Kropz plc
Annual Report and Accounts for the year ended 31 December 2019
Company Registration No: 11143400
Kropz plc Annual Report for 2019
Contents
Page
3
Chairman’s Statement
4
Strategic Report for the year ended 31 December 2019
19
Directors’ Report for the year ended 31 December 2019
34
Corporate Governance Report
47
Report of the Audit and Risk Committee
49
Report of the Remuneration and Nomination Committee
Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements 50
51
Independent Auditor’s Report to the Members of Kropz plc
56
Consolidated Statement of Financial Position
58
Consolidated Statement of Comprehensive Income
59
Consolidated Statement of Changes in Equity
60
Consolidated Statement of Cash Flows
61
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
112
Company Statement of Financial Position
113
Company Statement of Changes in Equity
114
Notes to the Company Financial Statements for the year ended 31 December 2019
119 - 121
Company Information
Kropz plc Annual Report for 2019
Highlights
Key developments during the financial year
Corporate
• US$ 4.34 million (GBP 3.41 million) raised via equity placing in June 2019, at an issue price of 17.6 pence
per ordinary share;
• Cash as at 31 December 2019 of US$ 16 million (US$ 30 million as at 31 December 2018); and
• Property, plant, equipment and exploration assets of US$ 145 million (US$ 143 million at 31 December
2018).
Projects
• The primary focus of Kropz plc (“Kropz” or “the Company”) in 2019 was the Elandsfontein phosphate project
(“Elandsfontein”) in South Africa;
• Work was aimed at defining the modifications required for the processing facility, test work was conducted
at Mintek in South Africa, and Eriez and Worley in the United States (“Test Work”);
• Test Work results supported a robust circuit employing both direct and reverse flotation to ensure consistent
concentrate grade production of 68 per cent. BPL (31% P2O5) could be consistently achieved;
• Engineering and design of the plant indicates that additional equipment will be required, including:
o new stacked screens to optimise the milling circuit;
o additional flotation cells to float the coarse size fraction of +212 micron; and
o ancillary infrastructure and modifications of the original plant;
• Further time required for additional Test Work, design and delivery of long-lead capital items and associated
works will impact on timing and capital cost to first production, with the target date for commissioning at
Elandsfontein in Q4 2021; and
• Kropz commenced a competitive tender for updating the 2015 feasibility study for the Hinda phosphate
project (“Hinda”) in the Republic of the Congo (“RoC” or “the Congo”).
Key developments post financial year end
Corporate
• Completion of an equity placing to an existing investor and two directors for US$ 353,595, before expenses
(approximately GBP 283,843) (“the Placing”) on 1 June 2020;
• The proceeds of the Placing will be used to progress the updated feasibility study at Hinda;
• Completion of an open offer to existing shareholders to raise up to a further US$ 4 million, before expenses
(“Open Offer”). The Open Offer closed on 26 June 2020 and raised US$ 2,163,639, before expenses
(approximately GBP 1,744,870 ); and
• The proceeds of the Open Offer will be used for general working capital purposes.
Elandsfontein
• Kropz secured a convertible loan facility of up to US$ 40 million (not exceeding a maximum of ZAR 680 million)
from the ARC Fund (“ARC”) Kropz’s major shareholder (“Equity Facility”), in June 2020 for the development of
Elandsfontein. The first drawdown on the Equity Facility occurred on 26 June 2020 for US$ 10 million;
• Kropz Elandsfontein (Pty) Ltd (“Kropz Elandsfontein”) renegotiated and amended the BNP Paribas SA (“BNP”)
US$ 30 million project finance facility in June 2020, extending the first capital repayment to 31 December 2022,
and quarterly thereafter to 30 September 2024. The amended agreement caters for an interest rate of 6.5%
plus US LIBOR, up to project completion (expected to be December 2022) and 4.5% plus US LIBOR
thereafter, payable quarterly. The BNP facility remains fully drawn;
• A design review resulting in improved confidence of the costs and schedule required to bring Elandsfontein
into production;
• Eriez completed pilot scale test work to confirm and optimise the remedial process flow sheet;
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Kropz plc Annual Report for 2019
Highlights (continued)
• The Test Work has confirmed that the modified Elandsfontein processing plant can produce a final concentrate
to specification of 31% P2O5 (68% BPL);
• Front end engineering design was concluded based on the metallurgical results for the modified flotation
circuit to arrive at an AACE Class 3 capital cost estimate;
• An engineering, procurement, and construction management (“EPCM”) contract was awarded to DRA Projects
SA (Pty) Ltd (“DRA”); and
• Orders have been placed for several long lead items, including stacked screens, flotation cells and cyclones.
Hinda
• Kropz concluded a competitive tender for the updating of the Hinda feasibility study (“Updated FS”);
• RoC government approval of the new terms of reference for the updated Environmental and Social Impact
Assessment (“ESIA”); and
• Advancement of the port occupation agreement with the Port Authority of Pointe-Noire.
Aflao
• Kropz decided to divest its interests in Aflao and is currently in consultation with the project's other shareholders
regarding the implementation of this decision, which may include other shareholders taking up the Company’s
interest; and
• The Company will not be providing any further funding towards Aflao.
2
Kropz plc Annual Report for 2019
Chairman’s Statement
Dear shareholder,
The financial year ended 31 December 2019 represented Kropz’s first full year as a publicly listed company.
Progress was made with the remedial plan for the Elandsfontein project in South Africa. Test work has shown
that the proposed direct-reverse flotation plant configuration at Elandsfontein can produce a final saleable
concentrate to the expected specification of 68 per cent. BPL (approximately 31 per cent. P2O5). Thanks to the
ARC Fund, Kropz’s major shareholder, funding has been secured to complete the Elandsfontein project, with
commissioning expected in Q4 2021.
Kropz entered into an Equity Facility on 13 May 2020 for US$ 40 million (maximum of ZAR 680 million). The
Equity Facility, together with the US$ 12 million (approximately ZAR 200 million) already held by Kropz
Elandsfontein will be utilised to complete development at Elandsfontein. The Equity Facility was approved by
shareholders at the Kropz general meeting on 29 May 2020.
In addition, Kropz Elandsfontein and BNP entered into an amended facility agreement which removes the
technical default under the previous BNP facility agreement, extending the first capital repayment date to
31 December 2022. The BNP facility of US$ 30 million is fully drawn.
Kropz concluded a placing of US$ 353,595 before expenses (approximately GBP 283,843) in May 2020 and an
open offer to existing shareholders on 26 June 2020, which raised US$ 2,163,639 before expenses
(approximately GBP1,744,870). Funds raised in the Placing will be utilised to update the feasibility study for the
Hinda project, while funds from the Open Offer will be utilised for general corporate purposes by Kropz.
Management completed a competitive tender for an updated feasibility study for its 100 per cent. owned Hinda
Project, aligned with the capacity of the existing road and port facilities. The tender award and associated work
programme for Hinda is still subject to securing additional funding. The feasibility study is expected to be
completed six months following tender award, subject to relaxation of the current COVID-19 lockdown
restrictions in the relevant countries.
As previously announced, Kropz decided to divest its interests in Aflao and is currently in consultation with
Aflao’s other shareholders regarding the implementation of this decision. Kropz will not be providing any further
funding towards Aflao.
The Board is grateful to all the members of the executive team for their efforts over the past nineteen months,
to our major shareholder for the further commitment shown by them and to our auditors and advisors. The Board
is looking forward to updating shareholders on the progress made at Elandsfontein and Hinda.
Lord Robin William Renwick of Clifton
Non-Executive Chairman
31 July 2020
3
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019
Market overview
The fundamentals of the fertilizer and phosphate markets remain robust, driven by the need to feed a growing
global population from limited agricultural resources. However phosphate rock prices remained under pressure
throughout 2019, as a result of extreme weather conditions, delays in downstream production facilities and
geopolitical events. The current rock prices are unsustainable, even for low cost producers.
Market analysts expect that the non-integrated phosphate rock market will turn, with more than 6% nominal
annual growth rate expected between 2019 and 2030.
Significant changes in state of affairs
Acquisition and share issues
On 1 November 2018, Kropz made an all share offer to acquire Cominco Resources Limited (“Cominco
Resources”) in an all share transaction valuing Cominco Resources at US$ 40 million (“the Offer”). Cominco
Resources, through its wholly owned subsidiary, Cominco S.A., currently owns 100 per cent. of Hinda and which
is expected to be diluted to 90 per cent. through the participation of the Government of the RoC. The Company
received valid acceptances from 71.3 per cent. of the Cominco Resources shareholders and accordingly, on
30 November 2018, at AIM Admission, the Company acquired 71.3 per cent. of Cominco Resources. The Offer
remained open for acceptance until 1pm on 30 November 2018 and at closing of the Offer, valid acceptances
of a further 27.7 per cent. were received. The acquisition of the further 27.7 per cent. of Cominco Resources
was completed on 7 December 2018 taking the total ownership of Cominco Resources to 98.97 per cent.
On 1 February 2019, the Company issued 1,357,080 new ordinary shares of GBP 0.001 each in the capital of
the Company at a price of 40 pence per share for a total consideration of GBP 542,832 (equivalent to
approximately US$ 710,000) and 1,116,544 warrants at an exercise price of 40 pence per warrant to certain
advisers in lieu of cash fees arising from their involvement with the Company's admission to AIM on
30 November 2018 and the acquisition of Cominco Resources. The new ordinary shares were admitted to
trading on AIM on 6 February 2019.
On 19 February 2019, Kropz applied the provisions of section 176 of the BVI Business Companies Act 2004 to
compulsorily redeem any outstanding ordinary shares of Cominco Resources held by the remaining Cominco
Resources shareholders. Pursuant to the compulsory redemption, Kropz acquired the remaining 482,927
Cominco Resources shares for which a further 803,315 ordinary shares were issued at a price of 40 pence per
share for a total consideration of GBP 321,326 (equivalent to approximately US$ 419,000). The new ordinary
shares were admitted to trading on AIM on 22 February 2019. Following the compulsory redemption, the
Company holds 100 per cent. of the issued share capital of Cominco Resources.
On 27 June 2019, Kropz announced that it had raised US$ 4.34 million (GBP 3.41 million), before expenses,
by way of a placing of 19,364,659 ordinary shares of 0.1 pence each at a price of 17.6 pence per ordinary share.
The net proceeds of the placing was used to provide additional working capital and more specifically to progress
the programme of works being carried out at its Hinda and Aflao projects. The placing shares were issued and
admitted to trading on AIM on 3 July 2019.
After the acquisition of the Cominco Resources minorities, the issue of shares for fees as part of the AIM
Admission and the placing shares in June 2019, the issued share capital at 31 December 2019 is 283,406,307
ordinary shares (31 December 2018: 261,881,253).
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Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
Projects
Elandsfontein
Elandsfontein hosts the second largest phosphate deposit in South Africa, after Foskor’s operation in
Phalaborwa. The sedimentary deposit is a free-digging operation and does not involve drilling or blasting
activities. Elandsfontein has been developed with the capacity to produce circa 1 million tonnes per annum
(“Mtpa”) of phosphate rock concentrate from a shallow mineral resource which is expected to be sold on both
local and international markets. The Company owns 74 per cent. of the share capital of Kropz Elandsfontein,
which company owns the Elandsfontein project.
In excess of US$ 120 million had previously been spent at Elandsfontein on project capital expenditure to
construct the processing plant and infrastructure, initial mining and capitalised working capital. Following a
suspended commissioning process in 2017, Kropz Elandsfontein has conducted significant volumes of test work
to define a robust circuit, to cater for all ore types present within the Elandsfontein resource. The Test Work has
been used to define the process configuration required for the recommencement of production.
Elandsfontein’s logistics are advantageous and allow for easy access to both local and international markets.
Activity for the year to 31 December 2019
The focus for the year was the advancement of the definition of the required plant modifications required to
achieve the production of a consistent and saleable concentrate grade. Test work was conducted at a number
of global test facilities throughout the year, including Mintek in South Africa, and Eriez and Worley in the United
States.
Mining and geology
The Elandsfontein resource is defined below, on a total and net attributable basis. No further geological drilling was
conducted in 2019.
Mineral Resource Statement, as declared by Snowden and SRK on 31 October 2018
Class
Quantity (Mt)
Grade
(%P2O5)
Grade
(%Al2O3)
Grade
(%MgO)
Grade
(%Fe2O3)
Grade
(%CaO)
Grade
(%SiO2)
Contained P2O5
(Mt)
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
47.5
30.3
23.3
101.1
35.2
22.4
17.2
74.8
10.3
5.1
5.5
7.7
1.2
1.2
1.2
1.2
Gross
0.2
0.1
0.1
0.2
1.0
0.9
1.0
0.9
Net Attributable (74% attributable to the Company)
10.3
5.1
5.5
7.7
1.2
1.2
1.2
1.2
0.2
0.1
0.1
0.2
1.0
0.9
1.0
0.9
14.9
7.1
7.5
10.9
14.9
7.1
7.5
10.9
69.8
82.9
82.5
75.9
69.8
82.9
82.5
75.9
4.9
1.6
1.3
7.7
3.6
1.2
0.9
5.7
Plant and processing
Results from Mintek, conducted on bulk samples composited from within the established mining area, supported
the development of the reverse flotation circuit, as initially constructed, and then further advocated during 2018.
In August 2019, test work on low grade variability samples failed to consistently meet the targeted rock
concentrate specification.
5
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
Further test work at Eriez, corroborated by results obtained at Mintek and Worley, demonstrated increased
robustness offered by the alternative flotation configuration, of direct, followed by reverse (“DR”) flotation. Eriez
commenced with pilot scale work on two bulk samples.
In parallel with the ongoing test work, DRA adapted the plant design to cater for the new DR circuit and
progressed the process design to deliver a revised mechanical equipment list and capital cost estimate, to
AACE level 3, with an accuracy range of -20 per cent. to +30 per cent.
Care and maintenance of the existing Elandsfontein infrastructure was routinely conducted in accordance with the
approved care and maintenance plan.
Safety, health and environment
As at 31 December 2019, the lost time injury frequency rate, per 200,000 man hours, was 0.179 (31 December
2018 - 0.182). No environmental or safety incidents were reported during the year.
Dewatering of the aquifer also continued, together with the updated ground water monitoring programme.
CSR and sustainability
A five year plan, aligned with the 2018 Mining Charter, was submitted to the South African Department of Mineral
Resources. The plan included progressive improvements to obtain compliance on the employment equity and
procurement objectives of the South African mining charter scorecard.
Through collaboration with the local community forum, six community development projects were launched in
2019.
Small, medium, micro enterprise (“SMME”) development
Following the appointment of a specialist service provider, and extensive community engagement,
eighteen start-ups were identified for the SMME development programme, which involved group and
individual coaching sessions to develop and boost small businesses. Additional funding was obtained
from the provincial government SMME booster fund which enabled five additional participants to be
added to the program.
Drivers licence training
Eighty-five members of the community were selected for training and driving lessons, in order to improve
individual skills and potential for employment. The focus group was previous mine employees, women
and youth from within the community. All candidates successfully passed their learner’s licences, and
progressed to obtain their driver’s licences. As a result of delays introduced by the COVID-19
restrictions, the programme will be completed in Q3 2020.
Recognition of prior learning (“RPL”) project
A large number of people within the local community were identified to have work experience in the civil
and construction industry, despite not having formal qualifications in the field. The RPL project was
launched to provide those who demonstrate their competence to do the work, to be formally assessed
by a service provider, earn formal accreditation, and ultimately receive certification as artisans, again to
improve potential for future employment.
Disabled support
A list of twenty five disabled people were identified to be recipients of basic equipment and infrastructure
modifications for their homes. As at 31 December 2019, mobile equipment had already been handed
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Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
over to eight candidates. Completion of the infrastructure modifications have been hampered by
restricted access to homes under lockdown and will be completed during the second half of 2020.
Adult matric certification
A need was identified for individuals, previously unable to complete their school careers, to earn their
matric certificates. A local service provider was appointed and fifty candidates were selected and started
a two year programme to complete their secondary school qualification. Retired teachers from within
the community were contracted in to provide the evening classes and the local school and community
centre were used as venues for the classes.
Thusong community centre upgrade
The construction to increase the classroom and meeting venues at the local community centre were
completed in 2019, with final finishes outstanding. The new facilities were opened and made available
to the community in Q1 2020.
Kropz Elandsfontein continues to engage with the local community on a regular basis.
Post reporting period events
Test work at Eriez has been concluded, confirming the efficiency of the DR circuit at semi-continuous pilot scale
level. A bulk sample has also been generated for marketing purposes.
The EPCM contract was awarded to DRA in early 2020. The process flow diagrams and control budget estimate
have been frozen, and the procurement process has advanced well with orders being placed for several of the long
lead mechanical equipment items required for the new circuit, including the stacked screens, flotation cells and
cyclones.
The Department of Mineral Resources (“DMR”) issued a directive to Kropz Elandsfontein to upgrade its
environmental permits in line with latest legislation. The upgrade process has commenced.
Care and maintenance of the existing Elandsfontein infrastructure is ongoing.
Cominco SA - Hinda
The Hinda project, 100% owned by Cominco S.A., is believed to be one of the world’s largest undeveloped
phosphate reserves. It consists of a sedimentary hosted phosphate deposit located approximately 40 km
northwest of the city of Pointe-Noire in the RoC and includes the Hinda Exploitation Licence that covers
263.68 km2 of the coastal basin.
Prior to acquisition by Kropz, more than US$ 40 million had been spent on project development, including
drilling, metallurgical test work and feasibility studies.
The 2015 definitive feasibility study (“2015 DFS”) showed positive economic results for a 4.1 Mtpa project. While
the 2015 DFS reported a positive economic outcome, the Company is looking to advance an initially reduced
capacity project targeting the production of approximately 1.5 Mtpa, to be developed for a significantly lower
level of upfront capital investment.
Activity in the year to 31 December 2019
In March 2019, DRA was commissioned to undertake an Option Study, assessing a number of throughput options
for Hinda, based on mining either the higher grade weathered ore or the full ore sequence (as per the 2015 DFS).
The objectives of the Option Study included:
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Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
• Assessment of available port storage options at the Pointe-Noire Port to determine export capacities using
existing infrastructure;
• Development of a dynamic model to consider different mine output rates (0.9 to 1.8 Mtpa) of phosphate rock
concentrate, trucked from site to port;
• Dynamic techno-economic models, using historic study information to derive capital expenditure and operating
cost estimates as a function of throughput and the development of a dynamic techno-economic model to
investigate the economic impact of the range of mine output rates, and to conduct a ‘like for like’ trade-off
between the two projects at various throughputs.
The Option Study indicated an existing port export capacity (and therefore initial project capacity) of 1.5 to 1.8 Mtpa.
With the revised mine and plant capacity, and the need to dry concentrate on site, the ESIA requires update and
amendment. The terms of reference for the updated ESIA were compiled and lodged with the Ministry of Tourism
and Environment. Initial public consultation processes were conducted in November 2019.
A tender process for the completion of the Updated FS, for the reduced export capacity was issued to four global
engineering houses.
At the end of 2018, Cominco Resources received the supervisory authority to initiate the process of ratification of
the Hinda exploitation convention or mining investment agreement (“MIA”), which sets out the legal and fiscal
framework under which Cominco S.A. would invest and operate within the RoC. The MIA was signed by all parties
on 10 July 2018. The process of ratification is currently underway, with the expectation that it will be completed in
2020.
In country, focus was on progressing the port occupancy agreement and sustaining solid relations with the local
communities. Kropz maintains communications with a number of key stakeholders, including government, and
local service providers.
Mineral resources
The Hinda resource is defined below, on a total and net attributable basis. No additional drilling was conducted in
2019.
Mineral Resource Statement, as declared by SRK on 31 August 2018
Class
Quantity (Mt)
Grade
(%P2O5)
Grade
(%Al2O3)
Grade
(%MgO)
Grade
(%Fe2O3)
Grade
(%CaO)
Grade
(%SiO2)
Contained P2O5
(Mt)
Measured
Indicated
Inferred
Total
Measured
Indicated
Inferred
Total
200.5
380.9
94.4
675.8
180.5
342.8
85.0
608.2
11.6
9.8
7.5
10.0
3.7
5.0
4.8
4.6
Gross
3.8
3.3
3.6
3.5
1.4
1.8
1.7
1.7
Net Attributable (90% attributable to the Company)
11.6
9.8
7.5
10.0
3.7
5.0
4.8
4.6
3.8
3.3
3.6
3.5
1.4
1.8
1.7
1.7
21.8
17.6
15.8
18.6
21.8
17.6
15.8
18.6
42.7
48.5
52.2
47.3
42.7
48.5
52.2
47.3
23.3
37.3
7.1
67.7
20.9
33.6
6.4
60.9
Safety, health and environment
No environmental or safety incidents were reported during the year.
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Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
Sustainability
Cominco S.A. continued its interactions with the local communities associated with the Hinda project. The current
community projects include:
• A curriculum vitae (“CV”) development project being carried out within the local communities. The CVs would
be required by Hinda when recruiting community staff for future operations, but have also assisted in enabling
the local workforce to find employment in other economic sectors within the region. The Company has thus far
assisted 532 people with their CV development;
• The planting and installation of an orchard with 110 fruit trees was completed for Siala school (the largest
village situated on the site access road). A second project, consisting of the planting of 120 fruit trees was
initiated in Tchivouba; and
• Ongoing support of education based projects, including support of temporary teachers, financial support for
local children, support of libraries at the Hinda college.
Post reporting period events
The tender adjudication for the Updated FS was completed. The Updated FS is expected to be completed within
six months of contract award, subject to the re-opening of borders as a result of COVID-19 restrictions.
The Department of Tourism and Environment validated the terms of reference of the updated ESIA.
The RoC Supreme Court has given its approval for the ratification of the MIA, and the file is pending presentation
to a Council of Ministers for approval. This process has been delayed by the pandemic, but completion is still
expected in 2020.
Strategy
The Company’s long term strategy is to build a portfolio of high quality phosphate mines and to be a major
player within the sub-Saharan African plant nutrient sector. Its priority is to bring Elandsfontein into production
and then to develop Hinda, to be primed to take advantage of a recovery in phosphate rock prices.
Business model
The Company’s business model is to source high quality resources at any stage of the development cycle and
to bring them into production to contribute to the Company’s strategic competitiveness and profitability.
Once production has commenced at Elandsfontein and Hinda, the Company may consider acquiring additional
assets and/or developing some added downstream beneficiation opportunities, where the Board believes
shareholder value could be increased.
Objectives and outlook for the year ahead
Objectives
Kropz plc
Kropz’s overriding objective is to deliver maximum shareholder and stakeholder returns over the long term.
Elandsfontein
Following the award of the EPCM contract to DRA, detailed design and procurement of long lead items are
advancing well. The primary focus of the year ahead will be to advance the project execution in line with the
project budget and schedule, which will support the commissioning of the mine in Q4 2021.
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Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
Hinda
Cominco S.A. will look to commence the Updated FS to define the economics of the proposed development
option. It is also envisaged that the expropriation process will commence and a relocation action plan will be
initiated to secure the land prior to starting any construction work on site.
Cominco S.A. is expecting the completion of the ratification and formal implementation of the MIA before the
end of 2020. It will also look to sign a formal port occupancy agreement to secure the space required for targeted
future export operations out of Pointe-Noire.
Outlook
Kropz remains in a development phase, however the Company is confident in the inherent value contained
within each of its core assets. Global phosphate rock demand and pricing continues to improve, and the work
being carried out at its projects will provide Kropz with invaluable direction for the next phase of its development.
The year ahead should provide the Company with a solid foundation for its future development.
Financial review for the year ended 31 December 2019
Summary financial highlights for the year:
• Cash at bank of US$ 16 million (US$ 30 million at 30 December 2018);
• Trade and other payables of US$ 2 million (US$ 12 million at 31 December 2018); and
• Property, plant, equipment and exploration assets of US$ 145 million (US$ 143 million at 31 December 2018).
Key performance indicators
The Company is a mining and exploration entity whose assets comprise exploration assets and an advanced
stage phosphate mining project that is not yet at the production stage. Currently, no revenue is generated from
operations. The key performance indicators for the Company are therefore linked to the achievement of project
milestones and the increase in overall enterprise value.
Principal risks and uncertainties
The Company and its subsidiaries (“the Group”) are subject to various risks relating to political, economic, legal,
social, industry, business and financial conditions. The following risk factors, which are not exhaustive, are
particularly relevant to the Company and the Group’s activities.
Development and operational risks
Elandsfontein and Hinda need to be developed through to commercial production. The operational targets will
be subject to the completion of planned operational goals, on time and according to budget, and are dependent
on the outcomes and effective support of personnel, systems, procedures and controls.
The successful development of the projects and operation of the mines will depend on the maintenance of good
relationships with and the solvency of its key contractors. The Company is undertaking due diligence and review
of the financial position of main contractors and suppliers and is engaged in regular communication with key
stakeholders to mitigate risk.
Financial risk and commercial viability of future projects
The capital expenditure plans of the Group and the further development and exploration of mineral properties
in which the Group holds interests or which the Group may acquire, may depend on the successful outcome of
the associated test work and design programmes and upon the Group’s ability to obtain financing through joint
ventures, debt financing, equity financing or other means. No assurance can be given that the Group will be
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Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
successful in obtaining any required financing as and when needed on acceptable terms or at all, which could
prevent the Group from further development and exploration or additional acquisitions.
Failure to obtain additional financing on a commercial and timely basis may cause the Group to postpone its
capital expenditure plans, forfeit its rights in properties or reduce or terminate operations. Reduced liquidity or
difficulty in obtaining future financing could have a material adverse effect on the Group’s business, financial
condition, results of operations and prospects.
The Group’s projects may require greater investment than currently expected or suffer delays or interruptions,
which could cause cost overruns. Any such delay, interruption or cost overruns in implementing the enlarged
Group’s planned capital investments could result in the Group failing to complete the projects and a reduction
in future production volumes, which could have a material adverse effect on the Group’s business, financial
condition, results of operations and prospects. In addition, the projects may not prove to be commercially viable
upon completion.
Commodity price risk
The demand for, and market price of, phosphate rock is dependent on supply and demand. Mineral prices
fluctuate widely and in recent years global phosphate rock and fertiliser supply growth has out-paced demand
leading to a decline in prices. The COVID-19 pandemic announced by the World Health Organization post year
end is having a markedly negative impact on commodity prices.
The Company monitors movements in expected supply, demand and prices and analysts forecast an increase
in phosphate rock demand.
Political risk
As a consequence of activities in different parts of Africa, the Group may be subject to political, economic and
other uncertainties including but not limited to sabotage, terrorism, war or unrest, changes in national laws and
policies and exposure to different legal systems.
The Group seeks to establish good working relationships with the relevant national regulatory authorities and
monitors changes through partners, news feeds and consultants.
COVID-19 Outbreak
On 23 March 2020, the South African government implemented a nation-wide lockdown (“the Directive”) to
manage the spread of COVID-19, effective from 26 March 2020. The Directive announced that all non-essential
business and activities would be suspended, and people were to stay at home. Although some of the criteria of
the Directive have been relaxed, there is not current indication when economic activity will return to normal.
Kropz continues to monitor the situation closely in the Congo. The authorities in the RoC also introduced a
number of measures to limit the spread of the virus including the closure of all air, land and maritime borders as
of 21 March 2020, and have enforced a strict lockdown in the country.
At the time of this Annual Report, the borders for both countries remain closed.
Kropz is currently unable to quantify the impact of the Directive but the Company will continue to progress all
its workstreams as described above. The Elandsfontein project timetable is not currently affected. In line with
the Directive, care and maintenance operations have continued on site.
Completion of commissioning of Elandsfontein
Elandsfontein requires a number of modifications to the existing processing facility and successful
commissioning in order to recommence operations in Q4 2021. Any delays in the engineering design,
11
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
procurement or delivery of mechanical equipment items or, in the construction and commissioning periods, will
have an adverse impact on the business and financial performance of the Company. There can be no guarantee
that implementation of the modifications identified by Kropz Elandsfontein and its technical consultants will result
in a successful commissioning of the mine. Failure to complete the commissioning of Elandsfontein, or a
significant delay in the completion of the commissioning, could result in a material adverse impact on the
business, and the financial performance and position of the Group.
The Group places significant importance on its relationship with contactors and other stakeholders and
endeavours to use competent people with appropriate skills to manage such risks and where appropriate
engages expert contractors.
Requirements for permits and licences
The operations of the Group require licences, permits and in some cases upgrades of existing licences and
permits from various governmental authorities. The Group’s ability to obtain, sustain or upgrade licences and
permits is subject to changes in regulations and policies and is at the discretion of the applicable governmental
authorities.
Elandsfontein holds the necessary environmental, water and mining permits and licences to operate. An
upgrade to the existing environmental permit has been requested by the DMR, to bring the environmental permit
in line with current legislation.
The water use licence (“WUL”) is the subject of an administrative appeal which is described in more detail under
the heading below. The appeal does not suspend the WUL while it is pending and operations may continue in
accordance with those licences.
WUL and associated litigation
There is currently an administrative appeal which is pending before the Tribunal. The appellant is a small group
of local residents who have formed a local action group which has opposed the Elandsfontein Project from the
outset.
The appeal currently pending before the Water Tribunal seeks the setting aside of Elandsfontein’s integrated
WUL. The appeal hearing was expected to reconvene on 16 March 2020, however it has been postponed due
to the Directive. The Company does not expect the Water Tribunal to be rescheduled until after the Directive
has been lifted. Pending the Water Tribunal’s decision, there is no legal impediment to the continuation with the
water use activities authorised in the integrated WUL.
There can be no guarantee that the administrative appeal will be rejected, or that there will not be future
successful actions or appeals against Elandsfontein’s WUL. If the ongoing appeal or any future actions were to
be successful, this would have a material adverse effect on the business, operations and financial performance
of the Group.
The Group employs staff experienced in the requirements of the relevant environmental authorities and seeks
through their experience to mitigate the risk of non-compliance with accepted best practice.
Hinda MIA
The Hinda MIA provides a set of protection rights, including the RoC’s government guarantees in relation to
Hinda’s operations, and sets out Cominco S.A.’s and its shareholder’s commitments in terms of working
programmes and corresponding financing.
Enforcing the Hinda MIA against third parties remains subject to the approbation of the convention by the RoC
parliament and the subsequent publication of the approbation law in the Official Gazette. The RoC government
12
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
has committed, under the Hinda MIA to provide its best efforts in view of the adoption of the law of approbation
of the MIA by the RoC parliament.
The adoption, by the RoC parliament, of the law of approbation of the Hinda MIA and the subsequent publication
of the approbation law in the Official Gazette will protect Cominco S.A. against any third party claim aiming at
challenging the benefit, by Cominco S.A., of the legal regimes and tax and customs incentives granted to it
under the Hinda MIA which go beyond the existing laws. This procedure elevates the Hinda MIA to the rank of
a special law and prevents any third party action aiming at challenging Cominco S.A.’s benefit of the
conventional regime and incentives which go beyond the existing laws.
