Kropz plc
Annual Report and Accounts for the year ended 31 December 2020
Company Registration No: 11143400
Kropz plc Annual Report for 2020
Contents
Page
1
Highlights
3
Chairman’s Statement
4
Strategic Report for the year ended 31 December 2020
24
Directors’ Report for the year ended 31 December 2020
41
Corporate Governance Report
54
Report of the Audit, Sustainability and Risk Committee
Report of the Remuneration and Nomination Committee
56
Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements 57
58
Independent Auditor’s Report to the Members of Kropz plc
66
Consolidated Statement of Financial Position
68
Consolidated Statement of Comprehensive Income
69
Consolidated Statement of Changes in Equity
70
Consolidated Statement of Cash Flows
71
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
120
Company Statement of Financial Position
121
Company Statement of Changes in Equity
122
Notes to the Company Financial Statements for the year ended 31 December 2020
129 - 130
Company Information
Kropz plc Annual Report for 2020
Highlights
Key developments during the 2020 financial year
Corporate
Kropz Plc (“Kropz” or “the Company”) 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 (“Original Equity
Facility”) in June 2020, to be used exclusively for the development of the Elandsfontein phosphate project
(“Elandsfontein”) in South Africa;
The first drawdown on the Original Equity Facility occurred on 26 June 2020 for US$ 10 million, and two further
drawdowns for US$ 4 million and US$ 5 million in terms of the Original Equity Facility were concluded on
25 September 2020 and 10 December 2020, respectively;
Completion of an open offer to existing shareholders to raise up to US$ 4 million, before expenses, at an
issue price of 6.75 pence per ordinary share (“Open Offer”). The Open Offer closed on 26 June 2020 and
raised US$ 2,163,639, before expenses (approximately GBP 1,744,870). The proceeds of the Open Offer
were used for general working capital purposes;
Completion of an equity placing to an existing investor and two Directors for US$ 353,595, before expenses
(approximately GBP 283,843), at an issue price of 6.75 pence per ordinary share (“the Placing”) on 1 June
2020. The proceeds of the Placing were used to progress work at Hinda;
Cash and cash equivalents, as at 31 December 2020, of US$ 12 million (2019: US$ 16 million);
Restricted cash in terms of the amended facility agreement between Kropz Elandsfontein and BNP Paribas
SA (“BNP”), as at 31 December 2020, of US$7 million (2019: US$ Nil); and
Property, plant, equipment and development and exploration assets of US$ 159 million (2019: US$ 145
million).
Elandsfontein
The primary focus of Kropz in 2020 was the Elandsfontein project in South Africa;
Kropz Elandsfontein (Pty) Ltd (“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. The amended facility agreement caters for an interest rate of 6.5per cent.
plus US LIBOR, up to project completion (as per the amended BNP facility agreement expected to be
December 2022) and 4.5per cent. plus US LIBOR thereafter, payable quarterly. The BNP facility remains
fully drawn;
Eriez completed pilot scale test work to confirm and optimise the remedial process flow sheet;
The test work confirmed that the modified Elandsfontein processing plant can produce a final concentrate to
specification of 68 per cent. BPL (31per cent. P2O5);
Engineering and design of the plant indicated that additional equipment would be required, including:
o new stacked screens to optimise the milling circuit;
o a water treatment plant;
o attritioning and conditioning circuits;
o additional flotation cells to float the coarse size fraction of +212 microns; and
o ancillary infrastructure and modifications of the original Elandsfontein processing plant;
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”) in March 2020;
Orders were placed for several long lead items, including stacked screens, flotation cells and cyclones;
Site based construction activities commenced at Elandsfontein in August 2020 and advanced well through
the year, despite the COVID pandemic; and
Equipment and steel procurement and fabrication continued, with first major mechanical equipment items
delivered to site.
1
Kropz plc Annual Report for 2020
Highlights (continued)
Hinda
Kropz concluded a competitive tender process for the updating of the 2015 Hinda feasibility study
(“Updated FS”);
RoC government approval of the new terms of reference for the updated Environmental and Social Impact
Assessment (“ESIA”); and
Conclusion of a focussed logistics study for Hinda, completed by Hatch Africa (Pty) Ltd (“Hatch”) in
September 2020.
Key developments post the financial year end
Corporate
Kropz secured a further convertible loan facility of up to US$ 5 million (not exceeding a maximum of ZAR 85
million) from ARC (“Further Equity Facility”) in February 2021, to be used exclusively for the Hinda Updated
FS and general corporate purposes for Kropz;
The fourth drawdown on the Original Equity Facility occurred on 10 March 2021 for US$ 7 million;
The fifth drawdown on the Original Equity Facility occurred on 23 June 2021 for US$ 11 million;
US$ 3 million remains undrawn at 29 June 2021 on the Original Equity Facility;
The first drawdown on the Further Equity Facility occurred on 10 March 2021 for US$ 2 million;
The second drawdown on the Further Equity Facility occurred on 23 June 2021 for US$ 2 million; and
US$ 1 million remains undrawn at 29 June 2021 on the Further Equity Facility.
Elandsfontein
Significant progress continues to be made at Elandsfontein and the project remains on track for achieving
the target date for commissioning in Q4 2021, within the current projected capital budget;
Earthworks and civil construction is complete;
Fabrication, installation and assembly of structural steel, platework and piping is ongoing;
Major mechanical equipment installation is well advanced with most major equipment installed;
The project schedule however remains under strain, with a high number of critical path, and near critical
path, items being managed concurrently;
A funding shortfall is expected in respect of the Original Equity Facility for the commissioning of
Elandsfontein in Q4 2021, due to strengthening of the ZAR against the US$; and
As announced on 25 May 2021, Transnet and Elandsfontein are working on a revised solution for the export
of Elandsfontein’s phosphate rock product. Following several meetings, Transnet has given assurances to
deliver a long-term port access agreement for the main export of Elandsfontein’s phosphate rock through
the port of Saldanha. Exports through Cape Town will be included in the agreement as a mitigation measure,
in the event that capacity through Saldanha is unavailable for a limited period of time.
Hinda
As announced on 4 February 2021, Kropz appointed Hatch to complete the Hinda Updated FS; and
Work is ongoing by Hatch and to date no workstreams have been negatively impacted due to the COVID
pandemic.
Aflao
Kropz divested its 50 per cent. + 1 share interest in Aflao, as announced on 16 February 2021.
2
Kropz plc Annual Report for 2020
Chairman’s Statement
Dear shareholder,
The financial year ended 31 December 2020 was a challenging year, particularly given the global COVID
pandemic and the impact that it had on the global economy.
The COVID pandemic has, to date, not had a significant impact on construction activities at Elandsfontein.
Remedial measures were successfully implemented by management and we are pleased to report that no cases
of COVID had been reported on site since early January 2021.
Thanks to the ARC Fund, Kropz’s major shareholder, funding has been secured to significantly complete the
Elandsfontein project and complete the Hinda Updated FS.
Kropz entered into the Original Equity Facility with ARC on 13 May 2020 for US$ 40 million (maximum of
ZAR 680 million). The Original Equity Facility, together with existing cash of US$ 12 million (approximately
ZAR 200 million) at that time, is being utilised to progress the development of Elandsfontein. The Original Equity
Facility was approved by shareholders at the Kropz general meeting on 29 May 2020.
In addition, Kropz entered into a Further Equity Facility with ARC on 15 February 2021 for US$ 5 million
(maximum of ZAR 85 million), to be utilised to complete the Updated FS at Hinda and for general corporate
purposes.
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 GBP 1,744,870).
Kropz Elandsfontein and BNP also entered into an amended facility agreement, extending the first capital
repayment date to 31 December 2022. The BNP facility of US$ 30 million is fully drawn.
Significant progress continues to be made at Elandsfontein and the project remains on track for achieving the
target date for commissioning in Q4 2021. The present focus is primarily on the site-based construction
activities, which are permitted to continue under the current COVID restrictions in place in South Africa. Civil
and earthworks are completed and the erection and installation of structural steel, plate work, piping and major
mechanical equipment is progressing well. Images of the progress at the Elandsfontein site are available online
at www.kropz.com/projects/elandsfontein/gallery-elandsfontein.
Kropz appointed Hatch in February 2021 to complete the Updated FS for Hinda. The Updated FS will target a
phased approach in line with the terms of the mining investment agreement, with initial production of one million
tonnes per annum (“Mtpa”) of phosphate rock being exported from the existing port facility at Pointe-Noire,
which is 50 km from Hinda. A second phase production ramp-up of two Mtpa will also be evaluated with export
from a new port site, located north of Pointe-Noire. The Updated FS is expected to be concluded by the end of
September 2021.
As previously announced, Kropz divested its interest in Aflao in February 2021.
The Board is grateful to all the members of the executive, management and teams on the ground for all their
efforts during a very challenging year, to our major shareholder for the further commitment shown by them and
to our auditors and advisors. The Board looks forward to updating shareholders on the progress made at
Elandsfontein and Hinda.
Lord Robin William Renwick of Clifton
Non-Executive Chairman
29 June 2021
3
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020
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 generally remained under
pressure throughout 2020, mainly due to the COVID pandemic. The current rock prices are higher than those
experienced in 2020.
Market analysts expect that a post COVID recovery in downstream fertiliser prices will provide support for an
increase in global phosphate rock prices until at least 2025, when new production is expected to come on
stream, whereafter phosphate rock prices should flatten out.
Significant changes in the state of affairs
Share issues
On 1 June 2020, Kropz announced that it had raised US$353,595 (before expenses) by way of an equity placing
of 4,505,060 ordinary shares with an existing investor and two Directors, Lord Robin Renwick and Mark
Summers, at a price of 6.75 pence per ordinary share. The placing shares were admitted to trading on AIM on
4 June 2020.
On 25 June 2020, Kropz announced the first drawdown of US$ 10 million of the Original Equity Facility. This
drawdown, together with fees associated with ARC providing a bank guarantee on behalf of Kropz Elandsfontein
to BNP, resulted in the issue of 130,199,604 ordinary shares to ARC at an issue price of 6.75 pence per ordinary
share. The first ARC drawdown and guarantee fee shares were admitted to trading on AIM on 30 June 2020.
On 29 June 2020, Kropz announced that it had raised US$ 2,163,639 before expenses (approximately
GBP1,744,870) by way of an open offer of 25,849,920 ordinary shares with ARC Fund, existing investors and
a Director, Mark Summers, at a price of 6.75 pence per ordinary share. The placing shares were admitted to
trading on AIM on 30 June 2020.
On 24 September 2020, Kropz announced the second drawdown of US$ 4 million of the Original Equity Facility.
This drawdown resulted in the issue of 50,962,963 ordinary shares to ARC at an issue price of 6.75 pence per
ordinary share. The second ARC drawdown shares were admitted to trading on AIM on 25 September 2020.
On 9 December 2020, Kropz announced the third drawdown of US$ 5 million of the Original Equity Facility. This
drawdown resulted in the issue of 63,703,704 ordinary shares to ARC at an issue price of 6.75 pence per
ordinary share. The third ARC drawdown shares were admitted to trading on AIM on 10 December 2020.
After the three ARC drawdowns of the Original Equity Facility and the Open Offer and Placing, the issued share
capital at 31 December 2020 was 558,627,558 ordinary shares (2019: 283,406,307).
4
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (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 one 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 issued share capital of Kropz Elandsfontein, the company
which owns the Elandsfontein project.
Prior to 2020, in excess of US$ 120 million was 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 conducted significant test work to define a robust circuit,
to cater for all ore types present within the Elandsfontein resource.
Elandsfontein’s logistics are advantageous and allow for easy access to both local and international markets.
Activity for the year ended 31 December 2020
The focus for the 2020 financial year was completion of the front end engineering design for the required plant
modifications, the appointment of the EPCM contractor (DRA), procurement of major mechanical equipment,
site based construction contracts and the commencement of site based construction activities.
Mining and geology
The Elandsfontein resource is defined below, on a total (gross) and net attributable basis. No further geological
drilling was conducted in 2020.
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)
Gross
Measured
Indicated
Inferred
47.5
30.3
23.3
Total
101.1
10.3
5.1
5.5
7.7
1.2
1.2
1.2
1.2
0.2
0.1
0.1
0.2
Net Attributable (74per cent. attributable to the Company)
Measured
Indicated
Inferred
Total
35.2
22.4
17.2
74.8
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
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
7.8
3.6
1.2
0.9
5.7
5
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
Plant and processing
Based on the test work completed, DRA concluded 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., in early 2020.
Care and maintenance of the existing Elandsfontein infrastructure was routinely conducted in accordance with the
approved care and maintenance plan during 2020.
Dewatering of the aquifer also continued, together with the updated ground water management plan.
The Department of Mineral Resources and Energy (“DMRE”) issued a directive to Kropz Elandsfontein during
2020 to upgrade its Environmental Management Programme (“EMPr”) in line with latest South African
legislation. The updated EMPr was submitted to the DMRE in September 2020 and the progress is discussed
below under “Post reporting period events”.
Safety, health and environment
As at 31 December 2020, the lost time injury frequency rate, per 200,000 man hours, was zero (2019 - 0.179).
No environmental or safety incidents were reported during the year.
CSR and sustainability
The execution of the five-year plan, aligned with the 2018 South African Mining Charter, and submitted to the
DMRE remains on track. The plan included progressive improvements to obtain compliance on the employment
equity and procurement objectives of the South African mining charter scorecard. The following strategic focus
areas were identified:
Education;
Social wellness;
Local economic development; and
Urban reconstruction and infrastructure upgrades.
Through collaboration with the local community forum, various community development projects were launched
in 2020 and will continue throughout 2021.
Small, medium, micro enterprise (“SMME”) development
Following the appointment of a specialist service provider in 2020, 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.
The SMME development programme was completed in July 2020. Fifteen SMME’s successfully
completed the programme. Additional funding was sourced from the provincial Department of Economic
Development and Tourism to give each SMME seed funding in the form of equipment and materials. In
addition, the group was placed into a six-month mentoring programme, which ended in February 2021.
Driver licence training
Eighty-five members of the community were selected for training and driving lessons, in order to improve
individual skills and potential for future employment. The focus group was previous mine employees,
women and youth from within the community. Against the backdrop of COVID restrictions, the
programme was completed at the end of November 2020.
6
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
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 that 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.
