowledge in committee matters. Remuneration Committee The Remuneration Committee is responsible for making recommendations to the Board on the remuneration of the Directors and senior executives. It comprised two Non-Executive Directors: Mark Wellesley-Wood (Chairman), and Mark Tyler. Directors’ remuneration and conditions are considered and agreed by the Board. Financial packages for Executive Directors are established by reference to those prevailing in the employment market for executives of equivalent status both in terms of level of responsibility of the position and their achievement of recognized job qualifications and skills. The Committee also takes into consideration the terms that may be required to attract equivalent experienced executives to join the Board from other companies. Attendance Meetings of Directors and Committees The following table sets out the number of Directors’ meetings held during the financial year and the number of meetings attended by each director: Board of Directors Meetings H. Anagnostaras- Adams J. Leach N. Ling M Wellesley-Wood M Tyler¹* Audit Committee N. Ling* M Wellesley-Wood M Tyler¹* Remuneration Committee N. Ling* M Wellesley-Wood M Tyler¹* Held 11 11 11 11 3 Attended 11 11 11 11 3 Held Attended 2 3 1 2 3 1 Held Attended 1 1 - 1 1 - ¹Mr. Mark Tyler was appointed in September 2018 as Non-Executive director * Mr. M Tyler replaced Mr. N Ling as a member of the Audit Committee and Remuneration committee in September 2018. KEFI Minerals Plc ANNUAL REPORT 2018 Page 44 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Board Evaluation and Succession Planning The QCA Code states that the Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and individual director. During 2018 the process was facilitated internally by the Board and in order to prepare for the mine build and operational phases of the Company’s development, the Board has implemented a number of management and Board changes during the year. • The Board reviewed the talent and succession policy of the Company. On 1 February 2018, the Company expanded its senior executive team, from comprising only the two executive directors, by adding the heads of operations, systems and planning and since then the head of project construction. • On 20 July 2018, Mark Wellesley-Wood, assumed the role of the Non-Executive Chairman and Harry Anagnostaras-Adams, the role of the Managing Director. • On 5 September 2018 the Company appointed Mr. Mark Tyler to the KEFI Board as an additional independent Non- Executive Director and, therefore, independent Non-Executive Directors now comprise the majority of the Board. Internal controls The Directors acknowledge their responsibility for the Group’s systems of internal controls and for reviewing their effectiveness. These internal controls are designed to safeguard the assets of the Company and to ensure the reliability of financial information for both internal use and external publication. Whilst the Directors are aware that no system can provide absolute assurance against material misstatement or loss, regular reviews of internal controls are undertaken to ensure that they are adequate and effective. Risk management The Board considers risk assessment important in achieving its strategic objectives. There is a process of evaluation of performance targets through regular reviews by senior management who compare actual progress to forecasts. Project milestones and timelines are regularly reviewed. Risks and uncertainties Risk assessment and evaluation is an essential part of the Group’s planning and an important aspect of the Group’s internal control system. The principal risks facing the Company are set out in the Group Strategic Report. Risk management and treasury policy The Board considers risk assessment as an integral activity in achieving its strategic objectives, with the Board regularly reviewing its projects and activities in this regard. The Group finances its operations through equity and holds its cash as a liquid resource to fund its obligations of the Group’. Decisions regarding the management of these assets are approved by the Board. Please refer to page 63 of the financial statements. Securities trading The Directors comply with Rules 21 and 31 of the AIM Rules relating to Directors’ dealings and will take all reasonable steps to ensure compliance by the Group’s applicable employees as well. The Board has adopted a Share Dealing Code that is appropriate for an AIM quoted company and this applies to Directors, senior management and any employees who are in possession of “unpublished price sensitive information”. All such persons are prohibited from trading in the Company’s securities if they are in possession of “unpublished price sensitive information”. Subject to this condition and trading prohibitions applying to certain periods, trading can occur provided the relevant individual has received the appropriate prescribed clearance. Ethical values and behaviours The Board has the means to determine that ethical values and behaviours are recognised and respected via the senior management team (“Exco”) to whom local country management reports. The board of KEFI also adheres to KEFI’s Corporate Governance policies that cover, for example, ethical behaviour, anticorruption and anti-bribery as well as a whistle-blowing policy. The Board is also aware that the tone and culture set by the Board will greatly impact all aspects of the Company as a whole and the way that employees behave. A large part of the Company’s activities is centred upon what needs to be an open and respectful dialogue with employees, clients and other stakeholders. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully achieve its corporate objectives. KEFI Minerals Plc ANNUAL REPORT 2018 Page 45 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Wider stakeholder needs and social responsibilities The Group’s long-term success relies upon good relations with all its stakeholders, both internal and external. The Board affords highest priority to ensuring that it maintains a strong understanding of the needs and expectations of all stakeholders. Feedback is sought regularly across several platforms. The Group’s stakeholders include shareholders, employees, suppliers, customers, regulators, industry bodies and creditors. The principal ways in which their feedback on the Group is gathered are via meetings and conversations. Understanding and meeting shareholder needs and expectations The Board is aware of the needs and expectations of shareholders. The Company engages with its shareholders through quarterly conference calls and at its Annual General Meeting. The board supports the use of the AGM to communicate with both institutional and private investors. All shareholders are given the opportunity to ask questions and raise issues; this can be done formally during the meeting or informally with the directors afterwards. Experience, skills and capabilities of the Board Directors Experience, skills and capabilities of the Board Directors who have been appointed to the Company have been chosen because of the skills and experience they offer. The Board of Directors has strong, relevant experience across the areas of mining, accounting and banking. The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills and experience, including in the areas of gold mining and exploration. All Directors receive regular and timely information on the Group’s operational and financial performance. Relevant information is circulated to the Directors in advance of meetings. Skills and knowledge have been gained through aggregated experience in gold mining and the wider sector and these are maintained through ongoing involvement and participation within the industry. All Directors retire by rotation at regular intervals in accordance with the Company’s Articles of Association. Governance structures and processes that support good decision-making Details of the Company's corporate governance arrangements are provided its governance statement on the website https://www.kefi-minerals.com/about/corporate-governance. There are no matters expressly reserved for the Board. The Board considers the Group’s governance framework is appropriate and in line with its plans. 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 in accordance with applicable legislation 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. Relations with shareholders The Board attaches great importance to providing shareholders with clear and transparent information on the Company's activities, strategy and financial position. The Board typically meets with large shareholders following the release of financial results and regards the Annual General Meeting (AGM) as a good opportunity to communicate directly with shareholders via an open question and answer session. The Company regularly holds public question and answer calls in support of announcements, providing smaller and private investors with direct access to management. The Board receives regular updates on the views of shareholders through briefings and reports from the Managing Director, Financial Director and the Company’s brokers. In addition, analysts’ notes and brokers’ briefings are reviewed to achieve a wide understanding of investors’ views. The Company discloses contact details on its website and on all announcements released via RNS, should shareholders wish to communicate with the Board. Details of all shareholder communications are provided on the Group's website. Historical Annual Reports, notices of all general meetings from the last five years and the resolutions put to a vote at AGMs can be found on the Company’s website. Over the last five years all resolutions put to a vote at AGMs have been duly passed. Whilst this has not occurred, should a significant proportion of votes get cast against a resolution at any general meeting the Board would naturally seek to understand the rationale for this through its engagement with shareholders. KEFI Minerals Plc ANNUAL REPORT 2018 Page 46 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Shareholders holding more than 3% of share capital The Shareholders holding more than 3% of the share capital of the Company as at the date of this report and as far as the Directors’ are aware: Name Percentage Number of Shares Hargreaves Lansdown (Nominees) Limited Total Interactive Investor Services Nominees Limited Total HSDL Nominees Limited Total BNY (Ocs) Nominees Limited Total SVS (Nominees) Limited Total Vidacos Nominees Limited Total Jim Nominees Limited Total Barclays Direct Investing Nominees Limited Total Winchcombe Ventures Limited Total Share Nominees Ltd Total Events after the reporting date 14.7% 9.7% 5.8% 5.6% 5.5% 5.4% 5.3% 3.8% 3.5% 2.9% 94,120,536 62,053,419 36,949,763 36,032,717 35,605,250 34,846,479 34,290,381 24,238,861 22,241,272 18,944,572 During February 2019, the Company completed a £969,000 placing by issuing 57,000,000 new ordinary shares of 1.7p each in the capital of the Company at a price of 1.7 pence per share. ANS Mining Share Company S.C (“ANS Mining”) has confirmed receipt from its investors of its first Project-equity instalment commitments for US$11.4 million (Ethiopian Birr equivalent). The amount is higher than that previously anticipated US$9 million (Ethiopian Birr equivalent). The remainder of the US$38 million (Ethiopian Birr equivalent) ANS Mining commitment will be subscribed at close of full development funding. It has also been agreed that, of the total commitment of US$38 million (Ethiopian Birr equivalent), one third will be invested via KEFI subsidiary KEFI Minerals (Ethiopia) Limited (“KME”) so that ANS Mining will be KEFI’s minority partner in KME which controls TKGM and the exploration areas in the Tulu Kapi district which are considered prospective for potential satellite and stand-alone deposits. The other two thirds of the ANS Mining investment will be directly into TKGM. We expect Ethiopia’s mining sector to become more active on the back of our first-mover initiative. The ownership levels will be that KEFI will own c. 80% of KME which in turn will hold c. 56% of TKGM and that KEFI’s beneficial ownership of TKGM will be c. 45% (both ownership levels in TKGM are net, after adjustment for the Government’s 5% free carried interest). During April 2019 the Company issued 14,864,533 new Ordinary Shares of nominal value 1.7p each in the capital of the Company at a price of 2p per share. Nominated advisor The Company’s nominated advisor is SP Angel Corporate Finance LLP. Auditors On 1 February 2019 Moore Stephens LLP merged its business with BDO LLP. As a result, Moore Stephens LLP has resigned as auditor and the directors have appointed BDO LLP as auditor in their place. A resolution will be proposed at the annual general meeting to reappoint BDO LLP as auditor for the next financial year. KEFI Minerals Plc ANNUAL REPORT 2018 Page 47 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Report of the Board of Directors (continued) For the year ended 31 December 2018 Directors’ confirmation Each of the persons who are a director at the date of approval of this annual report confirms that: there is no relevant audit information of which the Company’s auditors are unaware; and • • each Director has taken all the steps that ought to have been taken as a Director, in order to be aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. By Order of the Board John Edward Leach Finance Director Company Secretary Cargil Management Services Limited 27/28 Eastcastle Street London United Kingdom 4 June 2019 KEFI Minerals Plc ANNUAL REPORT 2018 Page 48 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Statement of Directors’ responsibilities The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and the Group and of the Group’s results for that year. Under company law Directors must not approve the financial statements unless they are satisfied that they give a true and fair view. The Directors are also required to prepare the financial statements in accordance with the rules of the London Stock Exchange for companies trading on AIM. In preparing these financial statements, the Directors are required to: • • • • select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether the financial statements comply with IFRS as adopted by the European Union; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. KEFI Minerals Plc ANNUAL REPORT 2018 Page 49 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Independent Auditor’s Report to the Members of KEFI Minerals PLC Our opinion We have audited the financial statements of KEFI Minerals PLC (the Parent Company) and its subsidiaries (the Group) for the year ended 31 December 2018 which comprise: • • • • • the consolidated statement of comprehensive income; the consolidated and company statements of financial position; the consolidated and company statements of changes in equity; the consolidated and company cash flow statements; and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2018 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. • • • Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty relating to going concern We draw attention to note 2 in the financial statements, which indicates that the Group is dependent on raising additional financing from a number of sources to enable it to carry out its planned business objectives and enable it to continue as a going concern. As stated in note 2, these ,conditions, along with the other matters