In the absence of parliamentary approval, the Hinda MIA would remain binding on the Congo. However, the
incentives and regimes granted by the MIA that go beyond existing laws could be disputed in court by third
parties. Any failure or delay of the RoC government to approve the Hinda MIA (and the subsequent publication
of the approbation law in the Official Gazette), could have a detrimental effect on the business, operations and
financial performance of the Company. The Company makes use of skilled consultants and lawyers to engage
with government and mitigate risk.
Governance
The Board considers sound governance as a critical component of the Group’s success and the highest priority.
The Company has an effective and engaged Board, with a strong non-executive presence from diverse
backgrounds, and well-functioning governance committees. Through the Group’s compensation policies and
variable components of employee remuneration, the Remuneration and Nomination Committee (“Remuneration
Committee”) of the Board seeks to ensure that the Company’s values are reinforced in employee behaviour and
that effective risk management is promoted.
More information on our corporate governance can be found in the Corporate Governance Report on pages 34
to 46.
Directors’ section 172 statement
The following disclosure describes how the Directors have had regard to the matters set out in section 172 and
forms the Directors’ statement required under section 414CZA of The Companies Act 2006. This new reporting
requirement is made in accordance with the new corporate governance requirements identified in The
Companies (Miscellaneous Reporting) Regulations 2018, which apply to company reporting on financial years
starting on or after 1 January 2019.
The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good
faith, would be most likely to promote the success of the Company for the benefit of its members as a whole,
and in doing so have regard (amongst other matters) to:
a.
b.
c.
d.
e.
f.
the likely consequences of any decision in the long term;
the interests of the Company’s employees;
the need to foster the Company’s business relationships with suppliers, customers and others;
the impact of the Company’s operations on the community and the environment;
the desirability of the Company maintaining a reputation for high standards of business conduct; and
the need to act fairly between members of the Company.
The analysis is divided into two sections, the first to address Stakeholder engagement, which provides
information on stakeholders, issues and methods of engagement. The second section addresses principal
decisions made by the Board and focuses on how the regard for stakeholders influenced decision-making.
13
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
Section 1: Stakeholder mapping and engagement activities within the reporting period
The Company continuously interacts with a variety of stakeholders important to its success, such as equity
investors, joint venture partners, debt providers, employees, government bodies, local community, vendor
partners and offtake partners. The Company works within the limitations of what can be disclosed to the various
stakeholders with regards to maintaining confidentiality of market and/or commercially sensitive information.
Who are the key stakeholder
groups
Why is it important to engage
this group of stakeholders
How did Kropz engage with
the stakeholder group
What
engagement
resulted
from
the
Equity investors and
equity partners
All substantial shareholders
that own more than 3 per
cent. of the Company’s
shares are listed on page 30
of the Directors’ Report.
The Company owns 74 per
cent. of Kropz
Elandsfontein, the owner of
the Elandsfontein project in
South Africa. 26 per cent. is
owned by ARC.
The Company owns 70 per
cent. of Elandsfontein Land
Holdings (Pty) Ltd (“ELH”),
the owner of the
Elandsfontein mining
property in South Africa. 30
per cent. is owned by ARC.
Kropz Elandsfontein
requires further funding to
complete Elandsfontein and
Cominco Resources
requires further funding to
develop Hinda.
As such, existing equity
investors and potential
investment partners are
important stakeholders.
Access to capital is of vital
importance to the long-term
success of the business to
enable construction of
Elandsfontein and Hinda.
Equity partner involvement
is vital to the success of the
development of these
projects, without which the
Company cannot create
value for its shareholders by
producing phosphate rock
concentrate and therefore a
return on the investment.
Through selected
engagement activities, the
Company strives to obtain
investor buy-in into its
strategic objectives detailed
on page 9 and the execution
thereof.
The Company seeks to
promote an investor base
that is interested in a long
term holding in the
Company and will support
the Company in achieving
its strategic objectives.
Over the course of 2019, the
number of shares held in
public hands and the overall
daily volume of shares
traded has decreased.
The key mechanisms of
engagement included:
Substantial shareholders
• Both ARC and Kropz
International have
appointed directors to the
board of Kropz;
• The other existing
substantial shareholders
have regular meetings
with the Chairman, CEO
and/or CFO.
The Company engaged with
investors on topics of
strategy, governance, project
updates and performance.
Please see “Dialogue with
shareholders” section of the
Directors’ report on page 30.
The CEO and/or CFO
presented at a number of
investor roadshows and one
on one meetings.
Investment and equity
partners
• ARC have representatives
on the Kropz
Elandsfontein and ELH
boards of directors in
terms of the respective
shareholder’s
agreements;
• Regular board meetings
are held with the ARC
representatives.
Post 31 December 2019, the
Company completed the
Equity Facility for US$ 40
million with ARC, and a
US$ 2m further direct
investment in the Company,
in terms of which ARC will
acquire a total further 31per
cent. interest in the
Company, eventually taking
its 49 per cent. interest to
over 80 per cent..
At the Company’s AGM all
resolutions were duly passed
with at least 90 per cent.
votes in favour
demonstrating broad
shareholder support.
At the Company’s general
meeting held on 29 May
2020 all resolutions were
duly passed with at least 85
per cent votes in favour of
resolutions proposed.
Prospective and existing
investors
• The AGM and Annual and
Interim Reports;
• Investor roadshows and
presentations;
• One on one investor
meetings with the
Chairman, CEO and/or
CFO;
• Access to the Company’s
brokers and advisers;
• Regular news and project
updates;
• Social media accounts
e.g. Twitter @Kropzplc;
• Site visits for potential
cornerstone investors.
Debt providers
Kropz Elandsfontein has a
US$30 million, fully utilised,
debt facility with BNP that
commenced in September
2016.
Access to capital is of vital
importance to the long-term
success of the business to
be able to complete the
Elandsfontein project. The
debt facility was utilised in
the construction of
Elandsfontein.
• One on one meetings
with the CEO and/or
CFO;
• Regular reporting on
project progress;
• Ad hoc discussions with
management, as
required;
• Tripartite discussions
between Kropz
In the period, the Company,
Kropz Elandsfontein
management, ARC and BNP
met on various occasions to
discuss and agree an
amendment to the facility
agreement to cater for the
delay in the completion and
commissioning of the
Elandsfontein project.
14
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
Various contractual
conditions of the debt
finance require regular
updates on ongoing
progress.
Elandsfontein, ARC and
management to ensure
there are no compliance
matters outstanding in
relation to the facility.
Ongoing support from
potential new debt providers
is required to achieve the
construction of Hinda.
Employees
The Company has 12 South
African, 6 UK and 5 RoC
employees, including its
Directors.
Two of the Directors are UK
residents, 1 Monegasque, 1
American and 2 are South
African resident Directors.
The CEO during the year
under review was a UK
resident and the CFO is
South Africa-based. The
CFO allocates 15 per cent.
of his time to matters
relating to the Company in
the UK.
The majority of its
employees going forward
will be based in South Africa
and the Directors consider
workforce issues holistically
for the Group as a whole.
The Company’s long-term
success is predicated on the
commitment of its workforce
to its vision and the
demonstration of its values
on a daily basis.
The Board have identified
that reliance on key
personnel is a known risk
(see the principal risk
section on pages 10 to 13).
General employees
• The Company maintains
an open line of
communication between
its employees, senior
management and the
Board
UK employees
• The CEO and CFO report
regularly to the Board;
• Key members of the
executive team are
invited to some of the
audit and risk committee
meetings;
• There is a formalised
employee induction into
the Company’s corporate
governance policies and
procedures;
• There is an HR function
in the UK.
South African employees
• There is an HR function
in South Africa;
• Senior management
regularly visit the
operations in South Africa
and engage with its
employees through one
on one and staff
meetings, employee
events, project updates,
etc;
• Staff safety committees
continue to operate.
Congo employees
• Senior management
regularly visit the
operations in RoC and
engage with its
employees through one
on one and staff
meetings, employee
events, project updates,
etc.
Subsequent to year end, in
May 2020, the amended
facility agreement was
signed, thereby restructuring
the first principal debt
repayment to 31 December
2022.
UK Employees
The Board met with
management to discuss the
long-term remuneration
strategy.
Advisors were appointed to
do the independent party
review to examine non-
executive director and
executive team remuneration
in 2018 at the time of the AIM
IPO.
Board reporting has been
optimised to include sections
on engagement with
employees.
South Africa and Congo
employees
The team were trained in
aspects of corporate policies
and procedures to engender
positive corporate culture
aligned with the Company
code of conduct.
Meetings were held with staff
to provide project updates
and ongoing business
objectives.
Efforts to focus on plant
safety have yielded
improvements in safety
performance, resulting in no
lost time injuries in financial
year 2019.
Governmental bodies
The Company is impacted
by national, regional and
local governmental
The Group will only
commence production when
the development of
Elandsfontein is completed
in 2022.
The Company provides
general corporate
presentations regarding the
Elandsfontein project
development as part of
Meetings have been held
with various representatives
of the national, regional and
local government bodies, to
discuss ongoing compliance
15
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
organisations in South
Africa and the RoC.
Thereafter development of
Hinda will be progressed.
Community
The local communities
adjacent to Elandsfontein in
South Africa and Hinda in
the RoC.
The community provides
social licence to operate.
The Company needs to
engage with the local
community to build to obtain
acceptance for future
development plans.
Community engagement will
inform better understanding
and decision making.
The local community in
Hopefield and the greater
Saldanha Bay municipal
area will provide employees
for Elandsfontein and its
contractors during
construction and operations.
Similarly, the communities
surrounding Hinda will
provide employees to the
project and contractors
during construction and
operation.
The Company will have a
social and economic impact
on the local communities.
The Company is committed
to ensuring sustainable
growth, minimising adverse
impacts. The Company will
engage these stakeholders
as is appropriate.
and other regulatory matters
relating to mining.
To date, the Company has
received its South African
requisite environmental and
land use permits. An upgrade
to the existing environmental
permit is required at
Elandsfontein.
In addition, the Company has
received the required permits
to explore and develop
Hinda, subject to securing of
funding for these activities.
An amendment is required to
the ESIA.
The Company has ongoing
engagements with the local
community as part its
sustainability initiatives.
Stakeholder identification has
enabled the Company to
ensure that representatives
of all stakeholder groups may
participate in the community
engagement programme.
A more formalised
community engagement
programme will commence in
2020.
In addition to the community
project described previously,
Elandsfontein recently
provided food relief to the
Hopefield community during
the COVID-19 pandemic.
ongoing stakeholder
engagement with the South
African government,
Western Cape provincial
government and local
municipal government. The
Company maintained its
good relations with the
respective government
bodies and frequently
communicated progress.
The Company engages with
the relevant departments of
the RoC government in
order to progress the
development of Hinda.
• The Company has
community liaison officers
in South Africa and RoC;
• The Company has
identified all key
stakeholders within the
local community in the
reporting period;
• Elandsfontein
management has open
dialogue with the local
government and
community leaders
regarding the project
development;
• Similarly, Hinda
management are actively
engaging with local
government and
communities directly
impacted by the Hinda
project;
• The Company has
existing CSR policies and
management structure at
corporate level. The
Company will expand on
these policies and
structures at a local
project level as the
Company moves into
construction and then
production.
Suppliers
During the construction
phase, the Company will be
using key suppliers under
commercial engineering
contracts to design,
construct and equip the
project, all of whom are
reputable and established
vendors.
Kropz’s contractors and
suppliers are fundamental
to ensuring that the
Company can construct the
project on time and within
budget.
Using quality suppliers
ensures that as a
Business, the high
• Management continue to
work closely with
appointed contractors,
consultants and suppliers
to finalise their contracts
and end deliverables;
• One on one meetings
between management
and suppliers;
See page 5 of the strategic
report for latest on progress
on test work and
construction.
Smaller local vendors were
engaged at a broader level to
better align with company
objectives.
16
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
At a local level, the
Company has also
partnered with a number of
smaller companies, some of
whom are
independent or family run
businesses.
Offtake partners
The Company has two
commercially priced
phosphate rock offtake
agreements for
Elandsfontein.
These offtake agreements
are with reputable traders.
performance targets can be
met.
The Company is moving
toward the construction of
its Elandsfontein project and
a key metric to sourcing the
funding required, was
securing offtake agreements
for its phosphate rock
production.
The Company will sell its
product under long term
offtake agreements.
• Vendor site visits and
facility audits to ensure
supplier is able to meet
requirements;
• Contact with procurement
department and accounts
payable;
• Assist local suppliers to
address liquidity
challenges.
Once production
commences, management
will prepare monthly offtake
and project reports for the
Board.
The Company completed two
commercial offtake
agreements in 2016.
Section 2: Principal decisions by the board post year end
Principal decisions are defined as both those that have long-term strategic impact and are material to the Group,
but also those that are significant to key stakeholder groups. In making the following principal decisions, the
Board considered the outcome from its stakeholder engagement, the need to maintain a reputation for high
standards of business conduct and the need to act fairly between the members of the Company.
Convertible loan facility for $40 million from ARC, entered into on 13 May 2020
ARC and the Company agreed on a US$ 40 million convertible loan facility (not exceeding a maximum of
ZAR 680 million) in May 2020, in order to secure the required funding for the completion of Elandsfontein. The
Equity Facility was approved by Kropz’s shareholders at a general meeting on 29 May 2020. Draw downs under
the Equity Facility are at the sole discretion of Kropz, with the first draw down of US$ 10 million occurring on
26 June 2020. The next drawdown is anticipated on 10 September 2020, and quarterly thereafter until the facility
is fully drawn down in late 2021. Repayment of the convertible loan facility and any interest thereon will be in
the form of immediate conversion into ordinary shares in Kropz and issued to ARC, at a conversion price of
6.75 pence per ordinary share each quarter, and any US$ amount will be converted to GBP at an agreed rate
of US$ 1 = 0.86 GBP.
The US$ 40 million Equity Facility is to be used exclusively for the completion of Elandsfontein. To secure the
US$ 40 million funding from ARC, ARC entered into a funding undertaking with Kropz Elandsfontein and
secured this funding undertaking with a bank guarantee for US$ 40 million (not exceeding a maximum of
ZAR 680 million) from Rand Merchant Bank in South Africa.
The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.
Existing shareholders may have conflicting interests with the ARC Equity Facility due to potential dilution of their
shareholding. The Directors considered the impact of this and concluded that obtaining the convertible facility
from ARC was the only funding opportunity available to the Company in order to get Elandsfontein into
commercial production. Various funding alternatives had been investigated by the Directors over the last two
years, both from an equity raise perspective and through possible project finance facilities. Equity markets were
subdued and no new or existing equity investors were prepared to provide the funding required for
Elandsfontein. Given the extensive security package that BNP has in accordance with their fully drawn US$ 30
million project finance facility agreement, no security alternative was available for potential new project finance
funders.
17
Kropz plc Annual Report for 2019
Strategic Report for the year ended 31 December 2019 (continued)
Due to the fact that Machiel Reyneke, the ARC representative on the Board, and Mike Nunn, representing Kropz
International are considered to be concert parties, they were not permitted to consider or vote on the approval
of the proposed US$ 40 million convertible loan facility by the Board. The independent, non-executive directors,
being Lord Robin Renwick, Linda Beal and Mike Daigle, and the interim CEO, Mark Summers, considered the
transaction to be fair and reasonable.
As a result of the Equity Facility and further funding to the Company in terms of an open offer in June 2020,
ARC would increase its interest in the Company by a further approximate 30 per cent., taking its eventual
interest in the Company to more than 80 per cent.
The conclusion was that the proposed Equity Facility was fair and reasonable and the transaction was approved
by the independent directors and announced on RNS on 13 May 2020.
Proposed divestment by the Company of its equity interest in Aflao, Ghana:
The Board agreed to divest from its 50 per cent. plus 1 share interest in First Gear Exploration Limited (“FGE”),
the owner of the Aflao prospecting right. Recent MMI sampling results had not been conclusive and
management were of the view that funding would be better channelled to Hinda instead.
The Board agreed to sell the interest to Kropz International, but the minority shareholders in FGE did not provide
the necessary consent for the sale of the Company’s interest to Kropz International.
Accordingly the Board decided to retain the interest for the time being, with the view to dispose of the interest
in due course, but not provide any further funding to the Aflao project.
The decision is aligned with the business model set out in the Company strategy, which is to invest in high
quality assets in the phosphate rock market.
In making the above principal decisions, the Directors believe that they have considered all relevant
stakeholders, potential impact and conflicts, the Company’s business model and its long-term strategic
objectives, and have acted accordingly to promote the success of the Company for the benefit of its members
as a whole.
This Strategic Report was approved by the Board of Directors.
Mark Summers
Interim Chief Executive Officer
31 July 2020
18
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019
The Board of Directors (“Board”) present their second annual report for Kropz plc (“the Company”) and the
Kropz plc Group (“Group”) for the year ended 31 December 2019.
Directors
The names of directors of the Company in office at any time during or since the end of the 31 December 2019
financial year are:
Lord Robin Renwick of Clifton
Ian Timothy Harebottle
Mark Robert Summers
Linda Janice Beal
Michael Albert Daigle
Michael John Nunn
Machiel Johannes Reyneke
Non-executive Chairman
Chief Executive Officer (resigned 29 February 2020)
Interim Chief Executive Officer / Chief Financial Officer
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Company secretary
Mark Robert Summers
Cautionary statement
The review of the business and its future development in the Strategic Report has been prepared solely to
provide additional information to shareholders to assess the Group’s strategies and the potential for these
strategies to succeed. It should not be relied on by any other party for any other purpose. The review contains
forward-looking statements which are made by the directors in good faith based on information available to
them up to the time of the approval of the reports and should be treated with caution due to the inherent
uncertainties associated with such statements.
Principal activities and significant changes in nature of activities
Kropz is an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa
and a large-scale phosphate project in the RoC.
Business review and future developments
Details of the business activities and acquisitions made can be found in the Strategic Report on pages 4 to 18
and in Note 3 to the Consolidated Financial Statements respectively.
Operating Results
The net loss after tax of the Company for the year ended 31 December 2019 amounted to US$ 9 million
(period to 31 December 2018 – US$ 8 million).
Dividends paid or recommended
In respect of the year ended 31 December 2019 no dividends were paid or declared and the directors do not
recommend the payment of a dividend (31 December 2018 – no dividends paid or declared).
19
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
Capital structure
Details of the Company’s share capital, together with details of the movements therein are set out in Note 13
to the Consolidated Financial Statements. The Company has one class of ordinary share which carries no
right to fixed income.
Significant changes in state of affairs
Please refer to the Strategic Report.
Significant events subsequent to reporting date
Details of the Group’s significant events subsequent to the reporting date are included in the Strategic Report.
Financial risks
The Group’s operations expose it to different financial risks including foreign exchange risk, credit risk, liquidity
risk and interest rate risk. Details of the principal financial risks are set out in Note 32.
Kropz Elandsfontein has a fully drawn down project financing facility with BNP for US$ 30 million, the full
details which are set out in Note 17 of the Annual Financial Statements.
The Group has a risk management programme in place which seeks to manage the impact of these risks on
the performance of the Group and it is the Group’s policy to manage these risks in a non-speculative manner.
Political contributions and charitable donations
During the period the Company did not make any political contributions or charitable donations.
Annual general meeting (“AGM”)
Shareholders have an opportunity at the AGM to meet the Chairman and other directors, to receive an update
on the development of the business and to ask questions of the Board. The Group proposes a separate
resolution for each substantially different item of business, giving shareholders the opportunity to vote on each
issue.
The AGM for the members of the Company will be held on 28 August 2020 at 11:00 a.m. for the purpose of
considering and, if thought fit, passing six ordinary resolutions and three special resolutions as set out in the
Notice of AGM to be sent to all shareholders. Further details of the meeting format will be provided in order to
adhere to COVID-19 requirements, closer to the set meeting date.
This annual report and financial statements will be presented to shareholders for their approval. The Notice of
the AGM will be distributed to shareholders together with the annual report.
External auditors
BDO LLP (“BDO”) will be proposed for reappointment as auditors at the AGM.
Employment policies
The Company is committed to promoting policies which ensure that high calibre employees are attracted,
retained and motivated, to ensure the ongoing success for the business. Employees and those who seek to
work within the Group are treated equally regardless of gender, age, marital status, creed, colour, race or
ethnic origin.
20
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
Health and safety
The Group’s aim is to achieve and maintain a high standard of workplace safety. In order to achieve this
objective, there is a health, safety and environmental team in Kropz Elandsfontein to review the health and
safety policy and risks of Kropz Elandsfontein and make recommendations to the Kropz Elandsfontein board.
The Group provides training and support to employees and sets demanding standards for workplace safety.
The Group had no lost time or reportable incidents or injuries in 2019.
Payment to suppliers
The Group’s policy is to agree terms and conditions with suppliers in advance; payment is then sought to be
made in accordance with the agreement provided the supplier has met the terms and conditions. Under normal
operating conditions, suppliers are paid within 30 days of receipt of invoice.
Future developments
The Group will continue its mineral exploration activities with the objective of finding further mineralised
resources, particularly the development of the Hinda project. The Group may also consider the acquisition of
further prospective exploration interests.
Environmental issues
The Group operates within the resources sector and conducts business activities with respect for the
environment while continuing to meet the expectations of government stakeholders, shareholders, employees
and suppliers. In respect of the period under review, other than as set out in the Strategic Report, the directors
are not aware of any particular or significant environmental issues, which have been raised in relation to the
Group’s operations. The Group holds mining licences in South Africa and the RoC. The Group’s operations
are subject to environmental legislation in these jurisdictions in relation to its exploration and project
development activities.
Information on directors
Lord Renwick of Clifton
Non-executive Chairman
(appointed 26 November 2018)
to South Africa and
Lord Renwick of Clifton is a former diplomat and served as British
Ambassador
the United States. He served
subsequently as Deputy Chairman of the merchant bank Robert Fleming,
then for fifteen years as Vice Chairman of J.P. Morgan Europe. He has
served on many boards including BHP Billiton, Fluor Corporation,
SABMiller, British Airways and Harmony Gold. He is currently a director of
Stonehage Fleming and Senior Adviser to Richemont.
Interest in Ordinary Shares
and Options
300,000 fully paid Ordinary Shares
Mark Summers
Interim Chief executive officer /
Chief financial officer
(appointed 10 January 2018)
Mark Summers is currently interim CEO and is also responsible for the
finance function, administration, structuring of projects, accounting,
taxation and corporate finance. Mark joined Kropz Elandsfontein in 2015.
Mark has over 20 years of experience in the mining and resources industry,
predominantly in Africa. His extensive experience as a senior mining
executive spans various financial positions at a number of companies
including Anglo American plc and HSBC plc. Prior positions included Chief
Financial Officer of Gemfields plc, Amari Resources Ltd, MDM Engineering
Group Ltd and TanzaniteOne Ltd. Mark is a Chartered Accountant and
21
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
holds an Honours Degree
Johannesburg.
in Accounting
from
the University of
Interest in Ordinary Shares
and Options
414,889 fully paid Ordinary Shares
3,362,609 unlisted ESOP options exercisable at 0.1 pence each expiring
28 November 2028.
Linda Beal
Non-executive director
(appointed 26 November 2018)
Linda Beal is a Chartered Accountant and was a partner at PwC for over
sixteen years. She provided tax advice to natural resources clients on
many transactions including IPOs, mergers and group restructurings. She
was partner at Grant Thornton for two years to June 2016 where she led
the global energy and natural resources group. Linda is currently non-
executive director at a number of resource companies. She is co-founder
and director of a professional services business network and a business
and tax advisor.
Interest in Ordinary Shares
and Options
None
Michael (Mike) Daigle
Non-executive director
(appointed 26 November 2018)
Mike Daigle is a chemical engineer by qualification and has 40 years of
experience in the phosphate fertilizer industry. He worked at the Mosaic
Company from 2004 until 2016 where he served as a senior director
responsible for Research and Development, Production Planning and
Business Development in the Phosphates Group, and was also in charge
of Mosaic’s Joint Venture in Saudi Arabia. Mike also served as VP
Operations for IMC Phosphates, and worked for Cargill Fertilizer and
Occidental Chemical. He is now a consultant to the Phosphate Industry,
where he provides expertise in phosphate mining, fertilizer production,
business development, as well as mergers and acquisitions.
Interest in Ordinary Shares
and Options
None
Machiel Reyneke
Non-executive director
(appointed 26 November 2018)
Machiel Reyneke has extensive experience in the insurance industry and
financial services sector. In addition to being a director and Head of
Mergers and Acquisitions of African Rainbow Capital (Pty) Ltd, the
controlling company of ARC, the major shareholder in the Company, since
2015, he also serves as a board member and member of various sub-
committees of notable unlisted and listed companies. After completing his
articles at PwC, Machiel joined the corporate finance division of Gencor.
Three years later he joined Sappi Limited and subsequently he became the
finance director of Sappi International. After a period at Gensec Bank as a
General Manager looking after strategic projects, he joined Santam Limited
in 2001 as finance director, a role which he filled for ten years. Machiel is
a Chartered Accountant and holds a B.Com (Hons) from the University of
Johannesburg.
Interest in Ordinary Shares
and Options
None
Michael (Mike) Nunn
Non-executive director
(appointed 26 November 2018)
Mike Nunn is a South African mining entrepreneur, investor and
philanthropist. Mike has founded and developed various businesses and
charitable initiatives, primarily in and related to the mining industry in Africa.
Mike is widely recognised as being the pioneer of the global tanzanite
industry and was the founder of TanzaniteOne and the Tanzanite
Foundation. Subsequent to his involvement in tanzanite, Mike established
Amari in 2005, where he developed multiple mining businesses in various
22
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
sub-Saharan African countries. These businesses included diamonds,
gold, nickel, platinum, coal, manganese and mining engineering services.
Mike established Kropz Elandsfontein with the objective of developing a
world class fertilizer business with a sub-Saharan African focus. Mike has
more than 25 years of mining experience.
54,933,474 fully paid Ordinary Shares
Interest in Ordinary Shares
and Options
Directors’ service contracts
The interim CEO/CFO is employed on an ongoing basis, which may be terminated by either party giving six
months’ notice.
Non-executive directors were appointed for an initial term of one year in 2018. During 2019 the terms were
amended and the non-executive appointments were extended, until terminated by either party on three
months’ notice.
Indemnifying officers’ and directors’ and officers’ liability insurance
The Company has agreed to indemnify the directors of the Company, against all liabilities to another person
that may arise from their position as directors of the Company and the Group, except where the liability arises
out of conduct involving a lack of good faith.
Appropriate insurance cover is maintained by the Company in respect of its directors and officers. During the
financial period the Company agreed to pay an annual insurance premium of US$ 59,368 in respect of
directors’ and officers’ liability and legal expenses’ insurance contracts, for directors, officers and employees
of the Company.
The insurance premium relates to cover for:
• Costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and
whatever the outcome; and
• Liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty.
Share dealing code
The Company has adopted a share dealing code for directors and applicable employees (within the meaning
given in the AIM Rules for Companies) in order to ensure compliance with Rule 21 of the AIM Rules for
Companies and the provisions of the Market Abuse Regulations (“MAR”) relating to dealings in the Company’s
securities. The Board considers that the share dealing code is appropriate for a company whose shares are
admitted to trading on AIM.
Remuneration report
This remuneration report sets out information about the remuneration of Kropz’s key management personnel
for the year ended 31 December 2019. The term ‘key management personnel’ (“KMP”) refers to those persons
having authority and responsibility for planning, directing and controlling the activities of the Group, directly or
indirectly, including any director (whether executive or otherwise) of the Group. The prescribed details for each
person covered by this report are detailed below under the following headings:
• Key management personnel of the Company and Group;
• Remuneration policy;
23
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
• Key terms of employment contracts and remuneration of KMP;
• Non-executive director arrangements;
• KMP remuneration; and
• Share-based payments (“SBP”) granted as compensation to KMPs.
The report of the Remuneration Committee is on page 49.
Key management personnel of the Company and the Group
This report details the nature and amount of remuneration for the key management personnel of the Group.
The KMP during the year were:
Executive directors
Ian Harebottle
Mark Summers
Non-executive directors
Chief Executive Officer (appointed 28 March 2018 and resigned
29 February 2020)
Interim Chief Executive Officer, Chief Financial Officer and company
secretary (appointed 10 January 2018)
Lord Robin Renwick of Clifton Non-executive chairman (appointed 26 November 2018)
Linda Beal
Mike Daigle
Mike Nunn
Machiel Reyneke
Non-executive director (appointed 26 November 2018)
Non-executive director (appointed 26 November 2018)
Non-executive director (appointed 26 November 2018)
Non-executive director (appointed 26 November 2018)
Executives of Kropz Elandsfontein and the Company
Jan Steenkamp
Michelle Lawrence
Managing director – Kropz Elandsfontein (appointed 14 February 2019)
Chief Operating Officer – Kropz Elandsfontein (appointed 13 January 2014)
Remuneration policy
The remuneration policy of the Company has been designed to align director and executive objectives with
shareholder and business objectives by providing a fixed remuneration component and offering specific long-
term incentives based on key performance areas affecting the Group’s financial results. The Remuneration
Committee makes recommendations to the Board in relation to the composition of the Board, the appointment
of the CEO / CFO and succession planning, and remuneration for directors and senior executives. The Board
endeavours with its remuneration policy to attract and retain high calibre executives and directors to run and
manage the Group within the constraints of the financial position of the Group.
The remuneration policy, setting the terms and conditions for the executive directors and other senior
executives, was developed by the Board. All executives receive a base salary. The Board reviews executive
packages annually by reference to the Group’s performance, executive performance and comparable
information from industry sectors and other listed companies in similar industries.
The Board may exercise discretion in relation to approving incentives, bonuses and options. The policy is
designed to attract and retain high calibre executives and reward them for performance that results in long-
term growth in shareholder wealth. Executives may also be entitled to participate in the employee share and
option arrangements.
The Board policy is to remunerate non-executive directors at market rates for comparable companies for time,
commitment and responsibilities. The Board determines payments to the non-executive directors and reviews
their remuneration annually, based on market practice, duties and accountability. Independent external advice
24
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
is sought when required. During the 31 December 2018 period, independent external advice was sought on
appropriate remuneration of directors to better reflect market practice for comparable companies listed on
AIM. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval
by shareholders at the AGM. Fees for non-executive directors are not linked to the performance of the Group.
However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares
in the Company. The Board adopted the Kropz executive long term incentive plan aiming to create a stronger
link between employee performance and reward and increasing shareholder value by enabling the participants
of the plan to have a greater involvement with, and share in the future growth and profitability of the Company.