The programme is still ongoing and a total of twenty-one candidates were assessed externally by a
qualified service provider and awarded their certificates in bricklaying, painting, tiling and carpentry.
These candidates were employed during the construction phase of the project.
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 2020, modifications were hampered by restricted access to homes under COVID
lockdown and this project will be completed during the second half of 2021.
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
commenced 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.
Forty-eight of the participants applied and registered for the June 2020 exams, which was delayed to
November 2020 due to COVID and the program was adjusted to accommodate remote on-line learning.
Due to the COVID challenges only thirty-four members managed to participate in the November 2020
exams.
Planning for the 2021 program has been completed and classes for 2021 have resumed. Additional
candidates have been accommodated to allow for some of the younger community members to attend
the classes who wish to complete their secondary school qualifications.
Thusong community centre upgrade
The construction to increase the classroom and meeting venues at the local community centre were
completed in 2020. The new facilities were opened and made available to the community in Q1 2020.
Due to COVID restrictions the second phase of this project will be completed during the last quarter of
2021.
Kropz Elandsfontein continues to engage with the local community on a regular basis.
Post reporting period events
EMPr
On 1 July 2020, the DMRE issued a directive to Kropz Elandsfontein to submit an updated EMPr, in line with
the requirements of the National Environmental Management Act. The updated EMPr was submitted to the
DMRE in the first week of September 2020.
7
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
On Friday 26 March 2021, management received the updated EMPr for the Elandsfontein project from the
DMRE. The updated EMPr strongly emphasizes the adherence to the required rehabilitation measures.
Offsets
In July 2020, Kropz Elandsfontein submitted a revised Offset Study to the DMRE. Management informed the
DMRE that the 2015 Offset Study for the Elandsfontein project did not adequately consider Kropz
Elandsfontein’s effective rehabilitation measures which have demonstrated successful implementation over the
past three growing seasons. Kropz Elandsfontein’s rehabilitation measures have been shown to guarantee
future rehabilitation success, if conducted in accordance with the approved and financially secured mine
rehabilitation plan drafted by Kropz Elandsfontein’s appointed rehabilitation specialist.
Following due consideration of all the comments and responses received during the thirty day public
participation period, management received notification from the DMRE on 4 March 2021 that the conditions
required to cater for the offsets of land will be removed from the Elandsfontein EMPr.
Several appeals against the DMRE’s decision have been lodged and are being dealt with and Kropz will update
the market once these matters have been resolved.
Water use licence (“WUL”)
The outstanding appeal against the Elandsfontein WUL was heard from 1 to 4 February 2021. During this fourth
sitting of the matter, all evidence was heard by the Water Tribunal. The Water Tribunal issued a directive to all
parties, setting out the dates to be met for heads of arguments, to allow a ruling on 10 March 2021. The appellant
has subsequently been granted two postponements for the submission of their heads of arguments, which has
delayed the possible date of the ruling to 31 July 2021.
Transport and logistics
As announced on 25 May 2021, Transnet and Elandsfontein are working on a revised solution for the export of
Elandsfontein’s phosphate rock product. Following several meetings, Transnet has given assurances to deliver
a long-term port access agreement for the main export of Elandsfontein’s phosphate rock through the port of
Saldanha. Exports through Cape Town will be included in the agreement as a mitigation measure, in the event
that capacity through Saldanha is unavailable for a limited period of time.
Hinda
The Hinda project, currently 100 per cent. owned by Cominco S.A., is believed to be one of the world’s largest
undeveloped phosphate reserves. Ownership is expected to be diluted to 90 per cent. through the participation
of the RoC government. It consists of a sedimentary hosted phosphate deposit located approximately 40 km
northwest of the city of Pointe-Noire 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 phased production of initially one Mtpa, then later two Mtpa to be developed for a
significantly lower level of upfront capital investment.
Activity for the year ended 31 December 2020
In early 2020, Kropz completed a competitive tender for an updated feasibility study for the Hinda project. The
tender award and associated work programme for Hinda was subject to securing additional funding.
8
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
As announced on 6 August 2020, Kropz appointed Hatch to conduct a focussed assessment on the export
logistics capacity at its proposed port site in Pointe-Noire. The study was expected to confirm the achievable
capacity through the proposed port site in Pointe-Noire and highlight any major drivers influencing throughput,
from truck receiving to vessel loading. This, in turn, would enable Kropz to determine the capacity for the first
phase of the mining and beneficiation plant at Hinda. The focussed logistics study for Hinda, was completed by
Hatch in September 2020. The study identified that the constraints at the Pointe-Noire port would limit export
capacity to 1.2 Mtpa.
With the revised mine and plant capacity, and the need to dry concentrate on site, the ESIA required an update and
amendment. The terms of reference for the updated ESIA were compiled and lodged with the Ministry of Tourism
and Environment. The RoC Department of Tourism and Environment validated the terms of reference of the
updated ESIA during 2020.
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
2021.
In country, given the COVID pandemic, 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.
Declaration d’Utilite Publique (“DUP”)
The DUP (declaration of public utility) is a process required by the government of the RoC, whereby land within
the mining licence concession area may be expropriated from its existing owners in order to accommodate the
needs of the mining project, its works and installations. All households, infrastructure, other structures and land
uses (crops and fruit trees), need to be recorded during a survey.
In accordance with Law No. 11-2004, the RoC Minister of Land Affairs signed the Decree 12914 / MAFDP-CAB,
dated 16 October 2020, declaring the DUP in respect of the Hinda project. The Land Commission was set up
on 6 November 2020 by memorandum n° 262/MAFDPRP-CAB for the area covered by the demarcation plan
registered under n° 127 and dated October 2020. The President of the Land Commission is the Director of the
Cabinet of the Ministry of Land Affairs in the RoC.
Cominco worked on the area to be covered by this DUP, covering an area of approximately 33 km2 to be
surveyed. This area caters for the pit extent for approximately 25 years of mining and the plant site and the
tailings storage facilities defined during the 2015 DFS.
The survey commenced on 27 November 2020, once the DUP was gazetted.
9
Class
Gross
Measured
Indicated
Inferred
Total
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
Mineral resources
The Hinda resource is defined below, on a total (gross) and net attributable basis. No additional drilling was
conducted in 2020.
Mineral Resource Statement, as declared by SRK on 31 August 2018
Quantity
(Mt)
Grade
(%P2O5)
Grade
(%Al2O3)
Grade
(%MgO)
Grade
(%Fe2O3)
Grade
(%CaO)
Grade
(%SiO2)
Contained
P2O5 (Mt)
200.5
380.9
94.4
675.8
11.6
9.8
7.5
10.0
3.7
5.0
4.8
4.6
3.8
3.3
3.6
3.5
Net Attributable (90 per cent. attributable to the Company)
Measured
Indicated
Inferred
Total
180.5
342.8
85.0
608.3
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
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.
Sustainability
Cominco S.A. continued its interactions with the local communities associated with the Hinda project.
Post reporting period events
Kropz appointed Hatch in February 2021 to complete the Updated FS on Hinda. The Updated FS will target a
phased approach in line with the terms of the MIA, with initial production of one Mtpa of phosphate rock being
exported from the existing port facility at Pointe-Noire, which is 50 km from Hinda, by road. A second phase
production ramp-up of two Mtpa will also be evaluated with export from a new port site, located north of Pointe-
Noire. The Updated FS is expected to be concluded by the end of September 2021.
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
expected in 2021.
The Land Commission completed the survey, required for the DUP process, on 23 January 2021 and
management are reviewing the preliminary report, issued by the Land Commission, and auditing and
interrogating the results and conclusions, before progressing to the next step in the DUP process.
10
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
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.
Business model
The Company’s business model is to source high quality resources 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 strong shareholder and stakeholder returns over the long term.
Elandsfontein
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.
Hinda
Cominco Resources appointed Hatch and commenced the Updated FS to define the economics of the proposed
development option.
Cominco S.A. is expecting the completion of the ratification and formal implementation of the MIA before the
end of 2021. 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,
subject to short-term challenges being managed. The year ahead should provide the Company with a solid
foundation for its future development.
Financial review for the year ended 31 December 2020
Summary financial highlights for the year:
Cash and cash equivalents of US$ 12 million (2019: US$ 16 million)
Restricted cash in terms of the amended facility agreement between Kropz Elandsfontein and BNP of US$ 7
million (2019: US$ Nil);
Trade and other payables of US$ 5 million (2019: US$ 2 million); and
11
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
Property, plant, equipment and development and exploration assets of US$ 159 million (2019: US$ 145
million).
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 presented in any
order of priority, do not purport to be a complete list or explanation of all the risks involved in the Company or
the Group’s activities.
Completion of commissioning of Elandsfontein
The Elandsfontein project requires a number of modifications to the processing facility, further funding and
successful commissioning in order to commence operations in Q4 2021. Any delays in securing of additional
funding and the 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 operation. There can be no guarantee
that implementation of the modifications identified by the Company and its technical consultants will result in a
successful commissioning of the mine. Failure to complete the commissioning of the Elandsfontein project, 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. Further, see risk factor: COVID Outbreak.
Access to infrastructure
Mining, processing, development and exploration activities depend, to a significant degree, on adequate
infrastructure. In the course of developing future mines, the Group may need to construct and support the
construction of infrastructure, which includes permanent water supplies, tailings storage facilities, power, rail
and maintenance facilities and logistics services and access roads.
Reliable rail facilities, roads, bridges, power sources and water supply are important determinants, which affect
capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other
interference in the maintenance or provision of such infrastructure could materially adversely affect the Group’s
operations, financial condition and results of operations. Any such issues arising in respect of the supporting
infrastructure or on the Group’s sites could materially adversely affect the Group’s results of operations or
financial condition. Furthermore, any failure or unavailability of the Group’s operational infrastructure (for
example, through equipment failure, disruption to its transportation arrangements or reduced port capacity)
could materially adversely affect the production output from its mines or impact its exploration activities or
development of a mine or project.
Limited or reduced port capacity at the Port of Saldanha and the port of Pointe-Noire, as well as the associated
cost increase for procuring alternative logistics could have an adverse impact on the business and financial
performance of the Group.
Operational targets
The Group’s principal asset, the Elandsfontein project, is an advanced stage mining project that has no
operating track record upon which to base estimates of future production rates, operating costs, capital
expenditures or financial performance. The operational targets of the Group will be subject to the completion of
planned operational goals on time and according to budget, and are dependent on the effective support of
12
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
personnel, systems, procedures and controls. Any failure of these may result in delays in the achievement of
operational targets with a consequent material adverse impact on the business, operations and financial
performance of the Group. It is, therefore, possible that mining and production rates might fluctuate.
The financial performance of the Group is subject to its ability to achieve a target concentrate specification and
production efficiency at its Elandsfontein project, according to its pre-determined budget. Failure to do this may
result in failure to achieve operational targets with a consequent material adverse impact on the business,
operations and financial performance of the Group. Further, mining and production rates might fluctuate.
Excessive overburden stripping, non-economical mining of ore and the dilution of feed grade to the processing
facility could all have an adverse impact on the processing operations. Furthermore, a high variability in the
daily feed grades could also have an adverse impact on operations and financial performance of the Group.
Once mining has commenced at Elandsfontein, any further unscheduled interruptions in the Group’s operations
due to mechanical or other failures or industrial relations related issues or problems or issues with the supply
of goods or services could have a serious impact on the financial performance of those operations. The Group
will not generate any material income until mining and processing has successfully re-commenced, while
continuing to expend its cash reserves.
New entrant risk
Kropz Elandsfontein will, once production has been achieved of a commercial saleable grade product, be a new
entrant in the global phosphate rock market, selling its products into a globally competitive and established
market. Competitors can be very difficult to dislodge having already established their products in the global
market.
There can be no guarantee that the sales estimates set by Kropz Elandsfontein will be achieved until a
successful track record has been achieved. Not achieving appropriate selling prices for its commercial grade
products, would have a material adverse effect on the business, operations and financial performance of the
Group.
Mining risks
The business of mining and mineral processing involves a number of risks and hazards, including industrial
accidents, labour disputes, community conflicts, activist campaigns, unusual or unexpected geological
conditions, geotechnical risks, equipment failure, changes in the regulatory environment, environmental
hazards, ground water and weather and other natural phenomena such as earthquakes and floods. The Group
may experience material mine or plant shutdowns or periods of reduced production as a result of any of the
above factors. Such occurrences could result in material damage to, or the destruction of, mineral properties or
production facilities, human exposure to pollution, personal injury or death, environmental and natural resource
damage, delays in mining, monetary losses and possible legal liability, and may result in actual production
differing, potentially materially, from estimates of production, whether expressly or by implication. There can be
no assurance that the realisation of operating risks and the costs associated with them will not materially
adversely affect the results of operations or financial conditions of the Group.
Geotechnical risks could have a material adverse impact on the safety, business and financial performance of
the Group’s operation.
The biggest geotechnical risk to the mining at Elandsfontein is the possibility of pit ‘basal heave failure’ below
the mineralised zone. A detailed study has been conducted by SRK (SA) including numerical modelling of the
pit – based on shear strength parameters determined by geotechnical test work. SRK (SA) concluded that the
base of the excavation should be limited to a 50m width in order to mitigate this risk. In order to achieve this,
discipline must be employed in ensuring that backfilling never lags mining and that dewatering systems remain
effective.
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Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
Possible groundwater inflow into the pit has also been identified by SRK (SA) as a potential geotechnical risk
as increased water pressures could lead to pit wall instability. This risk has been mitigated by the borehole
dewatering system that has been implemented, which coupled with in-pit sump dewatering has proven to be
effective to date and working as designed. Diligent and regular monitoring of the efficacy of the dewatering is
required to ensure that pit wall instability is minimised.
Failure to successfully dewater the mining area and maintain water levels in the mining area at the Elandsfontein
project could have a material adverse impact on the operational performance, financial performance and
financial condition of the Group.
WUL and associated litigation
There is currently an administrative appeal which is pending before the Water Tribunal in South Africa. The
applicant and 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 administrative appeal currently pending before the Water Tribunal seeks the setting aside of the
Elandsfontein Project’s integrated WUL. The third, and final appeal hearing was held from 1 to 4 February 2021
and the decision of the Water Tribunal is not known yet. 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 Kropz’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.