referred to in note 2, indicate that a material uncertainty exists that may cast significant doubt on the Company’s and Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. As described in note 4 to the financial statements the going concern assessment require management to make highly subjective judgements and as such this has been identified as a Key Audit Matter. Our audit procedures included the following: We reviewed the detailed forecasts and business plans to understand the funding requirement of the group and the key judgements being made. We also reviewed the current funds on hand, funding agreements in place and the group’s ability to reduce expenditure over the next year if required to support the key assumptions being made. Our assessment of key risks of material misstatement In addition to the matter described in the material uncertainty related to going concern section, key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) 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. KEFI Minerals Plc ANNUAL REPORT 2018 Page 50 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Independent Auditor’s Report to the Members of KEFI Minerals PLC (continued) Matter How we addressed the matter in our audit Carrying value of Intangible assets The group has capitalised certain pre-production mining expenditure in accordance with the provisions of the accounting standards (see accounting policy note 2). This is an area that requires management to make a number of assumptions and judgements, and as such there is a risk that the carrying value could be materially overstated and potentially require impairment We have reviewed the JORC compliant resource statement, prepared by an independent valuer, and agreed this to the Definitive Feasibility Study, prepared by another independent party, to support the carrying value of the intangible asset. This has been agreed to the valuation of the mining asset prepared by management to support non impairment of the capitalised costs. We have reviewed other key assumptions made in this valuation which have been agreed to supporting evidence as required. We have also tested a sample of costs capitalised to check they are allowed under accounting standards and vouched third party supporting to documentation. these costs The above procedures have been completed with no issues being identified in respect to the carrying value of the intangible asset as set out in the key judgements section in note 4. Our application of materiality We set certain thresholds for materiality. These help us to establish transactions and misstatements that are significant to the financial statements as a whole, to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually on balances and on the financial statements as a whole. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take into 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. We set materiality for the financial statements as a whole at £384,000 (2017: £347,000) which represents 2% of gross assets which is the figure that we considered be of most interest to the users of the financial statements given the nature of the Group’s operations. The parent company was audited to a materiality of £235,000 (2017: £211,000) based on 2% of the gross assets. Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality was set at a range of £289,000 to £154,000 (2017: £255,000 to £136,000). We agreed to report to the Audit and Risk Committee all potential adjustments in excess of £19,000 (2017:£17,250)being 5% of the consolidated financial statements materiality as a whole, in addition to other identified misstatements that warranted reporting on qualitative grounds. We calculated a component materiality for the Ethiopian entity to ensure it was audited at an appropriate percentage of the overall materiality and applied this in our risk assessments and determining relevant audit procedures. Our materiality for the significant component was £200,000 (2017:£147,000) and was based on 1.5% of gross assets. KEFI Minerals Plc ANNUAL REPORT 2018 Page 51 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Independent Auditor’s Report to the Members of KEFI Minerals PLC (continued) An overview of the scope of our audit The group operates through one main trading subsidiary undertaking based in Ethiopia which was considered to be a significant component for the purposes of the group financial statements, as well as one joint venture company. The financial statements consolidate these entities together with a number of non-trading subsidiary undertakings, , as set out in note 13.1. In establishing our overall approach to the group audit, we determined the type of work that needed to be performed in respect of each subsidiary. This consisted of us carrying out a full review of the component auditors’ working papers of the significant component within the group, which were subject to a full scope audit. This included meetings with the component auditor, which is a non BDO firm, throughout the audit process as well as an onsite visit to Ethiopia to meet with the component auditor and local management. We also performed analytical procedures in respect of the joint venture company and the non-trading subsidiaries. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion • • • • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement, set out on page 47, 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. KEFI Minerals Plc ANNUAL REPORT 2018 Page 52 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Independent Auditor’s Report to the Members of KEFI Minerals PLC (continued) In preparing the financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs(UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: 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 Chapter 3 of Part 16 of the Companies Act 2006. 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. Stephen Corrall, Senior Statutory Auditor For and on behalf of BDO LLP, Statutory Auditor London, UK 5 June 2019 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). KEFI Minerals Plc ANNUAL REPORT 2018 Page 53 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Consolidated statement of comprehensive income Year ended 31 December 2018 Notes Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 Revenue Exploration costs Gross loss Administrative expenses Finance transaction costs Share-based payments-equity settled Share of loss from jointly controlled entity Operating loss Change in value of financial assets at fair value through profit and loss Foreign exchange(loss)/gain Finance costs Finance income Loss before tax Tax Loss for the year 8 19 21 6 15 8 9 Loss attributable to: -Owners of the parent -Non-controlling interest Loss for the period Other comprehensive expense: Exchange differences on translating foreign operations Total comprehensive expense for the year Total Comprehensive Income to: -Owners of the parent -Non-controlling interest - (93) (93) (2,463) (1,599) (158) (161) (4,474) 2 (24) (459) - (4,955) - (4,955) (4,955) - (4,955) (13) (4,968) - (146) (146) (2,535) (865) (93) (286) (3,925) (2,280) 14 (85) 10 (6,266) - (6,266) (6,266) - (6,266) (398) (6,664) (4,968) - (6,664) - Basic and fully diluted loss per share (pence) 10 (1.041) (1.987) The notes on pages 60 to 97 are an integral part of these consolidated financial statements. KEFI Minerals Plc ANNUAL REPORT 2018 Page 54 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Statements of financial position 31 December 2018 ASSETS Non-current assets Property, plant and equipment Intangible assets Investment in subsidiaries Investments in jointly controlled entities Current assets Financial assets at fair value through OCI Derivative financial asset at fair value through profit or loss Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity attributable to owners of the Company Share capital Deferred Shares Share premium Share options reserve Foreign exchange reserve Accumulated losses Attributable to Owners of parent Non-Controlling Interest Total equity Current liabilities Trade and other payables Loan and borrowings Total liabilities Total equity and liabilities Company Number: 05976748 The Group Notes 2018 £’000 The Company 2018 £’000 11 12 13.1 13.2 38 18,757 - - 7 6,726 4,598 181 The Group 2017 £’000 43 16,232 - - 18,795 11,512 16,275 14 15 16 17 18 18 18 19 20 22 24 81 - 115 88 284 - - 5,876 33 5,909 19,079 17,421 9,719 12,436 19,303 1,032 (215) (27,998) 14,277 1,075 15,352 3,112 615 3,727 19,079 9,719 12,436 19,303 1,032 - (28,418) 14,072 - 14,072 2,734 615 3,349 17,421 The Company 2017 £’000 6 5,191 4,598 181 9,976 - 408 5,079 121 5,608 15,584 5,656 12,436 18,661 1,325 - 79 408 94 466 1,047 17,322 5,656 12,436 18,661 1,325 (228) (23,380) (25,072) 14,470 - 14,470 2,852 - 2,852 17,322 13,006 - 13,006 2,578 - 2,578 15,584 The notes on pages 60 to 97 are an integral part of these consolidated financial statements. The Company has taken advantage of the exemption conferred by section 408 of Companies Act 2006 from presenting its own statement of comprehensive income. Loss after taxation amounting to £4.6 million (2017: £8.2 million) has been included in the financial statements of the parent company. On the 4 June 2019, the Board of Directors of KEFI Minerals PLC authorised these financial statements for issue. Harry Anagnostaras-Adams Executive Director- Chairman John Edward Leach Finance Director KEFI Minerals Plc ANNUAL REPORT 2018 Page 55 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Consolidated statement of changes in equity Year ended 31 December 2018 Attributable to the owners of the Company Share Deferred capital shares Share premium Share options reserve Foreign exchan ge reserve Accumul ated losses Owners Equity NCI Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 3,883 12,436 16,279 1,474 170 (18,695) 15,547 - - (6,266) (6,266) - (398) - (398) - (398) (398) (6,266) (6,664) - (6,664) - - - - - - - - - - - - - - - - - (1,340) - - - 1,773 - 5,656 - - 12,436 4,078 (356) 18,661 - - - - - - - 4,063 - - - - - - - - - - - - - - - (938) - - - 1,817 (237) - - - 122 (30) (241) - - 1,325 - - - - 181 (67) (407) - - - - - - - 1,340 - - 241 - 122 (30) - - - (228) - - (23,380) 5,851 (356) 14,470 - (4,955) (4,955) 13 13 - 13 (4,955) (4,942) 938 - - 67 407 - - 181 - - 5,880 (237) - - - - - - - - - 15,547 (6,266) - - - - - - - - - - - - - - - - - 122 (30) - 5,851 (356) 14,470 (4,955) 13 (4,942) - 181 - - 5,880 (237) At 1 January 2017 Loss for the year Other comprehensive income Total Comprehensive Income Transfer realised loss of derivative financial asset (Note 15) Recognition of share- based payments Forfeited options Cancellation of options Issue of share capital Share issue costs At 31 December 2017 Loss for the year Other comprehensive income Total Comprehensive Income Transfer realised loss of derivative financial asset (Note 15) Recognition of share- based payments Forfeited options Expired options Issue of share capital Share issue costs Non-controlling interest At 31 December 2018 9,719 12,436 19,303 1,032 (215) (27,998) 14,277 1,075 15,352 (1,075) (1,075) 1,075 - The following describes the nature and purpose of each reserve within owner’s equity: Reserve Share capital Deferred shares Description and purpose amount subscribed for ordinary share capital at nominal value on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p Share premium amount subscribed for share capital in excess of nominal value, net of issue costs Share options reserve reserve for share options granted but not exercised or lapsed Foreign exchange reserve cumulative foreign exchange net gains and losses recognized on consolidation Accumulated losses Cumulative net gains and losses recognized in the statement of comprehensive income, excluding foreign exchange gains within other comprehensive income NCI (Non-controlling interest) the portion of equity ownership in a subsidiary not attributable to the parent company The notes on pages 60 to 97 are an integral part of these consolidated financial statements. KEFI Minerals Plc ANNUAL REPORT 2018 Page 56 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Company statement of changes in equity Year ended 31 December 2018 Share Deferred shares capital £’000 £’000 Share premium £’000 At 1 January 2017 Comprehensive loss for the year Transfer realised loss of derivative financial asset (Note 15) Recognition of share-based payments Forfeited options Cancellation of options Issue of share capital Share issue costs At 31 December 2017 Loss for the year Transfer realised loss of derivative financial asset (Note 15) Recognition of share-based payments Forfeited options Expired options Issue of share capital Share issue costs At 31 December 2018 3,883 - - - - - 1,773 - 5,656 - - - - 4,063 9,719 Share options reserve £’000 1,474 - - Accumulated losses £’000 Total £’000 (18,496) (8,157) 1,340 15,576 (8,157) - 12,436 - - 16,279 - (1,340) - - 122 - 122 - - - - 12,436 - - - - - - 12,436 - - 4,078 (356) 18,661 (938) - - - 1,817 (237) 19,303 (30) (241) - - 1,325 - 181 (67) (407) - - 1,032 - 241 - - (25,072) (4,758) 938 (30) - 5,851 (356) 13,006 (4,758) - - 181 67 407 - - (28,418) - - 5,880 (237) 14,072 The following describes the nature and purpose of each reserve within owner’s equity: Reserve Description and purpose Share capital amount subscribed for ordinary share capital at nominal value Deferred shares on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p Share premium amount subscribed for share capital in excess of nominal value, net of issue costs Share options reserve reserve for share options granted but not exercised or lapsed Accumulated losses cumulative net gains and losses recognized in the statement of comprehensive income The notes on pages 60 to 97 are an integral part of these consolidated financial statements. KEFI Minerals Plc ANNUAL REPORT 2018 Page 57 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Consolidated statement of cash flows Year ended 31 December 2018 CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax Adjustments for: Depreciation of property, plant and equipment Share based payments Issue of warrants Fair value loss to derivative financial asset Fair value loss to available for sale Share of loss from jointly controlled entity Exchange difference Finance costs Changes in working capital: Trade and other receivables Trade and other payables Cash generated from operations Interest paid Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Deferred exploration costs Project evaluation costs Acquisition of property plant and equipment Advances to jointly controlled entity Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of share capital Issue costs Derivative Financial Asset Proceeds from bridge loan Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Effect of cash held in foreign currencies Cash and cash equivalents: At beginning of the year Effect of exchange rate fluctuations on cash held At end of the year Notes Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 11 19 19 15 21 12 12 18 18 24.1.2 24.1.1 (4,955) 10 158 23 2 - 161 460 459 (3,682) (21) 871 (2,832) (344) (3,176) (990) (1,535) (6) (304) (2,835) 4,942 (224) 410 500 5,628 (383) 17 17 466 5 88 (6,266) 24 93 - 2,280 26 286 13 85 (3459) 2,569 291 (41) (85) (126) (988) (1,252) (6) (379) (2,625) 1,923 (356) 1,240 - 2,807 121 - 410 (65) 466 Cash and cash equivalents in the Consolidated Statement of Financial Position includes restricted cash of £20,000 (2017: £20,000) The notes on pages 60 to 