Key terms of employment contracts and remuneration of KMP
Key terms of employment contracts for the financial year ending 31 December 2019
Name
Base salary
Ian Harebottle (outgoing CEO) (i) GBP 240,000
Mark Summers (interim CEO /
CFO) (ii)
Jan Steenkamp (MD) (iii)
Michelle Lawrence (COO) (iv)
ZAR 3,301,200 and
GBP 31,440
ZAR 2,459,750
ZAR 2,913,750
Base salary
US$ *
316,623
235,128 and
41,478
175,196
207,532
Term of
agreement
No fixed term
No fixed term
Notice
period
3 months
6 months
No fixed term
No fixed term
1 month
1 month
* Converted to US$ at the 31 December 2019 GBP exchange rate of 0.758 and ZAR exchange rate of 14.040.
(i)
(ii)
(iii)
(iv)
Ian Harebottle resigned on 29 February 2020.
Mark Summers was appointed interim Chief Executive Officer on 1 March 2020.
Jan Steenkamp is the Managing Director of Kropz Elandsfontein and receives a remuneration of ZAR 25,000 (US$ 1,780) per
day.
Michelle Lawrence is the Chief Operating Officer for Kropz Elandsfontein.
Key terms of employment contracts for the financial period ending 31 December 2018
Name
Base salary
Ian Harebottle (CEO) (i)
Mark Summers (CFO)
Michelle Lawrence (COO) (ii)
Nicola Taylor (iii)
GBP 360,000 (i)
ZAR 3,060,000 and
GBP 31,440
ZAR 2,376,000
GBP 36,000
Base salary
US$ *
458,599
212,766 and
40,051
165,207
45,860
Term of
agreement
No fixed term
No fixed term
Notice
period
3 months
6 months
No fixed term
No fixed term
1 month
1 month
* Converted to US$ at the 31 December 2018 GBP exchange rate of 0.785 and ZAR exchange rate of 14.382.
(i)
(ii)
(iii)
Ian Harebottle’s remuneration was reduced to GBP 240,000 per annum from 1 March 2019.
Michelle Lawrence is the Chief Operating Officer for Kropz Elandsfontein.
Nicola Taylor resigned as a director of the Company on 28 September 2018 but remained an employee of the Company.
Non-executive director arrangements
Non-executive directors receive a Board fee and fees for chairing Board committees (see table below). They
do not receive performance-based pay or retirement allowances but do receive additional fees for chairing
Board committees.
Fees are reviewed annually by the Board taking into account comparable roles and market data provided by
the Board’s independent remuneration adviser. The current base annual fees were set with effect from
26 November 2018 and remained unchanged (other than as noted below) during the 2019 financial year and
up to the date of this report.
25
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
Chairman
Non-executive director
Additional Fees:
Audit and Risk Committee (“Audit Committee”) – chairperson (Linda Beal)
Audit Committee – member
Remuneration Committee – chairperson (Lord Robin Renwick) (i)
Remuneration Committee – member
* Converted to US$ at the 31 December 2019 exchange rate of 0.758.
Base fees per
annum
GBP
40,000
30,000
Base fees
per annum
US$*
52,770
39,578
5,000
-
2,500
-
6,596
-
3,298
-
All non-executive directors enter into a letter of appointment with the Company. The letter summarises the
Board’s policies and terms, including remuneration, relevant to the office of director. Directors with special
responsibilities are disclosed within the various committee reports in the Corporate Governance Report on
pages 34 to 46.
KMP remuneration
The remuneration for each director and KMP of the Group during the year to 31 December 2019 was as
follows:
Short-term benefits
Base salary (i)
US$*
Bonus
US$*
Options (ii)
US$*
Total
US$*
Name
Executive directors
Ian Harebottle
Mark Summers
Non-executive directors
Lord Robin Renwick (iii)
Linda Beal
Mike Daigle
Machiel Reyneke (iv)
Mike Nunn (iv)
388,742
292,385
681,127
56,618
50,869
39,578
-
-
147,065
Total directors’ remuneration
828,192
Executives
Jan Steenkamp (v)
Michelle Lawrence
175,196
188,381
363,577
-
-
-
-
-
-
-
-
-
-
-
-
-
58,131
58,131
116,262
-
-
-
-
-
-
446,873
350,516
797,389
56,618
50,869
39,578
-
-
147,065
116,262
944,454
-
25,329
25,329
175,196
213,710
388,906
* Converted to US$ at the 31 December 2019 GBP exchange rate of 0.758 and ZAR exchange rate of ZAR 14.040.
Includes UK NIC and UK payroll tax.
(i)
(ii) Options as share-based payment arrangements under the ESOP, LTIP and other schemes are expensed over the
vesting period, which includes the years to which they relate and their subsequent vesting periods.
(iii) At his request, Lord Robin Renwick’s fees were reduced to GBP 40,000 per annum from 1 January 2019, with him
assuming responsibility for his travel and accommodation costs.
(iv) Machiel Reyneke and Mike Nunn receive no director fees.
(v)
Jan Steenkamp was appointed Managing Director of Kropz Elandsfontein on 14 February 2019.
26
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
The remuneration for each director and KMP of the Group during the period from incorporation on 10 January
2018 to 31 December 2018 was as follows:
Short-term benefits
Base salary (i)
US$*
Bonus
US$*
Options (ii)
US$*
Total
US$*
Name
Executive directors
Ian Harebottle
Mark Summers
Non-executive directors
Lord Robin Renwick (iii)
Linda Beal
Mike Daigle
Machiel Reyneke (iv)
Mike Nunn (iv)
341,589
39,035
380,624
7,961
3,185
3,185
-
-
14,331
-
10,430
10,430
-
-
-
-
-
-
Total directors’ remuneration
394,955
10,430
Executives
Michelle Lawrence
Nicola Taylor (v)
22,273
42,043
64,316
10,430
-
10,430
-
-
-
-
-
-
-
-
-
-
-
-
-
341,589
49,465
391,054
7,961
3,185
3,185
-
-
14,331
405,385
32,703
42,043
74,746
* Converted to US$ at the 31 December 2018 GBP exchange rate of 0.785 and ZAR exchange rate of ZAR 14.382.
Includes UK NIC and UK payroll tax.
(i)
(ii) Options as share-based payment arrangements under the ESOP, LTIP and other schemes are expensed over the
vesting period, which includes the years to which they relate and their subsequent vesting periods.
(iii) At his request, Lord Robin Renwick’s fees were reduced to GBP 40,000 per annum from 1 January 2019, with him
assuming responsibility for his travel and accommodation costs.
(iv) Machiel Reyneke and Mike Nunn receive no director fees.
(v) Nicola Taylor resigned as a director of the Company on 28 September 2018 but remains an employee of the Company.
SBP granted as compensation to KMP
Employee Share Option Plan and Long-Term Incentive Plan
Kropz plc operates an ownership-based scheme for executives and senior employees of the Group. In
accordance with the provisions of the plans, executives and senior employees may be granted options to
purchase parcels of ordinary shares at an exercise price determined by the Board based on a recommendation
by the Remuneration Committee.
The following plans have been adopted by the Company:
• An executive share option plan which will be used to grant awards on Admission of the Company to AIM and
following Admission (the “ESOP”) – a performance and service-related plan pursuant to which nominal-cost
options can be granted; and
• An executive long-term incentive plan (the “LTIP”) – a performance and service-related plan pursuant to
which conditional share awards, nominal-cost options and market value options can be granted (together,
the “Incentive Plans”).
The incentive plans will be used to recruit, retain and incentivise key executives and employees. Although the
ESOP will be used primarily to grant awards on Admission, awards may be granted pursuant to the ESOP
following Admission up to and including the second anniversary of Admission. The LTIP will be used to grant
awards following Admission and will be the main incentive plan used to grant awards following Admission.
27
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
Each ESOP and LTIP option converts into one ordinary share of Kropz plc upon exercise. No amounts are
paid or payable by the recipient on receipt of the option, aside from when the option is exercised. The options
carry neither rights to dividends nor voting rights. Options may be exercised from time to time as stipulated in
the award conditions prior to their expiry. Each employee performance right will be converted into one ordinary
share of Kropz plc upon vesting conditions being met. No amounts are paid or payable by the recipient on
receipt of the performance rights. The performance rights carry neither rights to dividends nor voting rights.
The options granted expire as determined by the Board based on a recommendation by the Remuneration
Committee, or immediately following the resignation of the executive or senior employee, whichever is the
earlier.
Summary information for options as SBP arrangements in existence at 31 December 2019
During the financial year ended 31 December 2019, no ESOP options were issued as SBP. ESOP options
outstanding at 31 December 2019 were as follows:
Name
Ian Harebottle (i)
Mark Summers
Michelle Lawrence
Expiry date
28 November 2028
28 November 2028
28 November 2028
Exercise price (pence)
0.1
0.1
0.1
Number of options
3,362,609
3,362,609
1,465,137
8,190,355
(i) Ian Harebottle resigned on 29 February 2020 and the ESOP options awarded to him lapsed and expired.
Summary information for options as SBP arrangements in existence at 31 December 2018
ESOP options were issued as SBP during 2018 and were outstanding at 31 December 2018:
Name
Ian Harebottle
Mark Summers
Michelle Lawrence
Expiry date
28 November 2028
28 November 2028
28 November 2028
Exercise price (pence)
0.1
0.1
0.1
Number of options
3,362,609
3,362,609
1,465,137
8,190,355
The performance conditions attaching to the ESOP award are as follows:
• 20 per cent. of the award shall vest for growth in share price of 100 per cent. from the Admission placing
price (40 pence);
• A further 20 per cent. of the award shall vest for growth in share price of 250 per cent. from the Admission
placing price;
• A further 30 per cent. of the award shall vest for growth in share price of 350 per cent. from the Admission
placing price; and
• A further 30 per cent. of the award shall vest for growth in share price of 500 per cent. from the Admission
placing price.
Awards shall vest on a straight-line basis between each of the above targets. Participants of the ESOP and
LTIP awards need to remain employed by Kropz in order to exercise options.
The Remuneration Committee will determine whether the performance condition has been met and to the
extent performance conditions have not been achieved on or before the fifth anniversary of the date of grant.
There was no exercise of options during the year. Options were valued using a Monte Carlo simulation model
and are to be expensed over the 60 month vesting period.
28
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
No LTIP awards were made during the year ended 31 December 2019 (31 December 2018 – none).
Shares issued on exercise of options
No shares were issued from the exercise of options during the year ended 31 December 2019 (31 December
2018 – none).
Shareholdings (ordinary shares)
The numbers of ordinary shares in the Company held during the financial year by KMP, including shares held
by entities they control, are set out below.
Name
Mike Nunn
Ian Harebottle
Mark Summers
Balance –
1 January
2019
51,587,817
1,674,456
334,889
Received as
remuneration
Options
exercised
Other
-
-
-
-
-
-
3,345,657 (i)
-
-
Balance –
31 December
2019
54,933,474
1,674,456
334,889
(i) Mike Nunn’s beneficial interest in Ordinary Shares is held through Kropz International. Kropz International subscribed for
US$ 750,000 in new ordinary shares at a price of 17.6 pence per ordinary share in terms of the placing announced on 27 June
2019.
The numbers of ordinary shares in the Company held during the period ended 31 December 2018 by KMP,
including shares held by entities they control, are set out below.
Name
Mike Nunn
Ian Harebottle
Mark Summers
Balance –
1 January
2018
-
-
-
Received as
remuneration
Options
exercised
Other
-
-
-
-
-
-
51,587,817 (i)
1,674,456 (ii)
334,889 (ii)
Balance –
31 December
2018
51,587,817
1,674,456
334,889
(i) Mike Nunn’s beneficial interest in ordinary shares is held through Kropz International. Kropz International’s interest arose from
the vend-in of the share interests of Kropz International in Kropz SA, Kropz Elandsfontein, ELH, First Gear Exploration and pre-
Admission funding from Kropz International in the form of a convertible loan note. Kropz International provided US$ 2.5 million
in funding pre the Admission of the Company onto the AIM market of the London Stock Exchange which converted into ordinary
shares upon Admission.
(ii) Arising from pre-Admission funding provided by Ian Harebottle and Mark Summers in 2018.
Other than as indicated above, no other KMP held any ordinary shares in the Company during the financial
year.
Holdings of equity warrants over equity instruments
The numbers of equity warrants over ordinary shares in the Company held during the financial year are set
out below.
During the year ended 31 December 2019, 558,272 additional warrants were issued to each of H&P Advisory
Limited and Mirabaud Securities Limited. These warrants were issued on the same terms as the warrants
29
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
issued to the same parties in December 2018. Total warrants outstanding at the end of 31 December 2019
were as follows:
Name
Expiry date
H&P Advisory Limited
Mirabaud Securities Limited
30 November 2020
30 November 2020
Exercise
price (pence)
40
40
Number of
warrants
600,000
600,000
1,200,000
During the period ended 31 December 2018, the following warrants were issued and were outstanding at the
end of 31 December 2018:
Name
Expiry date
H&P Advisory Limited
Mirabaud Securities Limited
30 November 2020
30 November 2020
Exercise
price (pence)
40
40
Number of
warrants
41,728
41,728
83,456
Other transactions with KMP during the year ended 31 December 2019
No KMP has entered into a material contract (apart from employment and noted below) with the Company
and the Group. No amount of remuneration is outstanding at 31 December 2019.
There were no other transactions with KMP and related parties.
Substantial shareholdings
The Directors are aware of the following substantial interests or holdings in 3 per cent. or more of the
Company’s ordinary shares as at 30 June 2020.
Major Shareholder
ARC Fund
Kropz International S.à.r.l
R & H Trust Co (Guernsey) Limited
Ackerman Group Holdings Limited
Teh Hond Eng Investments Holding
No of Shares
295,281,998
54,933,474
18,763,286
18,073,368
15,637,012
% of Issued
Share
Capital
66.5%
12.4%
4.2%
4.1%
3.5%
Statement of disclosure of information to auditors
As at the date of this report the serving directors confirm that:
• So far as each director is aware, there is no relevant audit information of which the Company’s auditors are
unaware; and
• They have taken all the steps that they ought to have taken as directors in order to make themselves aware
of any relevant audit information and to establish that the Company’s auditor is aware of that information.
Dialogue with Shareholders
All investors
The Board attaches great importance to providing shareholders with clear and transparent information on the
Group's activities, strategy and financial position. General communication with shareholders is co-ordinated
30
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
by the Chairman, CEO and/or CFO. In addition, the independent directors provide a further avenue for
engagement with investors.
The Company publishes on its website the following information, which the Board believes plays an important
part in presenting all shareholders with an assessment of the Group’s position and prospects:
• Updated investor presentations;
• The Company’s most up to date technical reports on each of its projects;
• All annual and interim financial statements going back to the Company’s original inception in 2018;
• All Company press releases issued under the RNS service going back to the IPO on AIM in 2018;
• Details on the proxy voting results of all resolutions put to a vote at the most recent AGM; and
• Contact details including a dedicated email address info@kropz.com through which investors can contact
the Company.
The Company’s AGM will be held following the publication of its annual results and all shareholders will be
advised of the meeting format closer to the time, given the current COVID-19 restrictions. Kropz included in
the 2019 AGM documents a “deemed consent” letter to move to a default setting that all statutory documents
be supplied to shareholders in electronic form and via the website rather than in hard copy. The Company
believes that not only is this a more cost efficient and environmentally friendly option, but it also better serves
private shareholders who may hold their shares in nominee accounts and hence not be entitled to direct receipt
of these documents.
In accordance with the Pre-Emption Group’s COVID-19 announcement dated 1 April 2020, the Company has
proposed to seek renewal of the directors’ existing power to allot shares for cash without first offering them to
existing shareholders in proportion to their existing shareholdings. This authority would be limited to allotments
or sales in connection with pre-emptive offers and offers to holders of other equity securities if required by the
rights of those shares or as the directors would otherwise consider necessary, or otherwise approximately
20 per cent. of the Company’s issued share capital. The Board will be involved in any allocation process and
where possible, the share issue shall be made on a soft pre-emptive basis.
Institutional investors
In general, the Board maintains a regular dialogue with its major institutional investors, providing them with
such information on the Company’s progress as is permitted within the guidelines of the AIM rules, MAR and
requirements of the relevant legislation. The Company typically holds meetings with institutional investors and
other large shareholders following the release of interim and year-end financial results.
The Company has had increased contact with both current and prospective institutional shareholders as part
of the fund-raising initiatives during the year under review.
Private investors
The Company acknowledges that the majority of its private investors hold their shares via nominee
shareholders and may not be able to fully exploit their shareholder rights effectively. Accordingly, the Company
is committed to engaging with all shareholders and not just institutional shareholders.
As the Company is too small to have a dedicated investor relations department, the CEO is responsible for
reviewing all communications received from shareholders and determining the most appropriate response.
The CEO works in conjunction with the Company’s PR advisers to facilitate engagement with its shareholders.
31
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
Board review
The Board as a whole is kept informed of the views and concerns of major shareholders by briefings from the
CEO, Chairman and the Company’s brokers. Any significant investment reports from analysts are also
circulated to the Board.
Going concern
During the year ended 31 December 2019, the Group incurred a loss of US$ 9 million (period to 31 December
2018 – US$ 8 million) and experienced net cash outflows from operating activities of US$ 15 million
(31 December 2018 – US$ 7 million). Cash and cash equivalents totalled US$ 16 million as at 31 December
2019 (31 December 2018 – US$ 30 million). The Group has no current source of operating revenue and is
therefore dependent on both existing cash resources and future fund raisings to meet overheads and future
exploration requirements as they fall due.
In May 2020, Kropz entered into a convertible loan facility of up to US$ 40 million (not exceeding a maximum
of ZAR 680 million) with ARC, the Company’s major shareholder. This Equity Facility is expected to bring the
Company’s Elandsfontein project into production in Q4 2021. The equity facility is ringfenced in Kropz
Elandsfontein and the Kropz group does not have access to the US$ 40 million and ZAR 200 million currently
locked up by BNP in the accounts of Kropz Elandsfontein. In due course the ZAR 200 million ringfenced by
BNP will be released and utilised towards funding the construction and completion of Elandsfontein. Kropz
Elandsfontein renegotiated and amended the BNP US$ 30 million project finance facility in June 2020,
extending the first capital repayment to 31 December 2022, and quarterly thereafter to 30 September 2024.
Entering into and closing the amended facility agreement with BNP removed the technical default announced
to shareholders in February 2020.
In addition, the Group raised US$ 353,595, before expenses (approximately GBP 283,843) from an equity placing
to an existing investor and two directors on 1 June 2020 and raised a further US$ 2,163,639, before expenses
(approximately GBP 1,744,870) from an open offer to existing shareholders on 26 June 2020.
Subsequent to the year end, the COVID-19 pandemic announced by the World Health Organization is having a
markedly negative impact on global stock markets, currencies and general business activity. The Company has
developed a policy and is evolving procedures to address the health and wellbeing of its employees, consultants
and contractors, and their families, in the face of the COVID-19 outbreak. The timing and extent of the impact and
recovery from COVID-19 is unknown but it may affect planned activities and potentially display a post balance
sheet date impact.
The directors have reviewed the overall position and outlook in respect of the matters identified above and
have prepared a cash flow forecast for the Company and Group which indicates that the Company will need
to raise further funds in the second half of 2021 for working capital purposes and to progress the Hinda project.
Management have been successful in raising funds in the past and the directors consider it to be appropriate
to prepare the Company and Group financial statements on a going concern basis. However, there is no
certainty that adequate funds will be available when needed and the COVID-19 pandemic may adversely
impact on the ability of the Group to raise the necessary funding. These circumstances indicate the existence
of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going
concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course
of business.
The financial report does not include adjustments relating to the recoverability and classification of recorded
asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not
continue as a going concern.
32
Kropz plc Annual Report for 2019
Directors’ Report for the year ended 31 December 2019 (continued)
Subsequent events
Disclosures in relation to events after 31 December 2019 are shown in Note 35 to the Consolidated Financial
Statements.
This Directors Report was approved by the Board of directors.
Mark Summers
Interim Chief Executive Officer
31 July 2020
33
Kropz plc Annual Report for 2019
Corporate Governance Report
The Company is registered in England and Wales and listed on the AIM market of the London Stock Exchange.
Introduction
The Board is committed to the principles of good corporate governance and to maintaining high standards and
best practice of corporate governance. The directors have developed corporate governance practices which
are suitable for the size and nature of the Company and have adopted the Quoted Companies Alliance
Corporate Governance Code (2018 Edition) (the “Code”). The directors also note that with effect from 28
September 2018, all AIM companies must provide details on their website and in their annual report of the
recognised corporate governance code that the Company has decided to apply, how it complies with that
Code and, where it departs from this, an explanation of the reasons for doing so. To the extent that the
Company departs from any of the provisions of the Code it will provide details on its website (www.kropz.com)
as required.
The Chairman is responsible for leading the Board to ensure that Kropz has in place the strategy, people,
structure and culture to deliver value to shareholders and other stakeholders of the Group over the medium
to long term. The Board is conscious that the corporate governance environment is constantly evolving and
the charters and policies under which it operates its business are monitored and amended as required.
The Code sets out ten principles and we have outlined below the Group’s application of the Code.
The Board considers that the Company has complied, from 1 January 2019 to 31 December 2019, with all the
provisions of the Code except as follows:
• The Remuneration Committee comprises the chairperson of the committee, two independent non-executive
directors and two non-independent non-executive directors. The Chairman is considered suitable to fulfil this
position considering the size of the Board and the Company and his prior experience;
• Machiel Reyneke, a non-independent non-executive director is on the Audit Committee in view of his financial
experience and experience on other listed company audit committees; and
• No formal assessment of the Board performance has been carried out as the Company’s shares were only
admitted to trading on AIM in November 2018.
The following section provides an explanation as to why the Company has departed from certain guidelines.
Establish a strategy and business model to promote long-term value for shareholders
The Board has set out the vision for Kropz for the medium to long term. The Board is responsible for
formulating, reviewing and approving the Group’s strategy, budgets and corporate actions. The Company
holds Board meetings at least three times each financial year and at other times as and when required.
Detailed disclosure on the Company’s business model and strategy is disclosed in the AIM Admission
Document on the Company’s website and in the Strategic Report on pages 4 to 18.
Seek to understand and meet shareholder needs and expectations
Kropz has a Board with experience in understanding the needs and expectations of its shareholder base. It
supplements this with professional advisers including public relations company, nominated adviser and
brokers who provide advice and recommendations in various areas of its communications with shareholders.
Kropz engages with its shareholders through its website which has been designed as a hub to provide
information to shareholders and provides regular updates to the market via the Regulatory News Service.
34
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
Take into account wider stakeholder and social responsibilities and their implications for long-term
success
Key resources and relationships on which the business relies are its customers, workforce, suppliers,
shareholders, local community and elements of the regulatory framework.
Employees are encouraged to raise any concerns they may have with relevant management. Grievance
mechanisms are in place for employees.
Feedback from potential customers is at present informal. The Company will contact customers on an ad hoc
basis once sales commence and provide verbal feedback where necessary to senior management.
Engagement with the local community is carried out at site, by means of monthly meetings with the established
Community Forums. Grievance mechanisms are in place for the community, with Company contact details
displayed at site access points.
Feedback from regulators is provided via the regular framework of reporting and inspections that are carried
out.
Embed effective risk management, considering both opportunities and threats, throughout the
organisation
Kropz recognises that risk is inherent in all of its business activities. Its risks can have a financial, operational
or reputational impact. A summary of the key risks is set out in the Strategic Report on pages 4 to 18 and is
provided in the AIM Admission Document on the website. The Company’s system of risk identification,
supported by established governance controls, ensures it effectively responds to such risks, whilst acting
ethically and with integrity for the benefit of all its stakeholders.
The Company’s key internal controls procedures are:
• Prioritised risk register - risks are evaluated to establish root causes, financial and non-financial impacts and
likelihood of occurrence. Consideration of risk impact and likelihood is taken into account to determine which
of the risks should be considered as a principal risk. The effectiveness and adequacy of mitigating controls
are assessed. If additional controls are required, these are identified and responsibilities assigned. The
Company’s management is responsible for monitoring the progress of actions to mitigate key risks. Key risks
are reported to the Audit Committee and at least once a year to the full Board;
• Preparation of annual cash flow projections for approval by the Board and ongoing review of expenditure and
cash flows;
• Establishment of appropriate cash flow management and treasury policies for the management of liquidity,
currency and credit risk on financial assets and liabilities;
• Regular management meetings to review operating and financial activities; and
• Recruitment of appropriately qualified and experienced staff to key financial and operational management
positions.
Maintain the Board as a well-functioning, balanced team led by the Chairman
The Board currently comprises one executive director, Mark Summers, and five non-executive directors,
including the Chairman. The Chairman, Lord Robin Renwick of Clifton, and two of the non-executive directors,
Linda Beal and Mike Daigle are considered to be independent. The remaining two non-executive directors,
Mike Nunn and Machiel Reyneke, are not considered to be independent. Mike Nunn is a major shareholder
of the Company, and Machiel Reyneke is the Board representative of Kropz Elandsfontein’s BEE partner and
the Company’s largest shareholder, ARC.
35
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
Since AIM Admission in November 2018, the Company has the following appropriately constituted
committees, each with formally delegated duties and responsibilities set out in respective written terms of
reference:
• Audit Committee; and
• Remuneration Committee.
Lord Robin Renwick of Clifton, the Chairman of the Company, is also Chairman of the Remuneration
Committee. Lord Renwick is independent in character, and suitable to fulfil this position considering the size
of the Board and the Company and his prior experience. Lord Renwick is supported by the two other
independent non-executive directors as well as Mike Nunn and Machiel Reyneke who are not considered
independent but are on the committee due to their previous experience and the fact that they are aligned with
shareholders’ interests by virtue of their representative holdings in the Company. Machiel Reyneke was
included onto the Remuneration Committee as of February 2019.
Machiel Reyneke, a non-independent non-executive director, is on the Audit Committee. Machiel’s financial
experience and representation on a number of other listed company audit committees deem him suitably
qualified to serve on the Audit Committee.
The Board is responsible for the overall leadership and effective management of the Company, setting the
Company’s values and standards and ensuring maintenance of a sound system of internal control and risk
management. The Board is also responsible for approving Company policy and its strategic aims and
objectives as well as approving the annual operating and capital expenditure budgets. The Board supports
the concept of an effective Board leading and controlling the Company and believes the Company has a well-
established culture of strong corporate governance and internal controls that are appropriate and proportional,
reflecting the Company’s culture, size, complexity and risk.
All directors bring a wide range of skills and international experience to the Board. The non-executive directors
hold meetings without the executive directors present. The Chairman is primarily responsible for the working
of the Board of the Company. The CEO is primarily responsible for the running of the business and
implementation of the Board strategy and policy. The CEO is assisted in the managing of the business on a
day-to-day basis by the CFO and other management.
The Board has a formal schedule of regular meetings where it approves major decisions and utilises its
expertise to advise and influence the business. The Board will meet on other occasions as and when the
business demands. During the financial year under review the Board met on six occasions.
The Board is supplied with appropriate and timely information in order to discharge its duties. The Board and
its committees are supplied with full and timely information, including detailed financial information, to enable
the directors to discharge their responsibilities. All directors have access to the advice and services of the
company secretary, who is responsible for ensuring that Board procedures are followed and that applicable
rules and regulations are complied with. Independent professional advice is also available to directors in
appropriate circumstances.
A detailed agenda is established for each scheduled meeting and appropriate documentation is provided to
directors in advance of the meeting. Regular Board meetings provide an agenda that will include reports from
the CEO, reports on the performance of the business and current trading, and specific proposals where the
approval of the Board is sought. Areas discussed include, amongst others, matters relating to the AIM listing,
placing and funding arrangements, the South African Mining Charter and mining legislation, RoC Mining
Convention and the strategic direction of the Company. Minutes of the meetings from committees of the Board
are circulated to all members of the Board, unless a conflict of interest arises, to enable all directors to have
oversight of those matters delegated to committees.
36
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
In accordance with the Company’s Articles of Association, the longest serving director must retire at each
AGM and each director must retire in any three-year period, so that over a three-year period all directors will
have retired from the Board and been subject to shareholder re-election. All directors have access to the
advice and services of the company secretary and other independent professional advisers as required. Non-
executive directors have access to key members of staff and are entitled to attend management meetings in
order to familiarise themselves with all aspects of the Company. It is the responsibility of the Chairman and
the company secretary to ensure that Board members receive sufficient and timely information regarding
corporate and business issues to enable them to discharge their duties.
Board and committee meetings attendance
Three Audit Committee meetings were held during the year under review. No Remuneration Committee
meetings were held during the year.
During the year there were six Board meetings by the directors of the Company.
Attendance of directors and committee members at Board and committee meetings held during the year is set
out in the table below.
Board meetings
Audit
Committee
meetings
Remuneration
Committee
meetings
6/6
6/6
6/6
6/6
6/6
5/6
6/6
3/3
-
-
3/3
-
-
3/3
-
-
-
-
-
-
-
Lord Robin Renwick of Clifton
Ian Harebottle
Mark Summers
Linda Beal
Mike Daigle
Mike Nunn
Machiel Reyneke
Division of responsibilities
The division of responsibilities between the non-executive Chairman and the CEO is clearly defined in writing.
However, they work closely together to ensure effective decision making and the successful delivery of the
Group’s strategy.
The CEO
The CEO is responsible for the running of the Group’s business for the delivery of the strategy for the Group,
leading the management team and implementing specific decisions made by the Board to help meet
shareholder expectations. He also takes the lead in strategic development, by formulating the vision and
strategy for the Group.
The CEO reports to each Board meeting on all material matters affecting the Group’s performance. Given the
structure of the Board and the fact that the Chairman and CEO roles are fulfilled by two separate individuals,
the Board believes that no individual or small group of individuals can disproportionately influence the Board’s
decision making.
37
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
The Chairman
The Chairman leads the Board, ensuring constructive communications between the Board members and that
all directors are able to play a full part in the activities of the Company. He is responsible for setting Board
agendas and ensuring that Board meetings are effective and that all directors receive accurate, timely and
clear information.
The Chairman officiates effective communication with shareholders and ensures that the Board understands
the views of major investors and is available to provide advice and support to members of the executive team.
Non-executive directors
There are currently five non-executive directors (including the Chairman), of which three are independent non-
executive directors. The role of the non-executive directors is to understand the Group in its entirety and
constructively challenge strategy and management performance, set executive remuneration levels and
ensure an appropriate succession planning strategy is in place. They must also ensure they are satisfied with
the accuracy of financial information and that thorough risk management processes are in place. The non-
executive directors also assist the Board with issues such as governance, internal control, remuneration and
risk management. No non-executive directors are participants in any share option plans of the Company.