Enforcement of contractual rights in the RoC may be brought into question
The legal system in the RoC is based on the French civil law system (the Civil Code of the former French
Equatorial Africa), which has enacted the Uniform Act to harmonise business law in Africa in order to guarantee
legal and judicial security for investors and companies in its member states, as well as a Uniform Act on
Arbitration Law, allowing recourse to a standard arbitration mechanism for the settlement of contractual disputes
arising from civil or commercial contracts concluded in the RoC as an alternative to RoC courts for legal
proceedings relating to contracts.
Under Congolese law, parties may enter into private contracts in the language of their choice, however, a French
translation is always required for them to be used before any constituted authority in the RoC. In addition,
enforcement of contracts concluded outside of Congo before an RoC court, administrations and other
constituted authorities, requires their prior registration with the Office for Registration and Stamp Duties and, in
the absence of a specific exemption, payment of the applicable registration fees and stamp duties.
Certain contracts concluded in the RoC (such as leases) must also be presented for registration with the Office
for Registration and Stamp Duties, due to their nature and listing in the General Tax Code, Volume 2. Moreover,
certain contracts (such as commercial leases) must also be notarised or authenticated by a notary if concluded
as private deeds, prior being registered as described above.
If any of these processes are not strictly followed, the RoC courts and administrations may disregard the
concerned contract and, as regards the requirement to register certain contracts with the Office for Registration
and Stamp Duties, the tax administration may apply fines of 100 per cent. of the amount of registration fees
due. Further, the tax administration tends to disregard any payment conventional exemption for the purpose of
applying these fines.
If any of the Group’s contracts are deemed unenforceable, this could have a material adverse effect on the
operations and financial results of the Group.
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Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
COVID Outbreak
The current outbreak of COVID has had an impact on the Group’s businesses and operations and will continue
to do so. The timescale attached to this risk is not currently known. There is a risk that the outbreak, and
subsequent waves of infections in different countries, has a material adverse impact on the Group’s operations
and financial results.
Directives are issued and measures implemented, from time to time, by the South African and RoC
Governments to contain the spread of COVID involving lockdowns, curfews, quarantine requirements and travel
restrictions (“Directives”). Kropz continuously monitors the situation closely, both in South Africa and the RoC,
and codes of practice are in place to deal with outbreaks on site.
Kropz is currently unable to quantify the impact of the Directives going forward, but the Group will continue to
progress all its workstreams as previously outlined. The Elandsfontein project timetable is not currently affected.
Commodity pricing
The future profitability and viability of the Group’s operations will be dependent upon the market price of
phosphate rock to be sold by the Group. Mineral prices fluctuate widely and are affected by numerous factors
beyond the control of the Company. The level of interest rates, the rate of inflation, the world supply of mineral
commodities, the global level of demand from consumers and the stability of exchange rates can all cause
significant fluctuations in prices. Such external economic factors are in turn influenced by changes in
international investment patterns, monetary systems and political developments. Commodity prices have
fluctuated widely in recent years, and future price declines could cause commercial production to be
impracticable, thereby having a material adverse effect on the Company’s business, financial condition and
results of operations. A significant or sustained downturn in commodity prices would adversely affect the
Group’s available cash and liquidity and could have a material adverse effect on the business, results of
operations and financial condition of the Group in the longer term.
In recent years, global phosphate rock and fertilizer supply growth has out-paced demand. As a result, sharp
declines have taken place in both phosphate rock and phosphate fertilizer prices since 2011. A failure of the
market price for phosphate rock to recover in line with market expectations could have an adverse impact on
the Company’s business, financial condition and results of operations. Furthermore, reserve estimates and
feasibility studies using significant lower commodity prices could result in material write-downs of the Group’s
investment in its assets and increased amortisation, reclamation and closure charges.
In addition to adversely affecting the Group’s reserve estimates and its financial condition, declining commodity
prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a
reassessment may be the result of a management decision or may be required under financing arrangements
related to a particular project. Even if the Elandsfontein project and the Hinda project are ultimately determined
to be economically viable, the need to conduct such a reassessment may cause substantial delays or may
interrupt operations until the reassessment can be completed.
Environmental regulation and environmental compliance
Mining operations have inherent risks and liabilities associated with damage to the environment and the disposal
of waste products occurring as a result of mineral exploration and production. Environmental and safety
legislation and regulation (e.g. in relation to reclamation, disposal of waste products, pollution and protection of
the environment, protection of wildlife and otherwise relating to environmental protection) is frequently changing
and is generally becoming more restrictive with a heightened degree of responsibility for companies and their
Directors and employees and more stringent enforcement of existing laws and regulations. Future changes
could impose significant costs and burdens on the Group (the extent of which cannot be predicted) both in terms
of compliance and potential penalties, liabilities and remediation.
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Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
Breach of any environmental obligations could result in penalties and civil liabilities and/or suspension of
operations, any of which could adversely affect the Group. Further, approval may be required for any material
plant modifications or additional land clearing and for ground disturbing activities. Delays in obtaining such
approvals could result in the delay to anticipated exploration programmes or mining activities.
There may also be unforeseen environmental liabilities resulting from mining activities, which may be costly to
remedy. If the Group is unable to fully remedy an environmental problem, it may be required to stop or suspend
operations or enter into interim compliance measures pending completion of the required remedy. The potential
exposure may be significant and could have a material adverse effect on the Group. The Group has not
purchased insurance for environmental risks (including potential liability for pollution or other hazards as a result
of the disposal of waste products occurring from exploration and production) as it is not generally available at a
price which the Group regards as reasonable.
In South Africa, the Regulations Pertaining to the Financial Provision for Prospecting, Exploration, Mining or
Production Operations 2015 (R1147 of 20 Nov 2015) provides that the holder of a mining right must provide for
rehabilitation and remediation costs, with particular reference to when the mine is decommissioned at the end
of mining, or production operations. It is expected that mining operations at Elandsfontein will cease in year
2030. The under-provision of such a rehabilitation liability could result in future liabilities being payable, which
could have a material adverse impact on the financial condition of the Group.
Government regulation and political risk
The Group’s operating activities are subject to laws and regulations governing expropriation of property, health
and worker safety, employment standards, waste disposal, protection of the environment, mine development,
land and water use, prospecting, mineral production, exports, taxes, labour standards, occupational health
standards, toxic wastes, the protection of endangered and protected species and other matters. While the
Directors believe that the Group is in substantial compliance with all material current laws and regulations
affecting its activities, future changes in applicable laws, regulations, agreements or changes in their
enforcement or regulatory interpretation could result in changes in legal requirements or in the terms of existing
permits and agreements applicable to the Group or its properties, which could have a material adverse impact
on the Group’s current operations or planned development projects. Where required, obtaining necessary
permits and licences can be a complex, time consuming process and the Group cannot assure whether any
necessary permits will be obtainable on acceptable terms, in a timely manner or at all.
The costs and delays associated with obtaining necessary permits and complying with these permits and
applicable laws and regulations could stop or materially delay or restrict the Group from proceeding with any
future exploration or development of its properties. Any failure to comply with applicable laws and regulations
or permits, even if inadvertent, could result in interruption or closure of exploration, development or mining
operations or material fines, penalties or other liabilities.
The Group has operations located in South Africa and the RoC and the Group’s activities may be affected in
varying degrees by political stability and governmental regulations. Any changes in regulations or shifts in
political attitudes in South Africa and the RoC are beyond the control of the Group and may adversely affect its
operations.
Adverse sovereign action
The Group is exposed to the risk of adverse sovereign action by the governments of South Africa, RoC and
other governments. The mining industry is important to the economies of these countries and thus can be
expected to be the focus of continuing attention and debate. In similar circumstances in other developing
countries, mining companies have faced the risks of expropriation and/or renationalisation, breach or abrogation
of project agreements, application to such companies of laws and regulations from which they were intended to
be exempt, denials of required permits and approvals, increases in royalty rates and taxes that were intended
to be stable, application of exchange or capital controls, and other risks.
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Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
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 41
to 53.
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 reporting
requirement is made in accordance with the 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.
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 and vendor
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 37
of the Directors’ Report.
The Company owns 74 per
cent. of Kropz
Elandsfontein, the owner of
the Elandsfontein project in
Access to capital is of vital
importance to the long-term
success of the business to
enable the development 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
The key mechanisms of
engagement included:
Substantial shareholders
• Both ARC and Kropz
International have
appointed Directors to the
board of Kropz; and
• The other existing
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 37.
substantial shareholders
have regular meetings
and interactions with the
Chairman and/or CEO.
The CEO presented at a
number of investor
roadshows and one on one
meetings.
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Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
South Africa. 26 per cent. is
owned by ARC.
concentrate and therefore a
return on the investment.
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.
Through selected
engagement activities, the
Company strives to obtain
investor buy-in into its
strategic objectives detailed
on page 11 and the
execution thereof.
Kropz Elandsfontein may
require further funding to
complete the construction of
Elandsfontein and Cominco
Resources requires further
funding to develop Hinda.
As such, existing equity
investors and potential
investment partners are
important stakeholders.
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.
During the course of 2020,
the percentage of shares
held in public hands
decreased and the overall
daily volume of shares
traded increased.
Investment and equity
partners
• ARC have representatives
on the Kropz
Elandsfontein and ELH
boards of Directors in
terms of the respective
shareholder’s
agreements; and
• Regular board meetings
are held.
Prospective and existing
investors
• The AGM and Annual and
Interim Reports;
• Investor roadshows and
presentations;
• One on one investor
meetings with the
Chairman and/or CEO;
• Access to the Company’s
broker and advisers;
• Regular news and project
updates; and
• Social media accounts
e.g. Twitter @Kropzplc;
• Site visits for potential
cornerstone investors.
Debt providers
Kropz Elandsfontein has a
US$30 million, fully utilised,
debt facility with BNP that
commenced in September
2016.
Access to capital is of vital
importance to the long-term
success of the business to
be able to complete the
Elandsfontein project. The
debt facility was utilised in
the construction of
Elandsfontein.
Various contractual
conditions of the debt
finance require regular
updates on ongoing
progress.
Ongoing support from
potential new debt providers
is required to achieve the
construction of Hinda.
• One on one meetings
with the CEO and/or
COO;
• Regular reporting on
project progress;
• Ad hoc discussions with
management, as
required; and
• Tripartite discussions
between Kropz
Elandsfontein, ARC and
management to ensure
there are no compliance
matters outstanding in
relation to the facility.
During 2020, the Company
completed the Original Equity
Facility for US$ 40 million
with ARC and a US$ 2m
further direct investment in
the Company.
Post 31 December 2020, the
Company completed the
Further Equity Facility for
US$ 5 million with ARC.
In terms of the additional
facilities and capital injection,
ARC will potentially acquire a
total further 34 per cent.
interest in the Company,
eventually taking its 49 per
cent. interest at December
2020 to over 84 per cent..
At the Company’s AGM in
2020 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.
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.
In May 2020, the amended
facility agreement was
signed between Kropz
Elandsfontein and BNP,
thereby restructuring the first
principal debt repayment to
31 December 2022.
Employees
The Company has 12 South
African, 5 UK and 5 RoC
employees, including its
Directors.
Two of the Directors are UK
residents, 1 Monegasque, 1
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.
General employees
• The Company maintains
an open line of
communication between
its employees, senior
management and the
Board.
The Company’s long-term
success is predicated on the
UK employees
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-
18
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
American and 2 are South
African resident Directors.
The CEO during the year
under review was South
Africa-based. The CEO
allocates 35 per cent. of his
time to matters relating to
the Company in the UK.
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.
Governmental bodies
The Company is impacted
by national, regional and
local governmental
organisations in South
Africa and the RoC.
The Group will only
commence production when
the development of
Elandsfontein is completed
in Q4 2021.
Thereafter development of
Hinda will be progressed.
• The CEO reports
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; and
• 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; and
• 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.
The Company provides
general corporate
presentations regarding the
Elandsfontein project
development as part of
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.
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 2020.
Meetings have been held
with various representatives
of the national, regional and
local government bodies, to
discuss ongoing compliance
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 was required at
Elandsfontein.
In addition, the Company has
received or is in the process
of obtaining the required
permits to explore and
develop Hinda, subject to
securing of funding for these
activities. An amendment is
required to the ESIA.
Community
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Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
The local communities
adjacent to Elandsfontein in
South Africa and Hinda in
the RoC.
Suppliers
During the Elandsfontein
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.
At a local level, the
Company has also
partnered with a number of
smaller companies, some of
whom are
independent or family run
businesses.
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.
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
performance targets can be
met.
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 commenced in
2020.
In addition to the community
project described previously,
Elandsfontein provided food
relief to the Hopefield
community during the COVID
pandemic.
• 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; and
• The Company has
existing Corporate Social
Responsibility 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.
See page 5 of the strategic
report for latest on progress
on test work and
construction.
See page 8 of the strategic
report for an update on the
potential transport and
logistics uncertainties facing
the Group.
Smaller local vendors were
engaged at a broader level to
better align with company
objectives.
• Management continue to
work closely with
appointed contractors,
consultants and suppliers
to finalise their contracts
and end deliverables; and
• One on one meetings
between management
and suppliers;
• Vendor site visits and
facility audits to ensure
supplier is able to meet
requirements;
• Contact with procurement
department and accounts
payable; and
• Assist local suppliers to
address liquidity
challenges.
Section 2: Principal decisions by the Board
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.
20
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
During the financial year ending 31 December 2020
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
Original Equity Facility was approved by Kropz’s shareholders at a general meeting on 29 May 2020. Quarterly
draw downs under the Original Equity Facility are at the sole discretion of Kropz. The first draw down on the
Original Equity Facility occurred on 26 June 2020 for US$ 10 million, and two further drawdowns for US$ 4 million
and US$ 5 million in terms of the Original Equity Facility were concluded on 25 September 2020 and
10 December 2020, respectively. Repayment of the Original Equity 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 Original 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.
At the date of this Annual Report and since year end, further draw downs of US$ 7 million and US$ 11 million
were made on 10 March 2021 and 23 June 2021, respectively. US$ 3 million remains to be drawn down in 2021.
The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.
Existing shareholders may have conflicting interests with the Original 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.
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 Original Equity Facility by the Board. The independent, non-executive Directors,
being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, considered the
transaction to be fair and reasonable.
As a result of the Original 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 Original Equity Facility was fair and reasonable and the transaction was approved
by the independent Directors and announced on RNS on 13 May 2020.