97 are an integral part of these consolidated financial statements. KEFI Minerals Plc ANNUAL REPORT 2018 Page 58 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Company statement of cash flows Year ended 31 December 2018 CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax Adjustments for: Share based payments Issue of warrants Fair value loss to derivative financial asset Impairment of loan to subsidiary Impairment of amount receivable from jointly controlled entity Exchange difference Finance costs Changes in working capital: Trade and other receivables Trade and other payables Cash generated from operations Interest Paid Net cash used in operating activities CASH FLOW FROM INVESTING ACTIVITIES Acquisition of property plant and equipment Project evaluation costs Advances to jointly controlled entity Loan to subsidiary Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of share capital Issue costs Derivative Financial Asset Proceeds from bridge loan Net cash from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents: At beginning of the year At end of the year Notes Year Ended Year Ended 31.12.18 £’000 31.12.17 £’000 (4,758) (8,157) 19 19 15 12 18 18 24.1.2 24.1.1 17 17 158 23 2 - 496 342 459 (3,278) (21) 138 (3,161) (344) (3,505) (4) (1,535) (304) (368) (2,211) 4,942 (224) 410 500 5,628 (88) 121 33 93 - 2,280 39 379 3 85 (5,278) 2,990 961 (1,327) (85) (1,412) (4) (1,252) (379) (39) (1,674) 1,923 (356) 1,240 - 2,807 (279) 400 121 Cash and cash equivalents in the Company Statement of Financial Position includes restricted cash of £20,000 (2017: £20,000) The notes on pages 60 to 97 are an integral part of these consolidated financial statements. KEFI Minerals Plc ANNUAL REPORT 2018 Page 59 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements Year ended 31 December 2018 1. Incorporation and principal activities Country of incorporation KEFI Minerals PLC (the “Company”) was incorporated in United Kingdom as a public limited company on 24 October 2006. Its registered office is at 27/28, Eastcastle Street, London W1W 8DH.The principal place of business is Cyprus. Principal activities The principal activities of the Group for the year were: • • • Exploration for mineral deposits of precious and base metals and other minerals that appear capable of commercial exploitation, including topographical, geological, geochemical and geophysical studies and exploratory drilling. Evaluation of mineral deposits determining the technical feasibility and commercial viability of development, including the determination of the volume and grade of the deposit, examination of extraction methods, infrastructure requirements and market and finance studies. Development of mineral deposits and marketing of the metals produced. 2. Accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied throughout both periods presented in these financial statements unless otherwise stated. Basis of preparation and consolidation The Company and the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. They comprise the accounts of KEFI Minerals PLC and all its subsidiaries made up to 31 December 2018. The Company and the consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments. Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date – i.e. when control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. When the excess is positive, goodwill is recognised in the statement of financial position, if the excess is negative, a bargain purchase price is recognised in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Subsidiaries Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries have been included in the consolidated financial statements from the date that control commences until the date that control ceases. Transactions eliminated on consolidation Intra-group balances and transactions, and any income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. KEFI Minerals Plc ANNUAL REPORT 2018 Page 60 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 2. Accounting policies (continued) Going concern The assessment of the Group’s ability to continue as a going concern involves judgment regarding future funding available for the development of the Tulu Kapi Gold project, exploration of the Saudi Arabia exploration properties and for working capital requirements. In considering the Group’s ability to continue as a Going Concern, management have considered funds on hand at year end, planned expenditures covering a period of at least 12 months from the date of approving these financial statements and the Group’s strategic objectives as part of this assessment. Due to the nature of its business, management increases or decreases administrative and exploration expenditures based on available working capital. Judgments must also be made with regard to events or conditions which might give rise to significant uncertainty. In December 2018, the Group entered into a financing agreement with Sanderson Capital Partners for a convertible project loan facility of up to GBP4,000,000 million (Note 24.2). The ability of the Company to carry out its planned business objectives is dependent on its ability to continue to raise adequate financing from lenders, shareholders and other investors to meet its funding requirements. Additional financing will be required to continue the development of the Tulu Kapi Gold Project through to production. The Group is currently evaluating and seeking a number of additional sources of financing the main focus of which is securing initial equity funding of US $58 million. The future equity funding of US $58 million will be invested by two shareholders the first being the Ethiopian Government with proposed project equity of US$20 million; and Ethiopian private sector partner ANS Mining Share Company Limited (“ANS Mining”) with an equity injection of US$38 million (Note 28). In addition, the Group has mandated advisors to prepare for a US$160 million long term financing which the Group is currently finalising. There is no assurance that such financing will be available on a timely basis or on acceptable terms. If the Group is unable to obtain adequate additional financing, will be required to consider alternative courses of action which could include disposing of all or part of the KEFI share of the Tulu Kapi Gold Project. The Group continually evaluates such potential outcomes and additional potential sources of finance. These conditions indicate the existence of material uncertainties which could cast significant doubt over the Group’s ability to continue as a going concern. These audited consolidated financial statements do not give effect to any adjustments, which could be material, and which would be necessary should the Group be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different than those reflected in the audited consolidated financial statements Functional and presentation currency Items included in the Group’s financial statements are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”) which for the Company is British Pounds (GBP). The financial statements are presented in British Pounds (“GBP”). Foreign currency translation (1) Foreign currency translation Foreign currency transactions are translated into the presentational currency using the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss in the statement of comprehensive income. (2) Foreign operations On consolidation, the assets and liabilities of the consolidated entity’s foreign operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly in which case they are recorded at the actual rate. Exchange differences arising, if any, are recognized in the foreign currency translation reserve and as a component of other comprehensive income, and recognized in profit or loss on disposal of the foreign operation. Revenue recognition The Group had no sales or revenue during the year ended 31 December 2018 (2017: £Nil). KEFI Minerals Plc ANNUAL REPORT 2018 Page 61 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 2. Accounting policies (continued) Property plant and equipment Property plant and equipment are stated at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition less depreciation. Depreciation is calculated using the straight-line method to write off the cost of each asset to their residual values over their estimated useful life. The annual depreciation rates used are as follows: Furniture, fixtures and office equipment Motor vehicles Plant and equipment Intangible Assets 25% 25% 25% Cost of licenses to mines are capitalised as intangible assets which relate to projects that are at the pre-development stage. No amortisation charge is recognised in respect of these intangible assets. Once the Group starts production these intangible assets relating to license to mine will be depreciated over life of mine. Acquisitions and goodwill The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Any costs directly attributable to the business combination are written off to the statement of comprehensive income. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fair values at the acquisition date. Where the Group acquires a subsidiary for less than the fair value of its assets and liabilities, this results in negative goodwill which is recognized in profit and loss. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. Goodwill is reviewed for impairment on an annual basis. When the directors consider the initial value of the acquisition to be negligible, the goodwill is written off to the statement of comprehensive income immediately. Trading results of acquired subsidiary undertakings are included from the date of acquisition. Goodwill is deemed to be impaired when the present value of the future cash flows expected to be derived is lower than the carrying value. Any impairment is charged to the statement of comprehensive income immediately. Interest in jointly controlled entities The group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries. The group classifies its interests in joint arrangements as either: - Joint ventures: where the group has rights to only the net assets of the joint arrangement - Joint operations: where the group has both the rights to assets and obligations for the liabilities of the joint arrangement. In assessing the classification of interests in joint arrangements, the Group considers: - The structure of the joint arrangement - The legal form of joint arrangements structured through a separate vehicle - The contractual terms of the joint arrangement agreement - Any other facts and circumstances (including any other contractual arrangements). The Group accounts for its interests in joint ventures in the same manner as investments in Associates using the equity method The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, and expenses in accordance with its contractually conferred rights and obligations KEFI Minerals Plc ANNUAL REPORT 2018 Page 62 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 2. Accounting policies (continued) Finance costs Interest expense and other borrowing costs are charged to the statement of comprehensive income as incurred and is recognised using the effective interest method. Tax The tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Tax is payable in the relevant jurisdiction at the rates described in note 9. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognized for all taxable differences and deferred tax assets are recognized to the extent that taxable profits will be available against which deductible temporary differences can be utilized. The amount of deferred tax is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off deferred tax assets against deferred tax liabilities and when the deferred taxes relate to the same fiscal authority. Investments Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognized as an expense in the period in which the impairment is identified, in the Company accounts. Exploration costs The Group has adopted the provisions of IFRS 6 “Exploration for and Evaluation of Mineral Resources”. The company still applies IFRS6 until the project financing is secured. Once financing is secured the project moves to the development stage. Exploration, evaluation and development expenditure, including acquisition costs of licences, in respect of each identifiable area of interest is expensed to the statement of comprehensive income as incurred, until the point at which development of a mineral deposit is considered economically viable. Once the technical feasibility and commercial viability of extracting the mineral resource are demonstrable, further costs are no longer capitalised as such and existing asset is reclassified accordingly, after being tested for impairment. Once the Board decides on the development of a project, development expenditure will be capitalized as incurred only where it meets criteria for recognition as an intangible under IAS 38 or a tangible asset under IAS 16 and amortized over the estimated useful life of the area according to the rate of depletion of the economically recoverable reserves or over the estimated useful life of the mine, if shorter. The directors consider that of the project in its Licence areas in Saudi Arabia has not yet met its criteria for capitalization. Capitalized E&E costs for the Group’s project in Ethiopia have been recognized on acquisition, and have continued to be capitalised since this date, in accordance with IFRS 6. The technical feasibility of the project has been confirmed, and once the financing is secure the related assets will be reclassified as development costs in line with above. A regular review will be undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated capitalized costs in relation to an abandoned area of interest will be written off in full against profit in the year in which the decision to abandon the area is made. Capitalized development expenditure will be amortized from the date at which production commences on a unit of production basis over the estimated lifetime of the commercial ore reserves for the area to which the costs relate. Share-based compensation benefits IFRS 2 “Share-based Payment” requires the recognition of equity-settled share-based payments at fair value at the date of grant and the recognition of liabilities for cash-settled share-based payments at the current fair value at each statement of financial position date. The total amount expensed is recognized over the vesting period, which is the period over which performance conditions are to be satisfied. The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management’s best estimate, including consideration of the effects of non-transferability, exercise restrictions and behavioural considerations. KEFI Minerals Plc ANNUAL REPORT 2018 Page 63 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 2. Accounting policies (continued) Financial instruments Non-derivative financial assets The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. Amortised cost: These are Financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Loans and receivables, as well as cash are classified as amortised cost Financial asset at fair value through other comprehensive income: Financial assets (debt) which are held with the objective as above but which maybe intended to be sold before maturity. And also includes strategic equity investments (that are not subsidiaries, joint ventures or associates) which would be normally held at fair value through profit or loss, could on irrevocable election be measured with fair value changes flow through OCI. On disposal, the gain or loss will not be recycled to P&L Financial asset at fair value through profit and loss: Financial assets not meeting the criteria above and derivatives. Cash and cash equivalents Cash and cash equivalents comprise cash balances, overdrafts and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group classifies non-derivative financial liabilities as other financial liabilities. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise trade and other payables and borrowings. Financial assets and liabilities at fair value through the profit or loss Financial assets and liabilities at fair value through the profit or loss comprise derivative financial instruments. Subsequent to initial recognition, financial assets at fair value through the profit or loss are stated at fair value. Movements in fair values are recognised in profit or loss unless they relate to derivatives designated and effective as hedging instrument, in which event the timing of the recognition in the profit or loss depends on the nature of the hedging relationship. The Group does not currently have any such hedging instruments. KEFI Minerals Plc ANNUAL REPORT 2018 Page 64 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 2. Accounting policies (continued) New standards and interpretations During the current year the Group and the Company adopted all the new and revised International Financial Reporting Standards (IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2018. The Group and the Company applied IFRS 9 and IFRS 15 for the first time from 1 January 2018. The nature and effect of the changes as a result of adoption of these new accounting standards are described below. Several other amendments and interpretations apply for the first time in 2018, but do not have a significant impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective. IFRS 9 Financial Instruments: IFRS 9 Financial Instruments addresses the classification, measurement, and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. Based on the assessment performed, the new guidance has the following impacts on the classification and measurement of its financial instruments • Financial assets at fair value through Other Comprehensive Income (“OCI”): The equity instruments that were classified as available-for-sale financial assets satisfy the conditions for classification as at fair value through other comprehensive income (FVOCI) and therefore there is no impact in classification. Gains and losses accumulated in other comprehensive income are not recycled to the income statement. Furthermore, under IFRS 9 there is no exception to carry investments in entities at costs less any recognised impairment and therefore, fair value will need to be calculated. There are no other significant changes to the accounting treatment of these assets. • Impairment: The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39. The Group applies the simplified approach and records lifetime expected losses on all trade receivables. However, given the short term nature of the Group’s receivables, there is not a significant impact in the financial statements. For the Parent Company, current and non-current receivables (except for non- current assets at fair value through profit and loss) are stated at amortised cost. A provision for impairment of receivables is established using the expected credit loss impairment model according IFRS 9. The amount of the provision is the difference between the carrying amount and the recoverable amount and this difference is recognised in the income statement. • Disclosures: The standard introduces expanded disclosure requirements and changes in presentation included in this report. The Group also assessed other changes introduced by IFRS 9 that have no impact - on the financial statements as explained below: - There is no impact on the accounting for financial liabilities, as the new requirements of IFRS 9 only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. • No impacts in relation to derecognition of financial instruments as the same rules have been transferred from IAS39 Financial Instruments: Recognition and Measurement. IFRS 15 – Revenue with Contracts with Customers, deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The adoption of this standard has had no effect on the Group, as the Group does not currently have any revenue. IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments) The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, for share-based payment transactions with a net settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. As the Company does not have cash settled awards, the amendments to IFRS 2 do not impact the Consolidated and Company’s financial statements KEFI Minerals Plc ANNUAL REPORT 2018 Page 65 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 2. Accounting policies (continued) Standards issued but not yet effective New standards, amendments and interpretations that are not yet effective and have not been early adopted There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods and which have not been adopted early. None of these are expected to have a significant effect on the Group, in particular: IFRS “16 Leases” (effective for periods beginning on or after 1 January 2019) requires lessees to use single on-balance sheet model and recognise all lease assets and liabilities on the balance sheet. Management have completed an assessment of existing operating contracts and do not anticipate the adoption of IFRS 16 to have a significant impact on the Group’s financial statements as the operating leases held by the Group are of low value and the majority of the existing contracts either relate to service agreements or contain performance obligations based on variable terms and thus do not result in right of use assets or lease liabilities. 3. Financial risk management Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand with an original maturity date of less than three months. To mitigate our inherent exposure to credit risk we maintain policies to limit the concentration of credit risk, and ensure liquidity of available funds. We also invest our cash and equivalents in rated financial institutions, primarily within the United Kingdom and other investment grade countries, which are countries rated BBB- or higher by S&P the Group does not have a significant concentration of credit risk arising from its bank holdings of cash and cash equivalents. Financial risk factors The Group is exposed to market risk (interest rate risk and currency risk), liquidity risk and capital risk management arising from the financial instruments it holds. The risk management policies employed by the Group to manage these risks are discussed below: 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. The Group does not consider this risk to be significant. The Company has borrowings outstanding from its subsidiaries, the ultimate realisation of which depends on the successful exploration and realization of the Group’s intangible exploration assets. This in turn is subject to the availability of financing to maintain the ongoing operations of the business. The Group manages its financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Market risk - Interest rate risk Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group’s operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest- bearing assets. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group’s management monitors the interest rate fluctuations on a continuous basis and acts accordingly. At the reporting date the interest rate profile of interest-bearing financial instruments was: Variable rate instruments Financial assets 2018 £’000 88 2017 £’000 466 Sensitivity analysis An increase of 100 basis points in interest rates at 31 December 2018 would have increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Given current interest rate levels, a decrease of 25 basis points has been considered, with the impact on profit and equity shown below. KEFI Minerals Plc ANNUAL REPORT 2018 Page 66 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 3. Financial risk management (continued) Variable rate instruments Financial assets – increase of 100 basis points Financial assets – decrease of 25 basis points Equity Profit or Loss Equity Profit or Loss 2018 £’000 1 (0.2) 2018 £’000 1 (0.2) 2017 £’000 5 (1) 2017 £’000 5 (1) Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the functional currency of the entity. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Australian Dollar, Euro, Turkish Lira, US Dollar, CHF, Ethiopian Birr and Saudi Arabian Riyal. Since 1986 the Saudi Arabian Riyal has been pegged to the US Dollar, it is fixed at USD/SAR 3.75. The Group’s management monitors the exchange rate fluctuations on a continuous basis and acts accordingly. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows; with the Saudi Arabian Riyal exposure being included in the USD amounts. Australian Dollar Euro Turkish Lira US Dollar Ethiopian Birr CHF Swiss Franc Liabilities 2018 £’000 Assets 2018 £’000 Liabilities 2017 £’000 Assets 2017 £’000 57 333 2 1377 169 27 - 2 28 51 273 - 103 180 2 1,251 70 - - 2 40 45 549 - Sensitivity analysis A 10% strengthening of the British Pound against the following currencies at 31 December 2018 would have increased/(decreased) equity and profit or loss by the amounts shown in the table below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the British Pound against the relevant currency, there would be an equal and opposite impact on the loss and equity. AUD Dollar Euro Turkish Lira US Dollar Ethiopia ETB CHF Swiss Franc Equity 2018 £’000 6 33 (3) 133 (10) 3 Profit or Loss 2018 £’000 6 33 (3) 133 (10 3 Equity 2017 £’000 10 18 (4) 120 (48) - Profit or Loss 2017 £’000 10 18 (4) 120 (48) - KEFI Minerals Plc ANNUAL REPORT 2018 Page 67 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 3. Financial risk management (continued) Liquidity risk Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities. Carrying Amount Contractual Cash flows Less than 1 year Between 1-5 year More than 5 years The Group 31 December 2018 Trade and other payables Loans and Borrowings 31 December 2017 Trade and other payables The Company 31 December 2018 Trade and other payables Loans and Borrowings 31 December 2017 Trade and other payables 3,112 3,112 3,112 615 615 615 3,727 3,727 3,727 2,852 2852 2852 2,734 2,734 2,734 615 615 615 3,349 3,349 3,349 2,578 2,578 2,578 - - - - - - - - - - - - - - - - Capital risk management The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance. This is done through the close monitoring of cash flows. The capital structure of the Group consists of cash and cash equivalents of £88,000 (2017: £466,000) and equity attributable to equity of the parent, comprising issued capital and deferred shares of £22,155,000 (2017: £18,092,000), other reserves of £20,120,000, (2017: £19,759,000) and accumulated losses of £27,998,000 (2017: £23,380,000). The Group has no long-term debt facilities. KEFI Minerals Plc ANNUAL REPORT 2018 Page 68 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 3. Financial risk management (continued) Fair value estimation The Group has certain financial assets and liabilities that are held at fair value. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques to measure fair value: Classification of financial assets and liabilities Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and Level 3 – inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The fair value of trade and other receivables is estimated as the present value of future cash flows discounted at the market rate of interest at the reporting date. For receivables and payables with a remaining life of less than one year, the notional amount is deemed to reflect fair value. All other receivables and payables are, where material, discounted to determine the fair value. Differences arising between the carrying and fair value are considered not significant to adjust for in these accounts. The carrying and fair values of intercompany balances are the same as if they are repayable on demand. As at each of December 31, 2018 and December 31, 2017, the levels in the fair value hierarchy into which the Group’s financial assets and liabilities measured and recognized in the statement of financial position at fair value are categorized are as follows: Financial assets Cash and cash equivalents (Note 17) – Level 1 Financial assets at fair value through OCI (Note 14) - Level 2 Derivative financial asset (Note 15) - Level 2 Trade and other receivables (Note 16) Financial liabilities Trade and other payables (Note 22) Loans and borrowings (Note 24) Carrying Amounts Fair Values 2018 £’000 88 81 - 115 2017 £’000 466 79 408 94 3,112 615 2,734 615 2018 £’000 88 81 - 115 3,112 615 2017 £’000 466 79 408 94 2,734 615 KEFI Minerals Plc ANNUAL REPORT 2018 Page 69 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 4. Use and revision of accounting estimates and judgements The preparation of the financial report requires the making of estimations and assumptions that affect the recognized amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Accounting Judgement: Going concern The going concern presumption depends principally on securing funding to develop the Tulu Kapi mine project as an economically viable mineral deposit, and the availability of subsequent funding to extract the resource, or alternatively the availability of funding to extend the Company’s and Group’s exploration activities. Contingent liabilities A contingent liability arises where a past event has taken place for which the outcome will be confirmed only by the occurrence or non- occurrence of one or more uncertain events outside of the control of the Group, or a present obligation exists but is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A provision is made when a loss to the Group is likely to crystallise. The assessment of the existence of a contingency and its likely outcome, particularly if it is considered that a provision might be necessary, involves significant judgment taking all relevant factors into account Finance transaction Costs The company has expensed all costs incurred in preparatory work to secure funding to develop the Tulu Kapi mine project. The moment project funding is secured the direct transaction costs will be included as part of the initial carrying amount of the financial instrument, the recognition of these costs in profit or loss is spread over the term of the instrument through the application of the effective interest method. Estimates: Fair value of acquisitions The 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. Fair value estimates are required. In calculating the fair value estimates of net identifiable net assets on acquisition significant judgements and estimates are required. Share based payments In calculating the fair value at the grant date, the Black Scholes model requires us to estimate the inputs to this model, in particular in respect of volatility. This assessment is based on historical share price movements assuming these will continue into the future. Impairment review of asset carrying values Events or changes in circumstances can give rise to significant impairment charges or reversals of impairment in a particular year. Where the recoverable amounts of Group cash generating units are assessed by analyses of discounted cash flows, the resulting valuations are particularly sensitive to changes in estimates of long-term commodity prices, exchange rates, operating costs, the grouping of assets within cash-generating units and discount rates. Capitalisation of exploration and evaluation costs Under the Group’s accounting policy, exploration and evaluation expenditure is not capitalised until the point is reached at which there is a high degree of confidence in the project’s viability and it is considered probable that future economic benefits will flow to the Group. Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project KEFI Minerals Plc ANNUAL REPORT 2018 Page 70 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 5. Operating segments The Group has only one distinct operating segment, being that of mineral exploration. The Group’s exploration activities are located in the Kingdom of Saudi Arabia (through the jointly controlled entity), Ethiopia and its administration and management are based in Cyprus. Turkey and Bulgaria are as a result f previous interest in Turkey. 2018 Operating (loss) Material non-recurring item Foreign exchange profit/(loss) Net Finance costs Share of loss from jointly controlled entity Loss before tax Tax Loss for the year Total assets Total liabilities Depreciation of property, plant and equipment 2017 Operating (loss) Material non-recurring item Foreign exchange profit/(loss) Net Finance costs Share of loss from jointly controlled entity Loss before tax Tax Loss for the year Total assets Total liabilities Depreciation of property, plant and equipment Cyprus Turkey Bulgaria Ethiopia Consolidated £’000 £’000 £’000 £’000 £’000 (4,279) (20) (2) (10) (4,311) - (33) (459) - 9 - - - - - - - (4,771) (11) (2) (10) 6,713 3,351 5 29 1 - 2 4 - 12,013 371 5 - (24) (459) (4,794) (161) (4,955) - (4,955) 18,757 3,727 10 Cyprus Turkey Bulgaria Ethiopia Consolidated £’000 £’000 £’000 (3,600) (23) (3) (2,280) - (75) (5,955) 5,652 2,578 3 - 14 - (9) 41 3 - £’000 (13) - - - - - - (3) (13) 4 5 - 11,625 266 21 £’000 (3,639) (2,280) 14 (75) (5,980) (286) (6,266) - (6,266) 17,322 2,852 24 KEFI Minerals Plc ANNUAL REPORT 2018 Page 71 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 6. Expenses by nature Exploration costs Depreciation of property, plant and equipment (Note 11) Investigatory, pre-decisional -decisional project finance transaction costs (Note 8) Warrants issue costs (Note 19) Share based benefits to employees (Note 19) Share based benefits to key management (Note 19) Share of losses from jointly controlled entity (Note 5 and Note 21) Directors’ fees and other benefits (Note 23.1) Consultants’ costs Auditors’ remuneration - audit current year Auditors’ remuneration -secondary firm Legal Costs Ongoing Listing Costs Other expenses Operating loss Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 93 10 1,599 23 26 55 161 759 441 45 28 387 193 654 4,474 146 24 865 - 23 20 286 708 356 47 23 516 217 694 3,925 The Group’s stages of operations in Saudi Arabia as at the year-end and as at the date of approval of these financial statements have not yet met the criteria for capitalization of exploration costs. The Company only capitalises direct development costs for the Tulu Kapi gold project in Ethiopia. 7. Staff costs Salaries Accumulated Leave Provision Termination Package Social insurance costs and other funds Average number of employees Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 627 - - 38 665 50 408 10 2 27 447 44 Excludes Directors’ remuneration and fees which are disclosed in note 23.1. These staff costs are capitalised in development exploration costs. All these employees are involved in Tulu Kapi Project in Ethiopia. 8. Finance transaction costs Interest on short term loan Interest on short term loan related party (note 23.2) Total finance costs Transaction costs for secured convertible loan facility (note 24.2) On-going arrangement investigation cost for long term finance Total finance transaction costs 2018 £’000 409 50 459 380 1,219 1,599 2017 £’000 85 - 85 - 865 865 The above on-going arrangement cost relate to pre-investigation activities required to fund TK Gold project KEFI Minerals Plc ANNUAL REPORT 2018 Page 72 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 9. Tax Loss before tax Tax calculated at the applicable tax rates Tax effect of non-deductible expenses Tax effect of tax losses Tax effect of items not subject to tax Charge for the year 2018 £’000 (4,955) (621) 329 308 (16) - 2017 £’000 (6,266) (786) 731 55 - - The Company is resident in Cyprus for tax purposes. A deferred tax asset of £1,239,636 (2017: £1,271,982) has not been accounted for due to the uncertainty over future recoverability Cyprus The corporation tax rate is 12.5%. Under certain conditions interest income may be subject to defence contribution at the rate of 30%. In such cases this interest will be exempt from corporation tax. In certain cases, dividends received from abroad may be subject to defence contribution at the rate of 20% for the tax year 2013 and 17% for 2014 and thereafter. Due to tax losses sustained in the year, no tax liability arises on the Company. Under current legislation, tax losses may be carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2018, the balance of tax losses which is available for offset against future taxable profits amounts to £ 9,917,086 (2017: £ 10,175,859). Bulgaria Mediterranean Minerals (Bulgaria) EOOD, the 100% subsidiary of the Company, is resident in Bulgaria for tax purposes. The corporation tax rate is 10%. Due to tax losses sustained in the period, no tax liability arises on the Mediterranean Minerals (Bulgaria) EOOD. Under current legislation, tax losses may be carried forward and be set off against taxable income of the following five years. As at 31 December 2018, the balance of tax losses which is available for offset against future taxable profits amounts to £29,971 (2017: £29,867). The reduction in tax losses from the prior year is due to losses passing the five-year threshold for their utilization. Turkey Doğu Akdeniz Mineralleri Sanayi ve Ticaret Limited Şirket (Doğu Akdeniz Mineralleri), the 100% subsidiary of Mediterranean Minerals (Bulgaria) EOOD, and ultimately 100% subsidiary of the Company, is resident in Turkey for tax purposes. The corporation tax rate is 20%. Under local tax legislation, exploration costs can only be set off against income from mining operations. Tax losses may be carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2018, the balance of exploration costs that is available for offset against future income from mining operations amount to £ 107,286 (2017: £143,375). Ethiopia KEFI Minerals (Ethiopia) Limited is subject to other direct and indirect taxes in Ethiopia through its foreign operations. The mining industry in Ethiopia is relatively undeveloped. As a result, tax regulations relating to mining enterprises are evolving. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. During 2013, the House of People's Representatives passed an amendment to the Mining Income Tax Proclamation, reducing income tax from 35% to 25% and had received an initial draft of proposed amendments to the Mining Proclamation, which includes a reduction in royalty on gold production from 8% to 7%. According to the Proclamation holders of a mining licence are required to pay royalty on the sales price of the commercial transaction of the minerals produced. United Kingdom KEFI Minerals (Ethiopia) Limited is resident in United Kingdom for tax purposes. The corporation tax rate is 20%. In December 2016, KEFI Minerals (Ethiopia) Limited elect under CTA 2009 section 18A to make exemption adjustments in respect of the company’s foreign permanent establishment’s amounts in arriving at the company’s taxable total profits for each relevant accounting period. This is an exemption for UK corporation tax in respect of the profits of the Ethiopian branch. KEFI Minerals Plc ANNUAL REPORT 2018 Page 73 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 10. Loss per share The calculation of the basic and fully diluted loss per share attributable to the ordinary equity holders of the parent is based on the following data: Net loss attributable to equity shareholders Average number of ordinary shares for the purposes of basic loss per share (000’s) Loss per share: Basic and fully diluted loss per share (pence) The effect of share options and warrants on losses per share is anti-dilutive. 11. Property, plant and equipment Year Ended 31.12.18 £’000 (4,955) 476,051 Year Ended 31.12.17 £’000 (6,266)) 315,273 (1.041) (1.987) The Group Cost At 1 January 2017 Additions Disposals At 31 December 2017 Additions At 31 December 2018 Accumulated Depreciation At 1 January 2017 Charge for the year Disposals At 31 December 2017 Charge for the year At 31 December 2018 Net Book Value at 31 December 2018 Net Book Value at 31 December 2017 Motor Vehicles Plant and equipment £’000 £’000 Furniture, fixtures and office equipment £’000 75 - (4) 71 - 71 33 1 (4) 30 4 34 37 41 135 2 (71) 66 - 66 116 19 (71) 64 2 66 - 2 62 4 - 66 6 72 62 4 - 66 5 71 1 - Total £’000 272 6 (75) 203 6 209 211 24 (75) 160 10 170 38 43 The above property, plant and equipment is located in Turkey and Ethiopia. The Company has no significant property, plant and equipment. KEFI Minerals Plc ANNUAL REPORT 2018 Page 74 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 12. Intangible assets The Group Cost At 1 January 2017 Additions At 31 December 2017 Additions At 31 December 2018 Accumulated Amortization and Impairment At 1 January 2017 At 31 December 2017 Impairment Charge for the year At 31 December 2018 Net Book Value at 31 December 2018 Net Book Value at 31 December 2017 The Company Cost At 1 January 2017 Additions At 31 December 2017 Additions At 31 December 2018 Accumulated Amortization and Impairment At 1 January 2017 Impairment Charge for the year At 31 December 2017 Impairment Charge for the year At 31 December 2018 Net Book Value at 31 December 2018 Net Book Value at 31 December 2017 Deferred exploration costs £’000 Project evaluation costs £’00 10,319 988 11,307 990 12,297 266 266 - 266 3,939 1,252 5,191 1,535 6,726 - - - - Total £’000 14,258 2,240 16,498 2,525 19,023 266 266 266 12,031 11,041 6,726 5,191 18,757 16,232 Project evaluation costs £’000 3,939 1,252 5,191 1,535 6,726 - - - - - Total £’000 3,939 1,252 5,191 1,535 6,726 - - - - - 6,726 5,191 6,726 5,191 KEFI Minerals Plc ANNUAL REPORT 2018 Page 75 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 12. Intangible assets (continued) Deferred exploration costs are associated with the Tulu Kapi mine in Ethiopia. The group recognized deferred exploration costs with a fair value of £ 6,900,000 on acquisition of the project in December 2013. Further costs incurred by the Group since the acquisition have been capitalised. The Company had incurred historical exploration costs of £30,293,000 on the Tulu Kapi Gold Project asset. However, at the date of acquisition, actual Deferred Exploration Costs incurred on the Tuli Kapi Gold Project was impaired by £23,052,000 by the previous owners to a net book value of £6,900,000. Attached below a table reconciling the book value to the actual deferred exploration costs. Deferred exploration costs 31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017 31.12.2018 TOTAL £’000 £’000 £’000 £’000 £’000 £’000 £’000 The Group Cost Additions Total Cost Impairment Exchange differences Date of Acquisition 30,293 - - - - - 30,293 - 1,263 967 1,189 988 990 5,397 30,293 1,263 967 1,189 988 990 35,690 (23,052) (341) - - - - (266) - - - - (23,318) - (341) Net Book Value 6,900 1,263 967 923 988 990 12,031 Upon closing of full project funding for the development of Tuli Kapi Gold Project development expenditure will be capitalized as incurred and amortised over the estimated useful life of the area according to the rate of depletion of the economically recoverable reserves or over the estimated useful life of the mine, if shorter. The Board will also review the fair value of its investments in accordance with IFRS 9. Management performs an impairment review for deferred exploration costs regularly, which relate to the Tulu Kapi licence area. The Net Present Value of the Tulu Kapi asset significantly exceeded the net book value as do the project equity commitments made by investors. The impairment review compared the recoverable amount of assets to the carrying value. The recoverable amount of an asset is assessed by reference to the higher of value in use (“VIU”), being the net present value (“NPV”) of future cash flows expected to be generated by the assets, and fair value less costs to dispose (“FVLCD”). The FVLCD is based on an estimate of the amount that the Company may obtain in a sale transaction on an arm’s length basis. Management considers that both the VIU and FVLCD significantly exceed current carrying value, which is intended to be reviewed upon closing of full project funding. Project evaluation costs relating to work performed in assessing the economic feasibility and the independent technical review of the Tulu Kapi project have been capitalised by the Company. In August 2015, the Company published the Tulu Kapi Definitive Feasibility Study (“DFS”) evaluating a conventional open-pit mining operation and carbon-in leach (“CIL”) processing plant. In May 2017, KEFI announced an update to its 2015 definitive feasibility study (DFS) in order to account for all of the initiatives undertaken by the company in the intervening two years. According to the 2017 DFS update, the NPV at the start of construction is US$97,000,000 at a US$1,250/oz gold price and an 8% discount rate. KEFI Minerals Plc ANNUAL REPORT 2018 Page 76 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 12. Intangible assets (continued) Based only on extracting its one million ounces of ore reserves within the planned open pit section of the Project, remain in accordance with previous guidance and as supported by the project feasibility studies and updates. The 8% discount rate is based on the expected future cost of the capital of the project. NPV after debt and after tax, at 8% discount rate and at an average gold price of US$1300/oz: • US$117,000,000(£90,000,000) for 100% and US$53,000,000(£41,000,000) for KEFI beneficial interest 45% at start of construction; • US$193,000,000 (£148,000,000) for 100% and US$87,000,000(£67,000,000) for KEFI beneficial interest 45% at start • of production two years later; and Average EBITDA $80 million per annum and average net cash flow (after debt repayments and all planned commitments) of $30 million per annum. As is typically the case for mining projects, the project is most sensitive to commodity price. A 13.5% reduction in the gold price assumed to be flat for the next 10 years from $1,300/oz to $1,122/oz results in a reduction of NPV 8% to near zero and the converse has the opposite impact. The project has an after-tax leveraged IRR of 56% based on the base case of US$1,300/oz flat gold price for 10 years. The base case gold price was chosen because it approximates the average gold price for the past 5 years. Another important driver is operating costs, for which an adverse change of more than 23% is required to reduce project NPV8% to zero when the gold price is $1,300/oz. The project is least sensitive to capital costs, with an adverse change of over 50% required to reduce project NPV8% to zero at $1,300/oz The Tulu Kapi Mining Agreement between the Ethiopian Government and the Company was formalised in April 2015. The terms include a 20-year Mining License, full permits for the development and operation of the Tulu Kapi gold project and a 5% Government free-carried interest. The Company is working towards funding the development of the Tulu Kapi project. KEFI Minerals (Ethiopia) Limited also has no other mining exploration licences in Ethiopia. All development costs relating to Yubdo and Billa Guilisso exploration licenses capitalised in previous years were impaired in previous years. 