Effectiveness
Composition of the Board
The Board consists of the Non-Executive Chairman, the interim CEO/CFO, two non-executive directors and
two further independent non-executive directors. The names, skills and short profiles of each member of the
Board, are set out on pages 21 to 23. Each year the Board considers the independence of each non-executive
director in accordance with the Code.
The Board considers Lord Robin Renwick of Clifton, Linda Beal and Mike Daigle to be independent as they
are not involved in any executive capacity, have no other or material business relationships with the Company,
have no material investment in the Company nor are associated with any such investor and have no close
family or other business relationships with the Company or any of its directors or senior executives.
Non-executive directors were appointed for an initial term of one year in 2018. During 2019 the terms were
amended and the non-executive appointments were extended, until terminated by either party on three
months’ notice.
To ensure that they clearly understand the requirements of their role, the Company has a letter of appointment
in place with each non-executive director. Employment contracts are entered into with executive directors and
senior executives so that they can clearly understand the requirements of the role and what is expected of
them.
Commitment
Each director commits sufficient time to fulfil their duties and obligations to the Board and the Company. They
attend Board meetings and join ad hoc Board calls and offer availability for consultation when needed. The
contractual arrangements between the directors and the Company specify the minimum time commitments
which are considered sufficient for the proper discharge of their duties. However all Board members appreciate
the need to commit additional time in exceptional circumstances.
38
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
Non-executive directors are required to disclose prior appointments and other significant commitments to the
Board and are required to inform the Board of any changes to their additional commitments. Details of the
non-executive directors’ external appointments can be found on pages 21 to 23.
Before accepting new appointments, non-executive directors are required to obtain approval from the
Chairman and the Chairman requires the approval of the whole Board. It is essential that no appointment
causes a conflict of interest or impacts on the non-executive director’s commitment and time spent with the
Group in their existing appointment.
Details of executive directors’ service contracts and of the Chairman’s and the non-executive directors’
appointment letters are given on page 25. Copies of service contracts and appointment letters are available
for inspection at the Company’s registered office during normal business hours and at the AGM.
Development
All newly appointed directors are provided with an induction programme which is tailored to their existing skills
and experience, legal update on directors’ duties and one on ones with members of the senior management
team. The Board is informed of any material changes to governance, laws and regulations affecting the
Group’s business.
Information and support
All directors have access to the advice and services of the company secretary and each director and each
Board committee member may take independent professional advice at the Company’s expense, subject to
prior notification to the other non-executive directors and the company secretary.
The appointment and removal of the company secretary is a matter for the Board as a whole. The company
secretary is accountable directly to the Board through the Chairman.
Ensure that between them the directors have the necessary up-to-date experience, skills and
capabilities
The Board has been assembled to allow each director to contribute the necessary mix of experience, skills
and personal qualities to deliver the strategy of the Company for the benefit of the shareholders over the
medium to long term. Full details of the Board members and their experience and skills are set out on pages
21 to 23.
Together the Board provide relevant mining and fertilizer sector skills, the skills associated with running large
public companies, African experience and technical and financial qualifications to assist the Company in
achieving its stated aims. The Board comprises UK, US and South African directors and has one female
director.
The directors keep their skillsets up to date as required through the range of roles they perform with other
companies and consideration of technical and industry updates by external advisers. The directors receive
regular briefing papers on the operational and financial performance of the Company from the executives and
senior management.
Evaluate board performance based on clear and relevant objectives, seeking continuous
improvement
Appointments to the Board
The Company has a Remuneration Committee, the composition of which is set out on page 43.
39
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
The Remuneration Committee is responsible for maintaining a board of directors that has an appropriate mix
of skills, experience and knowledge to be an effective decision-making body, ensuring that the Board is
comprised of directors who contribute to the successful management of the Company and discharge their
duties having regard to the law and the highest standards of corporate governance, considering and
recommending Board candidates for election or re-election and reviewing succession planning.
The Remuneration Committee undertakes a detailed selection process as per the recruitment and diversity
policy to appoint or re-appoint a director to the Board. Included in this process are appropriate reference
checks which include but are not limited to character reference and bankruptcy to ensure that the Board
remains appropriate for that of an AIM quoted company.
Evaluation of senior executives
Arrangements put in place by the Board to monitor the performance of the Group’s executives include:
• A review by the Board of the Group’s financial performance;
• Annual performance appraisal meetings incorporating analysis of key performance indicators with each
individual to ensure that the level of reward is aligned with respective responsibilities and individual
contributions made to the success of the Group;
• An analysis of the Group’s prospects and projects; and
• A review of feedback obtained from third parties, including advisors (where applicable).
Informal evaluations of the CEO and other senior executives’ individual performance and overall business
measures are undertaken progressively and periodically throughout the financial period.
Whilst the Board is aware that the Code recommends that the Board and its committees are evaluated on a
yearly basis this has not been undertaken during 2019 as the Board was constituted late in 2018. However,
an evaluation will be undertaken in 2020.
Promote a corporate culture that is based on ethical values and behaviours
The Board seeks to embody and promote a corporate culture that is based on sound ethical values and
behaviours, something we see as being a cornerstone to a strong risk management programme.
Code of conduct
The Board acknowledges the need for continued maintenance of the highest standard of corporate
governance practice and ethical conduct by all directors and employees of the Group.
The Board has approved a code of conduct for directors, officers, employees and contractors, which describes
the standards of ethical behaviour that are required to be maintained. The code of conduct was approved prior
to the Company’s listing on the AIM market. The Group promotes the open communication of unethical
behaviour within the organisation.
Compliance with the code of conduct assists the Company in effectively managing its operating risks and
meeting its legal and compliance obligations as well as enhancing the Group’s corporate reputation.
The code of conduct describes the Group’s requirements on matters such as confidentiality, conflicts of
interest, use of Group information, sound employment practices, compliance with laws and regulations and
the protection and safeguarding of the Group’s assets.
40
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
An employee who breaches the code of conduct may face disciplinary action. If an employee suspects that a
breach of the code of conduct has occurred or will occur, he or she must report that breach to the CEO or
CFO, via the Company’s confidential “Whistle Blowing” process. No employee will be disadvantaged or
prejudiced if he or she reports in good faith a suspected breach. All reports will be investigated, acted upon
and kept confidential.
Anti-bribery and anti-corruption
The Company has adopted an anti-corruption and bribery policy which applies to the Board and employees
of the Company and the Group. It generally sets out their responsibilities in observing and upholding a zero-
tolerance position on bribery and corruption in all the jurisdictions in which the Group operates. It also provides
guidance to those working for the Group on how to recognise and deal with bribery and corruption issues and
the potential consequences of failing to adhere to this guidance. The Company expects all employees,
suppliers, contractors and consultants to conduct their day-to-day business activities in a fair, honest and
ethical manner, be aware of and refer to this policy in all of their business activities worldwide and to conduct
business on the Company’s behalf in compliance with it. Management at all levels are responsible for ensuring
that those reporting to them, internally and externally, are made aware of and understand this policy.
The Group’s anti-bribery and anti-corruption policy is set out in the code of conduct and has been aligned to
meet UK and South African laws governing anti-bribery and anti-corruption. The Group takes a zero tolerance
approach to acts of bribery and corruption by any directors, officers, employees and contractors. The Group
will not offer, give or receive bribes, or accept improper payments to obtain new business, retain existing
business or secure any advantage and will not permit others to do so on its behalf.
Maintain governance structures and processes that are fit for purpose and support good decision
making by the Board
The Board as a whole is collectively responsible for promoting the success of the Company by directing and
supervising the Company’s affairs. The role of the Board is as follows:
• To provide direction and entrepreneurial leadership of the Company within a framework of prudent and
effective controls which enable risks to be appropriately assessed and managed;
• To set the Company’s strategic aims, ensure that the necessary financial and human resources are in place
for the Company to meet its objectives and review management performance;
• To demonstrate ethical leadership, setting the Company’s value and standards and ensuring that its
obligations to its shareholders and others are well understood;
• To create a performance culture that drives value creation without exposing the Company to excessive risk
or value destruction;
• To be accountable, and make well-informed and high quality decisions based on a clear understanding of
the Company’s broader goals and specific objectives;
• To create the right framework for helping directors meet their statutory duties under the Companies Act 2006,
and/or any other relevant statutory and regulatory regimes; and
• To promote its governance arrangements and embrace the evaluation of their effectiveness.
Internal controls
In applying the principle that the Board should maintain a sound system of internal control to safeguard
shareholders’ investment and the Group’s assets, the directors recognise that they have overall responsibility
for ensuring that Kropz maintains systems to provide them with reasonable assurance regarding effective and
efficient operations, internal control and compliance with laws and regulations and for reviewing the
effectiveness of that system. However, there are inherent limitations in any system of control and accordingly
even the most effective system can provide only reasonable and not absolute assurance against material mis-
statement or loss, and that the system is designed to manage rather than eliminate the risk of failure to achieve
the business objectives.
41
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
The key features of the internal control system are described below:
Control environment
The Company is committed to high standards of business conduct and seeks to maintain these standards
across all of its operations. There are also policies in place for the reporting and resolution of suspected
fraudulent activities. The Company has an appropriate organisational structure for planning, executing,
controlling and monitoring business operations in order to achieve its objectives.
Risk management and internal control
The Board has carried out a robust assessment of the principal risks facing the Group. Details of these risks
are set out on pages 10 to 13. The Board has reviewed the Company’s risk management and internal control
systems during the year and consider them to be effective. Management is responsible for the identification
and evaluation of key risks applicable to their areas of business. These risks are assessed on a continual
basis and may be associated with a variety of internal and external sources, including infringement of
intellectual property, sales channels, investment risk, staff retention, disruption in information systems, natural
catastrophe and regulatory requirements.
Group businesses will participate in periodic operational/strategic reviews and annual plans. The Board
actively monitors performance against plan. Forecasts and operational results are consolidated and presented
to the Board on a regular basis. Through these mechanisms, performance is continually monitored, risks
identified in a timely manner, their financial implications assessed, control procedures re-evaluated and
corrective actions agreed and implemented.
Main control procedures
The Company has implemented control procedures designed to ensure complete and accurate accounting for
financial transactions and to limit the exposure to loss of assets and fraud. Measures taken include segregation
of duties and reviews by management.
There are clear and consistent procedures in place for monitoring the system of internal financial controls. The
Board considers the internal control system to be adequate for the Group.
Financial and business reporting
It is the responsibility of the directors to ensure that the financial accounts are prepared and submitted. Having
assessed the current annual report, along with the accounts, the directors confirm that, taken as a whole, they
are fair, balanced and understandable. The directors also confirm that these documents provide the necessary
information in order for shareholders to assess the Group’s performance, business model and strategy.
The going concern statement provided by the directors is on page 32 of the Directors Report. The independent
auditor’s report is set out on pages 51 to 54.
The CEO and CFO provide, at the end of each six monthly period, a formal statement to the Board confirming
that the Group’s financial reports present a true and fair view, in all material respects, and that the Group’s
financial condition and operational results have been prepared in accordance with the relevant accounting
standards.
The statement also confirms the integrity of the Group’s financial statements and that it is founded on a sound
system of risk management and internal compliance and controls which implements the policies approved by
the Board, and that the Group’s risk management and internal compliance and control systems, to the extent
they relate to financial reporting, are operating efficiently and effectively in all material respects.
42
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
Board committees
The Company has established an Audit Committee and a Remuneration Committee with formally delegated
duties and responsibilities. The minutes of all committees are circulated for review and consideration by all
relevant directors, supplemented by oral reports from the respective committee chairs at Board meetings.
Audit and Risk Committee
The Company has an Audit Committee comprised of Linda Beal, as the chairperson of the committee, together
with Lord Robin Renwick of Clifton and Machiel Reyneke. The Audit Committee report is set out on pages 46
to 47.
Remuneration and Nomination Committee
The Company has a Remuneration Committee comprised of Lord Robin Renwick of Clifton, as the chairperson
of the Remuneration Committee, together with Machiel Reyneke, Mike Nunn, Linda Beal and Mike Daigle.
The Remuneration Committee report is set out on page 49.
Communicate how the Company is governed and is performing by maintaining a dialogue with
Shareholders and other relevant stakeholders
Dialogue with shareholders
The Group places considerable importance on effective communications with shareholders.
The Group’s communication strategy requires communication with shareholders and other stakeholders in an
open, regular and timely manner so that the market has sufficient information to make informed investment
decisions on the operations and results of the Group. The strategy provides for the use of systems that ensure
a regular and timely release of information about the Group is provided to shareholders.
The Group also posts all reports, stock exchange announcements and media releases and copies of
significant business presentations on the Company’s website.
The Company’s two largest shareholders, ARC Fund and Kropz International, are represented on the Board.
In addition, the Chairman and CEO have frequent direct face-to-face meetings throughout the period with
some of the other major shareholders as well as with analysts and brokers.
Constructive use of the AGM
The Board encourages full participation of shareholders at the AGM to ensure a high level of accountability
and understanding of the Group’s strategy and goals.
The Company provides information in the notice of meeting that is presented in a clear, concise and effective
manner. Shareholders are provided with the opportunity to submit questions in relation to each resolution
before they are put to the vote and discussion is encouraged by the Board.
Directors are usually available at and following general meetings when shareholders have the opportunity to
ask/submit questions on the business of the meeting. Specifically, the chairperson of the Audit Committee and
the Chairperson of the Remuneration Committee are available in person or by conference call at the AGM to
answer questions from shareholders.
The company secretary, the Company’s auditors (if required) and the Registrars (if required) are also in
attendance at general meetings to assist with any queries shareholders may have.
43
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
Other governance matters
Diversity policy
The Group is committed to an inclusive workplace that embraces and promotes diversity, while respecting
international, sovereign, United Kingdom, South African and RoC laws.
It is the responsibility of all directors, officers, employees and contractors to comply with the Group's diversity
policy and report violations or suspected violations in accordance with this diversity policy.
The Group recognises the value of a diverse work force and believes that diversity supports all employees
reaching their full potential, improves business decisions, business results, increases stakeholder satisfaction
and promotes realisation of the Group’s vision.
Diversity may result from a range of factors including but not limited to gender, age, ethnicity and cultural
backgrounds. The Company believes these differences between people add to the collective skills and
experience of the Group and ensure it benefits by selecting from all available talent.
Group and individual expectations
The Group recognises Group and individual expectations, to:
• Ensure diversity is incorporated into the behaviours and practices of the Group;
• Facilitate equal employment opportunities based on job requirements only using recruitment and selection
processes which ensure we select from a diverse pool;
• Engage professional search and recruitment firms when needed to enhance our selection pool;
• Help to build a safe work environment by acting with care and respect at all times, ensuring there is no
discrimination, harassment, bullying, victimisation, vilification or exploitation of individuals or groups;
• Develop flexible work practices to meet the differing needs of our employees and potential employees;
• Attract and retain a skilled and diverse workforce as an employer of choice;
• Enhance customer service and market reputation through a workforce that respects and reflects the diversity
of our stakeholders and communities that we operate in;
• Make a contribution to the economic, social and educational well-being of all of the communities it serves;
• Meet the relevant requirements of domestic and international legislation appropriate to the Group’s
operations;
• Create an inclusive workplace culture; and
• Establish measurable diversity objectives and monitor and report on the achievement of those objectives
annually.
Dealings with company securities
The Group’s Securities Dealing Policy is binding on all directors, officers and employees who are in possession
of “inside information”. All such persons are prohibited from trading in the Company’s securities if they are in
possession of ‘inside information’. Subject to this condition and trading prohibitions applying to certain periods,
trading is permissible provided the relevant individual has received the appropriate prescribed clearance. The
Board considers that the share dealing code is in compliance with the MAR and AIM requirements, and
continues to meet the requirements of the Board.
Interests of other stakeholders
The Group’s objective is to leverage into resource projects to provide a solid base in the future from which the
Group can build its resource business and create wealth for shareholders. The Group’s operations are subject
to various environmental laws and regulations under the relevant government’s legislation. Full compliance
with these laws and regulations is regarded as a minimum standard for the Group to achieve.
44
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
Market disclosure
The Company is subject to parallel obligations under the AIM rules and the MAR, in relation to the disclosure
and control of price sensitive information. The Company has obligations under corporate and securities laws
and stock exchange rules to keep the market fully informed of information which may have a material effect
on the price or value of the Group’s securities and to correct any material misrepresentation, mistake or
misinformation in the market.
The Group takes continuous disclosure seriously and requires that all of its directors, officers, employees and
contractors observe and adhere to the Group’s procedures and policies governing compliance with all laws
pertaining to continuous disclosure, tipping and insider trading.
The Company has a formal Disclosure Policy (the “Disclosure Policy”) addressing its continuous disclosure
obligations and arrangements. The objectives of the Disclosure Policy are to ensure that:
• The communications of the Group with the public are timely, factual and accurate and broadly disseminated
in accordance with all applicable legal and regulatory requirements;
• Non-publicly disclosed information remains confidential; and
• Trading of the Group's securities by directors, officers and employees of the Company and its subsidiaries
remains in compliance with applicable securities laws.
The Disclosure Policy also provides advice to all directors, officers, employees and contractors of the Group
of their responsibilities regarding their obligation to preserve the confidentiality of undisclosed material
information while ensuring compliance with laws respecting timely, factual, complete and accurate continuous
disclosure, price sensitive or material information, tipping and insider trading.
The Disclosure Policy further covers disclosures in documents filed with the securities regulators and stock
exchanges and written statements made in the Group’s annual and interim reports, news releases, letters to
shareholders, presentations by senior management and information contained on Kropz’s website and other
electronic communications. It extends to oral statements made in meetings and telephone conversations with
analysts and investors, interviews with the media as well as speeches, press conferences and conference
calls.
If there is misuse of price sensitive or material information not yet disclosed to the market by trading or breach
in confidentiality, extremely serious penalties may apply to the individual or individuals involved.
Shareholder information
The Company’s website contains a separate section titled “Investors” which contains key documents for its
investors. The website also provides:
•
Information about the Company and Group;
• An overview of the Group’s current projects;
• Copies of its annual reports;
•
Investor presentations; and
• Copies of its announcements to the London Stock Exchange.
The Company’s share registry is maintained electronically by Link Asset Services. Their contact details are
disclosed in the corporate directory of the annual report on pages 119 to 121. The market price of the AIM
45
Kropz plc Annual Report for 2019
Corporate Governance Report (continued)
traded shares at 31 December 2019 was 7.5 pence. The highest and lowest price during the financial year
was 42 pence and 7.5 pence respectively.
Lord Robin William Renwick of Clifton
Non-Executive Chairman
31 July 2020
46
Kropz plc Annual Report for 2019
Report of the Audit and Risk Committee
The Audit Committee comprises three members, two of whom are independent non-executive directors
including the chairperson, Linda Beal, who is considered by the Board to have recent and relevant financial
experience. Machiel Reyneke is not considered independent. The Audit Committee meets formally at least
twice a year, or otherwise as required, and meets with the Company’s external auditors at least twice a year.
The Audit Committee assists the Board in discharging its responsibilities with regard to financial reporting,
including reviewing the Group’s annual and half year financial statements, accounting policies, key judgements
and estimates taken, internal and external audit and controls, reviewing and monitoring the scope of the annual
audit and the extent of the non-audit work undertaken by external auditors and advising on the appointment
of external auditors.
In addition, the Audit Committee is responsible for ensuring the integrity of the financial information reported
to shareholders and internal control systems and ensuring effective risk management and financial control
frameworks have been implemented. The Audit Committee also ensures that appropriate procedures,
resources and controls are in place to comply with the AIM Rules for Companies and the MAR, monitors
compliance thereof and seeks to ensure that the Company and its nominated adviser are in contact on a
regular basis.
The Audit Committee has written terms of reference and provides a mechanism through which the Board can
maintain the integrity of the financial statements of Kropz and any formal announcements relating to Kropz’s
financial performance and to make recommendations to the Board in relation to the appointment of the external
auditor, their remuneration both for audit and non-audit work, the nature, scope and results of the audit and
the cost effectiveness and the independence and objectivity of the auditors. A recommendation regarding the
auditors is put to shareholders for their approval in general meetings.
Kropz has established procedures for the running of the Audit Committee. This includes overview of the
identification, categorisation and prioritisation of critical risks within the business and allocation of responsibility
to its executives and senior managers. The Audit Committee is committed to maintain a risk management
framework that seeks to:
• Avoid the likelihood of unacceptable outcomes and costly surprises;
• Provide greater openness and transparency in decision making and ongoing management processes;
• Provide for a better understanding of issues associated with the Group’s activities;
• Comprise an effective reporting framework for meeting corporate governance requirements; and
• Allow an appropriate assessment of innovative processes to identify risks before they occur and allow
informed judgement.
The Audit Committee is also responsible for approving, reviewing and monitoring the Company’s risk
management policy. The objectives of this risk management policy are to:
• Provide a structured risk management framework that will provide senior management and the Board with
comfort that the risks confronting the organisation are identified and managed effectively;
• Create an integrated risk management process owned and managed by the Group’s personnel that is both
continuous and effective;
• Ensure that the management of risk is integrated into the development of strategic and business plans, and
the achievement of the Group’s vision and values; and
• Ensure that the Board is regularly updated with reports by the committee.
Management is responsible for efficient and effective risk management across the activities of the Group. This
includes ensuring the implementation of policies and procedures that address risk identification and control,
training and reporting. The CEO is responsible for ensuring the process for managing risks is integrated within
business planning and management activities.
47
Kropz plc Annual Report for 2019
Report of the Audit and Risk Committee (continued)
The Board reviews the effectiveness of the implementation of the risk management system and internal control
system annually. When reviewing risk management policies and the internal control system the Board takes
into account the Company’s legal obligations and also considers the reasonable expectations of the
Company’s stakeholders, including shareholders, employees, customers, suppliers, creditors, consumers,
government authorities and the community. The principal areas of risk for the Company are detailed on pages
10 to 13.
In order to ensure the independence and objectivity of the external auditor (BDO and its associated
companies), the Audit Committee has a policy in place since AIM Admission in November 2018, regarding the
provision of non-audit services by its external auditor to ensure that such services do not impair the
independence or objectivity of the external auditor. Any non-audit services provided must be pre-approved by
the chairperson of the Audit Committee.
The Audit Committee met on three occasions in the 2019 financial year.
On 4 February 2020, the Audit Committee met with BDO and discussed and reviewed the planning of the
2019 annual audit. On 31 July 2020, the Audit Committee met with BDO to discuss the findings of the 2019
annual audit.
On 31 July 2020 the Audit Committee met to review the appropriateness of the Group’s key accounting policies
and judgements, to review the auditor’s report to the Audit Committee and to review the annual financial
statements prior to Board approval.
The Audit Committee reviewed the 2019 annual report including consideration of the financial statements and
going concern (including material uncertainty), impairment assessment of the exploration and evaluation
assets, property, plant, equipment and mine development costs, other key judgements and estimates, value
proposition and business model. The Audit Committee received and considered memoranda from
management regarding these matters, and also took into account the views of the external auditor. The Audit
Committee concluded that no impairment charge was necessary for the exploration and evaluation assets at
31 December 2019, and the impairment recognised for the period ended 30 June 2019 be reversed, and that
the going concern basis is the appropriate basis for preparation of the 2019 annual report, but it is considered
appropriate to recognise that there is a material uncertainty.
The Audit Committee assesses the quality of the external audit annually and considers the performance of the
auditor and its associates taking into account the Audit Committee’s own assessment, feedback from senior
finance personnel and views from the auditor and its associates on their performance as detailed in a report
of their audit findings at the year end, which they took the Audit Committee through at the meeting in July
2020. Based on this review, the Audit Committee was satisfied with the effectiveness of the audit for the year
ended 31 December 2019.
Linda Beal
Audit Committee Chair
31 July 2020
48
Kropz plc Annual Report for 2019
Report of the Remuneration and Nomination Committee
The Remuneration Committee has five members, three of whom are independent non-executive directors
including the Chair, Lord Robin Renwick of Clifton. The Remuneration Committee also comprises Mike Daigle,
Linda Beal, Machiel Reyneke and Mike Nunn. Mike Nunn and Machiel Reyneke are not considered to be
independent.
The Remuneration Committee is required to meet annually and at such other times as required. Its objectives
are to:
• Maintain a board of directors that has an appropriate mix of skills, experience and knowledge to be an
effective decision making body;
• Ensure that the Board is comprised of directors who contribute to the successful management of the
Company and discharge their duties having regard to the law and the highest standards of corporate
governance;
• Align the interests of executives and senior management with those of shareholders through the use of
performance-related rewards and share options in the Company;
• Reward executives and senior managers according to both individual and Group performance;
• Establish an appropriate balance between fixed and variable elements of total remuneration, with the
performance-related element forming a potentially significant proportion of the total remuneration package;
• Review and recommend an appropriate remuneration policy, the objective of which shall be to attract, retain
and motivate executive directors of the quality required to successfully run the Company, without paying
more than is necessary having regard to market comparables; and
• Adhere to the principle that no director or senior executive shall be involved in any decisions as to their own
remuneration.
In addition, the Remuneration Committee is responsible for considering and recommending Board candidates
for election or re-election, reviewing succession planning, determining the terms of employment and total
remuneration of the executive directors and Chairman and considering the Group’s incentive schemes.
The remuneration package comprises the following elements:
• Basic salary – normally reviewed annually and set to reflect market conditions, personal performance and
benchmarks in comparable companies;
• Annual performance-related bonus – executives, managers and employees receive annual bonuses related
to specific KPIs or overall Group performance. The non-executive directors do not participate in the
performance-related bonus scheme;
• Benefits – benefits include life assurance and private medical contributions. The non-executive directors do
not receive these benefits; and
• Share options – share option grants are reviewed regularly. The non-executive directors do not receive these
benefits.
Full details of each director’s remuneration package and their interests in shares and share options can be
found in the Directors’ Report. There are no elements of remuneration, other than basic earnings, which are
treated as being pensionable. The Remuneration Committee did not meet during 2019.
Lord Robin William Renwick of Clifton
Remuneration Committee Chairman
31 July 2020
49
Kropz plc Annual Report for 201
Statement of Directors’ Responsibilities in Respect of The Annual Report and Financial
Statements
The directors are responsible for preparing the Strategic Report, the Directors’ Report, Annual Report and the
Group and parent Company 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 consolidated financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the EU and applicable law and the Company financial
statements in accordance with United Kingdom Generally Accepted Accounting Practice including Financial
Reporting Standard 102. The directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of
the Group for that period.
In preparing these financial statements, the directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
• State whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements; and
• Prepare the financial statements on the going concern basis unless it is inappropriate to assume that the
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 and the Group and enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring 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 legislation in
the United Kingdom 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.
This responsibility statement and the Directors’ Report were approved by the Board of directors on 31 July
2020 and signed on its behalf by:
____________________________
_________________________________
Non-Executive Chairman
Lord Robin William Renwick of Clifton
31 July 2020
Chief Financial Officer
Mark Summers
31 July 2020
50
Kropz plc Annual Report for 2019
Independent Auditor’s Report to the Members of Kropz plc
Opinion
We have audited the financial statements of Kropz plc (the “Parent Company”) and its subsidiaries (the
“Group”) for the year ended 31 December 2019 which comprise the consolidated statement of comprehensive
income, the consolidated and company statements of financial position, the consolidated statement of cash
flows, the consolidated and company statements of changes in equity, and notes to the financial statements,
including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the Group financial statements
is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied in the preparation of the Parent Company financial
statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting
Standard 102 the Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom
Generally Accepted Accounting Practice).
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 2019 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 United
Kingdom Generally Accepted Accounting Practice; 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 related to going concern
We draw attention to the disclosures made in note 2a to the financial statements, which explains that the
Company and Group will require further funding in the second half of 2021 to be able to meet its forecast
working capital requirements. These conditions together with the other matters explained in note 2a 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.
Given the conditions and uncertainties noted above we considered going concern to be a Key Audit Matter.
Our audit procedures in response to this key audit matter included:
• Critically assessing management’s financial forecasts over the period of going concern assessment. This
included consideration of the reasonableness of key underlying assumptions by reference to current
expenditure and commitments and possible impact of COVID-19 on the financial position of the Company
and Group over the going concern review period.
• Understanding management’s options for the future fundraising required in the second half of 2021 to
meet the Group’s working capital requirements .
• Evaluating the adequacy of disclosures made in the financial statements in respect of going concern.
51
Kropz plc Annual Report for 2019
Independent Auditor’s Report to the Members of Kropz plc (continued)
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the
overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the
matter described in the material uncertainty related to going concern section above, we have determined the
matters described below to be a key audit matter.
Key audit matter
Carrying value of property, plant,
equipment and mine development assets.
Notes 2(s) and 5
The Group’s total property, plant, equipment
at
development
and mine
31 December 2019 were US$ 105.2m
in
respect of the Elandsfontein mine in South
Africa. This class of asset is the most
financial
significant
position.
the statement of
assets
to
Management is required to assess at the end
of each reporting period whether there are any
indicators that an asset may be impaired. If
any such indicators are identified the entity is
required to estimate the recoverable amount
of the asset.
How we addressed the key audit matter in
the audit
Our audit procedures included:
Visiting the mine to understand the proposed
developments and assess whether
the
proposed additions and modifications to the
to asset
mine plant could give
impairments.
rise
Reviewing the documentation relating to the
Elandsfontein mining licence to confirm that
the Group holds a valid licence and gaining an
understanding of the licence conditions.
Assessing management’s impairment review
of the Group’s mining assets under IAS 36
and critically challenging
the significant
judgements made by
estimates and
management
key
assumptions, which include:
in determining
the
The mine has been on care and maintenance
and further investment and modification is
required before commercial production can
an
resume.
impairment review is required.
circumstances
these
In
•
•
•
forecast phosphate prices for future
periods
grade and volume of phosphate
concentrate produced
forecast
exchange rates
operating
costs
and
for
flow model
The recoverable amount of these assets is
determined by considering a life of mine
discounted cash
the
Elandsfontein mine. Significant estimates and
judgements are required in determining model
inputs,
including phosphate prices, ore
reserves, production forecasts and costs and
discount
the
judgements and estimates and the significant
carrying value of these assets make this a key
area of focus for the financial statements and
the audit.
rates. The subjectivity of
reversal of
impairment
The result of management’s
review supported
the
the
impairment provision made in the interim
financial information for the period ended
30 June 2019. In performing our work we
verified these key assumptions to supporting
documentation and market data and required
management to provide evidence to support
the changes in key assumptions that led to the
included
impairment
assessing technical reports that support the
improved grade and output of product and
reviewing the third party expert’s report that
support the increased sales prices, including
comparison
to market data supporting
forecast increases in demand. In addition, we
reversal. Our work
52
Kropz plc Annual Report for 2019
Independent Auditor’s Report to the Members of Kropz plc (continued)
assessed the independence and competence
of the third party experts.
the
We considered
reasonableness of
sensitivities applied by management, checked
their calculation and performed our own
sensitivity calculations.