21
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
Post 31 December 2020
Convertible loan facility for $5 million from ARC, entered into on 15 February 2021
Kropz secured a further convertible loan facility of up to US$ 5 million (not exceeding a maximum of ZAR 85 million)
from ARC (“Further Equity Facility”) in February 2021, to be used exclusively for the Hinda Updated FS and general
corporate purposes for Kropz. Quarterly draw downs under the Equity Facility are at the sole discretion of Kropz.
The first draw down of US$ 2 million on the Further Equity Facility occurred on 10 March 2021 and the second draw
down of US$ 2 million occurred on 23 June 2021. No specific shareholder approval was required for the Further
Equity Facility as the Company received the necessary authority at the AGM in August 2020 to allot shares for
cash, without first offering them to existing shareholders in proportion to their existing shareholdings, of
approximately 20 per cent. of the Company’s issued share capital at that time, representing 88,792,180 new
ordinary shares. Ordinary shares to be issued to ARC in terms of the Further Equity Facility will be a maximum
of 86,863,398 ordinary shares.
The next drawdown is anticipated on 10 September 2021, and quarterly thereafter until the facility is fully drawn
down in 2021/2022. Repayment of the Further Equity 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 4.202 pence
per ordinary share each quarter, and any US$ amount will be converted to GBP at an agreed rate of US$ 1 =
0.73 GBP.
The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.
Existing shareholders may have conflicting interests with the Further 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 secure funding for the
Hinda Update FS and for general working capital for the Group. Various funding alternatives had been
investigated by the Directors, in conjunction with its brokers and advisers, over the last year, 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 the Hinda Updated FS and Kropz’s
working capital requirements.
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$ 5 million Further Equity Facility by the Board. The independent, non-executive Directors,
being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, considered the
transaction to be fair and reasonable.
As a result of the Further Equity Facility, ARC would increase its interest in the Company by a further
approximate 4 per cent., taking its eventual interest in the Company to approximately 84 per cent.
The conclusion was that the Further Equity Facility was fair and reasonable and the transaction was approved
by the independent Directors and announced on RNS on 26 February 2021.
At the date of this Annual Report and since year end, further draw downs of US$ 2 million each were made on
10 March 2021 and 23 June 2021, respectively. US$ 1 million remains to be drawn down in 2021 / 2022.
Proposed divestment by the Company of its equity interest in Aflao, Ghana, entered into on 16 February
2021:
During 2020, 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. During February 2021, Kropz disposed of its interest
in FGE to Consortium Minerals Ltd (“Consortium”), for a consideration of US$ 327,529, made up as follows:
US$ 5,000 in cash (“Share Consideration”); and
22
Kropz plc Annual Report for 2020
Strategic Report for the year ended 31 December 2020 (continued)
US$ 322,529 (“Loan Consideration”) deferred cash consideration in respect of the shareholder loan
from Kropz to FGE, which is being novated to Consortium.
The Share Consideration will be payable by Consortium within seven days of completion. The Loan
Consideration will be payable by Consortium to Kropz upon, the earlier of,
(i)
the sign-off by a competent person of a definitive feasibility study on the Aflao deposit, as defined in
the JORC Code 2012 edition; or
(ii) Consortium disposing or transferring the Shares prior to the event described in (i) being achieved; or
(iii) Consortium disposing or transferring the prospecting right prior to the event described in (i) being
achieved.
Consortium is a subsidiary of Russell Brooks Ltd, who is a minority shareholder in FGE, with a 15 per cent.
shareholding prior to the acquisition from Kropz.
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
Chief Executive Officer
29 June 2021
23
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020
The Board of Directors (“Board”) present their third Annual Report for Kropz plc (“the Company”) and the Kropz
plc Group (“Group”) for the year ended 31 December 2020.
Directors
The names of Directors of the Company in office at any time during or since the end of the 31 December 2020
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)
Chief Executive Officer (appointed 10 January 2018), previously 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 phosphate project in the RoC.
Business review and future developments
Details of the business activities and future developments can be found in the Strategic Report on pages 5 to
10.
Operating Results
The net loss after tax of the Company for the year ended 31 December 2020 amounted to US$ 2 million (2019:
US$ 9 million).
Dividends paid or recommended
In respect of the year ended 31 December 2020 no dividends were paid or declared and the Directors do not
recommend the payment of a dividend (2019: no dividends paid or declared).
24
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (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.
Streamlined Energy and Carbon Reporting (“SECR”)
The new SECR framework, which came into force in April 2019 requires qualifying UK companies to report on
their energy usage and provide information the energy efficient action taken during the reporting period.
Kropz is exempt from these disclosures as it did not consume more than 40,000 kWh in the UK during the
reporting period.
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 year the Company did not make any political contributions or charitable donations (31 December
2019 – none).
Annual general meeting (“AGM”)
It should be noted that due to the delay in the completion of the audit of the 31 December 2020 Financial
Statements and Annual Report (the "2020 Accounts"), it was not possible to publish the 2020 Accounts prior
to issuing the Notice of AGM and therefore, no resolution to receive and adopt the 2020 Accounts has been
proposed at the AGM. Following the publication of these 2020 Accounts, a separate general meeting has been
called to be held on 23 July 2021 at 11 a.m. for the purpose of considering and, if thought fit, passing an
ordinary resolution to receive and adopt the 2020 Accounts (“GM”).
The AGM for the shareholders of the Company is being held on 30 June 2021 at 1 p.m. for the purpose of
considering and, if thought fit, passing five ordinary resolutions and two special resolutions as set out in the
Notice of AGM that was sent to all shareholders on 7 June 2021.
Shareholders will have an opportunity prior to the AGM and GM to raise comments or ask questions of the
Board in relation to the business of the relevant meeting. The Group proposes a separate resolution for each
substantially different item of business, giving shareholders the opportunity to vote on each issue.
25
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
In light of the Government’s response to the COVID pandemic, which includes restrictions on the gathering of
people indoors, it has become necessary to restrict physical participation at the AGM. Accordingly, the AGM
and the GM will be held at the offices of Memery Crystal Limited, 165 Fleet Street, London, EC4A 2DY, with
the minimum attendance required to form a quorum to conduct the necessary business. Due to the restrictions
in respect of COVID, it is not expected to be possible for shareholders to attend the meeting in person,
therefore, shareholders were urged to appoint the Chair of the meeting as his or her proxy. Given the
constantly evolving nature of the situation, should circumstances change before the time of the AGM which
would allow shareholders to attend the meeting, the Company will provide updated details of the meeting
format in order to adhere to the COVID restrictions in place at the time.
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.
Health and safety
The Group continues to maintain a high standard of workplace safety. In order to execute this, 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. In addition, the Group
also developed and maintained an internal management system and also 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 2020.
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 generally 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 a mining licence in South Africa and an exploitation licence in the RoC.
The Group’s operations are subject to environmental legislation in these jurisdictions in relation to its
exploration and project development activities and remains committed to these requirements.
26
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
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 Chairman of
the Advisory Board of Stonehage Fleming and Senior Adviser to Richemont
and Appian Capital.
Interest in Ordinary Shares
and Options
300,000 fully paid Ordinary Shares
Mark Summers
Chief executive officer
(appointed 10 January 2018)
Mark Summers is the CEO of the Group and is also responsible for the
finance function, administration, structuring of projects, accounting,
taxation and corporate finance. Mark joined Kropz Elandsfontein in 2015.
Interest in Ordinary Shares
and Options
Linda Beal
Non-executive Director
(appointed 26 November 2018)
Mark has over 24 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 holds an Honours Degree in
Accounting from the University of Johannesburg. Mark is a registered
member of the South African Institute of Chartered Accountants.
414,889 fully paid Ordinary Shares
3,362,609 unlisted ESOP options exercisable at 0.1 pence each expiring
28 November 2028.
2,350,000 unlisted LTIP options exercisable and vesting at 0.1 pence each
on 31 December 2021.
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,
27
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
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)
Interest in Ordinary Shares
and Options
Directors’ service contracts
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
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
The CEO 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 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$ 128,397 (2019: US$ 59,368)
28
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
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 2020. 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:
KMP of the Company and Group;
Remuneration policy;
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 56.
KMP 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
Mark Summers
Ian Harebottle
Chief Executive Officer and company secretary (appointed 10 January
2018 and appointed as CEO on 4 August 2020)
Chief Executive Officer (appointed 4 June 2018 and resigned
29 February 2020)
29
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
Non-executive Directors
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 the Company, Kropz Elandsfontein and Cominco Resources Limited
Michelle Lawrence
Jan Steenkamp
Patrick Stevenaert
Remuneration policy
Chief Operating Officer (appointed 13 January 2014)
Non-executive Director – Kropz Elandsfontein (appointed 30 September
2020)
Managing Director – Kropz Elandsfontein (appointed 14 February 2019
and resigned 30 September 2020)
Managing Director – Cominco Resources (appointed 10 March 2017)
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 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
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. 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.
30
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
Key terms of employment contracts and remuneration of KMP
Key terms of employment contracts for the financial year ending 31 December 2020:
Name
Base
remuneration
Ian Harebottle (outgoing CEO) (i)
GBP 240,000
Mark Summers (CEO) (ii)
Michelle Lawrence (COO) (iii)
Jan Steenkamp (non-executive
Director of Kropz Elandsfontein) (iv)
Patrick Stevenaert (Managing
Director of Cominco Resources)
ZAR 2,663,636 and
GBP 74,960
ZAR 2,294,578 and
GBP 39,975
ZAR 25,000 per
working day
EUR 148,872
Base
remuneration
US$ *
327,602
Term of
agreement
Notice
period
No fixed term
3 months
284,008
No fixed term
6 months
211,079
No fixed term
3 months
1,705 per
working day
182,665
No fixed term
1 month
No fixed term
1 month
* Converted to US$ at the 31 December 2020 GBP exchange rate of 0.733, ZAR exchange rate of 14.661 and EUR exchange rate of
0.815.
(i)
(ii)
(iii)
(iv)
Ian Harebottle resigned on 29 February 2020.
Mark Summers was appointed interim Chief Executive Officer on 1 March 2020 and appointed as Chief Executive Officer on
4 August 2020.
Michelle Lawrence is the Chief Operating Officer of Kropz Elandsfontein.
Jan Steenkamp was appointed as the Managing Director of Kropz Elandsfontein on 14 February 2019 and resigned on
30 September 2020. He was appointed as a non-executive Director of Kropz Elandsfontein on the same day. Jan Steenkamp
receives a non-executive Director fee of ZAR 25,000 (US$ 1,705) per working day.
Key terms of employment contracts for the financial year ending 31 December 2019:
Name
Ian Harebottle (outgoing CEO) (i)
Mark Summers (CEO) (ii)
Jan Steenkamp (Managing Director
of Kropz Elandsfontein) (iii)
Michelle Lawrence (COO) (iv)
Patrick Stevenaert (Managing
Director of Cominco Resources)
Base
remuneration
GBP 240,000
ZAR 3,301,200 and
GBP 31,440
ZAR 25,000 per day
Base
remuneration
US$ *
316,623
235,128 and
41,478
1,780 per day
Term of
agreement
Notice
period
No fixed term
No fixed term
3 months
6 months
No fixed term
1 month
ZAR 2,913,750
EUR 148,872
207,532
166,897
No fixed term
No fixed term
1 month
1 month
* Converted to US$ at the 31 December 2019 GBP exchange rate of 0.758, ZAR exchange rate of 14.040 and EUR exchange rate of
0.892.
(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
working day.
Michelle Lawrence is the Chief Operating Officer of Kropz Elandsfontein.
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.
31
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
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 and 2020 financial
years:
Chairman
Non-executive Director
Additional Fees:
Audit, Sustainability and Risk Committee – chairperson (Linda Beal)
Audit, Sustainability and Risk Committee – member
Remuneration and Nomination Committee – chairperson (Lord Robin
Renwick)
Remuneration and Nomination Committee – member
* Converted to US$ at the 31 December 2020 exchange rate of 0.733.
Base fees per
annum
GBP
40,000
30,000
Base fees
per annum
US$*
54,600
40,950
5,000
-
2,500
-
6,825
-
3,413
-
All non-executive Directors enter into a letter of appointment with the Company. The letter summarises the
Board’s policies and terms, including remuneration, relevant to the office of Director. Directors with special
responsibilities are disclosed within the various committee reports in the Corporate Governance Report.
Mike Daigle’s non-executive Director fees increased to GBP48,000 (US$ 65,484) per annum with effect from
1 January 2021.
KMP remuneration
The remuneration for each Director and KMP of the Group during the year to 31 December 2020 was as
follows:
Short-term benefits
Name
Executive Directors
Ian Harebottle (iii)
Mark Summers
Non-executive Directors
Lord Robin Renwick (iv)
Linda Beal
Mike Daigle
Machiel Reyneke (v)
Mike Nunn (v)
Total Directors’
remuneration
Executives
Jan Steenkamp (vi)
Michelle Lawrence
Patrick Stevenaert
Remuneration (i)
US$*
Bonus
US$*
Options (ii)
US$*
Total
US$*
228,626
434,944
663,570
54,600
52,713
40,950
-
-
148,263
10,024
139,428
149,452
-
-
-
-
-
-
149,452
811,833
-
105,488
33,718
139,206
71,620
312,650
217,081
601,351
218,602
295,516
514,118
54,600
52,713
40,950
-
-
148,263
662,381
71,620
207,162
183,363
462,145
-
-
-
-
-
-
-
-
-
-
-
-
-
-
* Converted to US$ at the 31 December 2020 GBP exchange rate of 0.733, ZAR exchange rate of ZAR 14.661 and EUR
exchange rate of 0.815.
32
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
Includes UK NIC, UK payroll tax and pension.
(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.
Ian Harebottle resigned on 29 February 2020.
(iii)
(iv) 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.
(v) Machiel Reyneke and Mike Nunn receive no Director fees.
(vi) Jan Steenkamp was appointed as the Managing Director of Kropz Elandsfontein on 14 February 2019 and resigned on
30 September 2020. He was appointed as a non-executive Director of Kropz Elandsfontein on the same day and he
receives a non-executive Director fee of ZAR 25,000 (US$ 1,705) per working day.