13. Investments 13.1 Investment in subsidiaries The Company Cost At 1 January Acquisitions At 31 December Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 4,598 - 4,598 4,598 - 4,598 The Company carrying value of KEFI Minerals Ethiopia which holds the investment in the Tulu Kapi Gold project currently under development is £ 4,594,354 as at the 31 December 2018. During the year management reviewed the value of its investments in the Company accounts to the project estimated NPV value. The result of the review shows that the NPV value is higher than the cost recorded in the company accounts. As a guidance to shareholders, the after-tax, leveraged NPV of Tulu Kapi Gold Project at base case gold price of US$1,300/oz is £92,000,000 (US$117,000,000) at start of construction. Based on KEFI’s planned 45% beneficial interest in the underlying valuation of Tulu Kapi Gold Project value is £41,000,000. The NPV value is substantially higher than the cost of £4,598,000 recorded in the accounts as at 31 December 2018. Although a non IFRS measure this Net Present Valuation has been previously reported by the Company and is based on the independently prepared financial models which are independently verified underlying project feasibility studies and plans. In addition, the balance sheet of TKGM at full development funding will reflect all equity subscriptions which are currently estimated to exceed c. £94 million or US$120 million (Ethiopian Birr equivalent). KEFI Minerals Plc ANNUAL REPORT 2018 Page 77 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 13. Investments (continued) 13.1 Investment in subsidiaries (continued) Subsidiary companies Mediterranean Minerals (Bulgaria) EOOD Doğu Akdeniz Mineralleri Sanayi ve Ticaret Limited Şirket KEFI Minerals (Ethiopia) Limited KEFI Minerals Marketing and Sales Cyprus Limited Tulu Kapi Gold Mine Share Company Date of acquisition/ incorporation 08/11/2006 08/11/2006 30/12/2013 30/12/2014 31/04/2017 Country of incorporation Bulgaria Turkey United Kingdom Cyprus Ethiopia Effective proportion of shares held 100%-Direct 100%-Indirect 100%-Direct 100%-Direct 95%-Indirect Subsidiary companies The following companies have the address of: Mediterranean Minerals (Bulgaria) EOOD Doğu Akdeniz Mineralleri Sanayi ve Ticaret Limited Şirket KEFI Minerals (Ethiopia) Limited 10 Tsar Osvoboditel Blvd., 3rd floor, Sredets Region, 1000 Sofia, the Republic of Bulgaria. Zeytinalani Mah. 4183 SK. Kapı No:6 Daire:2 UrlaA Izmir 27/28 Eastcastle Street, London, United Kingdom W1W 8DH KEFI Minerals Marketing and Sales Cyprus Limited Tulu Kapi Gold Mine Share Company 23 Esekia Papaioannou Floor 2, Flat 21 1075, Nicosia Cyprus 1st Floor, DAMINAROF Building,Bole Sub-City, Kebele 12/13, H.No, New. On 8 November 2006, the company entered into an agreement to acquire from Atalaya Mining PLC (previously EMED) the whole of the issued share capital of Mediterranean Minerals (Bulgaria) EOOD, a company incorporated in Bulgaria, in consideration for the issue of 29,999,998 ordinary shares in the Company. Mediterranean Minerals (Bulgaria) EOOD owns 100% of the share capital of Doğu Akdeniz Mineralleri (“Dogu”), a private limited liability company incorporated in Turkey, engaging in activities for exploration and developing of natural resources. The Company owns 100% of Kefi Minerals (Ethiopia) Limited (“KME”), which operates the Tulu Kapi project in Ethiopia. The secured convertible loan facility is secured by the Company's shareholding in Kefi Minerals (Ethiopia) Limited. KME owns 95% of Tulu Kapi Gold Mine Share Company (“TKGM’), a company incorporated in Ethiopia. The Tulu Kapi Gold Project mining license has been transferred to TKGM. The Government of Ethiopia was entitled to a 5% free-carried interest (“FCI”) in TKGM. This entitlement is enshrined in the Ethiopian Mining Law and the Ethiopian Mining Agreement between the Ethiopian Government and KME, as well as the constitution of the project company. The 5% FCI refers to the equity interest granted by the company holding the mining license. The Ethiopian government is not required to pay for the 5% equity interest. The Ethiopian government can acquire additional interest in the share capital of the project at market price. The Ethiopian Government has also undertaken to invest a further 20 million dollars in the project in return for the issue of additional equity ranking pari passu with the shareholding of KME. Such additional equity will not be entitled to a free carry. The company owns 100% of KEFI Minerals Marketing and Sales Cyprus, a company incorporated in Cyprus. The company was dormant for the year ended 31 December 2017 and 2016. KEFI Minerals Marketing and Sales Cyprus had no assets, other than the right to market gold produced from the Tulu Kapi Gold Project, or liabilities at the date of acquisition. It is planned that this company will act as agent and off-taker for the onward sale of gold and other products in international markets. KEFI Minerals Plc ANNUAL REPORT 2018 Page 78 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 13. Investments (continued) 13.2 Investment in jointly controlled entity The Company At 1 January/31 December Jointly controlled entity Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 181 181 Date of acquisition/ incorporation Country of incorporation Effective proportion of shares held Gold and Minerals Co. Limited (G&M) 04/08/2010 Saudi Arabia 40%-Direct The company owns 40% of G&M. More information is given in note 21.1. 14. Financial assets at fair value through OCI The Group At 1 January Foreign currency movement Interest Received On 31 December The Company At 1 January Disposal of Investment Profit on Sale At 31 December Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 79 2 - 81 95 (26) 10 79 Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 - - - - - - - - KEFI Minerals Plc ANNUAL REPORT 2018 Page 79 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 15. Derivative financial asset In March 2017, as part of subscription to raise, in aggregate, £5.6m (before expenses) from certain new shareholders, the Company initially issued 82,352,941 new ordinary shares of 1p each in the capital of the Company (“Ordinary Shares”) at a price of 5.61p per share to Lanstead Capital L.P. (“Lanstead”) for £4,620,000 (before expenses). The Company simultaneously pledged to Lanstead 85 per cent. of these shares with a reference price of 7.48p per share (the “Reference Price”) under the conditions of an equity sharing agreement with an 18-month term. All 82,352,941 Ordinary Shares were allotted with full rights on the date of the transaction. Accordingly, pursuant to the above arrangements, of the aggregate subscription proceeds of £4.6m received from Lanstead, £3.927m (85 per cent.) was pledged by the Company in the equity sharing agreement with the remaining £0.69m (15 per cent.) available for general working capital purposes. To the extent that the Company’s volume weighted average share price was greater or lower than the Reference Price at each sharing settlement, the Company received greater or lower consideration calculated on a pro-rata basis i.e. volume weighted average share price / Reference Price multiplied by the monthly transfer amount. As the amount of the effective consideration receivable by the Company from Lanstead under the sharing agreement varied subject to the movement in the Company’s share price and to be settled in the future, the receivable was treated for accounting purposes as a derivative financial asset and has been designated at fair value through profit or loss. The difference between the cash consideration received and the share placement price of 5.61p per share is transferred from fair value through profit or loss to share premium account. During the current period an amount of £937,561 was recorded in share premium. The Company also issued, in aggregate, a further 4,117,647 Ordinary Shares to Lanstead as a value payment of £231,000 in connection with the equity sharing agreement. The fair value of the derivative financial assets as at 31 December 2017 was been determined by reference to the Company’s then prevailing share price and has been estimated as follows: Fair value of the derivative financial asset Balance Brought Forward Value recognised on inception (notional) Transaction Cost “Value Payment Shares” Gross proceeds of the Lanstead Subscription, (being 15%) Equity sharing agreement Consideration received Audited 31.12.18 £ Audited 31.12.17 £ 407,853 - - - - - 4,851,000 (231,000) (693,000) 3,927,000 (409,934) (1,239,196) Change in value of financial assets at fair value through profit and loss 2,081 2,687,804 Realised (loss): Difference between placement price of 5.61p and actual consideration is processed via share premium (937,561) (1,340,304) Unrealised Loss on derivative financial asset during the year 939,642 (939,642) Financial asset at fair value as at 31st December - 407,858 KEFI Minerals Plc ANNUAL REPORT 2018 Page 80 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 15. Derivative financial asset (continued) Notional number of shares and Share price outstanding The value of the notional number of shares issued below is provided in the above table “Fair value of the derivative financial asset”. Balance brought forward Value recognised on inception (notional) Transaction Cost “Value Payment Shares” Gross proceeds of the Lanstead Subscription, (being 15%) Equity sharing agreement Consideration received 16. Trade and other receivables The Group Other receivables VAT Refund The Company Deposits KEFI Minerals Marketing and Sales Cyprus Limited (Note 23.3) Advance to KEFI Minerals (Ethiopia) Limited (Note 23.3) Advance to Tulu Kaki Gold Mine Share Company (Note 23.3) 31.12.18 No of Shares Share Price £ 31.12.18 No of Shares 24,019,614 - - - - 86,470,588 (4,117,647) (20,588,235) 24,019,614 (24,019,614) - 0.017 61,764,706 (37,745,092) 24,019,614 Share Price £ 0.056 0.056 0.033 Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 24 91 115 3 91 94 Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 22 - 5,555 299 5,876 - 3 5,076 5,079 Amounts owed by group companies total £13,488,000 (2017: £12,136,000). A provision of £7,634,000 (2017: £7,057,000) has been made against the amount due from the subsidiaries because these amounts are considered irrecoverable. The Company has borrowings outstanding from its Ethiopian subsidiaries, the ultimate realisation of which depends on the successful exploration and realisation of the Group’s intangible exploration assets. Management is of the view if the company disposed of the Tuli Kapi asset the consideration received would exceed the borrowings outstanding. Management has made an assessment of the borrowings as at 31 December 2018 and determined that any expected credit losses would be immaterial. The advance issued to KEFI Minerals (Ethiopia) Limited and TKGM is unsecured, interest free and repayable on demand. At the reporting date, no receivables were past their due date. KEFI Minerals Plc ANNUAL REPORT 2018 Page 81 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 17. Cash and cash equivalents The Group Cash at bank and in hand unrestricted Cash at bank restricted (note 24.2) The Company Cash at bank and in hand unrestricted Cash at bank restricted (note 24.2) 18. Share capital Authorized Capital Year Ended Year Ended 31.12.18 £’000 31.12.17 £’000 68 20 88 13 20 33 446 20 466 101 20 121 Total The articles of association of the Company were amended in 2010 and the liability of the members of the Company is limited. Issued and fully paid Number of shares ’000 £’000 At 1 January 2017* 32,598 3,882,921 *On the 1 March 2017 Shareholders received one new ordinary share for every 17 existing ordinary shares. Post share consolidation figures £’000 12,436 Deferred Shares Share Capital £’000 3,883 Share premium £’000 16,279 At 1 January 2017* Issued 2 March 2017 at GBP 0.17 Share Equity Placement Lanstead Share Equity Lanstead Value Placement Fee Share issue costs Transfer realised loss of derivative financial asset At 31 December 2017 At 1 January 2018 Share Equity Placement 20 June 2018 Share Equity Placement 03 July 2018 Share Equity Placement 17 December2018 Share issue costs Transfer realised loss of derivative financial asset 228,407 3,883 12,436 16,279 32,598 17,825 82,353 4,118 - - 332,703 332,703 66,500 153,500 19,000 - - 303 1,400 70 - - 5,656 5,656 1,130 2,610 323 - - - - - - - 12,436 12,436 - - - - - 697 3,220 161 (356) (1,340) 18,661 18,661 532 1,228 57 (237) (938) 1,000 4,620 231 (356) (1,340) 36,753 36,753 1,662 3,838 380 (237) (938) At 31 December 2018 571,703 9,719 12,436 19,303 41,458 Issued capital 2018 On 20 June 2018, 66,500,000 shares of 1.7p were issued at a price of 2.5p per share. On issue of the shares, an amount of £532,000 was credited to the Company’s share premium reserve. On 3 July 2018, 153,500,000 shares of 1.7p were issued at a price of 2.5p per share. On issue of the shares, an amount of £1,228,000 was credited to the Company’s share premium reserve. KEFI Minerals Plc ANNUAL REPORT 2018 Page 82 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 18. Share capital (continued) On 17 December 2018, 19,000,000 shares of 1.7p were issued at a price of 2p per share. On issue of the shares, an amount of £57,000 was credited to the Company’s share premium reserve. 2017 On 2 March 2017, 104,295,888 shares of 1.7p were issued at a price of 5.61p per share. On issue of the shares, an amount of £4,077,969 was credited to the Company’s share premium reserve. The 104,295,888 shares issued were split into the following three share issues. The Company issued a total of 17,825,300 shares to investors for a total consideration of £1,000,000. Company issued 82,352,941 Shares to Lanstead Capital L.P. (‘Lanstead’), for an aggregate consideration of £4.620,000. In addition, the Company entered into Equity Sharing Agreements with Lanstead which allowed the Company to retain an economic interest in the Lanstead Subscription Shares. Further details available in note 15. The Company also agreed to make a placement fee to Lanstead of 4,117,647 Ordinary Shares for an aggregate consideration of £231,000. Consolidation of ordinary shares Following the Company’s General Meeting on 1 March 2017, at the close of business on 1 March 2017 shareholders received one Ordinary Share of nominal value 1.7 pence each for every 17 Existing ordinary Shares of nominal value 0.1 pence each. Restructuring of share capital into deferred shares On 16 June 2015 the Company’s issued ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p. The deferred shares have no value or voting rights. After the share capital reorganization there were the same number of New Ordinary Shares in issue as there are existing Ordinary Shares. The New Ordinary Shares have the same rights as those currently accruing to the existing Ordinary Shares in issue under the Company’s articles of association, including those relating to voting and entitlement to dividends. 