We reviewed the adequacy of the financial
the
statement
impairment review.
disclosures
regarding
Key observation
Based on our work we concur with
Management’s assessment of the carrying
value of
the Group’s property, plant,
equipment and mine development assets.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions,
could influence the economic decisions of reasonable users that are taken on the basis of the financial
statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as
we also take account of the nature of identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial statements as a whole.
We consider total assets to be the most significant determinant of the Group’s financial performance as the
Group is engaged in the development of mining projects and the principal focus of the users is considered to
be the total assets of the Group. The final materiality for the group financial statements as a whole was set at
US$ 2,450,000 (2018: US$ 2,650,000). This was based on 1.5 per cent. of total assets, which we consider to
be an appropriate benchmark.
Whilst materiality for the financial statements as a whole was set as above, the materiality of the significant
components of the Group was set at a lower materiality ranging from US$ 868,000 to US$ 1,980,000 (2018:
US$ 600,000 to US$ 2,000,000). The Parent Company’s final materiality was set at US$ 1,980,000 (2018:
US$ 1,500,000), being 80 per cent. of Group materiality. Materiality was set at a lower level at the planning
stage, being based on total assets that reflected the impairment provision made in the interim financial
information. These lower materiality levels were used to determine the financial statement areas that are
included within the scope of our audit work and the extent of sample sizes during the audit.
Performance materiality was set at 65 per cent. of the above materiality levels. In setting the level of
performance materiality we considered a number of factors including the recognition that this is an AIM listed
group with significant bank borrowing.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess
of US$ 49,000 (2018: US$ 54,000), as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We evaluated any uncorrected misstatements against both quantitative
measures of materiality discussed above and in light of other relevant qualitative considerations when forming
our opinion.
53
Kropz plc Annual Report for 2019
Independent Auditor’s Report to the Members of Kropz plc (continued)
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the group and its environment, as well as assessing
the risks of material misstatement in the financial statements at group level.
In approaching the audit, we considered how the group is organised and managed.
We assessed there to be three significant components being the Parent Company, Kropz Elandsfontein (Pty)
Ltd, which is commissioning the Elandsfontein phosphate mine in South Africa and Cominco Resources
Limited, which holds the Hinda pre-development phosphate project in Republic of Congo.
The Parent Company and Cominco Resources Limited were subject to a full scope audit by the group auditor.
A full scope audit for group reporting purposes was performed by a non-BDO network firm in South Africa on
Kropz Elandsfontein (Pty) Ltd. A planning meeting was held with the component auditor and detailed group
reporting instructions for the testing of the significant areas were sent to them. We also reviewed the audit
files and discussed the findings with the component audit partner, the audit team and component
management. The component auditor also carried out full scope audits and reported to us on the other South
African subsidiaries. The remaining non-significant components were subject to analytical review procedures.
Other information
The Directors are responsible for the other information. The other information comprises the information
included in the Annual Report and Accounts 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.
Opinions 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 Group and the Parent 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 Parent Company 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
•
•
54
Kropz plc Annual Report for 2019
Independent Auditor’s Report to the Members of Kropz plc (continued)
• 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, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or
the Parent 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: 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 Parent 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 Parent
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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Stuart Barnsdall (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
31 July 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
55
Kropz plc Annual Report for 2019
Consolidated Statement of Financial Position
As at 31 December 2019
Non-current assets
Property, plant, equipment and mine development
Exploration assets
Right-of-use asset
Other financial assets
Current assets
Inventories
Amounts due from a director
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
Current liabilities
Trade and other payables
Lease liabilities
Other financial liabilities
Current taxation
Other tax liabilities
Non-current liabilities
Shareholder loans
Lease liabilities
Other financial liabilities
Tax payable
Provisions
TOTAL LIABILITIES
NET ASSETS
31 December
2019
US$’000
31 December
2018
US$’000
Notes
5
6
7
9
10
8
11
12
19
16
17
27
20
15
16
17
27
18
105,224
40,192
37
1,534
146,987
875
-
329
15,530
16,734
101,826
40,772
-
1,623
144,221
861
33
331
30,457
31,682
163,721
175,903
1,536
19
29,982
174
451
32,162
14,701
21
-
-
3,702
18,424
11,956
-
518
-
-
12,474
14,386
-
29,551
66
3,931
47,934
50,586
60,408
113,135
115,495
56
Kropz plc Annual Report for 2019
Consolidated Statement of Financial Position
As at 31 December 2019 (continued)
Shareholders’ equity
Share capital
Share premium
Merger reserve
Foreign exchange translation reserve
Share-based payment reserve
Accumulated losses
Total equity attributable to the owners of the Company
Non-controlling interests
31 December
2019
US$’000
31 December
2018
US$’000
Notes
13
13
14
14
14
34
363
147,339
(20,523)
53
167
(12,536)
114,863
(1,728)
335
142,026
(20,523)
(1,226)
-
(6,255)
114,357
1,138
113,135
115,495
The Notes on pages 61 to 111 form an integral part of these Consolidated Financial Statements. The Financial
Statements on pages 51 to 111 were approved and authorised for issue by the Board of Directors on 31 July
2020 and signed on its behalf by:
Mark Summers
Chief Financial Officer
31 July 2020
57
Kropz plc Annual Report for 2019
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
Revenue
Other income
Operating expenses
Operating loss
Finance income
Finance expense
Loss before taxation
Taxation
Loss after taxation
Loss attributable to:
Owners of the Company
Non-controlling interests
Loss for the year / period
Other comprehensive income:
Items that may be subsequently reclassified to profit
or loss
- Exchange differences on translation of parent company
financial statements from functional to presentation
currency
- Exchange differences on translating foreign operations
Total comprehensive loss
Attributable to:
Owners of the Company
Non-controlling interests
Notes
24
23
26
27
Year ended
31 December
2019
US$’000
Period from
10 January to
31 December
2018
US$’000
-
9
-
2
(6,631)
(5,674)
(6,622)
(5,672)
1,638
(3,662)
382
(2,321)
(8,646)
(7,611)
(118)
(66)
(8,764)
(7,677)
(6,290)
(2,474)
(8,764)
(6,255)
(1,422)
(7,677)
(8,764)
(7,677)
3,226
(1,914)
(7,452)
(5,011)
(2,441)
(7,452)
(956)
(270)
(8,903)
(7,481)
(1,422)
(8,903)
Loss per share attributable to owners of the Company:
Basic and diluted (US cents)
28
(2.30)
(25.45)
58
Kropz plc Annual Report for 2019
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Share
capital
Share
premium
US$’000 US$’000
Merger
reserve
US$’000
Foreign
currency
translation
reserve
US$’000
Share-
based
payment
reserve
US$’000
Balance at 10 January 2018
Total comprehensive loss for the period
Issue of shares
Costs of issuing shares
Adjustments on acquisition of subsidiaries
Transactions with owners
-
-
335
-
-
335
-
-
-
-
-
(1,226)
143,297
(1,271)
-
142,026
14,878
-
(35,401)
(20,523)
-
-
-
-
Balance at 31 December 2018
335
142,026
(20,523)
(1,226)
Total comprehensive profit / (loss) for the year
Issue of shares
Cost of issuing shares
Acquisition of non-controlling
interests
Share based payment charges
Transactions with owners
-
28
-
-
-
272
-
5,344
(31)
-
-
5,313
-
-
-
-
-
-
Balance at 31 December 2019
363
147,339
(20,523)
1,279
-
-
-
-
-
53
-
-
-
-
-
-
-
-
30
-
-
137
167
167
Retained
earnings
US$’000
Total
US$’000
Non-
controlling
interest
US$’000
Total
equity
US$’000
-
-
-
-
(6,255)
(7,481)
(1,422)
(8,903)
-
-
-
-
158,510
(1,271)
(35,401)
121,838
-
-
2,560
2,560
158,510
(1,271)
(32,841)
124,398
(6,255)
114,357
1,138
115,495
(6,290)
-
-
9
-
9
(5,011)
5,402
(31)
9
137
5,517
(2,441)
-
-
(425)
-
(425)
(7,452)
5,402
(31)
(416)
137
5,092
(12,536)
114,863
(1,728)
113,135
59
Kropz plc Annual Report for 2019
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Cash flows from operating activities
Loss before taxation
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of right-of-use assets
Share-based payment charge
Interest income
Finance costs
Foreign currency exchange differences
Fair value loss on game animals
Operating cash flows before working capital changes
Increase in trade and other receivables
Decrease in inventories
(Decrease) / increase in payables
Increase in other tax liabilities
Decrease in amounts due from / (to) related parties
(Decrease) / increase in provisions
Income taxes paid
Net cash flows used in operating activities
Cash flows used in investing activities
Purchase of property, plant and equipment
Exploration and evaluation expenditure
Decrease in loans receivable
Disposal of other financial assets
Acquisition of subsidiaries, net of cash acquired
Finance income received
Net cash flows (used by) / from investing activities
Cash flows from financing activities
Finance costs paid
Shareholder loan (repaid) / received
Repayment of lease liabilities
Other financial liabilities
Issue of ordinary share capital
Costs of share issues
Net cash flows from financing activities
Net (decrease) / increase in cash and cash
equivalents
Cash and cash equivalents at beginning of the period
Foreign currency exchange gains / (losses) on cash
Cash and cash equivalents at end of the period
Notes
Year ended
31 December
US$’000
Period from
10 January to
31 December
US$’000
(8,646)
(7,611)
5
7
13
23
26
5
29
29
29
29
8
29
5
6
9
23
26
29
16
29
13
894
18
137
(1,638)
3,662
37
43
(5,493)
66
(6)
(9,771)
451
33
(324)
(15,044)
(15)
(15,059)
(1,894)
(289)
-
124
-
1,638
(421)
(3,662)
(32)
(16)
(814)
4,243
(31)
(312)
(15,792)
30,457
865
15,530
457
-
-
(55)
771
(2,611)
32
(9,017)
(240)
-
1,989
-
(47)
534
(6,781)
-
(6,781)
(505)
-
293
-
303
54
145
(771)
696
-
867
37,635
(1,271)
37,156
30,520
-
(63)
30,457
60
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(1) General information
Kropz plc is an emerging plant nutrient producer with an advanced stage phosphate mining project in South
Africa, a large-scale phosphate project in the RoC and exploration assets in Ghana. The principal activity
of the Company is that of a holding company for the Group, as well as performing all administrative,
corporate finance, strategic and governance functions of the Group.
The Company was incorporated on 10 January 2018 and is a public limited company, with its ordinary
shares admitted to the AIM Market of the London Stock Exchange on 30 November 2018 trading under
the symbol, “KRPZ”. The Company is domiciled in England and incorporated and registered in England
and Wales. The address of its registered office is 35 Verulam Road, Hitchin, SG5 1QE. The registered
number of the Company is 11143400.
The Company entered into a number of agreements during 2018, as more fully described in Note 3, to
acquire phosphate assets and in turn become the holding company of the Group with interests in three
projects - in Ghana, South Africa and the RoC.
(2) Summary of significant accounting policies
The principal accounting policies applied in the preparation of these Consolidated Financial Statements
are set out below. These policies have been consistently applied unless otherwise stated.
(a) Basis of preparation
The Consolidated Financial Statements of the Company have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union (IFRSs as
adopted by the EU), issued by the International Accounting Standards Board (IASB), including
interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC),
and the Companies Act 2006 applicable to companies reporting under IFRS. The Consolidated
Financial Statements have been prepared under the historical cost convention, as modified for
any financial assets which are stated at fair value through profit or loss. The Consolidated
Financial Statements are presented in United States Dollars, the presentation currency of the
Company and figures have been rounded to the nearest thousand.
Going concern
During the year ended 31 December 2019, the Group incurred a loss of US$ 9 million (period to
31 December 2018 – US$ 8 million) and experienced net cash outflows from operating activities
of US$ 15 million (31 December 2018 – US$ 7 million). Cash and cash equivalents totalled
US$ 16 million as at 31 December 2019 (31 December 2018 – US$ 30 million). The Group has
no current source of operating revenue and is therefore dependent on both existing cash
resources and future fund raisings to meet overheads and future exploration requirements as
they fall due.
In May 2020, Kropz entered into a convertible loan facility of up to US$ 40 million (not exceeding
a maximum of ZAR 680 million) with ARC, the Company’s major shareholder. This Equity Facility
is expected to bring the Company’s Elandsfontein project, into production in Q4 2021. The equity
facility is ringfenced in Kropz Elandsfontein and the Kropz group does not have access to the
US$ 40 million and ZAR 200 million currently locked up by BNP in the accounts of Kropz
Elandsfontein. In due course the ZAR 200 million ringfenced by BNP will be released and utilised
towards funding the construction and completion of Elandsfontein. Kropz Elandsfontein
renegotiated and amended the BNP US$ 30 million project finance facility in June 2020,
extending the first capital repayment to 31 December 2022, and quarterly thereafter to
61
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
30 September 2024. Entering into and closing the amended facility agreement with BNP removed
the technical default announced to shareholders in February 2020.
In addition, the Company raised US$ 353,595, before expenses (approximately GBP 283,843)
from an equity placing to an existing investor and two directors on 1 June 2020 and raised a
further US$ 2,163,639, before expenses (approximately GBP 1,744,870) from an open offer to
existing shareholders on 26 June 2020.
Subsequent to the year end, the COVID-19 pandemic announced by the World Health
Organization is having a markedly negative impact on global stock markets, currencies and
general business activity. The Company has developed a policy and is evolving procedures to
address the health and wellbeing of its employees, consultants and contractors, and their
families, in the face of the COVID-19 outbreak. The timing and extent of the impact and recovery
from COVID-19 is unknown but it may affect planned activities and potentially display a post
balance sheet date impact.
The directors have reviewed the overall position and outlook in respect of the matters identified
above and have prepared a cash flow forecast for the Company and Group which indicates that
the Company will need to raise further funds in the second half of 2021 for working capital
purposes and to progress the Hinda project. Management have been successful in raising funds
in the past and the directors consider it to be appropriate to prepare the Company and Group
financial statements on a going concern basis. However, there is no certainty that adequate funds
will be available when needed and the COVID-19 pandemic may adversely impact on the ability
of the Group to raise the necessary funding. These circumstances indicate the existence of a
material uncertainty which may cast significant doubt about the Group’s ability to continue as a
going concern and therefore it may be unable to realise its assets and discharge its liabilities in
the normal course of business.
The financial report does not include adjustments relating to the recoverability and classification
of recorded asset amounts or to the amounts and classification of liabilities that might be
necessary should the Group not continue as a going concern.
Functional and presentational currencies
The Consolidated Financial Statements are presented in US Dollars.
The functional currency of Kropz plc is Pounds Sterling and its presentation currency is US
Dollars, due to the fact that US Dollars is the recognised reporting currency for most listed mining
resource companies on AIM.
The functional currency of Kropz SA and its subsidiaries (as shown below) is South African Rand,
being the currency in which the majority of the companies’ transactions are denominated.
The functional currencies of Cominco Resources and its subsidiaries are Euros, Pounds Sterling
and Central African Francs being the currency in which the majority of the companies’
transactions are denominated. Its presentation currency is US Dollars.
The functional and presentation currency of First Gear is US Dollars.
In preparing the financial statements of the individual entities, transactions in currencies other
than the entity’s functional currency are recorded at the rate of exchange prevailing on the date
of the transaction.
62
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
At the end of each financial year, monetary items denominated in foreign currencies are
retranslated at the rates prevailing as of the end of the financial year. Non-monetary items carried
at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on
the date when the fair value was determined. Non-monetary items that are measured in terms of
historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on retranslation of
monetary items are included in profit or loss for the period. Exchange differences arising on the
retranslation of non-monetary items carried at fair value are included in profit or loss for the period
except for differences arising on the retranslation of non-monetary items in respect of which gains
and losses are recognised directly in equity. For such non-monetary items, any exchange
component of that gain or loss is also recognised directly in equity.
In order to satisfy the requirements of IAS 21 with respect to presentation currency, the
consolidated financial statements have been translated into US Dollars using the procedures
outlined below:
• Assets and liabilities where the functional currency is other than US Dollars were
translated into US Dollars at the relevant closing rates of exchange;
• Non-US Dollar trading results were translated into US Dollars at the relevant average
rates of exchange;
• Differences arising from the retranslation of the opening net assets and the results for
the period have been taken to the foreign currency translation reserve; and
• Share capital has been translated at the historical rates prevailing at the dates of
transactions; and
• Exchange differences arising on the net investment in subsidiaries are recognised in
other comprehensive income.
Adoption of new and revised International Financial Reporting Standards
The Group applied IFRS 16 Leases and IFRIC 23 Uncertainty over Income Tax Treatments for
the first time from 1 January 2019. The nature and effect of these changes as a result of the
adoption of these new standards are described below. Other than the changes described below,
the accounting policies adopted are consistent with those of the previous financial year. Several
other amendments and interpretations applied for the first time in 2019, but did not have an impact
on the consolidated financial statements of the Group and, hence, have not been disclosed. The
Group has not early adopted any standards, interpretations or amendments that have been
issued but are not yet effective.
Changes in accounting policy
IFRS 16
The Group has adopted IFRS 16 which became effective on 1 January 2019. The standard
replaces IAS 17 'Leases' and for lessees eliminates the classifications of operating leases and
finance leases. Except for short-term leases and leases of low-value assets, right-of-use assets
and corresponding lease liabilities are recognised in the statement of financial position. Straight-
line operating lease expense recognition is replaced with a depreciation charge for the right-of-
use assets (included in operating costs) and an interest expense on the recognised lease
liabilities (included in finance costs). In the earlier periods of the lease, the expenses associated
63
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
with the lease under IFRS 16 will be higher when compared to lease expenses under IAS 17.
However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results
improve as the operating expense is now replaced by interest expense and depreciation in profit
or loss. For classification within the statement of cash flows, the interest portion is disclosed in
operating activities and the principal portion of the lease payments are separately disclosed in
financing activities.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset
is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as
applicable, any lease payments made at or before the commencement date net of any lease
incentives received, any initial direct costs incurred, and an estimate of costs expected to be
incurred for dismantling and removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease
or the estimated useful life of the asset, whichever is the shorter. Right-of use assets are subject
to impairment or adjusted for any remeasurement of lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for
short-term leases with terms of 12 months or less and leases of low-value assets. Lease
payments on these assets are expensed to profit or loss as incurred.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially
recognised at the present value of the lease payments to be made over the term of the lease,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined,
the Group’s incremental borrowing rate.
Lease payments comprise of fixed payments less any lease incentives receivable, variable lease
payments that depend on an index or a rate, amounts expected to be paid under residual value
guarantees, exercise price of a purchase option when the exercise of the option is reasonably
certain to occur, and any anticipated termination penalties. The variable lease payments that do
not depend on an index or a rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying
amounts are remeasured if there is a change in the following:
- future lease payments arising from a change in an index or a rate used;
- residual guarantee;
- lease-term;
- certainty of a purchase option and termination penalties.
When a lease liability is remeasured, an adjustment is made to the corresponding right-of use
asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down.
Impact of adoption
The Group has one property lease which was entered into in January 2019. As such, a
restatement of comparatives has not been necessary and there was no impact on accumulated
losses as at 1 January 2019.
64
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Impact on the balance sheet
On adoption, the change in accounting policy affected the following items in the balance sheet in
January 2019:
Right-of-use assets (Note 7)
Lease liabilities (Note 16)
Increase / decrease
Increase
Increase
US$’000
54
(54)
Impact on the income statement and earnings per share
For the year ended 31 December 2019, there was no net effect on operating losses as a result
of applying IFRS 16 due to a portion of the lease expense now being recorded as interest expense
and depreciation. In particular, operating lease expenses of US$ 18,000 were replaced by
depreciation of US$ 18,000. Loss before tax was US$ 2,000 higher due to interest expenses on
the lease liabilities recognised under IFRS 16. The net effect of US$ 2,000 had no material impact
on Loss Per Share.
The table below summarise the profit and loss account treatment for the year ended 31 December
2019 and the comparative period for the lease:
Finance costs
Interest and finance charges paid/payable on lease
liabilities (IFRS 16)
Leases / right-of use assets depreciation
Minimum operating lease payments (IAS 17)
Depreciation of right-of-use assets (IFRS 16)
Total expense in profit and loss
Year ended
31
December
2019
US$’000
Period
ended
31
December
2018
US$’000
2
-
18
20
-
-
-
-
Impact on the cash flow statement
For classification within the statement of cash flows, the interest portion of US$ 2,000 is disclosed
in operating activities and the principal portion of the lease payments of US$ 15,000 is separately
disclosed in financing activities.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve
uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or
levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest
and penalties associated with uncertain tax treatments. The Interpretation specifically addresses
the following:
• Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatments by taxation
authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused
tax credits and tax rates
65
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
The Group determines whether to consider each uncertain tax treatment separately or together
with one or more other uncertain tax treatments and uses the approach that better predicts the
resolution of the uncertainty.
The Group applies significant judgement in identifying uncertainties over income tax treatments.
Since the Group operates in a complex multinational environment, it assessed whether the
Interpretation had an impact on its consolidated financial statements. Upon adoption of the
Interpretation, the Group considered whether it has any uncertain tax positions and concluded
that the Interpretation did not have an impact on the consolidated financial statements of the
Group.
A number of standards and interpretations that are issued, but not yet effective, up to the date of
issuance of the Group’s financial statements that the Group reasonably expects will have an
impact on its disclosures, financial position or performance when applied at a future date, are
disclosed below.
The Group intends to adopt these standards when they become effective. Of the other standards
and interpretations that are issued, but not yet effective as these are not expected to impact the
Group, they have not been listed.
Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business
Combinations to help entities determine whether an acquired set of activities and assets is a
business or not. They clarify the minimum requirements for a business, remove the assessment
of whether market participants are capable of replacing any missing elements, add guidance to
help entities assess whether an acquired process is substantive, narrow the definitions of a
business and of outputs, and introduce an optional fair value concentration test. New illustrative
examples were provided along with the amendments. Since the amendments apply prospectively
to transactions or other events that occur on or after the date of first application, the Group will
not be affected by these amendments on the date of transition.
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements
and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition
of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition
states that, “Information is material if omitting, misstating or obscuring it could reasonably be
expected to influence decisions that the primary users of general purpose financial statements
make on the basis of those financial statements, which provide financial information about a
specific reporting entity.” The amendments to the definition of material is not expected to have a
significant impact on the Group’s consolidated financial statements.
(b) Basis of consolidation
The Consolidated Financial Statements comprise the financial statements of the subsidiaries
listed in Note 4.
A subsidiary is defined as an entity over which the Group has control. The Group controls an
entity when the Group is exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power over the entity. Specifically,
the Group controls an investee if, and only if, the Group has all of the following:
66
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
a) Power over the investee (i.e., existing rights that give it the current ability to direct the
relevant activities of the investee);
b) Exposure, or rights, to variable returns from its involvement with the investee; and
c) The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. When the
Group has less than a majority of the voting, or similar, rights of an investee, it considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:
- The contractual arrangements with the other vote holders of the investee;
- Rights arising from other contractual arrangements; and
- The Group’s voting rights and potential voting rights
Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.
Intra-group transactions, balances and unrealised gains on transactions are eliminated;
unrealised losses are also eliminated unless cost cannot be recovered. Where necessary,
adjustments are made to the financial statements of subsidiaries to ensure consistency of
accounting policies with those of the Group.
The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the
parent and to the non-controlling interests in proportion to their relative ownership interests.
Corporate reorganisation
Kropz SA and First Gear became subsidiaries of the Company following the completion of Share
Purchase Agreements on 27 November 2018 and 4 June 2018 respectively. The Company is
now the parent holding company of these subsidiaries. Prior to the group restructuring the
subsidiaries were controlled by Kropz International, a company incorporated in Luxembourg.
The share for share acquisitions of Kropz SA and First Gear and its subsidiary companies by
Kropz plc were that of a re-organisation of entities which were under common control. Both
entities had the same management as well as majority shareholders.
The acquisitions are considered a combination of entities under common control and, under IFRS
3:2(c), are excluded from the scope of that Standard.
In the absence of specific IFRS literature on the topic, the Group has applied the requirements
of IAS 8:10 to 12 in its consolidated financial statements and has chosen to account for both of
the transactions at the subsidiaries’ carrying amounts at the date of the transactions (i.e. as a
predecessor value method of accounting).
The Directors have therefore decided that it is appropriate to reflect these combinations using the
predecessor value method of accounting in order to give a true and fair view. No fair value
adjustments were made as a result of the combinations.
Under these accounting principles, the assets and liabilities of both entities to a transaction are
recorded at book value, not fair value. Intangible assets and contingent liabilities are recognised
only to the extent that they were recognised by the legal acquirer in accordance with applicable
IFRS, no goodwill is recognised, any expenses of the combination are written off immediately to
the income statement.
67
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Under the predecessor value method of accounting, the following principles have been applied:
• Assets and liabilities of the combining entities have been combined at their respective
book values;
• No goodwill nor negative goodwill has been recognised;
• The difference between the Group’s cost of investment and the acquiree’s equity is
presented as a separate merger reserve within equity on consolidation;
• The results of the acquiree have been consolidated only from the date of the
combination and pre-combination reserves eliminated on combination; and
• Adjustment is made to reflect the profit attributable to the non-controlling interest in the
acquiree prior to the combination.
Accounting for asset acquisition within a corporate structure
Acquisitions of mineral assets through acquisition of non-operational corporate structures that do
not represent a business, and therefore do not meet the definition of a business combination, are
accounted for as the acquisition of an asset and recognised at the fair value of the consideration.
Non-controlling interests
The Group initially recognised any non-controlling interest in the acquiree at the non-controlling
interest's proportionate share of the acquiree's net assets. The total comprehensive income of
non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling
interests in proportion to their relative ownership interests.
Merger relief
The issue of shares by the Company is accounted for at the fair value of the consideration
received. Any excess over the nominal value of the shares issued is credited to the share
premium account other than in a business combination where the consideration for shares in
another company includes the issue of shares, and on completion of the transaction, the
Company has secured at least a 90 per cent. equity holding in the other company. In such
circumstances the credit is applied to the merger relief reserve. In the case of the Company’s
acquisition of Cominco Resources, where shares were acquired on a share for share basis, then
merger relief has been applied to those shares issued in exchange for shares in Cominco
Resources.
(c)
Property, plant, equipment and mine development
Property, plant, equipment and mine development includes buildings and infrastructure,
machinery, plant and equipment, site preparation and development and essential spare parts that
are held to minimise delays arising from plant breakdowns, that are expected to be used during
more than one period.
Assets that are in the process of being constructed are measured at cost less accumulated
impairment and are not depreciated. All other classes of property, plant and equipment are stated
at historical cost less accumulated depreciation and accumulated impairment. Land is
depreciated over the life of the mine.
Historical cost includes expenditure that is directly attributable to the acquisition of the items,
including:
• The estimated costs of decommissioning the assets and site rehabilitation costs to the
extent that they related to the asset
• Capitalised borrowing costs
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Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
• Capitalised pre-production expenditure
• Topsoil and overburden stripping costs
The cost of items of property, plant and equipment are capitalised into its various components
where the useful life of the components differs from the main item of property, plant and
equipment to which the component can be logically assigned. Expenditure incurred to replace a
significant component of property, plant and equipment is capitalised and any remaining carrying
value of the component replaced is written off as an expense in the income statement.
Direct costs incurred on major projects during the period of development or construction are
capitalised. Subsequent expenditure on property, plant and equipment is capitalised only when
the expenditure enhances the value or output of the asset beyond original expectations, it is
probable that future economic benefits associated with the item will flow to the entity and the cost
of the item can be measured reliably. Costs incurred on repairing and maintaining assets are
recognised in the income statement in the period in which they are incurred.
Gains and losses on disposals are determined by comparing proceeds with carrying amount.
These are included in profit or loss.
Capitalised borrowing costs comprise interest paid on shareholder loans incurred pre-production
in Kropz Elandsfontein.
Depreciation
All items of property, plant and equipment are depreciated on either a straight-line method or unit
of production method at cost less estimated residual values over their useful lives as follows:
Item
Buildings and infrastructure
Buildings
Roads
Substation
Machinery, Plant & Equipment
Fixed plant and equipment
Critical spare parts
Furniture and fittings
Motor vehicles
Computer equipment
Mineral
site preparation
exploration
Depreciation method
Average useful life
Units of production
Straight-line
Straight-line
Life of mine*
15 years
15 years
Units of production
Straight-line
Straight-line
Straight-line
Straight-line
Life of mine*
2-15 years
6 years
5 years
3 years
Units of production
Life of mine*
Stripping activity
Units of production
Life of identified ore*
* Depreciation of mining assets is computed principally by the units-of-production method over
life-of-identified ore based on estimated quantities of economically recoverable proved and
probable reserves, which can be recovered in future from known mineral deposits.
69
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Useful lives and residual values
The asset’s useful lives and residual values are reviewed and adjusted if appropriate, at each
reporting date.
Stripping activity asset
The costs of stripping activity which provides a benefit in the form of improved access to ore is
capitalised as a non-current asset until ore is exposed where the following criteria are met:
•
•
•
it is probable that future economic benefit in the form of improved access to the ore body will
flow to the entity;
the component of the ore body for which access has been improved can be identified; and
the cost of the stripping activity can be reliably measured.
The stripping activity is initially measured at cost and subsequently carried at cost less
depreciation and impairment losses.
(d) Mineral exploration and evaluation costs
All costs incurred prior to obtaining the legal right to undertake exploration and evaluation
activities on a project are written off as incurred. Following the granting of a prospecting right,
general administration and overhead costs directly attributable to exploration and evaluation
activities are expensed and all other costs are capitalised and recorded at cost on initial
recognition.
The following expenditures are included in the initial and subsequent measurement of the
exploration and evaluation assets:
• Acquisition of rights to explore;
• Topographical, geological, geochemical or geographical studies;
• Exploratory drilling;
• Trenching;
• Sampling;
• Activities in relation to the evaluation of both the technical feasibility and the commercial
viability of extracting minerals;
• Exploration staff related costs; and
• Equipment and infrastructure.
Exploration and evaluation costs that have been capitalised are classified as either tangible or
intangible according to the nature of the assets acquired and this classification is consistently
applied.
If commercial reserves are developed, the related deferred exploration and evaluation costs are
then reclassified as development and production assets within property, plant and equipment.
All capitalised exploration and evaluation expenditure is monitored for indications of impairment
in accordance with IFRS 6.
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Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
(e)
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
• Leases of low value assets; and
• Leases with a duration of 12 months or less.