The remuneration for each Director and KMP of the Group during the year to 31 December 2019 was as
follows:
Short-term benefits
Name
Executive Directors
Ian Harebottle
Mark Summers
Non-executive Directors
Lord Robin Renwick (iii)
Linda Beal
Mike Daigle
Machiel Reyneke (iv)
Mike Nunn (iv)
Total Directors’
remuneration
Executives
Jan Steenkamp (v)
Michelle Lawrence
Patrick Stevenaert
Remuneration (i)
US$*
Bonus
US$*
Options (ii)
US$*
Total
US$*
446,873
350,516
797,389
56,618
50,869
39,578
-
-
147,065
58,131
58,131
116,262
-
-
-
-
-
-
116,262
944,454
-
25,329
-
25,329
175,196
213,710
170,125
559,031
388,742
292,385
681,127
56,618
50,869
39,578
-
-
147,065
828,192
175,196
188,381
170,125
533,702
-
-
-
-
-
-
-
-
-
-
-
-
-
* Converted to US$ at the 31 December 2019 GBP exchange rate of 0.758, ZAR exchange rate of ZAR 14.040 and EUR
exchange rate of 0.892.
Includes UK NIC, UK payroll tax and pension.
(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.
SBP granted as compensation to KMP
Employee Share Option Plan and Long-Term Incentive Plan
Kropz 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.
33
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
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 Awards”) – a performance and service-related plan pursuant to which
nominal-cost options can be granted; and
An executive long-term incentive plan (the “LTIP Awards”) – 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 Awards 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 Awards will be
used to grant awards following Admission and will be the main incentive plan used to grant awards following
Admission.
Each ESOP and LTIP Award converts into one ordinary share of Kropz upon exercise. No amounts are paid
or payable by the recipient on receipt of the option, aside from when the option is exercised, in which event a
nominal amount per ordinary share is payable by the recipient. 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 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 2020
LTIP Awards
As announced on 4 August 2020, 6,700,000 LTIP Awards were awarded to a Director and senior
management. Of this total, 2,350,000 LTIP Awards were granted to each of Mark Summers and Michelle
Lawrence and 1,000,000 to Patrick Stevenaert. The LTIP options will vest on 31 December 2021, subject to
the terms of the LTIP Plan Rules (as set out in the Company’s Admission Document), including financial and
non-financial performance conditions.
LTIP Awards outstanding at 31 December 2020 were as follows:
Name
Mark Summers
Michelle Lawrence
Patrick Stevenaert
Vesting date
31 December 2021
31 December 2021
31 December 2021
Exercise price (pence)
0.1
0.1
0.1
Number of options
2,350,000
2,350,000
1,000,000
5,700,000
These LTIP Awards have performance conditions aligned to implementing the Company’s strategic plans,
including appropriate weightings on the successful commissioning of the Elandsfontein project, completion of
the Updated FS on the Hinda project and, in respect of Mark Summers and Michelle Lawrence, continued
employment by the Group at 31 December 2021.
The LTIP Awards are nil priced options over a total of 6,700,000 ordinary shares and represent 1.20per cent.
per cent. of the Company’s issued share capital at 31 December 2020.
34
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
ESOP Awards
During the financial year ended 31 December 2020, no ESOP Awards were issued as SBP.
ESOP Awards outstanding at 31 December 2020 were as follows:
Name
Expiry date
Exercise price (pence)
Mark Summers
Michelle Lawrence
28 November 2028
28 November 2028
0.1
0.1
ESOP options outstanding at 31 December 2019 were as follows:
Name
Expiry date
Exercise price (pence)
Ian Harebottle (i)
Mark Summers
Michelle Lawrence
28 November 2028
28 November 2028
28 November 2028
0.1
0.1
0.1
Number of ESOP
Awards
3,362,609
1,465,137
4,827,746
Number of ESOP
Awards
3,362,609
3,362,609
1,465,137
8,190,355
(i)
Ian Harebottle resigned on 29 February 2020 and the ESOP Awards granted to him lapsed and expired.
The performance conditions attaching to the ESOP Awards are as follows:
20 per cent. of the ESOP Awards shall vest for growth in share price of 100 per cent. from the Admission
placing price (40 pence per ordinary share);
A further 20 per cent. of the ESOP Awards shall vest for growth in share price of 250 per cent. from the
Admission placing price;
A further 30 per cent. of the ESOP Awards shall vest for growth in share price of 350 per cent. from the
Admission placing price; and
A further 30 per cent. of the ESOP Awards shall vest for growth in share price of 500 per cent. from the
Admission placing price.
ESOP 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 awards.
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.
The ESOP Awards over 4,827,746 ordinary shares represent 0.9 per cent. of the Company’s issued share
capital at 31 December 2020.
Following the grant of the LTIP Awards, together with the existing 4,827,746 options currently under option
under the ESOP plan, the ESOP and LTIP Awards represent 2.1 per cent. of the Company’s issued share
capital at 31 December 2020.
ESOP and LTIP Awards were valued using a Monte Carlo simulation model and are to be expensed over the
respective vesting periods, being 60 months for ESOP Awards and 17 months for LTIP Awards.
Shares issued on exercise of ESOP and LTIP Awards
No shares were issued from the exercise of ESOP and LTIP Awards during the year ended 31 December
2020 (2019: none).
35
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
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 (i)
Robin Renwick
Mark Summers
Balance –
1 January
2020
54,933,474
-
334,889
Received as
remuneration
Options
exercised
Other
-
-
-
-
-
-
-
300,000 (ii)
80,000 (iii)
Balance –
31 December
2020
54,933,474
300,000
414,889
(i) Mike Nunn’s beneficial interest in Ordinary Shares is held through Kropz International.
(ii) Robin Renwick subscribed for 300,000 ordinary shares, at a price of 6.75 pence per share, in the Placing announced on 1 June
2020.
(iii) Mark Summers subscribed for 30,000 ordinary shares, at a price of 6.75 pence per share, in the Placing announced on 1 June
2020 and for 50,000 ordinary shares, at a price of 6.75 pence per share, in the Open Offer announced on 29 June 2020.
The numbers of ordinary shares in the Company held during the year ended 31 December 2019 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.
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 number of equity warrants over ordinary shares in the Company held during the financial year are set out
below.
During the year ended 31 December 2020, 121,837 warrants were issued to H&P Advisory Limited. These
warrants were issued at 6.75 pence per ordinary share and expire on 4 August 2022. On 20 November 2020,
1,200,000 warrants, comprising 600,000 warrants issued to H&P Advisory Limited and 600,00 warrants issued
to Mirabaud Securities Limited respectively, expired.
36
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
Total warrants outstanding at the end of 31 December 2020 were as follows:
Name
Expiry date
H&P Advisory Limited
4 August 2022
Exercise
price (pence)
6.75
Number of
warrants
121,837
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
Other transactions with KMP during the year ended 31 December 2020
No KMP has entered into a material contract (apart from employment contracts) with the Company and the
Group. No amount of remuneration is outstanding at 31 December 2020.
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 29 June 2021.
Major Shareholder
ARC
Kropz International
* Issued share capital – 857,451,609 ordinary shares
Statement of disclosure of information to auditors
As at the date of this report the serving Directors confirm that:
No of Shares
708,772,716
54,933,474
% of Issued
Share
Capital *
82.7%
6.4%
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
by the Chairman and/or CEO. 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:
37
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
• 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 on 30 June 2021, and the Company’s GM (adopting the annual report and
accounts) will be held on 23 July 2021. In light of the UK Government’s response to the COVID pandemic,
which includes restrictions on the gathering of people indoors, it has become necessary to restrict physical
participation at the AGM and GM. Accordingly, the AGM and the GM will be held at the offices of Memery
Crystal Limited, 165 Fleet Street, London, EC4A 2DY, with the minimum attendance required to form a quorum
to conduct the necessary business. Due to the restrictions in respect of COVID, it is not expected to be possible
for shareholders to attend the meeting in person, therefore, shareholders were urged to appoint the Chair of
the meeting as his or her proxy. Given the constantly evolving nature of the situation, should circumstances
change before the time of the AGM and the GM which would allow shareholders to attend the meeting, the
Company will provide updated details of the meeting format in order to adhere to the COVID restrictions in
place at the time. 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.
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.
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 broker. Any significant investment reports from analysts are also
circulated to the Board.
Going concern
During the year ended 31 December 2020, the Group incurred a loss of US$ 2 million (2019: US$ 9 million)
and experienced net cash outflows from operating activities of US$ 4 million (2019: US$ 15 million). Cash and
38
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
cash equivalents totalled US$ 12 million as at 31 December 2020 (2019: US$ 16 million) and US$ 7 million
(2019: US$ Nil) was restricted in terms of the amended facility agreement between Kropz Elandsfontein and BNP.
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 Original Equity Facility was expected
to bring the Company’s Elandsfontein project into production in Q4 2021. The Original Equity Facility is
ringfenced in Kropz Elandsfontein and the Kropz group does not have access to the remaining US$ 3 million
of the Original Equity Facility. ZAR 77 million is currently locked up by BNP Paribas in the accounts of Kropz
Elandsfontein in terms of the BNP Paribas amended facility agreement. The ZAR 77 million ringfenced by
BNP will be released pro rata to the drawdowns in terms of the Original Equity Facility. Existing cash holdings,
plus the remainder of the undrawn Original Equity Facility of US$ 3 million and the ZAR 77 million to be
released by BNP Paribas, will be utilised towards funding the construction and completion of Elandsfontein in
Q4 2021.
During 2020, ZAR 92 million of the ZAR 200 million ringfenced by BNP was 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 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.
In February 2021, Kropz secured a further convertible loan facility of up to US$ 5 million (not exceeding a
maximum of ZAR 85 million) from ARC (“Further Equity Facility”), to be used exclusively for the Hinda Updated
FS and general corporate purposes for Kropz. On 10 March 2021, Kropz received a drawdown of US$ 2 million
on the Further Equity Facility and on 23 June 2021, a further US$ 2 million draw down. Drawdowns under the
Further Equity Facility are at the sole discretion of Kropz. US$ 1 million remains to be drawn down at the date
of this report, with further quarterly drawdowns scheduled for 2021 and early 2022.
The COVID pandemic 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 outbreak. The
timing and extent of the impact and recovery from COVID is unknown but it may affect planned activities and
potentially display a post balance sheet date impact.
The Directors have reviewed the Group's overall cash position and outlook, for a period of at least the next twelve
months following the date of signature of this Annual Report and have considered sensitivities and stress tested
various scenarios, in respect of the matters identified above and are of the opinion that it is appropriate to adopt
the going concern of accounting in preparing these financial statements. Certain key contracts associated with
operational readiness and commencement of production activities at Elandsfontein are yet to be finalised. Current
estimates are based on ongoing negotiations and proposals received from third party contractors. Failure to enter
into contracts, based on these negotiated terms and expected timeframes, could negatively impact commissioning
and create an additional funding requirement. Additionally, at the date of these financial statements, the potential
future impact of COVID is uncertain, and any delays or interruptions could cause cost overruns that would require
additional funding through the raising of debt or equity. As announced on RNS on 25 May 2021, there is a
funding shortfall in respect of the Original Equity Facility for the commissioning of Elandsfontein in Q4 2021,
due to the strengthening of the ZAR against the US$ and further funds would be required. Management has
successfully raised money in the past from its supportive shareholder base, but there is no guarantee that
adequate funds will be available when needed in the future. 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.
39
Kropz plc Annual Report for 2020
Directors’ Report for the year ended 31 December 2020 (continued)
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.
Subsequent events
Disclosures in relation to events after 31 December 2020 are shown in Note 35 to the Consolidated Financial
Statements.
This Directors Report was approved by the Board of Directors.
Mark Summers
Chief Executive Officer
29 June 2021
40
Kropz plc Annual Report for 2020
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 2020 to 31 December 2020, with all the
provisions of the Code except as follows:
The Remuneration Committee comprises the Chairman as the chairperson of the committee, one
independent non-executive Director 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, Sustainability and Risk
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 to date. This will be done in the 2021
financial year.
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 page 11.
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.
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Kropz plc Annual Report for 2020
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 12 to 16 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, Sustainability and Risk 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 large shareholder of
the Company, and Machiel Reyneke is the Board representative of Kropz Elandsfontein’s BEE partner and
the Company’s largest shareholder, ARC.
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Kropz plc Annual Report for 2020
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, Sustainability and Risk Committee (“Audit Committee”); and
Remuneration and Nomination Committee (“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 one other independent
non-executive Director 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, 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 group financial manager 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 three occasions.
The Board and its committees are supplied with appropriate and timely information, including detailed financial
information, in order to discharge its duties. 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.
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Kropz plc Annual Report for 2020
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
During the year under review, two Audit Committee meetings and one Remuneration Committee meeting were
held.
During the year there were three 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
3/3
1/1
3/3
3/3
3/3
3/3
3/3
2/2
-
-
2/2
-
-
2/2
1/1
-
-
1/1
1/1
1/1
1/1
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.
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Kropz plc Annual Report for 2020
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 CEO, 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 27 to 28 . 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 the executive Director
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.
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Kropz plc Annual Report for 2020
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 27 to 28.
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 Director service contracts and of the Chairman’s and the non-executive Directors’
appointment letters are given on pages 31 to 32. Copies of service contracts and appointment letters are
available for inspection at the Company’s registered office during normal business hours.
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
27 to 28.
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, Monegasque 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 50.
46
Kropz plc Annual Report for 2020
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 2020 as the Board was constituted late in 2018. However,
an evaluation will be undertaken in 2021.
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.
47
Kropz plc Annual Report for 2020
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, 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.
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Kropz plc Annual Report for 2020
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 12 to 16. 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 pages 38 to 40 of the Directors Report. The
independent auditor’s report is set out on pages 58 to 65.
The CEO provides, 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.
49
Kropz plc Annual Report for 2020
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 Committee
The Company has an Audit Committee comprised of Linda Beal, as the chairperson, together with Lord Robin
Renwick of Clifton and Machiel Reyneke. The Audit Committee report is set out on pages 54 to 55.
Remuneration Committee
The Company has a Remuneration Committee, which during the 2020 financial year comprised of Lord Robin
Renwick of Clifton, as the chairperson, together with Machiel Reyneke, Mike Nunn, Linda Beal and Mike
Daigle. Mike Daigle resigned from the Remuneration Committee on 8 January 2021.
The Remuneration Committee report is set out on page 56.
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 and Kropz International, are represented on the Board. In
addition, the Chairman and CEO have frequent direct face-to-face and virtual meetings throughout the period
with some of the other major shareholders as well as with analysts and brokers.