19. Share Based payments 19.1 Warrants 2018 On 19 September 2018, the Company issued 2,000,000 warrants to subscribe for new ordinary shares of 1.7p each at 2.5p per share. These were issued to a service provider to provide ongoing services for 12 months. During the period 1 January 2018 to 31 December 2018, 3,909,456 warrants were expired. 2017 During the period 1 January 2017 to 31 December 2017, 730,392 warrants were cancelled or expired. Details of warrants outstanding as at 31 December 2018: Grant date 22-Mar-16 29-Jul-16 19-Sep-18 Expiry date 21-Mar-19 28-Jul-19 20-Sep-23 *Exercise price 5.95p Expected Life Years 3 years 8.50p 2.50p 3 years 5 years 000's* 1,469 2,241 2,000 5,710 KEFI Minerals Plc ANNUAL REPORT 2018 Page 83 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 19. Share Based payments (continued) 19.1 Warrants (continued) The Company has issued warrants to advisers to the Group. All warrants, as noted above expire between two to five years after grant date and are exercisable at the exercise price. Outstanding warrants at 1 January 2018 - granted - cancelled/forfeited/expired Outstanding warrants at 31 December 2018 *Post share17/1 consolidation figures Number of warrants* 000’s 7,619 2,000 (3,909) 5,710 The estimated fair values of the warrants were calculated using the Black Scholes option pricing model. The inputs into the model and the results for warrants granted during the year are as follows: Closing share price at issue date Exercise price Expected volatility Expected life Risk free rate Expected dividend yield Estimated fair value 19 Sep 2018 29 Jul 2016 22 Mar 2016 2.12p 2.5p 70% 5yrs 1.2% Nil 1.15p 9.52p 8.5p 87.3% 3yrs 0.31% 6.12p 5.95p 80.3% 3yrs 0.31% Nil 5.44p Nil 2.89p Expected volatility was estimated based on the historical underlying volatility in the price of the Company’s shares. For 2018, the impact of issuing warrants is a net charge to income of £23,000 (2017: Nil). At 31 December 2018, the equity reserve recognized for share based payments, including warrants, amounted to £1,032,000 (2017: £1,325,000). Opening amount Warrants issued costs (Note 6) Share options issued to employees (Note 6) Share options issued to directors and key management Forfeited Options Expired options Expired Warrants Closing amount Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 1,325 23 26 132 (67) (206) (201) 1,032 1,474 - 23 99 (30) (144) (97) 1,325 KEFI Minerals Plc ANNUAL REPORT 2018 Page 84 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 19. Share Based payments (continued) 19.2 Share options reserve Details of share options outstanding as at 31 December 2018: Grant date Expiry date *Exercise price 16-Jan-14 27-Mar-14 12-Sep-14 20-Mar-15 16-Jun-15 19-Jan-16 23-Feb-16 05-Aug-16 22-Mar-17 01-Feb-18 15-Jan-20 26-Mar-20 11-Sep-20 19-Mar-21 15-Jun-21 18-Jan-22 22-Feb-22 05-Aug-22 21-Mar-23 31-Jan-24 33.83p 39.10p 29.92p 22.44p 22.44p 7.14p 12.58p 10.20p 7.50p 4.50p *Number of shares 000’s 6 1,274 132 1,529 382 4,088 176 1,471 7,907 11,400 28,365 *On 1 March 2017 17/1 share consolidation Outstanding options at 1 January 2018 - granted - expired - forfeited Outstanding options at 31 December 2018 Weighted average ex. Price* 13.87p 4.50p 67.00p 8.71p 8.95p Number of shares* 000’s 18,418 12,600 (603) (2,050) 28,365 The Company has issued share options to directors, employees and advisers to the Group. During February 2014 5,882 options were issued which expire six years after the grant date and are exercisable in part no more than one half after one year from the grant date and one half two years from the grant date. On 27 March 2014, 1,294,118 options were issued to the Directors and a further 317,647 options have been granted to other non- board members of the senior management team. Of the options issued, previously granted options over 1,300,000 Ordinary shares which were due to expire during 2014 have all been cancelled and the new grants of options have been made, in accordance with the terms of the Scheme the options vest in equal annual instalments over a period of 2 years and expire after 6 years. KEFI Minerals Plc ANNUAL REPORT 2018 Page 85 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 19. Share Based payments (continued) 19.2 Share options reserve On 12 September 2014, 132,353 options were issued which expire six years after grant date and vest in equal annual instalments over a period of two years. On 20 March 2015,1,588,235 options were issued which expire six years after grant date and vest in equal annual instalments over a period of two years. On 16 June 2015, 382,353 options were issued which expire six years after grant date and vest in equal annual instalments over a period of two years. On 19 January 2016, 4,717,059 options were issued which expire six years after grant date and vest in normal circumstances, vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period. On 23 February 2016,176,471 options were issued which expire six years after grant date and vest immediately. On 5 August 2016, 2,058,824 options were issued which expire six years after grant date and vest in normal circumstances, vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period. On 22 March 2017, 9,535,122 options were issued which, expire after six years, and vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period. On 1 February 2018, 9,600,000 options were issued to persons who discharge director and managerial responsibilities ("PDMRs") and a further 3,000,000 options have been granted to other non-board members of the senior management team. The options have an exercise price of 4.5p, expire after 6 years, and vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period. The option agreements contain provisions adjusting the exercise price in certain circumstances including the allotment of fully paid Ordinary shares by way of a capitalisation of the Company's reserves, a sub division or consolidation of the Ordinary shares, a reduction of share capital and offers or invitations (whether by way of rights issue or otherwise) to the holders of Ordinary shares. The estimated fair values of the options were calculated using the Black Scholes option pricing model. The inputs into the model and the results are as follows: Date 01-Feb-18 22-Mar-17 05-Aug-16 23-Feb-16 19-Jan-16 16-Jun-15 20-Mar-15 12-Sep-14 27-Mar-14 16-Jan-14 Closing share price at issue date Exercise price Expected volatility Expected life Risk free rate Expected dividend yield Discount factor Estimated fair value 3.69p 4.50p 4.50p 68.30% 7.50p 72.20% 9.52p 10.20p 87.20% 5.61p 12.58p 82.65% 5.78p 7.14p 83.18% 14.11p 22.44p 61.11% 20.40p 22.44p 59.04% 24.31p 29.92p 43.40% 31.45p 39.10p 59.60% 31.11p 33.83p 59.60% 6yrs 6yrs 6yrs 6yrs 6yrs 6yrs 6yrs 6yrs 6yrs 6yrs 1.09% 0.75% 0.75% 0.90% 0.90% 1.53% 1.53% 1.09% 2.17% 2.17% Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 2.11p 2.42p 6.80p 1.87p 3.74p 6.46p 10.88p 8.84p 15.98p 15.98p Expected volatility was estimated based on the historical underlying volatility in the price of the Company’s shares. KEFI Minerals Plc ANNUAL REPORT 2018 Page 86 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 19. Share Based payments (continued) 19.2 Share options reserve (continued) For 2018, the impact of share option-based payments is a net charge to income of £158,000 (2017: £122,000). At 31 December 2018, the equity reserve recognized for share option-based payments, including warrants, amounted to £1,032,000 (2017: £1,325,000). 19.3 Share Payments for services rendered. In 20 June 2018 and 3 July 2018, the company issued 100,000,000 Ordinary Shares, at an issue price of 2.5 pence per share to certain directors, key management and employees project contractors of the company and other third parties in settlement of outstanding invoices of £2,500,000. The total shares issued during 2018 for services rendered was as follows: Directors Person related to a director Key management Other Employees Payments to Project contractors and third parties’ advances received 20. Non-Controlling Interest As at 1 January 2018 Number of shares Fair value 31.12.18 granted per share Value of services rendered ‘000 issued £’000 2.50p 2.50p 2.50p 2.50p 2.50p 10,830 1,068 37,226 3,075 47,801 100,000 271 27 931 77 1,194 2,500 Year Ended Year Ended 31.12.18 Birr'000 - 31.12.18 £’000 - Acquisitions of non-controlling interest (“NCI”) 34,250 962 Estimated non-controlling interest on future period claims on assets 4,037 113 Result for the year (4) (0) 38,283 1,075 As at the 31 December 2018 the Government of Ethiopia had a 5% shareholding in the Tulu Kapi Gold Project. The NCI of £1,075,000 reflects value of the assets owned by the Government of Ethiopia in the Tulu Kapi Gold Project as at the 31 December 2018. The 5% figure will be reviewed on a continual basis as the project is developed. KEFI Minerals Plc ANNUAL REPORT 2018 Page 87 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 20. Non-Controlling Interest (continued) The Mining Proclamation entitles the Government of Ethiopia (GOE) to 5% free carried interest in TKGM. The 5% Non-Controlling interest reflects the government interest in the TKGM gold project. The GOE is not required to pay for the 5% free carry interest. This is a non-dilutive shareholding. The GOE can acquire additional interest in the share capital of the project at market price. The GOE has committed US $20,000,000 to install the off-site infrastructure in exchange for earning equity in Tuli Kapi Gold Mine Share Company. The accumulated non-controlling interest is made up of the following of two amounts. The amount of £962,000 is the 5% of the net assets of the Tulu Kapi Gold Mine Share Company as at 31 December 2018. The cash balance in the of the Tulu Kapi Gold Mine Share Company as at 31 December 2018 is £17,186. The Ministry of Mines is in the process of reviewing development costs incurred after the 31 December 2014. The Company estimates that an amount of £113,000 will be recorded after this review is completed. Most of the expenditure in TKGM has been capitalized so the result of the year is negligible. The non-controlling interest of £1,075,000 reflects the 5% GOE portion of the anticipated value of the assets to be registered by the Ministry of Mines. The financial information for Tulu Kapi Gold Mine Share Company as at 31 December 2018: Summarized Balance Sheet: Non-current assets Current assets Cash and Cash equivalents Equity Loss Current Year Current liabilities Year Ended Year Ended 31.12.18 31.12.17 Birr'000 £’000 697,648 19,595 1,002 614 699,264 685,000 (75) 14,339 28 17 19,640 19,242 (2) 400 699,264 19,640 KEFI Minerals Plc ANNUAL REPORT 2018 Page 88 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 21. Jointly controlled entities 21.1 Joint controlled entity with Artar Company name Date of incorporation Country of incorporation Effective proportion of shares held at 31 December Gold & Minerals Co. Limited 3 August 2010 Saudi Arabia 40% Gold & Minerals Co. Limited has the following registered address: Olaya District. 659, King Fahad Road, Riyadh, Kingdom of Saudi Arabia. SAR’000 GBP’000 Amounts relating to the Jointly Controlled Entity Year Ended 31.12.18 100% Year Ended 31.12.17 100% ¹Non-current assets (Exploration costs) Non-current assets Cash and Cash Equivalents Current assets Current liabilities Net Assets 64,190 27 159 64 64,440 (374) (374) 65,260 84 81 150 65,575 (956) (956) Year Ended 31.12.18 100% 13,442 6 33 13 13,494 Year Ended 31.12.17 100% 12,901 17 16 30 12,964 (78) (78) (189) (189) 64.066 64,619 13,416 12,775 2,500 64,890 (3,324) 64,066 2,500 62,320 (201) 64,619 524 13,588 (696) 13,416 494 12,321 (40) 12,775 Share capital Non-current financial liabilities (Shareholder loans) Accumulated losses Exchange rates SAR to GBP Closing rate The Company SAR’000 SAR’000 (3,123) 58 3,086 (22) 158 - Loss from continuing operations Included in the amount above Depreciation and Amortisation Impairment exploration costs Group Group Share 40% of loss from continuing operations ¹Groups policy is to expense these exploration costs 0.2094 £’000 (656) 12 646 0.1977 £’000 (4) 31 - (161) (286) KEFI Minerals Plc ANNUAL REPORT 2018 Page 89 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 21. Jointly controlled entities (continued) 21.1 Jointly controlled entity with Artar In May 2009, KEFI announced the formation of a new minerals’ exploration jointly controlled entity, Gold & Minerals Co. Limited (“G&M”), a limited liability company in Saudi Arabia, with leading Saudi construction and investment group Abdul Rahman Saad Al- Rashid & Sons Company Limited (“ARTAR”). KEFI is the operating partner with a 40% shareholding in G&M with ARTAR holding the other 60%. KEFI provides G&M with technical advice and assistance, including personnel to manage and supervise all exploration and technical studies. ARTAR provides administrative advice and assistance to ensure that G&M remains in compliance with all governmental and other procedures. G&M has five Directors, of whom two are nominated by KEFI.G&M is treated as a jointly controlled entity and has been equity accounted and has reconciled its share in G&M’s losses. The above figures reported represent cumulative exploration activity incurred by G&M since its incorporation in 2009. The accounting policy for exploration costs recorded in the G&M audited financial statements is to capitalise qualifying expenditure and review for impairment, if applicable. This is in contrast to the Group’s accounting policy relating to exploration costs which is to expense costs through profit and loss until the project reaches development stage (note2). Consequently, exploration costs of G&M at 31 December 2018 amounting to SAR64.2 million (2017: SAR65.3 million) have been adjusted to bring the figures in line with the Group’s accounting policy which is to expense all exploration costs. A loss of £161,000 was recognized by the Group for the year ended 31 December 2018 (2017: £ 286,000) representing the Group’s share of losses in the year. G&M impaired exploration costs during 2018. Because the group expenses all exploration costs in the year this impairment had no impact on the group accounts. As at 31 December 2018 KEFI owed ARTAR an amount of £152,000 (2017: £228,000) - Note 23.4. 22. Trade and other payables 22.1 Trade and other payables The Group Accruals and other payables Other loans Payable to jointly controlled entity partner (Note 23.4) Payable to Key Management and Shareholder (Note 23.4) Other loans are unsecured, interest free and repayable on demand. The Company Accruals and other payables Payable to jointly controlled entity partner (Note 23.4) Payable to Key Management and Shareholder (Note 23.4) Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 2,061 203 152 696 3,112 1,829 193 228 602 2,852 Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 1,886 152 696 2,734 1,748 228 602 2,578 The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above. KEFI Minerals Plc ANNUAL REPORT 2018 Page 90 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 23. Related party transactions The following transactions were carried out with related parties: 23.1 Compensation of key management personnel The total remuneration of key management personnel was as follows: ¹Directors' consultancy fees ¹Share based payment: Directors' consultancy fees Directors’ other consultancy benefits Share option-based benefits to directors (Note 19) Share based payment: Directors bonus ²Short term employee benefits: Key management fees ²Share based payments short term employee benefits: Key management fees Short term employee benefits: Key management other benefits Share option-based benefits other key management personnel (Note 19) Share Based Payment: Key management bonus Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 438 49 35 77 160 570 284 20 55 77 547 - 94 67 - 420 53 20 - ¹Directors’ fees paid to the Executive Director Chairman and Finance Director are paid to consultancy companies of which they are beneficiaries. ²Key Management comprised the Managing Director Ethiopia, Head of Operations, Head of Systems and Head of Planning. 