IFRS 16 was adopted 1 January 2019 without restatement of comparative figures. An explanation
of the transitional requirements that were applied as at 1 January 2019 is included above. The
following policies apply subsequent to the date of initial application, 1 January 2019.
Identifying Leases
The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right
to use an asset for a period of time in exchange for consideration. Leases are those contracts
that satisfy the following criteria:
(a) There is an identified asset;
(b) The Group obtains substantially all the economic benefits from use of the asset; and
(c) The Group has the right to direct use of the asset.
The Group considers whether the supplier has substantive substitution rights. If the supplier does
have those rights, the contract is not identified as giving rise to a lease.
In determining whether the Group obtains substantially all the economic benefits from use of the
asset, the Group considers only the economic benefits that arise from use of the asset, not those
incidental to legal ownership or other potential benefits.
In determining whether the Group has the right to direct use of the asset, the Group considers
whether it directs how and for what purpose the asset is used throughout the period of use. If
there are no significant decisions to be made because they are pre-determined due to the nature
of the asset, the Group considers whether it was involved in the design of the asset in a way that
predetermines how and for what purpose the asset will be used throughout the period of use. If
the contract or portion of a contract does not satisfy these criteria, the Group applies other
applicable IFRSs rather than IFRS 16.
Lease liabilities are measured at the present value of the contractual payments due to the lessor
over the lease term, with the discount rate determined by reference to the rate inherent in the
lease unless (as is typically the case) this is not readily determinable, in which case the Group’s
incremental borrowing rate on commencement of the lease is used.
The discount rate is the rate implicit in the lease, if readily determinable. If not, the Company’s
incremental borrowing rate is used which the Company has assessed to be 5.22 per cent., being
an average LIBOR plus 3 per cent., being an appropriate level of risk to the risk-free rate of
borrowing.
Variable lease payments are only included in the measurement of the lease liability if they depend
on an index or rate. In such cases, the initial measurement of the lease liability assumes the
variable element will remain unchanged throughout the lease term. Other variable lease
payments are expensed in the period to which they relate.
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Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
On initial recognition, the carrying value of the lease liability also includes:
• amounts expected to be payable under any residual value guarantee;
•
the exercise price of any purchase option granted in favour of the Group if it is reasonably
certain to assess that option; and
• any penalties payable for terminating the lease, if the term of the lease has been
estimated on the basis of termination option being exercised.
Right of use assets are initially measured at the amount of the lease liability, reduced for any
lease incentives received, and increased for:
•
•
•
lease payments made at or before commencement of the lease;
initial direct costs incurred; and
the amount of any provision recognised where the Group is contractually required to
dismantle, remove or restore the leased asset (typically leasehold dilapidations).
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a
constant rate on the balance outstanding and are reduced for lease payments made. Right-of-
use assets are amortised on a straight-line basis over the remaining term of the lease or over the
remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease (because, for example, it re-
assesses the probability of a lessee extension or termination option being exercised), it adjusts
the carrying amount of the lease liability to reflect the payments to make over the revised term,
which are discounted at the same discount rate that applied on lease commencement. The
carrying value of lease liabilities is similarly revised when the variable element of future lease
payments dependent on a rate or index is revised. In both cases an equivalent adjustment is
made to the carrying value of the right-of-use asset, with the revised carrying amount being
amortised over the remaining (revised) lease term.
(f) Game animals
Game animals are wild animals that occur on the farm properties owned by the Group. The
animals are owned by Elandsfontein Land Holdings Pty Ltd and held within the approximately
5,000 hectares of farmland owned by the company. The property is appropriately fenced with
game specific fencing. These animals are managed in terms of a game management plan and
excess animals are either sold as live animals or harvested as and when required based on
estimated stocking levels and vegetation conditions. Law in South Africa specifies that wild
animals are the property of the owner of the land that they occupy.
Game animals are measured at their fair value less estimated point-of-sale costs, fair value being
determined upon the age and size of the animals and relevant market prices. Market price is
determined on the basis that the animal is either to be sold to be slaughtered or realised through
sale to customers at fair market value.
Fair market value of game animals is determined by using average live game animal selling prices
achieved at live game animal auctions during the relevant year and published from time to time
on game animal auctioneering websites.
72
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
(g)
Financial instruments
Classification and measurement
The Group classifies its financial assets and financial liabilities into the following categories:
• Financial assets measured at amortised cost; and
• Financial liabilities measured at amortised cost.
Classification of financial assets depends on the business model for managing the financial
assets and the contractual terms of the cash flows. Management determines the classification of
financial assets at initial recognition. Generally, the Group does not acquire financial assets for
the purpose of selling in the short term. The Group’s business model is primarily that of “hold to
collect” (where assets are held in order to collect contractual cash flows).
Financial assets held at amortised cost
This classification applies to debt instruments which are held under a hold to collect business
model and which have cash flows that meet the “solely payments of principal and interest” (SPPI)
criteria.
At initial recognition, trade and other receivables that do not have a significant financing
component are recognised at their transaction price. Other financial assets are initially recognised
at fair value plus related transaction costs. They are subsequently measured at amortised cost
using the effective interest method. Any gain or loss on de-recognition or modification of a
financial asset held at amortised cost is recognised in the income statement.
Impairment of financial assets
A forward-looking expected credit loss (“ECL”) review is required for debt instruments measured
at amortised cost or held at fair value through other comprehensive income, financial guarantees
not measured at fair value through profit or loss and other receivables that give rise to an
unconditional right to consideration.
As permitted by IFRS 9, the Group applies the ‘‘simplified approach’’ to trade receivables,
contract assets and lease receivables and the ‘‘general approach’’ to all other financial assets.
The general approach incorporates a review for any significant increase in counterparty credit
risk since inception. The ECL reviews include assumptions about the risk of default and expected
loss rates.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term
highly liquid investments that are readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in value. These are classified as financial assets at amortised
cost.
Trade and other payables
Trade and other payables are classified as financial liabilities at amortised cost.
73
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Interest bearing borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
subsequently carried at amortised cost; any difference between the proceeds (net of transaction
costs) and the redemption value is recognised in the income statement over the period of the
borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan
to the extent that it is probable that some or all of the facility will be drawn down. In this case, the
fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for
liquidity services and amortised over the period of the facility to which it relates.
Modification of debt instruments
When the contractual terms of a financial liability are substantially modified, it is accounted for as
an extinguishment of the original debt instrument and the recognition of a new financial liability.
The new debt instrument is recorded at fair value and any difference from the carrying amount of
the extinguished liability, including any non-cash consideration transferred, is recorded in profit
or loss. Any costs or fees incurred are generally included in profit or loss, too.
If a modification to the terms of a financial liability is not substantial, then the amortised cost of
the liability is recalculated as the present value of the estimated future contractual cash flows,
discounted at the original effective interest rate. The resulting gains or losses are recognised in
profit or loss. Any costs or fees incurred adjust the carrying amount of the modified financial
liability and are amortised over its term. The periodic re-estimation of cash flows to reflect
movements in market rates of interest will change the effective interest rate of a floating-rate
financial liability.
To determine whether a modification of terms is substantial, the Company performs a quantitative
assessment. If the difference in the present values of the cash flows is less than 10 percent, then
the Company performs a qualitative assessment to identify substantial differences in terms that
by their nature are not captured by the quantitative assessment. Performing a qualitative
assessment may require a high degree of judgement based on the facts and circumstances.
(h)
Taxation
Current tax assets and liabilities
Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the
amount already paid in respect of current and prior periods exceeds the amount due for those
periods, the excess is recognised as an asset.
Deferred tax assets and liabilities
Deferred tax is provided using the liability method on temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes at the
reporting date.
A deferred tax liability is recognised for all taxable temporary differences, except to the extent
that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction
which at the time of the transaction, affects neither accounting profit nor taxable profit and
74
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
differences relating to investments in subsidiaries to the extent they are controlled and probably
will not reverse in the foreseeable future.
A deferred tax asset is recognised for all deductible temporary differences to the extent that it is
probable that taxable profit will be available against which the deductible temporary difference
can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition
of an asset or liability in a transaction at the time of the transaction, affects neither accounting
profit nor taxable profit.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current income tax liabilities and the deferred taxes relate to the
same taxable entity and the same taxation authority.
Tax expense
Tax expense is recognised in the same component of total comprehensive income (i.e. continuing
operations, discontinued operations, or other comprehensive income) or equity as the transaction
or other event that resulted in the tax expense.
(i)
Impairment of assets
The Group assesses at each reporting date whether there is any indication that an asset may be
impaired. If any such indication exists, the Group estimates the recoverable amount of the asset.
If there is any indication that an asset may be impaired, the recoverable amount is estimated for
the individual asset. If it is not possible to estimate the recoverable amount of the individual asset,
the recoverable amount of the cash-generating unit to which the asset belongs is determined.
The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less
costs to sell and its value in use.
If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the
asset is reduced to its recoverable amount. That reduction is an impairment loss.
An impairment loss, of assets carried at cost less any accumulated depreciation or amortisation,
is recognised immediately in profit or loss.
The increased carrying amount of an asset other than goodwill attributable to a reversal of an
impairment loss does not exceed the carrying amount that would have been determined had no
impairment loss been recognised for the asset in prior periods.
A reversal of an impairment loss of assets carried at cost less accumulated depreciation or
amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an
impairment loss of a revalued asset is treated as a revaluation increase.
(j)
Inventories
Inventories are measured at the lower of cost and net realisable value.
75
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Plant spares and consumables stores are capitalised to the balance sheet and expensed to the
income statement as they are utilised.
Spares and consumables are valued at the lower of cost and net realisable value. Cost is
determined using the weighted average method.
Obsolete, redundant and slow-moving items of spares and consumables are identified on a
regular basis and written down to their net realisable value.
Inventories are included in current assets, unless the inventory will not be used within 12 months
after the end of the reporting period.
(k)
Provisions and contingencies
Environmental rehabilitation
The provision for environmental rehabilitation is recognised as and when an obligation to incur
rehabilitation and mine closure costs arises from environmental disturbance caused by the
development or ongoing production of a mining property. Estimated long-term environmental
rehabilitation provisions are measured based on the Group’s environmental policy taking into
account current technological, environmental and regulatory requirements. Any subsequent
changes to the carrying amount of the provision resulting from changes to the assumptions as to
the timing of the rehabilitation applied in estimating the obligation are recognised in the statement
of profit or loss and other comprehensive income.
The provisions are based on the net present value of the estimated cost of restoring the
environmental disturbance that has occurred up to the reporting date, using the risk-free rate and
the risk adjusted cash flows that reflect current market assessments and the risks specific to the
provisions. Increases due to the additional environmental disturbances are capitalised and
amortised over the remaining life of the mine.
Decommissioning provision
The estimated present value of costs relating to the future decommissioning of plant or other site
preparation work, taking into account current environmental and regulatory requirements, is
capitalised as part of property, plant and equipment, to the extent that it relates to the construction
of an asset, and the related provisions are raised in the statement of financial position, as soon
as the obligation to incur such costs arises.
These estimates are reviewed at least annually and changes in the measurement of the provision
that result from the subsequent changes in the estimated amount of cash flows, are added to, or
deducted from, the cost of the related asset in the current period. Other changes are charged to
profit or loss. If a decrease in the liability exceeds the carrying amount of the asset, the excess is
recognised immediately in the income statement. If the asset value is increased and there is an
indication that the revised carrying value is not recoverable, an impairment test is performed in
accordance with the accounting policy on impairment of non-financial assets above.
(l)
Share capital and equity
Ordinary shares are classified as equity and are recorded at the proceeds received net of issue
costs.
76
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
(m) Borrowing costs
Interest on borrowings directly related to the financing of qualifying capital projects under
development is added to the capitalised cost of those projects during the development phase,
until such time as the assets are substantially ready for their intended use or sale which, in the
case of mining properties, is when they are capable of commercial production. Where funds have
been borrowed specifically to finance the project, the amount capitalised represents the actual
borrowing costs incurred. Where the funds used to finance a project forming part of general
borrowings, the amount capitalised is calculated using a weighted average of rates applicable to
relevant general borrowings of the Group during the period.
Qualifying assets are assets that necessarily take a substantial period of time (more than 12
months) to get ready for their intended use or sale. Borrowing costs are added to the cost of
these assets, until the assets are substantially ready for their intended use or sale.
Capitalisation is suspended during extended periods in which active development is interrupted.
Capitalisation ceases when substantially all the activities necessary to prepare the qualifying
asset for its intended use or sale are complete.
All other borrowing costs are recognised in the income statement in the period in which they are
incurred.
(n) Employee benefits
The cost of short-term employee benefits, such as leave pay and sick leave, bonuses, and non-
monetary benefits such as medical care, are recognised in the period in which the service is
rendered and are not discounted.
(o)
Intangible assets
All intangible assets are stated at cost less accumulated amortisation and any accumulated
impairment losses.
(p)
Finance income
Interest income is recognised as other income on an accruals basis based on the effective yield on
the investment.
(q) Share-based payment arrangements
Equity-settled share-based payments to employees are measured at the fair value of the equity
instruments at the grant date. Equity-settled share based payments to non-employees are measured
at the fair value of services received, or if this cannot be measured, at the fair value of the equity
instruments granted at the date that the Group obtains the goods or counterparty renders the service.
The fair value determined at the grant date of the equity-settled share-based payments is expensed
on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments
that will eventually vest, with a corresponding increase in equity.
Where there are no vesting conditions, the expense and equity reserve arising from share-based
payment transactions is recognised in full immediately on grant.
77
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
At the end of each reporting period, the Group revises its estimate of the number of equity
instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised
in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding
adjustment to other reserves.
Details regarding the determination of the fair value of equity-settled share-based transactions are
set out in the Directors’ Report and Note 13 to the Consolidated Financial Statements.
(r)
Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS requires management, from time to
time, to make judgements, estimates and assumptions that affect the application of policies and
reported amounts of assets, liabilities, income and expenses. These estimates and associated
assumptions are based on experience and various other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in any future periods affected.
The critical judgements made by management in applying accounting policies, apart from those
involving estimations, that have the most significant effect on the amounts recognised in the financial
statements, are outlined as follows:
(i)
Control over the activities of First Gear
The acquisition of First Gear by the Company has been accounted for on the basis of the Company
having control with effect from acquisition and holding 50 per cent. plus one share. Management
considers that it controls First Gear as this holding gives the Company control over its strategic,
operational and financing decisions.
(ii)
Exploration and evaluation assets
The application of the Group’s accounting policy for exploration and evaluation assets requires
judgement in determining whether it is likely that costs incurred will be recovered through successful
development or sale of the asset under review when assessing impairment. Estimates and
assumptions made may change if new information becomes available. If, after expenditures are
capitalised, information becomes available suggesting that the recovery of expenditures is unlikely,
the amount capitalised is written off in the net profit or loss in the period when the new information
becomes available. In situations where indicators of impairment are present for the Group’s
exploration and evaluation, estimates of recoverable amount must be determined as the higher of
the estimated value in use or the estimated fair value less costs to sell.
(iii)
Functional currency
The Group transacts in multiple currencies. The assessment of the functional currency of each entity
within the consolidated Group involves the use of judgement in determining the primary economic
environment each entity operates in. The Group first considers the currency that mainly influences
sales prices for goods and services, and the currency that mainly influences labour, material and
other costs of providing goods or services. In determining functional currency, the Group also
considers the currency from which funds from financing activities are generated, and the currency in
which receipts from operating activities are usually retained. See Note 32 for sensitivity analysis of
foreign exchange risk.
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Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
(iv)
Decommissioning and rehabilitation provisions
Quantifying the future costs of these obligations is complex and requires various estimates and
judgements to be made, as well as interpretations of and decisions regarding regulatory
requirements, particularly with respect to the degree of rehabilitation required, with reference to the
sensitivity of the environmental area surrounding the sites. Consequently, the guidelines issued for
quantifying the future rehabilitation cost of a site, as issued by the Department of Mineral Resources,
have been used to estimate future rehabilitation costs.
(v)
Other financial assets
The Group has given guarantees to a number of third parties as described in Note 9 and lodged
funds as security.
The amounts are recoverable subject to satisfactory performance of certain conditions which
requires judgement as to the likelihood of the return of such guarantees. At the balance sheet date
the Directors make judgements on the amounts expected to be returned and consider that all
amounts are recoverable.
(vi)
Taxation
Judgement is required in determining the provision for income taxes due to the complexity of
legislation. There are many transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business.
The Group recognises the net future tax benefit related to deferred income tax assets to the extent
that it is probable that the deductible temporary differences will reverse in the foreseeable future.
Assessing the recoverability of deferred income tax assets requires the Group to make significant
estimates related to expectations of future taxable income. Estimates of future taxable income are
based on forecast cash flows from operations and the application of existing tax laws in each
jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates,
the ability of the Group to realise the net deferred tax assets recorded at the end of the reporting
period could be impacted.
Management’s judgement is that due to the mine remaining in care and maintenance it is premature
to recognise a deferred tax asset for the accumulated tax losses.
(s) Key sources of estimation uncertainty
Impairment testing
The Group reviews and tests the carrying value of assets when events or changes in
circumstances suggest that the carrying amount may not be recoverable. When such indicators
exist, management determine the recoverable amount by performing value in use and fair value
calculations. These calculations require the use of estimates and assumptions. When it is not
possible to determine the recoverable amount for an individual asset, management assesses the
recoverable amount for the cash generating unit to which the asset belongs. The key estimates
made includes discount rates, being the Group’s weighted average cost of capital, future prices
of phosphate rock, mine production levels and foreign currency exchange rates.
79
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Property, plant and equipment
The depreciable amount of property, plant and equipment is allocated on a systematic basis over
its useful life. In determining the depreciable amount management makes certain assumptions
with regard to the residual value of assets based on the expected estimated amount that the
Group would currently obtain from disposal of the asset, after deducting the estimated cost of
disposal, if the asset were already of the age and in the condition expected at the end of its useful
life. If an asset is expected to be abandoned the residual value is estimated at zero.
In determining the useful lives of property, plant and equipment that is depreciated, management
considers the expected usage of assets, expected physical wear and tear, legal or similar limits
of assets such as mineral rights as well as obsolescence.
This estimate is further impacted by management’s best estimation of proved and probable
phosphate ore reserves and the expected future life of each of the mines within the Group. The
forecast production could be different from the actual phosphate mined. This would generally
result from significant changes in the factors or assumptions used in estimating phosphate
reserves. These factors include:
changes in proved and probable ore reserves;
•
• differences between achieved ore prices and assumptions;
• unforeseen operational issues at mine sites; and
•
changes in capital, operating, mining, processing, reclamation and logistics costs,
discount rates and foreign exchange rates.
Any change in management’s estimate of the useful lives and residual values of assets would
impact the depreciation charge. Any change in management’s estimate of the total expected
future life of each of the mines would impact the depreciation charge as well as the estimated
rehabilitation and decommissioning provisions.
Life of mine
Life of mine is defined as the remaining years of production, based on proposed production rates
and ore reserves and will be assessed as soon as additional exploration drilling has been
performed and further reserves proven based on additional test results.
(3) Group reorganisation
(a) Acquisition of First Gear
On 4 June 2018, the Company acquired a 50 per cent. + 1 share interest in the share capital of First
Gear from its largest shareholder, Kropz International, who owned 75 per cent. of First Gear. The
shareholders of First Gear entered into a shareholders’ agreement pursuant to which the parties agreed
the basis on which First Gear would finance its activities.
On 21 August 2018, the Company issued 163,221 ordinary shares to Kropz International at 56 pence
per ordinary share pursuant to a share for share agreement exchange whereby Kropz International
received 163,221 ordinary shares in consideration for the transfer of:
(i)
its holding of 1,125,001 ordinary shares of no par value in First Gear (representing 50 per cent.
plus 1 share of the issued share capital of First Gear); and
80
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
(ii)
the novation rights and obligations under the First Gear loan agreements with Kropz
International and of Mike Nunn to the Company.
First Gear was under common control of the same ultimate beneficial owners and effectively operated
as a group under common management throughout the period covered by the Financial Statements for
the period ended 31 December 2018. The consideration is summarised as follows:
Consideration
Allocated as to:
(i)
(ii)
1,125,001 shares in First Gear
the Novation of:
- Sellers loan (Kropz International)
- Mike Nunn loan
US$’000
122
5
70
47
122
The following table summarises the consideration paid for First Gear and the carrying value of net
liabilities assumed at the acquisition date:
Consideration
Total consideration for shares as above
Total identifiable net liabilities assumed:
Cash
Trade and other receivables
Trade and other payables
Total identifiable net assets acquired
Amount transferred to exploration and evaluation assets
Non-controlling interests
Total
Acquisitions of South African assets
Fair value
US$’000
5
3
2
(120)
(115)
62
58
5
Under a series of share purchase agreements, a re-organisation of the Kropz Group’s South African
assets was effected, including:
• A share-for-share exchange whereby Kropz International sold 100 per cent. of its equity and
loan interests in Kropz SA to Kropz plc on 27 November 2018;
• The acquisition by ARC of Tiestabyte (Pty) Ltd’s 5 per cent. equity and loan interests in Kropz
Elandsfontein on 27 November 2018;
• The acquisition by Kropz plc of Kropz International’s 32 per cent. interest in Kropz Elandsfontein
on 27 November 2018;
• The acquisition by Kropz plc of Kropz International’s 23 per cent. interest in ELH on 27
November 2018;
• The sale by ARC of a further 4 per cent. interest in Kropz Elandsfontein to Kropz plc in
exchange for the issue of Kropz plc shares on 27 November 2018.
81
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Steps in re-organisation
1. On 26 November 2018, immediately prior to the re-organisation on 26 November 2018, the Company
sub-divided the existing 663,221 ordinary shares of 10 pence each into 663,221 ordinary shares of
0.1 pence only and 663,221 deferred shares of GBP 0.099 each in the capital of the Company;
2. On 27 November 2018, the Company issued and allotted 1 ordinary share of 0.1 pence in the capital
of the Company (the ‘‘Buy-back Share’’) to Kropz International in cash for 1 pence;
3. On 27 November 2018, the Company issued 93,260,034 ordinary shares (the ‘‘Reorganisation
Shares’’) to Kropz International at 61.3 pence per ordinary share pursuant to an asset and share
purchase agreement dated 21 November 2018 between the Company and Kropz International
whereby Kropz International received the Reorganisation Shares in consideration for the transfer of
(i) the entire issued share capital of Kropz SA; (ii) 32 per cent. of the issued share capital of Kropz
Elandsfontein; (iii) 23 per cent. of the issued share capital of ELH; (iv) the benefit of the outstanding
Kropz SA loan account of US$ 1,242,454; (v) the benefit of the outstanding Kropz Elandsfontein loan
account of US$ 30,743,792; and (vi) the benefit of the outstanding ELH loan account of
US$ 1,692,072;
4. On 27 November 2018, the Company bought back the deferred shares for an aggregate sum of
1 pence and these were then cancelled; and
5. On 27 November 2018, the Company issued 5,499,124 ordinary shares to the ARC (the ‘‘ARC
Consideration Shares’’) at 40 pence per ordinary share pursuant to a share purchase agreement
whereby ARC received the ARC Consideration Shares in consideration for the transfer of 4 per cent.
of the issued share capital of Kropz Elandsfontein.
The principal agreements governing the acquisitions were:
(i) Reorganisation, asset and share purchase agreement
An asset and share purchase agreement dated 27 November 2018 between the Company and
Kropz International pursuant to which the Company was inserted as the new holding company of
the Kropz Group.
Pursuant to the agreement the Company purchased from Kropz International:
i.
ii.
iii.
the entire issued share capital of Kropz SA;
32 per cent. of the issued share capital of Kropz Elandsfontein (the remaining shareholding
in Kropz Elandsfontein is held by Kropz SA (38 per cent.) and the ARC (30 per cent.);
23 per cent. of the issued share capital of ELH (the remaining shareholding in ELH is held
by Kropz SA (47 per cent.) and the ARC (30 per cent.);
iv.
the benefit of the outstanding Kropz SA loan account of US$ 1,494,066;
v.
the benefit of the outstanding Kropz Elandsfontein loan account of US$ 32,162,463; and
vi.
the benefit of the outstanding ELH loan account of US$ 1,728,233,
for a total consideration of US$ 78,230,310.
82
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
The consideration was satisfied by the issue and allotment of 93,260,034 ordinary shares
(‘‘Reorganisation Shares’’) to Kropz International at 61.3 pence per ordinary share.
The transfer of shares, the acquisition of the loan accounts and the issue and allotment of the
Reorganisation Shares under the share purchase agreement occurred on 27 November 2018. Under
the share purchase agreement Kropz International provided customary title and capacity warranties.
Following completion of the acquisition there remained only certain small loans amounts owing from
Kropz SA, Kropz Elandsfontein and ELH to Kropz International.
(ii) Kropz Elandsfontein Share Purchase Agreement
A share purchase agreement dated 27 November 2018 between the Company and ARC pursuant
to which the Company purchased from the ARC four per cent. of the issued share capital of Kropz
Elandsfontein in consideration for the issue and allotment of 5,499,124 ordinary shares in Kropz plc
to the ARC at 40 pence per ordinary share.
(b) Acquisition of Kropz SA and its subsidiaries
As it was an acquisition of more than 90 per cent. of the share capital, merger relief has been applied.
The following table summarises the consideration paid for the Kropz SA assets and the carrying value
of net liabilities assumed at the acquisition date.
Consideration
Total consideration for shares
Total identifiable net liabilities assumed:
Cash
Trade and other receivables
Other financial assets
Trade and other payables
Total identifiable net liabilities assumed
Amounts transferred to merger reserve
Non-controlling interests in Xsando (Pty) Ltd and West Coast Fertilisers (Pty)
Ltd
Total
Fair value
US’000
3,814
96
29
317
(1,799)
(1,357)
5,168
3
3,814
The amount of US$ 5,168,000 transferred to the merger reserve represents the amount by which the
consideration was in excess of net assets attributable to the parent company.
(c) Acquisition of Kropz Elandsfontein
The following table summarises the consideration paid for Kropz Elandsfontein and the carrying value
of net assets acquired at the acquisition date.
Consideration
Total consideration for shares
Fair value
US’000
40,425
83
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Total identifiable net asset acquired:
Property, plant, equipment and mine development
Cash
Trade and other receivables
Inventory
Trade and other payables
Borrowings
Provisions
Total identifiable net assets acquired
Amounts transferred to merger reserve
Non-controlling interests
Total
102,915
1,751
90
891
(57,925)
(29,702)
(4,211)
13,809
28,857
(2,241)
40,425
The amount of US$ 28,857,000 transferred to the merger reserve represents the amount by which
consideration was in excess of net assets attributable to the parent company.
(d) Acquisition of ELH
The following table summarises the consideration paid for ELH and the carrying value of net assets
acquired at the acquisition date.
Consideration
Total consideration for shares
Total identifiable net assets acquired:
Property, plant and equipment
Cash
Trade and other receivables
Trade and other payables
Total identifiable net liabilities assumed
Amounts transferred to merger reserve
Non-controlling interests
Total
Fair value
US’000
1,422
2,476
1
2
(2,480)
(1)
1,376
47
1,422
The amount of US$ 1,376,000 transferred to the merger reserve represents the amount by which
consideration was in excess of net assets attributable to the parent company.
Following completion of the re-organisation, Kropz plc owns, directly and indirectly:
•
•
•
•
50 per cent. + 1 share of First Gear;
100 per cent. of the issued share capital of Kropz SA;
74 per cent. of the issued share capital of Kropz Elandsfontein (36 per cent. directly, 38 per cent.
indirectly); and
70 per cent. of the issued share capital of ELH (23 per cent. directly, 47 per cent. indirectly).
84
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
(e) Acquisition of Cominco Resources
On 10 August 2018 Kropz plc entered into an exclusivity agreement for the proposed acquisition by
Kropz plc of Cominco Resources. Cominco Resources, which through its wholly owned subsidiary,
Cominco S.A., owns 100 per cent. of the Hinda Phosphate Project.
Cominco Resources is a company incorporated and domiciled in the BVI with Company Number BV No
1416753. Cominco Resources is the parent company of the Cominco Group, which includes the
following subsidiaries in the consolidated financial statements:
•
•
Cominco S.A. (RoC) – 100 per cent. interest held
Cominco Resources (UK) Ltd (England and Wales) - 100 per cent. interest held
The Cominco Group operates solely in the RoC and Cominco S.A. holds the licences for the Cominco
Group’s natural resource interests in RoC.
Pursuant to the Cominco Resources offer document dated 1 November 2018, Kropz plc made an Offer
to acquire the share capital of Cominco Resources at the date of admission of Kropz plc’s shares to
trading on AIM.
Under this Offer agreement, the key shareholders, Cominco Resources and Kropz plc agreed the sale
of their shares in Cominco Resources for US$ 85.17 cents per share (amounting to a US$ 40 million
enterprise value), to be satisfied by the issue of Kropz plc shares upon Kropz plc’s shares being
admitted to trading on the AIM market of the London Stock Exchange. The Offer was conditional, inter
alia, on Kropz plc raising a minimum of US$ 35 million pursuant to the placing and subscription (before
expenses) and admission becoming effective.
The Company had received valid acceptances from 71.3 per cent of the Cominco Resources
shareholders and accordingly, on Admission, the Company acquired 71.3 per cent of Cominco
Resources.
The Offer for Cominco Resources had its final closing on 30 November 2018 and the Company had
received in aggregate valid acceptances in respect of 98.97 per cent. of the ordinary shares of Cominco
Resources ("Cominco Shares").
On 3 December 2018, Kropz plc announced it had received acceptances under the Offer in respect of
90 per cent. or more of the Cominco Shares and the Offer had been declared unconditional in all
respects, Kropz applied the provisions of section 176 of the BVI Business Companies Act 2004 to
compulsorily redeem any outstanding Cominco Shares held by the remaining Cominco Resources
shareholders.
The total consideration shares issued by Kropz plc to previous Cominco Resources shareholders was
77,321,651 ordinary shares at an issue price of 40 pence per ordinary share, giving a total consideration
of GBP 30,928,660 (equivalent to US$ 39,629,266).
The following table summarises the consideration paid for Cominco Resources and the carrying value
of net assets acquired at the acquisition date.
85
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Consideration
Total consideration for shares
Total identifiable net assets acquired:
Exploration assets
Property, plant and equipment
Cash
Trade and other receivables
Trade and other payables
Total identifiable net assets acquired
Amounts transferred to exploration and evaluation assets
Non-controlling interests
Total
Fair value
US’000
39,629
42,038
8
73
16
(751)
41,384
(1,329)
(426)
39,629
The fair value of the Company’s investment has been allocated to underlying assets and liabilities and
the difference has been adjusted against the exploration asset.
On 19 February 2019, Kropz plc acquired the remaining 482,927 Cominco Resources shares for which
a further 803,315 ordinary shares of Kropz plc were issued at 40 pence per ordinary share, for a
consideration of GBP 321,326 (equivalent to approximately US$ 419,000).