Constructive use of the AGM
Under normal circumstances, 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. However, in light of the
Government’s response to the COVID pandemic, which includes restrictions on the gathering of people
indoors, it has become necessary to restrict physical participation at the AGM. It is noted further that due to a
delay in publishing the 2020 Accounts that a separate general meeting is being held on 23 July 2021, at which
the 2020 Accounts will be received and adopted.
The Company has provided information in the notice of AGM and GM that is presented in a clear, concise and
effective manner. Shareholders will still be 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. Shareholders will be
able to submit those questions in writing via email, in accordance with the instructions contained in the Notice
of AGM and Notice of GM. The board will publish a summary of any questions received which are of common
interest, together with a written response on the Company’s website as soon as practicable after the
conclusion of the AGM and GM (as applicable).
50
Kropz plc Annual Report for 2020
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.
51
Kropz plc Annual Report for 2020
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 Computershare Investor Services. Their contact
details are disclosed in the corporate directory of the Annual Report on pages 129 to 130. The market price
52
Kropz plc Annual Report for 2020
Corporate Governance Report (continued)
of the AIM traded ordinary shares at 31 December 2020 was 4.25 pence. The highest and lowest price during
the financial year was 10.25 pence and 4.25 pence per ordinary share respectively.
Lord Robin William Renwick of Clifton
Non-Executive Chairman
29 June 2021
53
Kropz plc Annual Report for 2020
Report of the Audit, Sustainability and Risk Committee
The Audit, Sustainability and Risk Committee (“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.
54
Kropz plc Annual Report for 2020
Report of the Audit, Sustainability 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
12 to 16.
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 two occasions during the 2020 financial year.
On 31 July 2020, the Audit Committee met with BDO to discuss the findings of the 2019 annual audit and 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 31 December 2019 annual financial statements prior to Board
approval.
On 25 August 2020, the Audit Committee met to review the appropriateness of the Group’s key accounting
policies and judgements and to review the interim financial statements for the six months ended 30 June 2020,
prior to Board approval.
On 28 January 2021, the Audit Committee met with BDO and discussed and reviewed the planning of the
2020 annual audit.
On 28 June 2021 the Audit Committee reviewed the 2020 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 2020 and that the going concern basis is the appropriate
basis for preparation of the 2020 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 June
2021. Based on this review, the Audit Committee was satisfied with the effectiveness of the audit for the year
ended 31 December 2020.
Linda Beal
Audit Committee Chair
29 June 2021
55
Kropz plc Annual Report for 2020
Report of the Remuneration and Nomination Committee
During the 2020 financial year, the Remuneration and Nomination Committee (“Remuneration Committee”)
had five members, three of whom are independent non-executive Directors including the Chair, Lord Robin
Renwick of Clifton. The Remuneration Committee comprised Linda Beal, Machiel Reyneke, Mike Nunn and
Mike Daigle. Mike Nunn and Machiel Reyneke are not considered to be independent. Mike Daigle resigned
from the Remuneration Committee on 8 January 2021.
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 met on 31 July 2020 to approve executive remuneration increases for the year
ended 30 June 2021 and the award of LTIP conditional awards to a Director and certain key members of the
executive management team.
Lord Robin William Renwick of Clifton
Remuneration Committee Chairman
29 June 2021
56
Kropz plc Annual Report for 2020
Statement of Directors’ Responsibilities in Respect of The Annual Report and Financial
Statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law
the Directors have elected to prepare the consolidated financial statements in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006. Under company law
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 and Company for
that period. The Directors are also required to prepare financial statements in accordance with the rules of
the London Stock Exchange for companies trading securities on AIM.
select suitable accounting policies and then apply them consistently;
In preparing these financial statements, the Directors are required to:
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006, subject to any material departures disclosed
and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
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 enable them to ensure that the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the assets of the company 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 29 June
2021 and signed on its behalf by:
____________________________
_________________________________
Non-Executive Chairman
Lord Robin William Renwick of Clifton
29 June 2021
Chief Executive Officer
Mark Summers
29 June 2021
57
Kropz plc Annual Report for 2020
Independent Auditor’s Report to the Members of Kropz plc
Opinion on the financial statements
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 2020 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006;
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.
We have audited the financial statements of Kropz plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’)
for the year ended 31 December 2020 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 accounting standards in conformity with the requirements of the Companies
Act 2006. 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 in the United Kingdom and Republic of Ireland
(United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the financial statements section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain 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.
Material uncertainty related to going concern
We draw attention to the disclosures made in note 2a to the Parent Company and Group's financial
statements, which explains that the Group requires further funding to be able to meet its forecast working
capital requirements to the end of the going concern review period and risks exist which may give rise to
delays and further additional funding being required. As stated in note 2a to the Parent Company and Group's
financial statements, these events or conditions along with other matters as set out in note 2a indicate that a
material uncertainty exists that may cast significant doubt on the Parent Company's and Group's ability to
continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate. Given the significant judgement
exercised by the Directors in making the assessment as to whether it is appropriate to prepare the financial
statements on a going concern basis we consider this to be a key audit matter.
58
Kropz plc Annual Report for 2020
Independent Auditor’s Report to the Members of Kropz plc (continued)
Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to
adopt the going concern basis of accounting and in response to the key audit matter included:
• We discussed the impact of COVID-19 with management and the audit committee including their
assessment of risks and uncertainties associated with the potential for project development delays
and cost escalation. We compared this against our own assessment of risks and uncertainties based
on our understanding of the business and mining sector information.
• We assessed management’s financial forecasts prepared for a period of at least 12 months from the
date of these financial statements. This included consideration of the reasonableness of key
underlying assumptions by reference to recent expenditure and project plans, commitments on the
exploration assets and external data on commodity prices and foreign exchange rates;
• We reviewed the terms and conditions of the Group’s debt facilities and confirmed that they were
appropriately reflected in the forecasts;
• We confirmed that equity draw downs in the forecasts are available under the terms of the ARC
facilities;
• We agreed the opening cash position used in the cash flow forecast to the position at 31 December
2020;
• We performed an accuracy check on the mechanics of the cash flow forecast model prepared by
management and the directors;
• We obtained management’s sensitivity and stress testing analysis and considered whether such
scenarios, including delays to the Elandsfontein project and related cost escalation were possible
including consideration of the status and risks associated with the remaining contracts to be agreed,
the further potential impacts of COVID-19 and the level of uncertainty in South Africa.
• Understanding management’s options for the future fundraising to meet the Group’s working capital
requirements if required; and
• Evaluating the adequacy of disclosures made in the financial statements in respect of going concern.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the
relevant sections of this report.
Overview
Coverage
99% (2019: 99%) of Group total assets
95% (2019: 78%) of Group loss before tax
Key audit
matters
Materiality
Carrying value of property, plant, equipment
and mine development assets
Going concern
Group financial statements as a whole
Dec
2020
Yes
Dec
2019
Yes
Yes
Yes
US$2,200,000 (2019: US$2,480,000) based on 1.5% (2019: 1.5%) of total
assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the
Group’s system of internal control, and assessing the risks of material misstatement in the financial
statements. We also addressed the risk of management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may have represented a risk of material
misstatement.
59
Kropz plc Annual Report for 2020
Independent Auditor’s Report to the Members of Kropz plc (continued)
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 audit
team. A full scope audit for group reporting purposes was performed by a BDO network firm in South Africa
on Kropz Elandsfontein (Pty) Ltd with the group audit team performing specific procedures on all significant
risk areas. The remaining non-significant components were subject to analytical review procedures by the
group team.
Our involvement with component auditors
For the work performed by component auditor, we determined the level of involvement needed in order to be
able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion
on the Group financial statements as a whole. Our involvement with component auditor included the following:
A planning meeting was held with the component auditor remotely and detailed group reporting instructions
which included details 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 team and component management.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In
addition to the matter described in the Material uncertainty related to going concern section of our report, we
have determined the matter below to be the key audit matter to be communicated in our report.
Key audit matter
Carrying value
of property,
plant, equipment
and mine
development
assets. Notes
2(s) and 4
The Group’s total property, plant,
equipment and mine development
assets at 31 December 2020 were
$114.5m in respect of the
Elandsfontein mine in South Africa.
This class of asset is the most
significant to the statement of
financial position.
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.
The mine has been on care and
maintenance and further investment
and modification is required before
commercial production can resume.
How the scope of our audit
addressed the key audit matter
Our audit procedures included:
Inspecting the mine to
understand the proposed
developments and future
additions and modifications to
the mine plant.
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 that may affect
the value of the asset.
Assessing management’s
impairment review of the Group’s
mining assets under applicable
accounting standards and
critically challenging the
significant estimates and
60
Kropz plc Annual Report for 2020
Independent Auditor’s Report to the Members of Kropz plc (continued)
In these circumstances an
impairment review is required.
The recoverable amount of these
assets is determined by considering
a life of mine discounted cash flow
model for the Elandsfontein mine.
Significant estimates and
judgements are required in
determining model inputs, including
phosphate prices, ore reserves,
production forecasts and costs and
discount rates. The subjectivity of
the judgements and estimates and
the significant carrying value of
these assets make this a key area of
focus for the audit.
Adequate disclosure should be
made in the financial statement.
judgements made by
management in determining the
key assumptions, which include:
grade and volume of
forecast phosphate prices
phosphate concentrate
produced and ore reserves
production forecasts
including forecast operating
costs and exchange rates
discount rate
In performing our work we
verified these key assumptions to
supporting documentation and
market data. Our work included
assessing technical reports that
support the grade and output of
product and reviewing the third
party expert’s report that support
the sales prices, including
comparison to market data
supporting forecast demand-
supply fundamentals. In addition,
we assessed the independence
and objectivity and competence
of the third party experts.
We recalculated the discount
rate, evaluated the inputs against
external data and performed
sensitivity analysis using different
rates.
We considered the
reasonableness of sensitivities
applied by management,
checked their calculation and
performed our own sensitivity
calculations in order to stress
test the model.
We reviewed the adequacy of
the financial statement
disclosures.
Key observation
Based on our work we consider
the judgements and estimates
made in Management’s
assessment of the carrying value
of the Group’s property, plant,
equipment and mine
61
Kropz plc Annual Report for 2020
Independent Auditor’s Report to the Members of Kropz plc (continued)
development assets to be
appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions,
could influence the economic decisions of reasonable users that are taken on the basis of the financial
statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we
use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of
the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating
their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
Group financial statements
2019
2020
US$
US$
2,200,000
2,480,000
1.5% of Total assets at the
planning stage. Although the
value of assets increased from
the audit planning stage, the
audit team deemed it
appropriate to keep the
materiality unchanged.
The materiality has been based
on total assets as the Group is
non-revenue generating or profit
making. We consider Total
assets to be one of the principal
considerations for users of the
Financial Statements.
1,400,000
1,600,000
Parent company financial
statements
2020
US$
1,800,000
80% of Group materiality
2019
US$
1,980,000
Capped 80% (2019: 80%) of
Group materiality given the
assessment of the components
aggregation risk, and size based on
total assets of the Group.
1,100,000
1,280,000
65% of materiality. In reaching our conclusion on the level of
performance materiality to be applied we considered a number of
factors including the expected total value of known and likely
misstatements (based on past experience), our knowledge of the
group’s control environment and management’s attitude towards
proposed adjustments.
Materiality
Basis for
determining
materiality
Rationale for the
benchmark
applied
Performance
materiality
Basis for
determining
performance
materiality
Component materiality
We set materiality for each component of the Group based on a percentage of between 35% and 80% of
Group materiality dependent on the size and our assessment of the risk of material misstatement of that
component. Where the statutory materiality for the Parent company was lower to the Group allocated
materiality, the lower value was selected as a final component materiality. Component materiality ranged from
US$610,000 to US$1,800,000 (2019: US$868,000 to US$1,980,000). In the audit of each component, we
62
Kropz plc Annual Report for 2020
Independent Auditor’s Report to the Members of Kropz plc (continued)
further applied performance materiality levels of 65% of the component materiality to our testing to ensure that
the risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of
US$44,000 (2019: US$49,000). We also agreed to report differences below this threshold that, in our view,
warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the Annual Report 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. Our
responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are
required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described
below.
Strategic
report and
Directors’
report
Matters on
which we are
required to
report by
exception
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.
In the light of the knowledge and understanding of the Group and 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 by the Parent Company,
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
we have not received all the information and explanations we require for
our audit.
63
Kropz plc Annual Report for 2020
Independent Auditor’s Report to the Members of Kropz plc (continued)
Responsibilities of Directors
As explained more fully in the statement of Directors’ responsibilities, 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.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below:
Obtaining an understanding of the legal and regulatory frameworks that are applicable to the Group.
We determined that the most relevant laws and regulations related to company law, tax legislation,
the financial reporting framework, applicable mining laws and environmental regulations;
Assessing the susceptibility of the Group’s financial statements to material misstatement, including
how fraud might occur by discussing among the engagement team where fraud might occur in the
financial statements and any potential indicators of fraud;
Holding discussions with management and the audit committee to consider any known or suspected
instances of non-compliance with laws and regulations or fraud;
Understanding how the Group is complying with those legal and regulatory frameworks by making
enquiries of management and those responsible for legal and compliance procedures. We
corroborated our enquiries through our review of board minutes and RNS announcements, review of
the legal expenses account and a review of correspondence with legal council;
Testing appropriateness of journal entries made throughout the period which met specific risk based
criteria;
Assessing the judgements made by management when making key accounting estimates and
judgements, and challenging management on the appropriateness of these judgements, including
judgements applied within the key audit matters;
Performing a detailed review of the Group’s period-end adjusting entries and corroborating any that
appeared unusual as to nature or amount to supporting documentation; and
Performing detailed testing on account balances which were considered to be at greater risk of
susceptibility to fraud.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and
64
Kropz plc Annual Report for 2020
Independent Auditor’s Report to the Members of Kropz plc (continued)
the further removed non-compliance with laws and regulations is from the events and transactions reflected
in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
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.