1,765 1,201 Share-based benefits The Company has issued share options to directors and key management. All options, except those noted in Note 19, expire six years after grant date and vest in normal circumstances, vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period. 23.2 Transactions with shareholders and related parties Name Nature of transactions Relationship 2018 2017 Atalaya Mining PLC (previously EMED) Provision of management and other Shareholder Lanstead Capital Sanderson Capital Partners Brandon Hill Capital Limited Brandon Hill Capital Limited Brandon Hill Capital Limited Winchombe Venture Limited International Mining of Members Performance Nanancito Limited professional services Equity swap agreement: Subscription cash proceeds received-Refer to Note 15 Loan facility, option, legal and due diligence fees- Refer to Note 22.2 Broker fees Loan arrangement fee Share placement fee Shareholder Shareholder Shareholder¹ Shareholder¹ Shareholder¹ Receiving of management and other professional services Interest paid on loans advanced Receiving of management and other professional services Key Management and Shareholder Key Management and Shareholder Key Management and Shareholder - 409 380 60 38 143 566 50 440 5 2,163 - 45 - 65 163 - 330 ¹ Brandon Hill Capital Limited became a 3.1% shareholder in the group on the 10 April 2019 KEFI Minerals Plc ANNUAL REPORT 2018 Page 91 2,086 2,771 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 23. Related party transactions (continued) 23.3 Receivable from related parties The Company Name Nature of transactions Relationship KEFI Minerals Marketing and Sales Cyprus Limited Tulu Kaki Gold Mine Share Company¹ Advance Advance Kefi Minerals (Ethiopia) Limited² Finance Subsidiary Subsidiary Subsidiary 2018 2017 - 299 5.555 5,854 3 - 5,076 5,079 ¹The Company advanced £299,000 to the subsidiary Tulu Kapi gold Mine Share Company during 2018. ²Kefi Minerals (Ethiopia) Limited during 2017 repaid an amount of £1,200,000, the Company advanced £420,000(2017 £430,000) to the subsidiary. The Company had a foreign exchange translation profit of £58,000 (During 2017 the loss of £1,969,000 was because of the devaluation of the Ethiopian Birr in October 2017). The above balances bear no interest and are repayable on demand. 23.4 Payable to related parties The Group Name Abdul Rahman Saad Al-Rashid & Sons Company Limited (“ARTAR”) Winchombe Ventures Limited Nature of transactions Finance Fees for services Nanancito Limited Fees for services Relationship Jointly controlled entity partner Key Management Shareholder Key Management Shareholder and and Lanstead Capital Finance -Refer to Note15 Shareholder The Company Name Abdul Rahman Saad Al-Rashid & Sons Company Limited (“ARTAR”) Winchombe Ventures Limited Nature of transactions Finance Fees for services Nanancito Limited Fees for services Relationship Jointly controlled entity partner Key Management Shareholder Key Management Shareholder and and Lanstead Capital Finance -Refer to Note15 Shareholder 2018 2017 152 148 548 - 848 228 162 440 408 1,238 2018 2017 152 148 548 - 848 228 162 440 408 1,238 KEFI Minerals Plc ANNUAL REPORT 2018 Page 92 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 24. Loans and Borrowings 24.1.1 Short Term Working Capital Bridging Finance Unsecured working capital bridging finance GBP Variable. Rate see below On Demand In KEFI Ordinary Shares or Cash at market parice Currency Interest Maturity Repayment Unsecured working capital bridging finance Repayable in cash in less than a year Repayable in Kefi Ordinary Shares at the option of the lender in less than a year Balance 01.01.18 £’000 Principal Amount £’000 Transaction Costs Interest £’000 Year Ended 31.12.18 £’000 - - - 100 400 500 10 5 15 20 80 100 130 485 615 The Group has the option to access working capital from certain existing stakeholders for up to GBP £1.5 million. This unsecured working capital bridging finance is short term debt which is unsecured and ranks below other loans. In the event the Group is unable to pay this finance it will be repaid after other debt securities have been paid. Management expects that the company will meets its ‐ contractual obligation on the bridging finance on a timely basis going forward. 24.1.2 Reconciliation of liabilities arising from financing activities Cash Flows Non-Cash Flows Finance Costs Fair Value changes Shares Balance 01.01.18 £’000 Year Ended 31.12.18 £’000 Unsecured working capital bridging finance Derivative financial asset - 500 (408) 410 115 - - (2) - - 615 - Derivative financial asset - 1240 - 2280 (3,928) 408 Balance 01.01.17 £’000 Year Ended 31.12.17 £’000 KEFI Minerals Plc ANNUAL REPORT 2018 Page 93 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 24. Loans and Borrowings (continued) 24.2 Secured convertible loan facility On the 28 November 2018 the Company had entered into an up to £4,000,000 secured convertible loan facility with Sanderson Capital Partners a long-standing Company shareholder that will underpin parent company working capital as it triggers the development of the project Loan Facility will include the following provisions, which are set out in the Term Sheet: • Company may draw down the Loan Facility in monthly increments of £450,000 (the last instalment will be for whatever is the remaining undrawn balance available under the Loan Facility) at the Company's absolute discretion; • Drawdowns will be at least 30 days apart and subject to no fundamental change in the business plan. • There is no early repayment penalty and it is intended that the Company will repay any drawn amounts outstanding under the Loan Facility upon closure of the full debt and equity funding of the Project; The loan facility is secured by the Company's shareholding in Kefi Minerals (Ethiopia) Limited. The security provided to the Lenders would be cancelled at repayment, to make way for financing the Project; The Lenders will have an option to convert half of any repayment by the Company into new ordinary shares of par value 1.7p each in the capital of the Company("Shares") at a fixed price of 2p per Share. (if no repayment made the Lender may convert any or all of any outstanding balance at a price not below 2p); The backstop date for final repayment is 12 months from the date of entering into definitive documentation; To enter into the Loan Facility and to reflect that there is no interest coupon attached to it, the Company will issue 19,000,000 Shares to the Lender; • • • • A fee of 5% of any amounts drawn will be payable in Shares at the higher of 2p per Share or the preceding 5-day VWAP • • at the time of drawdown; The Company will pay an Option Fee of 5% for the right to trigger a £2 million Optional Second Facility after having used the First Facility. This fee will be paid by issuing new Shares at a price of 2p per Share; and The Optional Second Facility provides additional flexibility for a further £2 million with similar fees, but the Company is under no obligation to exercise this option. In December 2018 the company issued 19,000,000 KEFI Ordinary shares at an issue price of 2p. The fees of £380,000 paid in shares was made up of the following First Facility fees: a) a commitment fee of 7.5% of the First Facility (being £150,000); b) a voluntary prepayment option fee of 2% of the Loan Facility (being £80,000); and c) an option fee of 5% of the Second Facility and the Third Facility (being £100,000) for the right to utilise the Second Facility d) Legal fees and due diligence costs (being £50,000). In addition, the Company agreed a drawdown fee equal to 5% of each drawdown amount under the First Facility which will be paid by the issue of New Ordinary Shares at the higher of the Issue Price or the preceding 5-day VWAP. The Lender is a long-standing institutional shareholder who held Kefi Ordinary Shares amounting to approximately 1.11 % of the issued share capital of the Company on the date the convertible note agreement was executed. On the 18 December 2018 the Company issued a drawdown notice of £450,000 to Sanderson. The funds relating to the drawdown are receivable after the 31 December 2018 therefore no amount has been recorded in the current year accounts. KEFI Minerals Plc ANNUAL REPORT 2018 Page 94 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 25. Contingent liabilities 25.1 Geological database In 2006, Atalaya Mining PLC (previously EMED) acquired a proprietary geological database that covers extensive parts of Turkey and Greece and transferred to the Company that part of the geological database that relates to areas in Turkey. Under the agreement, the Company had undertaken to make a payment of approximately £61,400 (AUD 105,000) for each tenement it is subsequently awarded in Turkey and which was identified from the database. The maximum number of such payments required under the agreement is four, resulting in a contingent liability of up to £246,000. These payments are to be settled by issuing shares in the Company. To date, only one tranche of shares has been issued under this agreement in June 2007 for £43,750 (AUD 105,000). 25.2 Charge issued On 13 August 2015, the Company created a fixed charge in favour of AIB Group (UK) Plc over amounts held in the Company’s deposit accounts with the bank. The charge is in regard to time credit banking facilities provided by AIB Group (UK) Plc. at 31 December 2018; the balance in the deposit accounts was £20,000. 25.3 Legal Allegations The original claim for damages of USD9,000,000 (approximately ETB240 million) had been lodged against KEFI in 2014. The claim was based on the impact of exploration field activities conducted between 1998 and 2006, a period which pre-dated KEFI’s involvement in the Tulu Kapi Gold Project. These exploration activities comprised the construction of drill pads and access tracks. No objections had been made until 2014 when certain parties from outside the Tulu Kapi district raised the matter and initiated court action against KEFI. The Oromia Regional Supreme Court in 2018 rejected 95% of these claims as having no legal basis and reduced KEFI’s potential liability to £435,000. KEFI’s appeal to the Court with regards to the remaining £435,000 has now succeeded and the Company is no longer liable for any damages. If another appeal is raised, which remains a possibility, KEFI would defend its position on the basis that it remains firmly of the belief, on legal advice and as previously reported, that it has no contingent or actual liability 26. Contingent asset In 2011, KEFI Minerals completed the sale the Company's Artvin Project in north-eastern Turkey to a Turkish mining company. The Artvin Project comprised 15 Exploration Licences located in the Eastern Pontide Belt in north-eastern Turkey. Kackar Madencilik San. Tic. Ltd, KEFI Mineral's subsidiary holding these licences, was sold in return for a cash payment of US$100,000 and a 1% Net Smelter Royalty on all future mineral production from the Artvin licences. The Company successfully divested four Licences in Turkey in July 2011 to AIM listed Ariana Resources (AIM:AAU) for a nominal cash payment of 10,000 Turkish Lira, 910,747 new ordinary shares in Ariana and a Net Smelter Royalty (“NSR”) of 2%. The NSR is payable by Ariana’s wholly owned Turkish subsidiary Galata Madencilik San. ve Tic. Ltd. (“Galata”) to KEFI Mineral’s Turkish Subsidiary, Dogu, on commercial production of any mineral from the licences. No value has been attributed in these financial statements for the NSRs, due to uncertainty regarding when income from the NSRs will commence. KEFI Minerals Plc ANNUAL REPORT 2018 Page 95 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 27. Capital commitments The Group has the following capital or other commitments as at 31 December 2018 £525,000 (2017 £353,000), Tulu Kapi Project costs Saudi Arabia Exploration costs committed to field work that has recommenced Year Ended 31.12.18 £’000 Year Ended 31.12.17 £’000 115 410 353 - 28. Events after the reporting date During February 2019, the Company completed a £969,000 placing by issuing 57,000,000 new ordinary shares of 1.7p each in the capital of the Company at a price of 1.7 pence per share. ANS Mining Share Company S.C (“ANS Mining”) has confirmed receipt from its investors of its first Project-equity instalment commitments for US$11.4 million (Ethiopian Birr equivalent which upon completion of certain conditions precedent will be invested in equity in TKGM. The total commitment by ANS is US$38 million (in Birr equivalent). The remainder of the US$38 million (Ethiopian Birr equivalent) commitment will be subscribed at close of full development funding. It has also been agreed that, of the total commitment of US$38 million (Ethiopian Birr equivalent), one third will be invested via KEFI subsidiary KEFI Minerals (Ethiopia) Limited (“KME”) so that ANS Mining will be KEFI’s minority partner in KME which controls TKGM and the exploration areas in the Tulu Kapi district which are considered prospective for potential satellite and stand-alone deposits. The other two thirds of the ANS investment will be directly into TKGM. The impact of this refined approach will include that KEFI will have a strong partner at the KME table to consider potential new projects alongside KEFI. It is anticipated that after ANS invests US$38 million (in Birr equivalent if the transaction and the transaction is completed then the ownership levels will be: • KEFI will own c. 81% of KME which in turn will hold c. 56% of TKGM and that KEFI’s beneficial ownership of TKGM will be c. 45% (both ownership levels in TKGM are net, after adjustment for the Government’s 5% free carried interest). On the 9th April 2019 the conditions precedent for the release of funds from the ANS subscription into TKGM are: • Normal operational and documentary confirmations and undertakings requested by ANS, • National Bank of Ethiopia approval of terms of the full project finance package, and • KEFI’s guarantee to ANS that if the project fails to proceed for whatever reason and is restructured in whichever manner decided by KEFI, KEFI will ensure that ANS recovers its 1st Instalment investment before KEFI recovers its own investment. During April 2019 the Company issued 14,864,533 new Ordinary Shares of nominal value 1.7p each in the capital of the Company at a price of 1.7p to 2p per share. This shares issued were used to pay certain contracted managers and third party service providers and the 5% Sanderson fee on drawdown. KEFI Minerals Plc ANNUAL REPORT 2018 Page 96 KEFI MINERALS PLC (All amounts in GBP thousands unless otherwise stated) Notes to the consolidated financial statements (continued) Year ended 31 December 2018 KEFI Minerals is listed on AIM (Code: KEFI) www.kefi-minerals.com KEFI Minerals Plc ANNUAL REPORT 2018 Page 97 

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