(4) Subsidiaries of the Group
The subsidiaries of the Group, all of which are private companies limited by shares, as at 31 December
2019, are as follows:
Company
Kropz SA (Pty)
Limited
Country of
Registration or
Incorporation
South Africa
Elandsfontein
Land Holdings
(Pty) Ltd
Kropz
Elandsfontein (Pty)
Ltd
West Coast
Fertilisers (Pty) Ltd
Xsando (Pty) Ltd
First Gear
Exploration Limited
South Africa
South Africa
South Africa
South Africa
Ghana
Cominco
Resources Limited
BVI
Registered Office
Principal
Activity
Unit 213, The Hills
Buchanan Square
160 Sir Lowry Road
Woodstock
Cape Town 8001
South Africa
Intermediate
holding
company
Percentage of
ordinary
shares held
by Company
100 per cent.
Property owner
70 per cent. *
Phosphate
exploration and
mining
Phosphoric
acid production
Sand sales
4 Momotse Avenue
PO Box GP 1632
Accra, Ghana
Woodbourne Hall,
PO Box 3162, Road
Town,
Phosphate
exploration
Phosphate
exploration
74 per cent. **
70 per cent.
70 per cent.
50 per cent. +
1 share
100 per cent.
86
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Cominco S.A.
Cominco
Resources (UK)
Ltd
RoC
England and
Wales
* 46.67 per cent. held indirectly
** 38.18 per cent. held indirectly
*** held indirectly
Tortola, British Virgin
Islands
Development
100 per cent. ***
Service
company
100 per cent. ***
The accounting reference date of each of the subsidiaries is coterminous with that of the Company.
(5)
Tangible assets – Property, plant, equipment and mine development
31 Dec
2019
Cost
US$’000
31 Dec
2019
Accumulated
Depreciation
US$’000
31 Dec
2018
31 Dec
2019
Carrying
value
Cost
US$’000 US$’000
31 Dec
2018
Accumulated
Depreciation
US$’000
31 Dec
2018
Carrying
value
US$’000
2,159
11,489
9,214
-
(9)
(2,150)
2,159
11,480
7,064
2,108
11,217
8,996
-
(7)
(1,499)
2,108
11,210
7,497
3,998
(844)
3,154
3,903
(564)
3,339
-
(73)
(42)
(49)
(12)
(1)
(127)
(39)
-
-
-
1,213
56,284
3
-
24
-
6
5
1,185
54,329
44
48
35
1
130
38
20,354
18,724
3,265
3,188
213
251
-
(67)
(40)
(47)
(8)
-
(106)
(33)
-
-
-
1,185
54,262
4
1
27
1
24
5
18,724
3,188
251
Buildings and
infrastructure
Land
Buildings
Capitalised road costs
Capitalised electrical sub-
station costs
Machinery, plant &
equipment
Critical spare parts
Plant and machinery
Furniture & fittings
Geological equipment
Office equipment
Other fixed assets
Motor vehicles
Computer equipment
Mine development
1,213
56,357
45
49
36
1
133
44
20,354
Stripping activity costs
3,265
Game animals
213
Total
108,570
(3,346)
105,224 104,197
(2,371)
101,826
87
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Reconciliation of property, plant, equipment and mine development – Year ended 31 December 2019
Opening
Balance
US$’000
Additions
US$’000
Fair value
loss
US$’000
Depreciation
charge
US$’000
Foreign
exchange
gain/loss
US$’000
Closing
balance
US$’000
Buildings and
infrastructure
Land
Buildings
Capitalised road
costs
Capitalised electrical
sub-station costs
Machinery, plant &
equipment
Critical spare parts
Plant and machinery
Furniture & fittings
Geological
equipment
Office equipment
Other fixed assets
Motor vehicles
Computer equipment
2,108
11,210
7,497
3,339
1,185
54,262
4
1
27
1
24
5
-
-
-
-
-
713
-
-
-
-
-
5
Mine development
18,724
1,177
Stripping activity
costs
Game animals
3,188
251
-
-
Total
101,826
1,895
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(44)
(44)
-
(3)
(597)
(259)
-
(5)
(1)
(1)
(4)
-
(18)
(6)
-
-
-
51
273
164
74
2,159
11,480
7,064
3,154
28
1,314
-
1,213
56,284
3
-
1
(1)
-
1
-
24
-
6
5
453
20,354
77
6
3,265
213
(894)
2,441
105,224
88
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Reconciliation of property, plant, equipment and mine development – Period ended 31 December 2018
Opening
Balance
US$’000
Additions
US$’000
Disposals
US$’000
Depreciation
charge
US$’000
Foreign
exchange
gain/loss
US$’000
Closing
balance
US$’000
Buildings and
infrastructure
Land
Buildings
Capitalised road costs
Capitalised sub station
Machinery, plant &
equipment
Critical spare parts
Plant and machinery
Furniture & fittings
Geological equipment
Office equipment
Other fixed assets
Motor vehicles
Computer equipment
Mine development
Mine development
Stripping activity
costs
Game animals
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,182
11,608
8,072
3,592
1,256
56,057
5
3
30
1
37
11
19,384
3,300
293
-
-
-
(28)
-
-
-
-
-
-
-
-
-
-
2,108
11,210
7,497
3,339
1,185
54,262
4
1
27
1
24
5
-
(2)
(302)
(131)
(74)
(396)
(273)
(122)
(43)
(1,795)
-
-
(1)
-
(1)
(1)
-
-
(1)
(2)
(2)
-
(12)
(5)
-
-
-
(660)
18,724
(112)
(42)
3,188
251
105,831
(28)
(457)
(3,520)
101,826
All additions during the period, other than US$ 531,000 in relation to plant and machinery, were made on the
acquisition of subsidiaries.
Game animals
Game animal assets are carried at fair value. The different levels are defined as follows:
• Level 1: Quoted unadjusted prices in active markets for identical assets or liabilities that the Group
can access as measurement date.
• Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability
either directly or indirectly.
• Level 3: Unobservable inputs for the asset or liability.
Levels of fair value measurements – Level 3.
Impairment
The Elandsfontein mine is currently under care and maintenance. The Directors have therefore carried out an
impairment assessment. Property, plant, equipment and mine development’s recoverable amount was
calculated based on the asset’s value in use, using a discounted cash flow model using cash flow projections
89
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
approved by management over the life of the mine and is most sensitive to the following key estimates and
assumptions:
• Phosphate rock prices;
• Phosphate recoveries; and
• Operating costs.
Economical recoverable resources represent management’s expectations at the time of completing the
assessment of the carrying value of property, plant, equipment and mine development and are based on the
resource statements and exploration and evaluation work undertaken by appropriately qualified persons,
forecast phosphate prices which are comparable to market consensus forecasts and a forecast South African
rand exchange rate which is aligned with forward market rates. Based on the assumptions the recoverable
amount of assets significantly exceeds its carry amount and therefore assets were not impaired. The positive
results of the year end impairment review enabled the impairment provision recognised in the Interim Report
to be reversed.
Sensitivity Analysis
The following table summarise the potential impact of changes in the key estimates and assumptions
(assessed independently of each other):
Impact if selling prices / production tonnes
Impact if operating costs:
increased by 10%
reduced by 10%
increased by 10%
reduced by 10%
Increase/(decrease) in
headroom US$m
63
(63)
(34)
34
(6)
Intangible assets - Exploration and evaluation costs
31 Dec
2019
Cost
US$’000
31 Dec
2019
Amort-
isation
31 Dec
2019
Carrying
value
US$’000 US$’000
31 Dec
2018
Cost
US$’000
31 Dec
2018
Amort-
isation
US$’000
31 Dec
2018
Carrying
value
US$’000
Capitalised costs
40,192
-
40,192
40,772
-
40,772
The costs of mineral resources acquired and associated exploration and evaluation costs are not subject to
amortisation until they are included in the life-of-the-mine plan and production has commenced.
Where assets are dedicated to a mine, the useful lives are subject to the lesser of the asset category’s useful
life and the life of the mine, unless those assets are readily transferable to another productive mine. In
accordance with the requirements of IFRS 6, the directors assessed whether there were any indicators of
impairment. No indicators were identified.
Reconciliation of exploration assets
Year ended 31 December 2019
Capitalised exploration costs
Opening
Balance
US$’000
Additions
US$’000
Foreign
exchange
loss
US$’000
Closing
balance
US$’000
40,772
289
(869)
40,192
90
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Amounts
transferred
on
acquisition
of
subsidiaries
(Note 3)
US$’000
Foreign
exchange
loss
US$’000
Closing
balance
US$’000
Opening
Balance
US$’000
Additions
US$’000
Period ended 31 December 2018
Capitalised exploration costs
-
42,083
(1,267)
(44)
40,772
(7) Right-of-use assets
Cost
Capitalisation due to transition to IFRS 16
Foreign exchange gains
As at 31 December
Amortisation
Charge for the year
As at 31 December
Net book value
(8) Amounts due from a director
Mike Nunn
Total
Year ended
31 December
2019
US$’000
Year ended
31 December
2018
US$’000
54
1
55
18
18
37
-
-
-
-
-
-
31 December
2019
US$’000
-
-
31 December
2018
US$’000
33
33
The amounts are unsecured, interest free and repayable on demand. The full amount was repaid in the
2019 financial year.
(9) Other financial assets
DMR guarantee
Eskom guarantee (1)
Eskom guarantee (2)
Eskom guarantee (3)
Heritage Western Cape Trust
Total
31 December
2019
US$’000
712
-
373
378
71
1,534
31 December
2018
US$’000
695
124
364
370
70
1,623
91
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
DMR guarantee
Guarantee in favour of the Department of Mineral Resources for ZAR 10,000,000 in respect of a
“financial guarantee for the rehabilitation of land disturbed by prospecting/mining”.
Eskom guarantee (1)
Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 1,788,433 in respect of a
“contract works security guarantee”.
Eskom guarantee (2)
Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 5,235,712 in respect of “supply
agreement (early termination) guarantee”.
Eskom guarantee (3)
Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 5,305,333 in respect of an
“electricity accounts guarantee”.
Heritage Western Cape Trust
ZAR 1,000,000 settlement agreement trust fund held in trust by attorneys on behalf of the Heritage
Western Cape Trust until Elandsfontein Exploration & Mining (Pty) Ltd lodges a heritage impact
assessment. The heritage impact assessment was lodged in 2018 and the Group is waiting for the
release and return of the guarantee.
Fair value of other financial assets
The carrying value of other financial assets approximate their fair value.
(10)
Inventories
Consumables
Spare parts
Total
(11) Trade and other receivables
Prepayments and accrued income
Deposits
VAT
Other receivables
Total
31 December
2019
US$’000
851
24
875
31 December
2018
US$’000
838
23
861
31 December
2019
US$’000
62
49
71
147
329
31 December
2018
US$’000
-
47
198
86
331
Credit quality of trade and other receivables
The credit quality of trade and other receivables are considered recoverable due to management’s
assessment of debtors’ ability to repay the outstanding amount.
Credit risk
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable
mentioned above.
92
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Trade and other receivables past due but not impaired
None of the trade and other receivables were past due at the end of the reporting dates.
Trade and other receivables impaired
None of the trade and other receivables were considered impaired. Trade and other receivables have
not been discounted as the impact of discounting is considered to be insignificant.
Fair value of trade and other receivables
The carrying value of trade and other receivables approximate their fair value.
Expected credit losses
There are no current receivable balances lifetime expected credit losses in the current year.
(12) Cash and cash equivalents
Bank balances
Cash on hand
Total
31 December
2019
US$’000
15,528
2
15,530
31 December
2018
US$’000
30,456
1
30,457
Credit quality of cash at bank and short term deposits, excluding cash on hand
The Group only deposits cash and cash equivalents with reputable banks with good credit ratings.
Fair value of cash at bank
Due to the short-term nature of cash and cash equivalents the carrying amount is deemed to
approximate the fair value.
(13) Share capital
The Company was incorporated with an issued share capital of GBP 1 made up of one ordinary share
of GBP 1. Each shareholder has the right to one vote per ordinary share in general meeting. Any
distributable profit remaining after payment of distributions is available for distribution to the
shareholders of the Company in equal amounts per share. Shares were issued as set out below:
On incorporation
Issued to Kropz International (a)
Subdivision of shares (b)
Issued to Kropz International (c)
Issued to Kropz International (e)
Issued to Kropz International (f)
Issued to ARC (h)
Capitalisation of debt (i)
Conversion of Loan Note (j)
Offer for Cominco Resources (k)
Placing and Subscription shares (l)
Further acceptances of Offer for
Cominco Resources (m)
Cost of issuing shares
Number of
Share
capital
shares US$’000
-
-
-
-
-
120
7
13
9
71
88
27
1
49,999
450,000
163,221
1
93,260,034
5,499,124
9,875,698
6,902,148
55,669,176
68,359,376
21,652,475
Merger
Share
Total
reserve
premium
US$’000 US$’000 US$’000
-
70
-
117
-
73,249
2,818
5,062
2,529
28,532
35,037
11,096
-
70
-
117
-
69,320
2,811
5,049
2,520
28,461
34,949
-
-
-
-
-
-
3,809
-
-
-
-
-
11,069
-
-
(1,271)
-
(1,271)
93
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Adjustments on acquisition of
subsidiaries
At 31 December 2018
Issue of shares to advisers
Issue of shares on compulsory
redemption of Cominco Resources
minorities
Placing of shares
Warrants issued
Cost of issuing shares
As at 31 December 2019
-
-
-
(35,401)
(35,401)
261,881,253
335
142,026
(20,523)
121,838
1,357,080
2
708
-
710
803,315
19,364,659
-
-
283,406,307
1
25
-
-
363
418
4,248
(30)
(31)
147,339
-
-
-
-
(20,523)
419
4,273
(30)
(31)
127,179
The changes to the issued share capital of the Company which occurred between the date of
incorporation and 31 December 2018 are as follows:
a) On 20 March 2018, the Company issued and allotted 49,999 ordinary shares to Kropz
International for cash at a nominal value of GBP 1 per ordinary share;
b) On 4 June 2018, each ordinary share of GBP 1 each in the capital of the Company was divided
into 10 ordinary shares of 10 pence each in the capital of the Company;
c) On 21 August 2018, the Company issued 163,221 Ordinary Shares to Kropz International
pursuant to a share for share exchange whereby Kropz International received 163,221 Ordinary
Shares in consideration for the transfer of: (i) its holding of 1,125,001 ordinary shares of no par
value in First Gear (representing 50 per cent. plus 1 share of the issued share capital of First
Gear); and (ii) the novation rights and obligations under the First Gear loan agreements to the
Company;
d) On 26 November 2018, the Company sub-divided the existing 663,221 ordinary shares of 10
pence each into 663,221 Ordinary Shares of 0.01 pence per share and 663,221 deferred shares
of GBP 0.099 each in the capital of the Company (“Deferred Shares”);
e) On 27 November 2018, the company issued and allotted 1 ordinary share of 0.1 pence in the
capital of the Company to Kropz International in cash for 1 pence, resulting in an issued share
capital of 663,222 Ordinary Shares and 663,221 Deferred Shares;
f) On 27 November 2018, the Company issued 93,260,034 Ordinary Shares (the “Reorganisation
Shares”) to Kropz International pursuant to an asset and share purchase agreement dated 21
November 2018 between the Company (1) and Kropz International (2) whereby Kropz
International received the Reorganisation Shares in consideration for the transfer of (i) the entire
issued share capital of Kropz SA; (ii) 32 per cent. of the issued share capital of Kropz
Elandsfontein; (iii) 23 per cent. of the issued share capital of ELH; (iv) the benefit of the
outstanding Kropz SA loan account of US$ 1,242,454; (v) the benefit of the outstanding Kropz
Elandsfontein loan account of US$ 30,743,792; and (vi) the benefit of the outstanding ELH loan
account of US$ 1,692,072;
g) On 27 November 2018, the Company bought back the Deferred Shares for an aggregate sum
of 1 pence and these were then cancelled;
h) On 27 November 2018, the Company issued 5,499,124 Ordinary Shares to ARC (the “ARC
Consideration Shares”) pursuant to a share purchase agreement whereby ARC received the
94
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
ARC Consideration Shares in consideration for the transfer of 4 per cent. of the issued share
capital of Kropz Elandsfontein;
i) A debt capitalisation letter dated 8 October 2018 pursuant to which the ARC agreed to capitalise
the amount of US$ 5.06 million (owing from the Company to the ARC following various
restructuring and capitalisations implemented by the Kropz Group in the pre-Admission
restructuring). The Capitalisation was conditional on Admission and resulted in the issue of
9,875,698 Ordinary Shares to ARC upon Admission;
j) On 27 November 2018, the Company executed the Convertible Loan Note Instrument pursuant
to which the Company issued Convertible Notes to Kropz International at a rate of one month
LIBOR plus 3 per cent. per annum and a final maturity date of 31 December 2019. The principal
amount of the Convertible Notes of US$ 2,500,000 and accrued interest of US$ 29,328 was
automatically converted into Conversion Shares on Admission at 28.6 pence per share, a 28.5
per cent. discount to the Placing Price;
k) The Company conditionally offered to acquire the entire issued and to be issued share capital
of Cominco Resources on the basis of 1.66 Ordinary Share for each Cominco Share. As at the
first closing Date (21 November 2018), valid acceptances to accept the Offer were received in
respect of 33,465,747 Cominco Shares representing 71.3 per cent. of the Cominco Shares and,
accordingly, the Offer became unconditional as to acceptances. On Admission on 30 November
2018, the Company acquired 71.3 per cent. of Cominco Resources, which required the
allotment and issue of 55,669,176 Ordinary Shares to Cominco Resources shareholders on
Admission at 40 pence a share (GBP 22,267,670, approximately US$ 28,532,000);
l) On Admission, the Company raised GBP 27,343,750 (approximately US$ 35,036,000) by way
of the Placing and Subscription of 68,359,376 Ordinary Shares at 40 pence per share; and
m) Further acceptances of the Offer for Cominco Resources were received on 3 December 2018
in respect of 13,016,470 Cominco Shares representing 27.67 per cent. of the Cominco Shares
for which a further 21,652,475 Ordinary Shares of Kropz were allotted and issued at 40 pence
per share (GBP 8,660,990, approximately US$ 11,096,000).
Issue of shares in the year ended 31 December 2019:
On 1 February 2019, the Company issued 1,357,080 new ordinary shares of 0.1 pence each in the
capital of the Company at a price of 40 pence per share for a total consideration of GBP 542,832
(equivalent to approximately US$ 710,000) and 1,116,544 warrants at an exercise price of 40 pence
per warrant to certain advisers in lieu of cash fees arising from their involvement with the Company's
admission to AIM on 30 November 2018 and the acquisition of Cominco Resources. The new ordinary
shares were admitted to trading on AIM on 6 February 2019.
As Kropz had received acceptances under the Offer in respect of 90 per cent. or more of the Cominco
Shares and the Offer was declared unconditional in all respects, on 19 February 2019 the Company
applied the provisions of section 176 of the BVI Business Companies Act 2004 to compulsorily redeem
any outstanding ordinary shares of Cominco Resources held by the remaining Cominco Resources
shareholders (“Compulsory Redemption”). Pursuant to the Compulsory Redemption, Kropz acquired
the remaining 482,927 Cominco Shares for which a further 803,315 ordinary shares were issued at a
price of 40 pence per share for a total consideration of GBP 321,326 equivalent to approximately
US$ 423,000). The new ordinary shares were admitted to trading on AIM on 22 February 2019, resulting
in an issued share capital of 264,041,648 Ordinary Shares. Following the Compulsory Redemption, the
Company holds 100 per cent. of the issued share capital of Cominco Resources.
95
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
A difference of approximately US$ 9,000 arose between the consideration paid and the amount by
which the non-controlling interests have been adjusted. This has been recognised directly in equity and
attributed to the owners of the parent.
On 3 July 2019, the Company raised US$ 4.3 million (GBP 3.4 million) before expenses by way of a
placing (the “Placing”) for 19,364,659 ordinary shares of 0.1 pence each at a price of 17.6 pence per
ordinary share (the “Placing Shares”).
The net proceeds of the placing was used to provide additional working capital and more specifically to
further advance the programme of works being carried out at its Elandsfontein, Hinda and Aflao projects.
The Placing Shares were admitted to trading on AIM on 3 July 2019. The Placing Shares were issued
as fully paid and rank pari passu in all respects with the existing ordinary shares.
Following the issue of the Placing Shares and their admission to AIM, the Company has 283,406,307
ordinary shares in issue.
Share based payment arrangements
Employee Share Option Plan and Long-Term Incentive Plan
As more fully described in the Directors’ Report, the Company operates an ownership-based scheme
for executives and senior employees of the Group. In accordance with the provisions of the plans,
executives and senior employees may be granted options to purchase parcels of ordinary shares at an
exercise price determined by the Board based on a recommendation by the Remuneration Committee.
The following plans have been adopted by the Company:
• an executive share option plan used to grant awards on Admission of the Company to AIM
and following Admission (the “ESOP”) – a performance and service-related plan pursuant to
which nominal-cost options can be granted; and
• an executive long-term incentive plan (the “LTIP”) – a performance and service-related plan
pursuant to which conditional share awards, nominal-cost options and market value options
can be granted, (together, the ‘‘Incentive Plans’’).
The Company issued a total of 8,190,355 share options during the period ended 31 December 2018.
An option-holder has no voting or dividend rights in the Company before the exercise of a share option.
The options will vest as to performance as follows:
• 20 per cent. of the award shall vest for growth in share price of 100 per cent. from the
Admission placing price (40 pence);
• a further 20 per cent. of the award shall vest for growth in share price of 250 per cent. from
the Admission placing price;
• a further 30 per cent. of the award shall vest for growth in share price of 350 per cent. from
the Admission placing price; and
• a further 30 per cent. of the award shall vest for growth in share price of 500 per cent. from
the Admission placing price.
The value of the options was calculated by way of a Monte Carlo Simulation using the following
assumptions.
96
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Share-option assumptions at issue date
Share price
Exercise price
Expected volatility
Expected dividends
Risk-free interest rate
Option life
GBP 0.40
GBP 0.40
40%
0%
2.1%
10 years
The expected volatility is based on the historic volatility. Options are stated in UK Pound Sterling as the
Company is listed on the AIM market of the London Stock Exchange.
Ian Harebottle resigned on 29 February 2020 and the ESOP options awarded to him lapsed and expired
on that date.
The charge to profit and loss was US$ 137,000 (31 December 2018: US$ nil).
No LTIP awards were made during the year ended 31 December 2019 (31 December 2018: Nil).
Equity warrants
The Company issued 1,116,544 equity warrants over ordinary shares in the Company during the year,
as more fully described above (period ended 31 December 2018: 83,456 equity warrants). No equity
warrants have been exercised or forfeited. Accordingly, 1,200,000 equity warrants remained in place at
31 December 2019 (31 December 2018: 83,456 equity warrants).
The warrants were issued to brokers in relation to their involvement in issuance of equity instruments
of the Company. The services provided relate to share issuance and share issuance expenses are
included within equity. The warrants were valued at the year end using a Black-Scholes valuation model.
The charge to share premium account during the year was US$ 30,000 (31 December 2018: US$ nil).
(14) Reserves
Nature and purpose of reserves
Foreign exchange translation reserve
The foreign exchange translation reserve comprises all foreign currency differences arising from the
translation of the assets, liabilities and equity of the entities included in these consolidated financial
statements from their functional currencies to the presentational currency.
Share premium
The share premium account represents the amount received on the issue of ordinary shares by the
Company, other than those recognised in the merger reserve described below, in excess of their
nominal value and is non-distributable.
Merger reserve
The merger reserve represents the amount received on the issue of ordinary shares by the Company
in excess of their nominal value on acquisition of subsidiaries where merger relief under section 612 of
the Companies Act 2006 applies. The merger reserve consists of the merger relief on the issue of
shares to acquire Kropz SA on 27 November 2018 and Cominco Resources on 30 November 2018.
The merger reserve also includes differences between the book value of assets and liabilities acquired
and the consideration for the business acquired under common control.
97
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Share-based payment reserve
The share-based payment reserve arises from the requirement to value share options and warrants in
existence at the year end at fair value (see Note 13).
(15) Shareholder loan payable
ARC
31 December
2019
US$’000
14,701
31 December
2018
US$’000
14,386
As part of the wider group reorganisation during 2018, certain shareholder loans in Kropz SA, Kropz
Elandsfontein and ELH were consolidated and set-off against various other loans receivable and
payable.
The consolidation and set-off of various loans was completed in order to simplify the debt structure of
the Group. In addition, loans payable to Kropz International and ARC were reduced through the issue
of new share capital in Kropz SA, Kropz Elandsfontein and ELH.
The remaining loans payable to Kropz International were novated to Kropz plc on 27 November 2018
in exchange for new shares in Kropz plc. Following the debt restructuring, there are no loans payable
to Kropz International by the Kropz Group. All shareholder loans outstanding at 31 December 2019 are
in relation to amounts due to ARC which holds a 49.3 per cent. interest in Kropz plc.
The loans are: (i) US$ denominated but any payments will be made in ZAR at the then current exchange
rate; (ii) carry interest at monthly US LIBOR plus 3 per cent; and (iii) are repayable by no later than
1 January 2035 (or such earlier date as agreed between the parties to the shareholder agreements).
Details of the group reorganisation are provided in Note 3.
Fair value of shareholder loans
The carrying value of the loans approximates their fair value.
(16) Finance lease liabilities
In respect of right-of-use assets
Additions during the year
Repayments during the year
Foreign exchange differences
Lease liabilities at end of year / period
Maturity
Current
Year ended
31 December
2019
US$’000
Period
ended
31 December
2018
US$’000
54
(15)
1
40
-
-
-
As at
31 December
2019
US$’000
As at
31 December
2018
US$’000
19
-
98
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Non-current
Total lease liabilities
(17) Other financial liabilities
BNP
Greenheart Foundation
Other loans
Total
Non-current financial liabilities
Current financial liabilities
Total
21
40
-
-
31 December
2019
US$’000
29,537
445
-
29,982
31 December
2018
US$’000
29,551
517
1
30,069
-
29,982
29,982
29,551
518
30,069
BNP
A US$ 30,000,000 facility was made available by BNP to Kropz Elandsfontein in September 2016.
Interest was charged at three months US LIBOR plus 4.5 per cent. and was initially repayable quarterly
over 2 years. The first capital repayment was due on 31 March 2018.
The Group was unable to fund the instalment payments on the loan as they fell due in early 2018 and
consequently, under the terms of the facility agreement, was in default from 1 April 2018. On
20 September 2018 the Group and BNP conditionally agreed a waiver of the breach and restructure of
the facility under which the first capital repayment was deferred to 30 September 2020. In addition, BNP
provided the necessary consents required to facilitate all the contemplated transactions leading up to
the admission of Kropz plc to AIM. In June 2018 management determined that the completion of the
project was likely to be delayed until Q4 of 2021 and the anticipated cost of the project might increase
by up to US$ 20m. These developments meant that Kropz Elandsfontein was not in full compliance with
the terms of the facility agreement and a standstill arrangement was put in place whilst a plan for the
recommissioning of the project was agreed with BNP. In accordance with IFRS the non-compliance
with the facility agreement terms has required the loan to be classified as a current liability at
31 December 2019. The facility has been fully drawn down.
During January 2020, given the delays in agreeing the recommissioning plan of Elandsfontein, Kropz
Elandsfontein was once again placed into default by BNP. In May 2020, Kropz Elandsfontein and BNP
agreed to amend and restate the term loan facility agreement entered into on or about 13 September
2016 (as amended from time to time). The BNP facility amendment agreement extends inter alia the
final capital repayment date to Q3 2024, with eight equal capital repayments to commence in Q4 2022
and an interest rate of 6.5 per cent. plus US LIBOR, up to project completion and 4.5 per cent. plus US
LIBOR thereafter. Financial closure occurred on 25 June 2020.
Greenheart Foundation
A loan has been made to the Group by Greenheart Foundation which is interest-free and repayable on
demand. Mark Summers, a director of the Kropz plc, is a director of Greenheart Foundation.
Fair value of other financial liabilities
The carrying value of the loans approximate their fair value.
99
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
(18) Provisions
Reconciliation of provisions – Year ended 31 December 2019
Provision for dismantling costs
Provisions for rehabilitation
Total
Opening
Balance
US$’000
518
3,413
3,931
Additions/
Adjustments
US$’000
119
(443)
(324)
Foreign
exchange
gain/loss
US$’000
13
82
95
Closing
balance
US$’000
650
3,052
3,702
Reconciliation of provisions – Period ended 31 December 2018
Provision for dismantling costs
Provisions for rehabilitation
Total
Opening
Balance
US$’000
-
-
-
Additions
US$’000
539
3,512
4,051
Foreign
exchange
gain/loss
US$’000
(21)
(99)
(120)
Closing
balance
US$’000
518
3,413
3,931
Dismantling and rehabilitation provisions
All environmental rehabilitation and dismantling provisions at year-end have been reviewed by
management and adjusted as appropriate for changes in legislation, technologic and other
circumstances. The expected timing of any outflows of these provisions will be on the closure of the
respective mines. Estimates are based on costs that are reviewed regularly and adjusted as appropriate
for new circumstances.
(19) Trade and other payables
Trade payables
Other payables
Accruals
Total
31 December
2019
US$’000
932
91
513
1,536
31 December
2018
US$’000
10,138
1,394
424
11,956
Fair value of trade and other payables
Trade and other payables are carried at amortised cost, with their carrying value approximating their
fair value.
(20) Other tax liabilities
Withholding taxes
Total
The withholding tax liabilities relate to the loan from ARC.
31 December
2019
US$’000
451
451
31 December
2018
US$’000
-
-
100
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
(21) Commitments
Authorised capital commitments
The committed expenditure relates to plant construction.
(22) Directors’ remuneration, interests and transactions
31 December
2019
US$’000
5,698
31 December
2018
US$’000
250
The Directors of the Company and two executives of Kropz Elandsfontein are considered to be the Key
Management Personnel of the Group. Details of the Directors remuneration, Key Management
Personnel remuneration which totalled US$ 1,333,360 (2018: US$ 480,131) (including notional option
cost and social security contributions) and Directors’ interests in the share capital of the Company are
disclosed in the Directors’ Report. Amounts reflected relate to short-term employee benefits and were
converted to US$ at the 31 December 2019 GBP exchange rate of 0.758 and ZAR exchange rate of
ZAR 14.040.
The highest paid Director in the year received remuneration, excluding notional gains on share options,
of US$ 388,742 (2018: US$ 341,589).