Ryan Ferguson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
Date: 29 June 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
65
Kropz plc Annual Report for 2020
Consolidated Statement of Financial Position
As at 31 December 2020
Non-current assets
Property, plant, equipment and mine development
Exploration assets
Right-of-use asset
Other financial assets
Current assets
Inventories
Trade and other receivables
Derivative asset
Restricted cash
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
Provisions
TOTAL LIABILITIES
NET ASSETS
31 December
2020
US$’000
31 December
2019
US$’000
Notes
4
5
6
7
8
9
10
11
12
19
16
17
27
20
15
16
17
18
114,473
44,348
45
1,477
160,343
821
1,611
8,586
7,355
11,572
29,945
105,224
40,192
37
1,534
146,987
875
329
-
-
15,530
16,734
190,288
163,721
4,780
42
2,500
-
-
7,322
15,703
6
28,113
4,311
48,133
1,536
19
29,982
174
451
32,162
14,701
21
-
3,702
18,424
55,455
50,586
134,833
113,135
66
Kropz plc Annual Report for 2020
Consolidated Statement of Financial Position
As at 31 December 2020 (continued)
Shareholders’ equity
Share capital
Share premium
Merger reserve
Foreign exchange translation reserve
Share-based payment reserve
Accumulated losses
Notes
13
13 / 14
13 / 14
14
14
Total equity attributable to the owners of the Company
Non-controlling interests
34
31 December
2020
US$’000
31 December
2019
US$’000
706
168,212
(20,523)
2,334
385
(11,005)
140,109
(5,276)
363
147,339
(20,523)
53
167
(12,536)
114,863
(1,728)
134,833
113,135
The Notes on pages 71 to 118 form an integral part of these Consolidated Financial Statements. The Financial
Statements on pages 58 to 118 were approved and authorised for issue by the Board of Directors and signed
on its behalf by:
Mark Summers
Chief Executive Officer
29 June 2021
67
Kropz plc Annual Report for 2020
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Revenue
Other income
Operating expenses
Operating loss
Finance income
Finance expense
Fair value gains from derivative asset
Loss before taxation
Taxation
Loss after taxation
Profit / (loss) attributable to:
Owners of the Company
Non-controlling interests
Loss for the year
Other comprehensive income:
Items that may be subsequently reclassified to profit
or loss
- Exchange differences on translation of parent company
financial statements from functional to presentation
currency
- Exchange differences on translating foreign operations
Total comprehensive income / (loss)
Attributable to:
Owners of the Company
Non-controlling interests
Notes
24
23
26
10
27
Year ended
31 December
2020
US$’000
Year ended
31 December
2019
US$’000
-
29
-
9
(5,912)
(6,631)
(5,883)
(6,622)
1,244
(5,914)
8,586
1,638
(3,662)
-
(1,967)
(8,646)
36
(118)
(1,931)
(8,764)
1,531
(3,462)
(1,931)
(6,290)
(2,474)
(8,764)
(1,931)
(8,764)
1,922
273
264
3,812
(3,548)
264
3,226
(1,914)
(7,452)
(5,011)
(2,441)
(7,452)
Profit / (loss) per share attributable to owners of the
Company:
Basic and diluted (US cents)
28
0.40
(2.30)
68
Kropz plc Annual Report for 2020
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Share
capital
Share
premium
US$’000 US$’000
Merger
reserve
US$’000
Foreign
currency
translation
reserve
US$’000
Share-
based
payment
reserve
US$’000
Balance at 1 January 2019
335
142,026
(20,523)
(1,226)
Total comprehensive profit / (loss) for the year
Issue of shares
Costs of issuing shares
Acquisition of non-controlling interests
Share based payment charges
Transactions with owners
-
28
-
-
-
28
-
5,344
(31)
-
-
5,313
-
-
-
-
-
-
1,279
-
-
-
-
-
-
-
30
-
-
137
167
Retained
earnings
US$’000
Total
US$’000
Non-
controlling
interest
US$’000
Total
equity
US$’000
(6,225)
114,357
1,138
115,495
(6,290)
(5,011)
(2,441)
(7,452)
-
-
9
-
9
5,402
(31)
9
137
5,517
-
-
(425)
-
(425)
5,402
(31)
(416)
137
5,092
Balance at 31 December 2019
363
147,339
(20,523)
53
167
(12,536)
114,863
(1,728)
113,135
Total comprehensive profit / (loss) for the year
Issue of shares
Cost of issuing shares
Issue of warrants
Lapsed warrants
Share based payment charges
Transactions with owners
-
343
-
-
-
-
343
-
21,173
(320)
(10)
30
-
20,873
-
-
-
-
-
-
-
2,281
-
1,531
3,812
(3,548)
264
-
-
-
-
-
-
-
-
10
(30)
238
218
-
-
-
-
-
-
21,516
(320)
-
-
238
21,434
-
-
-
-
-
-
21,516
(320)
-
-
238
21,434
Balance at 31 December 2020
706
168,212
(20,523)
2,334
385
(11,005)
140,109
(5,276)
134,833
69
Kropz plc Annual Report for 2020
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
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
Finance income
Finance costs
Fair value gain on derivative asset
Debt modification loss
Debt modification present value adjustment
Foreign currency exchange differences
Fair value loss on game animals
Operating cash flows before working capital changes
(Increase) / decrease in trade and other receivables
Decrease / (increase) in inventories
Increase / (decrease) in trade and other payables
(Decrease) / increase in other tax liabilities
Decrease in amounts due to related parties
Increase / (decrease) 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
Disposal of other financial assets
Finance income received
Transfer to restricted cash
Net cash flows used in investing activities
Cash flows from financing activities
Finance costs paid
Shareholder loan received / (repaid)
Repayment of lease liabilities
Other financial liabilities
Issue of ordinary share capital
Costs of share issues
Net cash flows from financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Foreign currency exchange (losses) / gains on cash
Cash and cash equivalents at end of the year
Notes
Year ended
31 December
2020
US$’000
Year ended
31 December
2019
US$’000
(1,967)
(8,646)
4
6
13
23
26
10
17
18
4
29
29
29
29
4
5
7
21
11
24
27
16
29
13
13
780
51
238
(1,244)
2,948
(8,586)
1,109
(119)
261
18
(6,511)
(1,278)
17
3,356
(388)
-
765
(4,039)
(128)
(4,167)
(14,589)
(257)
-
1,244
(7,355)
(20,957)
(2,948)
1,624
(53)
1,935
21,516
(320)
21,754
(3,370)
15,530
(588)
11,572
894
18
137
(1,638)
3,662
-
-
-
38
43
(5,492)
66
(6)
(9,771)
451
33
(324)
(15,043)
(15)
(15,058)
(1,895)
(289)
124
1,638
-
(422)
(3,662)
(32)
(16)
(814)
4,243
(31)
(312)
(15,792)
30,457
865
15,530
70
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(1) General information
Kropz is an emerging plant nutrient producer with an advanced stage phosphate mining project in South
Africa and a phosphate project in the RoC. 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 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 2020, the Group incurred a loss of US$ 2 million (2019:
US$ 9 million) and experienced net cash outflows from operating activities of US$ 4 million (2019:
US$ 15 million). Cash and cash equivalents totalled US$ 12 million as at 31 December 2020
(2019: US$ 16 million) and US$7 million (2019: US$ Nil) was restricted in terms of the amended
facility agreement between Kropz Elandsfontein and BNP. 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 Original Equity
Facility was expected to bring the Company’s Elandsfontein project into production in Q4 2021.
The Original Equity Facility is ringfenced in Kropz Elandsfontein and the Kropz group does not
have access to the remaining US$ 3 million of the Original Equity Facility. ZAR 77 million is
currently locked up by BNP Paribas in the accounts of Kropz Elandsfontein in terms of the BNP
Paribas amended facility agreement. The ZAR 77 million ringfenced by BNP will be released pro
rata to the drawdowns in terms of the Original Equity Facility. Existing cash holdings, plus the
remainder of the undrawn Original Equity Facility of US$ 3 million and the ZAR 77 million to be
71
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
released by BNP Paribas, will be utilised towards funding the construction and completion of
Elandsfontein in Q4 2021.
During 2020, ZAR 92 million of the ZAR 200 million ringfenced by BNP was 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 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.
In February 2021, Kropz secured a further convertible loan facility of up to US$ 5 million (not
exceeding a maximum of ZAR 85 million) from ARC (“Further Equity Facility”), to be used
exclusively for the Hinda Updated FS and general corporate purposes for Kropz. On 10 March
2021, Kropz received a drawdown of US$ 2 million on the Further Equity Facility and on 23 June
2021, a further US$ 2 million draw down. Drawdowns under the Further Equity Facility are at the
sole discretion of Kropz. US$ 1 million remains to be drawn down at the date of this Annual
Report, with further quarterly drawdowns scheduled for 2021 and early 2022.
The COVID pandemic 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 outbreak. The timing and extent of the impact and recovery from COVID is
unknown but it may affect planned activities and potentially display a post balance sheet date impact.
The Directors have reviewed the Group's overall cash position and outlook, for a period of at least
the next twelve months following the date of signature of this Annual Report and have considered
sensitivities and stress tested various scenarios, in respect of the matters identified above and are
of the opinion that it is appropriate to adopt the going concern of accounting in preparing these
financial statements. Certain key contracts associated with operational readiness and
commencement of production activities at Elandsfontein are yet to be finalised. Current estimates
are based on ongoing negotiations and proposals received from third party contractors. Failure to
enter into contracts, based on these negotiated terms and expected timeframes, could negatively
impact commissioning and create an additional funding requirement. Additionally, at the date of
these financial statements, the potential future impact of COVID is uncertain, and any delays or
interruptions could cause cost overruns that would require additional funding through the raising of
debt or equity. As announced on RNS on 25 May 2021, there is a funding shortfall in respect of
the Original Equity Facility for the commissioning of Elandsfontein in Q4 2021, due to the
strengthening of the ZAR against the US$ and further funds would be required. Management has
successfully raised money in the past from its supportive shareholder base, but there is no guarantee
that adequate funds will be available when needed in the future. 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.
72
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
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.
73
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Changes in accounting policies
(i)
New standards, interpretations and amendments adopted from 1 January 2020
New standards impacting the Group that have been adopted in the annual financial statements
for the year ended 31 December 2020 are:
- Amendments to IFRS 3: Definition of a Business;
- Amendments to IFRS 9: IAS 39 and IFRS 7 Interest Rate Benchmark Reform;
- Amendments to IFRS 16: COVID-19-Related Rent Concessions; and
- Amendments to IAS 1 and IAS 8 Disclosure Initiative – Definition of Material.
The Group has considered the above new standards and amendments and has concluded that,
they are either not relevant to the Group or they do not have a significant impact on the Group’s
consolidated financial statements.
(ii)
New standards, interpretations and amendments not yet effective
At the date of authorisation of these consolidated Group financial statements, the following
standards and interpretations, which have not been applied in these financial statements, were
in issue but not yet effective (and in some cases had not yet been adopted by the EU).
Management are currently assessing the impact of these new standards on the Group.
- Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract;
- Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use;
and
- Amendments to IFRS 3 References to Conceptual Framework.
(b) Basis of consolidation
The Consolidated Financial Statements comprise the financial statements of the subsidiaries
listed in Note 3.
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:
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.
74
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
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;
Capitalised pre-production expenditure; and
75
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
Borrowings are capitalised for assets under construction meeting the eligibility requirements.
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
Electrical sub-station
Machinery, Plant and
Equipment
Fixed plant and equipment
Water treatment plant
Critical spare parts
Furniture and fittings
Motor vehicles
Computer equipment
Mineral exploration
site preparation
Depreciation method
Average useful life
Units of production
Straight-line
Straight-line
Life of mine*
15 years
15 years
Units of production
Units of production
Straight-line
Straight-line
Straight-line
Straight-line
Life of mine*
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.
Useful lives and residual values
The asset’s useful lives and residual values are reviewed and adjusted if appropriate, at each
reporting date.
76
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
(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.
77
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
IFRS 16 was adopted 1 January 2019 without restatement of comparative figures. 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.
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.
78
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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 and held within the approximately 5,000
hectares of farmland owned by Elandsfontein Land Holdings. 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.
(g)
Financial instruments
Classification and measurement
The Group classifies its financial instruments into the following categories:
Financial assets measured at amortised cost;
Financial assets measured at fair value through or loss;
Financial liabilities measured at amortised cost; and
Derivative financial instruments are accounted for at fair value through profit and loss.
79
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
Financial assets held at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position
at fair value with net changes in fair value recognised in the statement of profit or loss. Assets in
this category are classified as current assets if they are expected to be settled within twelve
months, otherwise they are classified as non-current.
This category includes derivative instruments and listed equity investments which the Group had
not irrevocably elected to classify at fair value through OCI.
Put options in the Company’s own equity are recorded at fair value and change in fair value
recorded through 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.
80
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Trade and other payables
Trade and other payables are classified as financial liabilities at amortised cost.
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.
81
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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
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 non-financial 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.
82
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(j)
Inventories
Inventories are measured at the lower of cost and net realisable value.
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 property,
plant and equipment.
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 timing of costs and the risk-free rate, 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.
83
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(l)
Share capital and equity
Ordinary shares are classified as equity and are recorded at the proceeds received net of issue
costs.
(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.
84
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
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 was accounted for on the basis of the Company having
control with effect from acquisition and holding 50 per cent. plus one share. Management considered
that it controlled First Gear as this holding gave the Company control over its strategic, operational
and financing decisions.
(ii)
Exploration and evaluation assets (Note 5)
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
85
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
(iv)
Decommissioning and rehabilitation provisions (Note 18)
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 7 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.
(vii)
Fair value of financial instruments
The judgements and estimates made by the Group in determining the fair values of the financial
instruments are described in Note 10 to the Consolidated Financial Statements.
86
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(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.
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.
87
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Fair value of derivative instruments
Information about the specific techniques, assumptions and inputs is disclosed in Note 10 to the
Consolidated Financial Statements.
(3)
Subsidiaries of the Group
The subsidiaries of the Group, all of which are private companies limited by shares, as at 31 December
2020, 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
South Africa
South Africa
South Africa
South Africa
First Gear
Exploration Limited
Ghana
Cominco
Resources Limited
BVI
Cominco S.A.
Cominco
Resources (UK)
Ltd
RoC
England and
Wales
* 46.67 per cent. held indirectly
** 38.18 per cent. held indirectly
*** Interest sold in early 2021
**** held indirectly
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
74 per cent. **
70 per cent.
70 per cent.
4 Momotse Avenue
PO Box GP 1632
Accra, Ghana
Woodbourne Hall,
PO Box 3162, Road
Town,
Tortola, British Virgin
Islands
Phosphate
exploration
Phosphate
exploration
50 per cent. + 1
share ***
100 per cent.