(23) Finance income
Foreign currency gains
Interest income received
Total
(24) Operating expenses
Foreign exchange loss
Fair value loss on game animals
Amortisation of right of use asset
Depreciation of property, plant and machinery
Employee costs
Share option cost
Electricity and water – mine operations
Inventory expense
Mining costs
Plant operating costs and recoveries
Professional and other services
Auditor’s remuneration in respect of audit of the Group and parent
Auditor’s remuneration in respect of audit of the Cominco Group
Year ended
31 December
2019
US$’000
855
783
1,638
Period ended
31 December
2018
US$’000
-
382
382
Year ended
31 December
2019
US$’000
-
43
18
894
1,361
137
886
6
429
884
1,043
83
29
Period ended
31 December
2018
US$’000
1,555
32
-
457
613
-
26
-
197
127
1,610
80
25
101
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Other expenses
Total
(25) Staff costs
The average monthly number of employees was:
Operations
Finance and administration
Management
Aggregate remuneration (including Directors):
Wages and salaries (including bonuses)
Social security costs
Share-based payments
Pension costs
(26) Finance expense
Shareholder loans
Foreign exchange losses
Bank debt
Finance leases
Total
(27) Taxation
Major components of tax charge
Deferred
Originating and reversing temporary differences
Current tax
Local income tax recognised in respect of current periods
Local income tax recognised in respect of prior periods
Total
955
6,631
952
5,674
Year ended
31 December
2019
No.
Period ended
31 December
2018
No.
8
5
2
15
7
2
5
14
Year ended
31 December
2019
US$’000
Period ended
31 December
2018
US$’000
1,112
111
137
1
1,361
577
48
-
-
625
Year ended
31 December
2019
US$’000
768
-
2,892
2
3,662
Period ended
31 December
2018
US$’000
409
1,555
357
-
2,321
Year ended
31 December
2019
US$’000
Period ended
31 December
2018
US$’000
-
34
84
118
-
-
66
66
102
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Reconciliation of tax charge
Loss before tax
Applicable UK tax rate
Tax at applicable tax rate
Adjustments for different tax rates in the Group
Disallowable expenditure
Prior period tax charge
Losses carried forward not recognised
Tax charge
The movement in tax liabilities is summarised below:
Balance brought forward
Prior period tax charge
Current year / period charge
Tax paid
Foreign exchange differences
Balance carried forward
Year ended
31 December
2019
US$’000
(8,646)
Period ended
31 December
2018
US$’000
(7,611)
19%
(1,643)
(981)
146
84
2,512
118
19%
(1,446)
(525)
373
66
1,598
66
Year ended
31 December
2019
US$’000
Period ended
31 December
2018
US$’000
66
-
118
(15)
5
174
-
66
-
-
-
66
The Group had losses for tax purposes of approximately US$ 37.6 million as at 31 December 2019
(2018: US$ 27.8 million) which, subject to agreement with taxation authorities, are available to carry
forward against future profits. They can be carried forward indefinitely.
A net deferred tax asset of approximately US$ 10.5 million (2018: US$ 7.8 million), after set off of
accelerated depreciation allowances in respect of fixed assets of US$ 27.1 million (2018: US$ 26.0
million), arises in respect of these losses. It has not been established as the Directors have assessed
the likelihood of future profits being available to offset such deferred tax assets to be uncertain. The
deferred tax asset and deferred tax liability relate to income tax in the same jurisdiction and the law
permits set off.
(28) Earnings per share
The calculations of basic and diluted loss per share have been based on the following loss attributable
to ordinary shareholders and weighted average number of ordinary shares outstanding:
Loss attributable to ordinary shareholders
Year ended
31 December
2019
US$’000
(6,290)
Period ended
31 December
2018
US$’000
(6,255)
Weighted average number of ordinary shares in Kropz plc
273,467,747
24,575,156
103
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Basic and diluted loss per share (US$ cents)
(2.30)
(25.45)
Because the Group is in a net loss position, diluted loss per share excludes the effects of ordinary share
equivalents consisting of stock options and warrants, which are anti-dilutive.
(29) Notes to the statement of cash flows
Issue of shares
Year ended 31 December 2019
Issue of shares to advisers
Issue of shares on compulsory redemption of
Cominco Resources minorities
Placing of shares
Cost of issuing shares
As at 31 December 2019
Net debt reconciliation
Year ended 31 December 2019
Non-cash
consideration
US$’000
710
Cash
consideration
US$’000
-
419
-
-
1,129
-
4,243
(31)
4,212
Total
US$’000
710
419
4,243
(31)
5,341
Opening
Balance
US$’000
New
agreements
US$’000
Cash
movements
US$’000
Cash and cash
equivalents
Other financial assets
Shareholder loan payable
Other financial liabilities
Finance leases
Total
30,457
1,623
(14,386)
(30,068)
-
(12,374)
Period ended 31 December 2018
-
-
-
-
(55)
(55)
(15,792)
(124)
32
814
16
(15,054)
Foreign
exchange
gain/(loss)
US$’000
865
35
(347)
(728)
(1)
(176)
Assumed
on
acquisition
of
subsidiaries
US$’000
Opening
Balance
US$’000
Cash
movements
US$’000
Foreign
exchange
gain/(loss)
US$’000
-
-
-
-
-
300
1,680
(14,178)
(30,238)
(42,436)
30,164
-
(696)
(867)
28,601
(7)
(57)
488
1,037
1,461
Cash and cash
equivalents
Other financial assets
Shareholder loan payable
Other financial liabilities
Total
Closing
balance
US$’000
15,530
1,534
(14,701)
(29,982)
(40)
(27,659)
Closing
balance
US$’000
30,457
1,623
(14,386)
(30,068)
(12,374)
104
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Shareholder
loans
(Note 15)
US$’000
-
14,178
696
(488)
14,386
(33)
348
14,701
Other
financial
liabilities
(Note 17)
US$’000
-
30,238
867
(1,037)
30,068
(814)
728
29,982
Finance
leases
(Note 16)
US$’000
-
-
-
-
-
39
1
40
Total
US$’000
-
44,416
1,563
(1,525)
44,454
(808)
1,077
44,723
At 10 January 2018
Assumed on purchase of
subsidiaries
Amounts advanced
Effect of foreign exchange
movements
At 31 December 2018
Amounts advanced / (repaid)
Effect of foreign exchange
movements
At 31 December 2019
Reconciliation of working capital items:
Year ended 31 December 2019
Opening
Balance
US$’000
Cash
movements
US$’000
331
861
(11,596)
(3,931)
(66)
(6)
9,771
324
Issue of
shares
(Note 13)
US$’000
Foreign
exchange
gain/(loss)
US$’000
-
-
710
-
64
20
(421)
(95)
Closing
balance
US$’000
329
875
(1,536)
(3,702
Trade and other
receivables
Inventories
Trade and other payables
Provisions
(30) Related parties
Kropz plc and its subsidiaries
The following parties are related to Kropz plc:
Name
Mark Summers
Ian Harebottle
Mike Nunn
Linda Beal
Mike Daigle
Lord Robin William Renwick
Machiel Johannes Reyneke
Kropz SA
ELH
Kropz Elandsfontein
West Coast Fertilisers (Pty) Ltd
Xsando (Pty) Ltd
First Gear Exploration Limited
Relationship
Director
Director
Director
Director
Director
Director
Director
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
105
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Cominco Resources Limited
Cominco S.A.
Cominco Resources (UK) Ltd
Kropz International
ARC
Subsidiary
Subsidiary
Subsidiary
Shareholder
Shareholder
Details of remuneration to KMP are contained in Note 22 to the Consolidated Financial Statements.
Details of the group reorganisation in 2018 and associated transactions with shareholders are explained
in Note 3, 13 and 15. In addition, following transactions were carried out with related parties:
Related party balances
Loan accounts – Owed (to) / by related parties
ARC
M Nunn
Others
Total
Related party balances
Interest paid to related parties
Kropz International
ARC
Total
(31) Categories of financial instrument
31 December
2019
US$’000
(14,701)
-
-
(14,701)
31 December
2018
US$’000
(14,386)
33
(1)
(14,354)
Year ended
31 December
2019
US$’000
-
768
768
Period ended
31 December
2018
US$’000
345
64
409
Financial assets by category
The accounting policies for financial instruments have been applied to the line items below:
31 December
2019
US$’000
31 December
2018
US$’000
Financial assets at amortised cost
Trade and other receivables
Due from a director
Other financial assets
Cash and cash equivalents
Total
329
-
1,534
15,532
17,395
Financial liabilities by category
The accounting policies for financial instruments have been applied to the line items below:
331
33
1,623
30,457
32,444
106
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Financial liabilities at amortised cost
Shareholder loans payable
Trade and other payables
Finance leases
Other financial liabilities
Tax liabilities
Total
(32) Financial risk management objectives
31 December
2019
US$’000
31 December
2018
US$’000
14,701
1,536
40
29,982
625
46,884
14,386
11,956
-
30,069
-
56,411
Capital risk management:
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a
going concern in order to provide returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of capital.
The capital structure of the Group consists of shareholder and external debt, which includes loans and
borrowings (excluding derivative financial liabilities) disclosed in Notes 15 and 17 and equity as
disclosed in the Statement of Financial Position.
Shareholder and external third-party loans from foreign entities to South African companies are subject
to the foreign exchange controls as imposed by the South African Reserve Bank (“SARB”). All inward
loans into South Africa require approval by the SARB and all loans in the current capital structure have
been approved by the SARB and all entities in the Group are compliant with the SARB approvals
relevant to the entity concerned and the approvals granted by the SARB.
Liquidity risk:
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the
availability of funding through an adequate amount of committed credit facilities and the ability to close
out market positions. Due to the dynamic nature of the underlying businesses, Group treasury maintains
flexibility in funding by maintaining availability under committed credit lines.
The Group’s risk to liquidity is a result of obligations associated with financial liabilities of the Group and
the availability of funds to meet those obligations. The Group manages liquidity risk through an ongoing
review of future commitments and credit facilities.
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the
remaining period at the statement of financial position to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months
equal their carrying balances as the impact of discounting is not significant.
At 31 December 2019
Shareholder loans payable
Trade and other payables
Finance leases
Less
than one
year
US$’000
Between
one and
two years
US$’000
Between
two and
five years
US$’000
Over five
years
US$’000
-
1,536
19
-
-
21
-
-
-
28,021
-
-
107
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Other financial liabilities
Total
2,726
4,281
2,281
2,302
33,751
33,751
-
28,021
At 31 December 2018
Shareholder loans payable
Trade and other payables
Other financial liabilities
Total
Less
than one
year
US$’000
Between
one and
two years
US$’000
Between
two and
five years
US$’000
Over five
years
US$’000
-
11,956
2,251
14,207
-
-
13,718
13,718
-
-
20,850
20,850
20,927
-
-
20,927
Credit risk:
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in
financial loss to the Group. The Group’s financial assets include trade and other receivables, loans
receivable, other financial assets and cash and cash equivalents.
Ongoing credit evaluation is performed on the financial conditions of the counterparties to the trade and
other receivables, loans receivable and other financial assets. The Group only deposits cash with major
banks with high quality credit standing and limits exposure to any one counter-party. No credit limits
were exceeded during the reporting period, and management does not expect any losses from non-
performance by these counterparties.
Interest rate risk:
As the Group has significant interest-bearing assets, the Group’s income and operating cash flows are
substantially dependent on changes in market interest rates. At 31 December 2019, if interest rates on
the shareholder and BNP loans (denominated in US$) had been 1 per cent higher/lower with all other
variables held constant, post-tax losses and equity for the year / period would have been approximately
US$ 440,000 (2018: US$ 40,000) higher/lower respectively.
Foreign currency risk:
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate
because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign
exchange rates relates primarily to the Group’s financing activities (when financial liabilities and cash
are denominated other than in a company’s functional currency).
Most of the Group’s transactions are carried out in Rand. Foreign currency risk is monitored closely on
an ongoing basis to ensure that the net exposure is at an acceptable level.
The Group maintains a natural hedge whenever possible, by matching the cash inflows (revenue
stream) and cash outflows used for purposes such as capital and operational expenditure in the
respective currencies. The Group’s net exposure to foreign exchange risk was as follows:
As at 31 December 2019
Functional currency
South
African
Rand
US$’000
British
Pound
US$’000
Total
US$’000
Financial assets denominated in US$
-
1,252
1,252
108
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
Financial liabilities denominated in US$
(44,689)
-
(44,689)
Net foreign currency exposure
(44,689)
1,252
(43,437)
As at 31 December 2018
South
African
Rand
US$’000
Total
US$’000
Financial assets denominated in US$
-
-
Financial liabilities denominated in US$
(43,936)
(43,936)
Net foreign currency exposure
(43,936)
(43,936)
Foreign currency sensitivity analysis:
The following tables demonstrate the sensitivity to a reasonably possible change in South African Rand
and GBP exchange rates, with all other variables held constant.
The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and
liabilities. The Group’s exposure to foreign currency changes for all other currencies is not material.
A 10 per cent. movement in the Rand and Pound against the US Dollar would increase/(decrease) net
assets by the amounts shown below. This analysis assumes that all other variables, in particular interest
rates, remain constant.
Effects on net assets
Rand:
- strengthened by 10 per cent.
- weakened by 10 per cent.
Effects on net assets
GBP:
- strengthened by 10 per cent.
- weakened by 10 per cent.
(33) Segment information
As at
31 December
2019
Increase/
(Decrease)
US$’000
As at
31 December
2018
Increase/
(Decrease)
US$’000
(4,469)
4,469
(4,394)
4,394
125
(125)
-
-
Operating segments
The Board of Directors consider that the Group has one operating segment, being that of phosphate
mining and exploration. Accordingly, all revenues, operating results, assets and liabilities are allocated
to this activity.
Geographical segments
Since the acquisition of First Gear in June 2018, and the acquisitions of Kropz SA, Kropz Elandsfontein,
ELH and Cominco Resources in November 2018, the Group has operated in three principal
geographical areas – Ghana, South Africa and the RoC.
109
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
The Group’s non-current assets by location of assets are detailed below.
As at 31 December 2019
Total non-current assets
As at 31 December 2018
Total non-current assets
(34) Non-controlling interests
South
Africa
US$’000
Ghana
US$’000
Congo
US$’000
Group
US$’000
106,851
-
40,136
146,987
South
Africa
US$’000
Ghana
US$’000
Congo
US$’000
Group
US$’000
103,441
62
40,718
144,221
As at beginning of year / period
Share of losses for the year / period
Share of other comprehensive income
Purchase of non-controlling interests in subsidiaries
As at end of the year / period
31 December
2019
US$’000
1,138
(2,474)
33
(425)
(1,728)
31 December
2018
US$’000
-
(1,422)
-
2,560
1,138
Non-controlling interests in cash flows
(4,403)
(1,381)
(35) Material subsequent events
On 13 May 2020, the Company announced that it had entered into a conditional convertible loan facility of
up to US$ 40 million (not exceeding a maximum of ZAR 680 million) with ARC, the Company’s major
shareholder (“Equity Facility”). The proceeds of the Equity Facility will be used to bring the Company’s
Elandsfontein phosphate project, located in South Africa, into production in Q4 2021.
On 1 June 2020, the Company raised a total of US$ 353,595 (before expenses) by way of an equity placing
with an existing investor and two directors, Lord Robin Renwick and Mark Summers, at a price of
6.75 pence per ordinary share. 4,505,060 shares were placed with placees of which 300,000 shares were
placed with Lord Robin Renwick and 30,000 with Mark Summers.
In June 2020, the Company undertook an equity placing to existing shareholders (“Open Offer”). As
announced on 29 June 2020, the Company received valid acceptances and excess applications from
qualifying shareholders for a total of 25,849,920 Open Offer Shares. Consequently, all excess applications
have been accepted and allotted in full and the Company has raised gross proceeds of approximately
GBP 1.74 million. Mark Summers, interim CEO, has subscribed for 50,000 Open Offer Shares. ARC,
Kropz’s major shareholder, subscribed for 25,481,482 Open Offer Shares under the Open Offer.
After conclusion of the Equity Facility, Kropz Elandsfontein and BNP entered into an amendment and
restatement agreement in May 2020 pursuant to which Kropz Elandsfontein and BNP agreed to amend
and restate the term loan facility agreement entered into on or about 13 September 2016. The facility
has been fully drawn. The BNP facility amendment agreement extends inter alia the final capital
repayment date to Q3 2024, with eight equal capital repayments to commence in Q4 2022 and an
interest rate of 6.5 per cent. US plus LIBOR, up to project completion and 4.5 per cent. US plus LIBOR
110
Kropz plc Annual Report for 2019
Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(continued)
thereafter. Financial closure occurred on 25 June 2020. In accordance with IFRS 9, the loss to be
recognised in profit and loss arising from the modification of the loan subsequent to the year end
amounts to approximately US$ 900K.
Coronavirus Outbreak
The COVID-19 pandemic announced by the World Health Organization is having a markedly negative
impact on global stock markets, currencies and general business activity. The timing and extent of the
impact and recovery from COVID-19 is unknown but it may affect planned activities and potentially
display a post balance sheet date impact. The Elandsfontein project timetable is not currently affected.
In line with the Directive, care and maintenance operations have continued on site.
As announced on 16 March 2020, the Water Tribunal has been postponed indefinitely. The Company
does not expect the Water Tribunal to be rescheduled until after the Directive has been lifted. Pending
the Water Tribunal's decision, there is no legal impediment to the continuation of the water use activities
authorised in the WUL.
(36) Ultimate controlling party
The Directors consider ARC to be the ultimate controlling party of the Company.
111
Kropz plc Annual Report for 2019
Company Statement of Financial Position
(Registered number: 11143400)
As at 31 December 2019
Fixed assets
Investment in subsidiaries
Amounts due from subsidiaries
Current assets
Debtors
Cash and bank balances
Creditors
Amounts falling due within one year
Net current assets
Total assets less current liabilities
Net Assets
Capital and Reserves
Share capital
Share premium account
Merger reserve
Foreign currency translation reserve
Share-based payment reserve
Retained losses
31 December
2019
US$’000
31 December
2018
US$’000
Notes
3
4
7
5
117,709
41,790
159,499
111,606
39,820
151,426
1,851
1,654
3,505
354
354
3,151
201
5,144
5,345
2,449
2,449
2,896
162,650
154,322
162,650
154,322
363
147,339
14,878
2,270
167
(2,367)
335
142,026
14,878
(956)
-
(1,961)
162,650
154,322
Capital and reserves include losses for the year of the parent company of US$ 406,000 (2018: losses of
US$ 1,961,000).
The Notes on pages 114 to 118 form an integral part of these Financial Statements.
The Financial Statements on pages 112 to 118 were approved and authorised for issue by the Board of Directors
on 31 July 2020 and were signed on its behalf by:
Mark Summers, Chief Financial Officer
31 July 2020
112
Type text here
Kropz plc Annual Report for 2019
Company Statement of Changes in Equity
For the year ended 31 December 2019
Share
capital
US$’000
Share
premium
US$’000
Merger
reserve
US$’000
Foreign
currency
translation
reserve
US$’000
Share-
based
payment
reserve
US$’000
Retained
losses
US$’000
Total
US$’000
At 10 January 2018
Loss for the period
Other comprehensive
income
Total comprehensive
income for the period
Issue of shares
Costs of issuing shares
Transactions with
owners
-
-
-
-
-
-
-
-
-
335
-
143,297
(1,271)
14,878
-
335
142,026
14,878
-
(956)
(956)
-
-
-
At 31 December 2018
335
142,026
14,878
(956)
Loss for the year
Other comprehensive
income
Total comprehensive
income for the period
Issue of shares
Costs of issuing shares
Share-based payment
charges
Transactions with
owners
-
-
-
28
-
-
28
-
-
-
5,344
(31)
-
5,313
-
-
-
-
-
-
-
-
3,226
3,226
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
-
137
167
(1,961)
(1,961)
-
(956)
(1,961)
(2,917)
-
-
-
158,510
(1,271)
157,239
(1,961)
154,322
(406)
(406)
-
3,226
(406)
2,820
-
-
-
-
5,402
(31)
137
5,508
At 31 December 2019
363
147,339
14,878
2,270
167
(2,367)
162,650
113
Kropz plc Annual Report for 2019
Notes to the Company Financial Statements for the year ended 31 December 2019
1.
General information
The Company was incorporated on 10 January 2018 and is a public limited company, with its ordinary
shares admitted to the AIM Market of the London Stock Exchange on 30 November 2018 trading under
the symbol, “KRPZ”. The Company is domiciled in England and incorporated and registered in England
and Wales. The address of its registered office is 35 Verulam Road, Hitchin, SG5 1QE. The registered
number of the Company is 11143400.
2.
Summary of significant accounting policies
(a) Basis of preparation
The Company’s Financial Statements have been prepared in accordance with applicable law and
accounting standards in the United Kingdom and under the historical cost accounting rules (Generally
Accepted Accounting Practice in the United Kingdom).
The Directors have assessed the Company's ability to continue in operational existence for the
foreseeable future in accordance with the FRC guidance on the going concern basis of accounting and
reporting on solvency and liquidity risks (April 2016). It is considered appropriate to continue to prepare
the Financial Statements on a going concern basis. Disclosures in relation to going concern are shown
in Note 2 (a) to the Consolidated Financial Statements.
These financial statements have been prepared in accordance with applicable United Kingdom
accounting standards, including Financial Reporting Standard 102 – “The Financial Reporting Standard
applicable in the United Kingdom and Republic of Ireland” (“FRS 102”), and with the Companies Act
2006. The financial statements have been prepared on the historical cost basis.
The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included a
Profit and Loss account in these separate Financial Statements. The loss attributable to members of
the Company for the year ended 31 December 2019 is US$ 406,000 (period ended 31 December 2018:
loss of US$ 1,961,000).
The Company has taken advantage of the following disclosure exemptions in preparing these financial
statements, as permitted by FRS 102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland”:
•
•
the requirements of Section 7 Statement of Cash Flows
the requirements of Section 11 Financial Instruments
Going concern
Cash and cash equivalents totalled US$ 1.65 million as at 31 December 2019 (2018: US$ 5 million).
The Company has no current source of operating revenue and is therefore dependent on both existing
cash resources and future fund raisings to meet overheads and future exploration requirements as they
fall due.
114
Kropz plc Annual Report for 2019
Notes to the Company Financial Statements for the year ended 31 December 2019
(continued)
In May 2020, Kropz entered into a convertible loan facility of up to US$ 40 million (not exceeding a
maximum of ZAR 680 million) with ARC, the Company’s major shareholder. This Equity Facility is
expected to bring the Company’s Elandsfontein project, into production in Q4 2021. The equity facility
is ringfenced in Kropz Elandsfontein and the Kropz group does not have access to the US$ 40 million
and ZAR 200 million currently locked up by BNP in the accounts of Kropz Elandsfontein. In due course
the ZAR 200 million ringfenced by BNP will be released and utilised towards funding the construction
and completion of Elandsfontein. Kropz Elandsfontein renegotiated and amended the BNP US$ 30
million project finance facility in June 2020, extending the first capital repayment to 31 December 2022,
and quarterly thereafter to 30 September 2024. Entering into and closing the amended facility
agreement with BNP removed the technical default announced to shareholders in February 2020.
In addition, the Group raised US$ 353,595, before expenses (approximately GBP 283,843) from an
equity placing to an existing investor and two directors on 1 June 2020 and raised a further
US$ 2,163,639, before expenses (approximately GBP 1,744,870) from an open offer to existing
shareholders on 26 June 2020.
Subsequent to the year end, the COVID-19 pandemic announced by the World Health Organization is
having a markedly negative impact on global stock markets, currencies and general business activity.
The Company has developed a policy and is evolving procedures to address the health and wellbeing
of its employees, consultants and contractors, and their families, in the face of the COVID-19 outbreak.
The timing and extent of the impact and recovery from COVID-19 is unknown but it may affect planned
activities and potentially display a post balance sheet date impact.
The directors have reviewed the overall position and outlook in respect of the matters identified above
and have prepared a cash flow forecast for the Company which indicates that the Company will need
to raise further funds in the second half of 2021 for working capital purposes and to progress the Hinda
project. Management have been successful in raising funds in the past and the directors consider it to
be appropriate to prepare the Company financial statements on a going concern basis. However, there
is no certainty that adequate funds will be available when needed and the COVID-19 pandemic may
adversely impact on the ability of the Company to raise the necessary funding. These circumstances
indicate the existence of a material uncertainty which may cast significant doubt about the Company’s
ability to continue as a going concern and therefore it may be unable to realise its assets and discharge
its liabilities in the normal course of business.
The financial report does not include adjustments relating to the recoverability and classification of
recorded asset amounts or to the amounts and classification of liabilities that might be necessary should
the Company not continue as a going concern.
(b) Interest revenue
Interest revenue is accrued on a time basis, by reference to the principal outstanding and the effective
interest rate.
(c) Fixed asset investments
Fixed asset investments in Group undertakings are carried at cost less any provision for impairment.
(d) Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the
contracted rate or the rate of exchange ruling at the balance sheet date and the gains or losses on
translation are included in the profit and loss account.
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Kropz plc Annual Report for 2019
Notes to the Company Financial Statements for the year ended 31 December 2019
(continued)
Exchange differences arising on the translation of the Company’s results and net assets from its
functional currency of GBP to the presentational currency of US$ are taken to the foreign currency
translation reserve.
(e) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, bank balances, deposits with financial institutions and
short-term, highly liquid investments that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of change in value.
(f) Share-based payment arrangements
The policy for the Company’s share-based payment arrangements can be found in Note 2(q) of the
Consolidated Financial Statements.
3.
Investment in subsidiaries
Cost
At beginning of the year / period
Acquisition of subsidiaries
Purchase of preference shares in
Kropz Elandsfontein
Impairment of investment in First
Gear
At 31 December
31
December
2019
US$’000
31
December
2018
US$’000
111,606
419
-
85,295
5,689
26,311
(5)
117,709
-
111,606
Details of the Company’s acquisitions are set out in Note 3 to the Consolidated Financial Statements.
Details of the Company’s subsidiaries as at 31 December 2019 are set out in Note 4 to the Consolidated
Financial Statements.
4.
Debtors
VAT recoverable
Preference dividends due from
subsidiary – Kropz Elandsfontein
Other debtors
Net Book Value
5.
Share capital
31
December
2019
US$’000
16
31
December
2018
US$’000
138
1,664
171
1,851
-
63
201
Details of the Company’s authorised, called-up and fully paid share capital are set out in Note 13 to the
Consolidated Financial Statements.
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Kropz plc Annual Report for 2019
Notes to the Company Financial Statements for the year ended 31 December 2019
(continued)
The ordinary shares of the Company carry one vote per share and an equal right to any dividends
declared.
6.
Reserves
Foreign exchange translation reserve
The foreign exchange translation reserve comprises all foreign currency differences arising from the
translation of the assets, liabilities and equity of the entities included in these financial statements from
their functional currencies to the presentational currency.
Share premium
The share premium account represents the amount received on the issue of ordinary shares by the
Company, other than those recognised in the merger reserve described below, in excess of their
nominal value and is non-distributable.
Merger reserve
The merger reserve represents the amount received on the issue of ordinary shares by the Company
in excess of their nominal value on acquisition of subsidiaries where merger relief under section 612 of
the Companies Act 2006 applies. The merger reserve consists of the merger relief on the issue of
shares to acquire Kropz SA on 27 November 2018 and Cominco Resources on 30 November 2018.
Share-based payment reserve
The share-based payment reserve arises from the requirement to value share options and warrants in
existence at the year end at fair value (see Note 13 to the Consolidated Financial Statements).
7.
Creditors: amounts falling due within one year
Trade creditors
Taxes and social security
Corporation taxes
Other creditors and accruals
Net Book Value
8.
Related party transactions
31
December
2019
US$’000
95
19
122
118
354
31
December
2018
US$’000
1,729
21
-
699
2,449
The only key management personnel of the Company are the Directors. Details of their remuneration
are contained in Note 22 to the Consolidated Financial Statements.
The following transactions and balances with subsidiaries occurred in the year:
Opening balance
Merger
subsidiaries
Loans advanced
and
acquisition
of
31
December
2019
US$’000
39,820
-
31
December
2018
US$’000
-
39,820
2,278
-
117
Kropz plc Annual Report for 2019
Notes to the Company Financial Statements for the year ended 31 December 2019
(continued)
Impairment provision – First Gear
Net Book Value
(306)
41,792
-
39,820
9.
Subsequent events
Disclosures in relation to events after 31 December 2019 are shown in Note 35 to the Consolidated
Financial Statements.
118
Kropz plc Annual Report for 2019
Company information
Directors
Lord Robin William Renwick of Clifton, Non-executive Chairman
Mark Robert Summers, Interim Chief Executive Officer and Chief Financial Officer
Michael (Mike) John Nunn, Non-executive Director
Machiel Johannes Reyneke, Non-executive Director
Michael (Mike) Albert Daigle, Independent Non-executive Director
Linda Janice Beal, Independent Non-executive Director
Company secretary
Mark Robert Summers
Company number
11143400
Registered address
35 Verulam Road
Hitchin
SG5 1QE
Independent auditors
BDO LLP
55 Baker Street
London W1U 7EU
Nominated adviser
Grant Thornton UK LLP
30 Finsbury Square
London EC2A 1AG
Joint broker
H&P Advisory Limited
2 Park Street
Mayfair
London W1K 2HX
Joint broker
Mirabaud Securities Limited
5th Floor
10 Bressenden Place
London SW1E 5DH
Legal advisers as to English Law
Memery Crystal LLP
165 Fleet Street
London EC4A 2DY
119
Kropz plc Annual Report for 2019
Company information (continued)
Legal advisers as to South African Law
Werksmans Attorneys
The Central, 96 Rivonia Road
Sandton 2196
Johannesburg
South Africa
Bowman Gilfillan
22 Bree Street
Cape Town 8000
South Africa
Legal advisers as to Ghanian Law
Bentsi-Enchill Letsa & Ankomah
4 Momotse Avenue
P.O. Box GP 1632
Accra
Ghana GA-073-2077
Legal advisers as to the laws of Republic of Congo
PricewaterhouseCoopers Tax & Legal
88 Avenue du General de Gaulle
B.P. 1306
Pointe-Noire
Congo
Legal advisers as to the laws of the British Virgin Islands
Harney Westwood & Riegels LP
Craigmuir Chambers
PO Box 71,
Road Town
Tortola VG1110
British Virgin Islands
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Principal bankers
Barclays
One Churchill Place
London E14 5HP
BNP Paribas
11 Crescent Place
Melrose Arch
Johannesburg 2196
South Africa
120
Kropz plc Annual Report for 2019
Company information (continued)
Financial PR
Tavistock Communications Limited
1 Cornhill
London EC3V 3ND
Market consultant
CRU Consulting
Chancery House
53-64 Chancery Lane
London WC2A 1QS
Company’s website: www.kropz.com
121