Development
Service
company
100 per cent. ****
100 per cent. ****
The accounting reference date of each of the subsidiaries is coterminous with that of the Company.
88
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(4)
Tangible assets – Property, plant, equipment and mine development
31 Dec
2020
Cost
US$’000
31 Dec
2020
Accumulated
Depreciation
US$’000
31 Dec
2019
31 Dec
2020
Carrying
value
Cost
US$’000 US$’000
31 Dec
2019
Accumulated
Depreciation
US$’000
31 Dec
2019
Carrying
value
US$’000
2,067
11,003
8,824
-
(12)
(2,647)
2,067
10,991
6,177
2,159
11,489
9,214
-
(9)
(2,150)
2,159
11,480
7,064
3,828
(1,063)
2,765
3,998
(844)
3,154
Buildings and
infrastructure
Land
Buildings
Capitalised road costs
Capitalised electrical sub-
station costs
Machinery, plant and
equipment
Critical spare parts
Plant and machinery
Water treatment plant
Furniture and fittings
Geological equipment
Office equipment
Other fixed assets
Motor vehicles
Computer equipment
Mine development
1,285
66,683
1,129
44
47
35
1
128
47
20,046
Stripping activity costs
3,193
Game animals
185
-
(74)
-
(41)
(47)
(17)
(1)
(128)
(42)
-
-
-
1,285
66,609
1,129
3
-
18
-
-
5
1,213
56,357
-
45
49
36
1
133
44
20,046
20,354
3,193
3,265
185
213
-
(73)
-
(42)
(49)
(12)
(1)
(127)
(39)
-
-
-
1,213
56,284
-
3
-
24
-
6
5
20,354
3,265
213
Total
118,545
(4,072)
114,473 108,570
(3,346)
105,224
89
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Reconciliation of property, plant, equipment and mine development – Year ended 31 December 2020
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
and equipment
Critical spare parts
Plant and machinery
Water treatment
plant
Furniture and fittings
Geological
equipment
Office equipment
Other fixed assets
Motor vehicles
Computer equipment
2,159
11,480
7,064
3,154
1,213
56,284
-
3
-
24
-
6
5
-
-
-
-
123
12,712
1,129
1
-
1
-
-
4
Mine development
20,354
553
Stripping activity
costs
Game animals
3,265
213
66
-
Total
105,224
14,589
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(18)
(18)
-
(2)
(529)
(230)
-
(5)
-
(1)
-
(5)
-
(5)
(3)
-
-
-
(92)
(487)
(358)
(159)
(51)
(2,382)
-
-
-
(2)
-
(1)
(1)
2,067
10,991
6,177
2,765
1,285
66,609
1,129
3
-
18
-
-
5
(861)
20,046
(138)
3,193
(10)
185
(780)
(4,542)
114,473
90
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Reconciliation of property, plant, equipment and mine development – Period 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
and equipment
Critical spare parts
Plant and machinery
Furniture and 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
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 development. 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
91
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
approved by management over the life of the mine and is most sensitive to the following key estimates and
assumptions:
Discount rate;
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 obtained from independent external commissioned experts and a forecast
South African rand exchange rate with is aligned with forward market rates. Commissioning of the
Elandsfontein project remains dependent on the finalisation of certain key contracts, on mutually acceptable
terms, with third party contractors. Current estimates and forecasts are based on ongoing negotiations and
proposals received from those third party contractors. Based on the assumptions the recoverable amount of
assets significantly exceeds its carry amount and therefore assets were not impaired.
Sensitivity Analysis
The following table summarise the potential impact of changes in the key estimates and assumptions
(assessed independently of each other):
Impact if discount rate
Impact if selling prices
Impact if production tonnes
Impact if operating costs:
Breakeven point
(13.77%)
Increased by 5%
increased by 10%
reduced by 10%
increased by 10%
reduced by 10%
increased by 10%
reduced by 10%
Headroom (%)
0
13
107
(0.3)
109
(0.3)
(18)
89
(5)
Intangible assets - Exploration and evaluation costs
31 Dec
2020
Cost
US$’000
31 Dec
2020
Amort-
isation
31 Dec
2020
Carrying
value
US$’000 US$’000
31 Dec
2019
Cost
US$’000
31 Dec
2019
Amort-
isation
US$’000
31 Dec
2019
Carrying
value
US$’000
Capitalised costs
44,348
-
44,348
40,192
-
40,192
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.
92
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Reconciliation of exploration assets
Year ended 31 December 2020
Capitalised exploration costs
Year ended 31 December 2019
Capitalised exploration costs
(6) Right-of-use assets
Cost
Brought forward
Capitalisation due to transition to IFRS 16
Additions
Foreign exchange differences
As at 31 December
Amortisation
Brought forward
Charge for the year
Foreign exchange differences
As at 31 December
Net book value
Opening
Balance
US$’000
Additions
US$’000
Foreign
exchange
gain
US$’000
Closing
balance
US$’000
40,192
257
3,899
44,348
Opening
Balance
US$’000
Additions
US$’000
Foreign
exchange
loss
US$’000
Closing
balance
US$’000
40,772
289
(869)
40,192
Year ended
31 December
2020
US$’000
Year ended
31 December
2019
US$’000
55
-
61
1
117
18
51
3
72
45
-
54
-
1
55
-
18
-
18
37
93
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(7) Other financial assets
DMR guarantee (1)
Eskom guarantee (2)
Eskom guarantee (3)
Heritage Western Cape Trust (4)
Total
31 December
2020
US$’000
687
359
363
68
1,477
31 December
2019
US$’000
712
373
378
71
1,534
(1) 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”.
(2) Eskom guarantee
Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 5,235,712 in respect of “supply
agreement (early termination) guarantee”.
(3) Eskom guarantee
Guarantee issued to Eskom Holdings SOC Limited in the amount of ZAR 5,305,333 in respect of an
“electricity accounts guarantee”.
(4) 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 Kropz Elandsfontein lodged 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.
(8)
Inventories
Consumables
Spare parts
Total
(9)
Trade and other receivables
Prepayments and accrued income
Deposits
VAT
Other receivables
Total
31 December
2020
US$’000
798
23
821
31 December
2019
US$’000
851
24
875
31 December
2020
US$’000
124
47
1,326
114
1,611
31 December
2019
US$’000
62
49
71
147
329
94
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
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.
(10) Derivative asset
Convertible loan facility
31 December
2020
US$’000
8,586
31 December
2019
US$’000
-
The Group secured a convertible loan facility from ARC, Kropz’s major shareholder, in June 2020 for
the development of Elandsfontein. Under the terms of the convertible equity facility, ARC committed to
provide up to a ZAR equivalent of US$ 40 million (up to a maximum of ZAR 680 million) to the Company
which will be converted into new ordinary shares. The cap of ZAR 680 million was put in place as ARC
secured this facility from Rand Merchant Bank in South Africa in order to fulfil its commitments to the
Company. The Company, via Kropz Elandsfontein, receives the ZAR equivalent of the draw down based
on the actual exchange rate prevailing at the time of the drawdown, subject to a maximum exchange
rate of ZAR 17 to the US$.
The convertible loan facility will be used exclusively for Kropz Elandsfontein’s purposes. Immediately
upon draw down, new ordinary shares in the Company are issued to ARC at a fixed share price (6.75
pence per share) and fixed GBP / US$ exchange rate (0.86). Drawdowns are at the sole discretion of
the Company and no interest is payable on the drawdown unless equity shares are not issued to ARC
in terms of a drawdown. At 31 December 2020, US$ 21 million of the facility remained undrawn which
equates to 267,555,556 new ordinary shares to be issued in the Company pursuant to the terms of the
agreement. A Monte-Carlo simulation was applied to simulate the expected share price at a 60%
volatility and the expected share price was deemed to be 4.37 pence per share.
95
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(11) Restricted cash
Short-term deposits
31 December
2020
US$’000
7,355
31 December
2019
US$’000
-
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. In addition, the amended BNP
facility agreement locked up ZAR 200 million of cash held in the bank account of Kropz Elandsfontein
at that time, to be released by BNP to Kropz Elandsfontein pro rata drawdowns from ARC in terms of
the Original Equity Facility. The locked up funds would be released by BNP in the ratio of 1:3,
representing a drawdown of ZAR1 for every ZAR3 drawn down from ARC in terms of the Original Equity
Facility. At 31 December 2020, ZAR 108 million remained locked up and invested with BNP as short-
term deposits.
Fair value of short-term deposits
Due to the short-term nature of restricted cash the carrying amount is deemed to approximate the fair
value.
(12) Cash and cash equivalents
Bank balances
Cash on hand
Total
31 December
2020
US$’000
11,571
1
11,572
31 December
2019
US$’000
15,528
2
15,530
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.
96
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(13) Share capital
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:
At 1 January 2019
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
Placing of shares
Convertible loan – issue of shares
Open offer – issue of shares
Cost of issuing shares
Lapsed warrants
Issue of warrants
At 31 December 2020
Number of
Share
capital
shares US$’000
335
261,881,253
Merger
Share
Total
reserve
premium
US$’000 US$’000 US$’000
121,838
(20,523)
142,026
1,357,080
2
708
-
710
803,315
19,364,659
-
-
283,406,307
4,505,060
244,866,271
25,849,920
-
-
-
558,627,558
1
25
-
-
363
5
306
32
-
-
-
706
418
4,248
(30)
(31)
147,339
349
18,694
2,130
(320)
30
(10)
168,212
-
-
-
-
(20,523)
-
-
-
-
-
-
(20,523)
419
4,273
(30)
(31)
127,179
354
19,000
2,162
(320)
30
(10)
148,395
Issue of shares in the year ended 31 December 2020:
The changes to the issued share capital of the Company which occurred between 1 January 2020 and
31 December 2020 were as follows:
Placing of shares
On 1 June 2020, the Company placed a total of 4,505,060 shares to an existing investor and two
Directors (300,000 shares were placed with Lord Robin Renwick and 30,000 with Mark Summers) at a
price of 6.75 pence per ordinary share for a total cash consideration of GBP 304,000 (before expenses)
(equal to approximately US$ 354,000).
Open offer
Under the terms of an Open Offer, the Company issued a total of 25,849,920 shares on 26 June 2020
at 6.75 pence per ordinary share for a total cash consideration of GBP 1,745,000 (before expenses)
(equal to approximately US$ 2,162,000).
ARC subscribed for 25,481,482 Open Offer Shares on the same terms (equal to approximately
US$ 2,132,000). Mark Summers subscribed for 50,000 Open Offer shares.
97
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Convertible loan facility
In addition to the Placing and Open Offer, the Group secured a convertible loan facility from ARC,
Kropz’s major shareholder, in June 2020 for the development of Elandsfontein. Under the terms of the
convertible equity facility, ARC committed to provide up to a ZAR equivalent of US$ 40 million (ZAR 680
million) to the Company which will be converted into new ordinary shares. The cap of ZAR 680 million
was put in place as ARC secured this facility from Rand Merchant Bank in South Africa in order to fulfil
its commitments to the Company. The Company, via Kropz Elandsfontein, receives the ZAR equivalent
of the draw down based on the actual exchange rate prevailing at the time of the draw down, subject to
a maximum exchange rate of ZAR 17 to the US$. The convertible loan facility will be used exclusively
for Kropz Elandsfontein’s purposes. Immediately upon draw down, new ordinary shares in the Company
are issued to ARC at a fixed share price (6.75 pence per share) and fixed GBP / US$ exchange rate
(0.86). Drawdowns are at the sole discretion of the Company and no interest is payable on the
drawdown unless equity shares are not issued to ARC in terms of a draw down.
In June 2020, the Company made its first quarterly drawdown request in terms of the convertible loan
facility. The first drawdown which was for US$ 10 million was paid by way of issue of 130,199,604 new
ordinary shares at the issue price of 6.75 pence per ordinary share to ARC on 26 June 2020.
The second draw down was for US$ 4 million which was paid by way of issue of 50,962,963 new
ordinary shares at the issue price of 6.75 pence per ordinary share to ARC on 25 September 2020.
The third drawdown was for US$ 5 million which was paid by way of issue of 63,703,704 new ordinary
shares at the issue price of 6.75 pence per ordinary share to the ARC Fund on 10 December 2020.
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 Awards”) – a performance and service-related plan
pursuant to which nominal-cost options can be granted; and
an executive long-term incentive plan (the “LTIP Awards”) – 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’’).
An option-holder has no voting or dividend rights in the Company before the exercise of a share option.
ESOP Awards
ESOP Awards were issued at the time of the Admission of the Company’s shares to the AIM market of
the London Stock Exchange in November 2018.
98
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
The ESOP Awards 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.
ESOP Award 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 3,362,609 ESOP options awarded to him lapsed
and expired on that date.
LTIP Awards
During 2020, the Company granted conditional share awards over ordinary shares in the Company to
key members of the executive management team under its LTIP Awards plan. These LTIP Awards have
performance conditions aligned to the implementing the Company's strategic plans, including
appropriate weightings on the successful commissioning of the Elandsfontein mine and completion of
an updated feasibility study on the Hinda project.
As announced on 4 August 2020, the Company granted LTIP Awards to key members of the executive
management team, including certain Persons Discharging Managerial Responsibilities (“PDMRs”),
including Mark Summers and Chief Operating Officer (“COO”) Michelle Lawrence, under its LTIP
Awards.
The LTIP Awards are nil priced options over a total of 6,700,000 ordinary shares. Of this total, 2,350,000
LTIP Awards were granted to each of Mark Summers and Michelle Lawrence and 1,000,000 to Patrick
Stevenaert. The LTIP Awards will vest on 31 December 2021, subject to the terms of the LTIP Plan
Rules (as set out in the Company’s Admission Document), including financial and non-financial
performance conditions and, in respect of Mark Summers and Michelle Lawrence, continued
employment by the Company.
99
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
The value of the options was calculated by using the Black-Scholes model, using the following
assumptions.
LTIP Award assumptions at issue date
Share price
Exercise price
Expected volatility
Expected dividends
Risk-free interest rate
Option life
GBP 0.085
GBP 0.001
26%
0%
1.1%
3 years
The charge to profit and loss was US$ 238,000 (31 December 2019: US$ 137,000).
The LTIP Awards are nil priced options over a total of 6,700,000 ordinary shares representing 1.2 per
cent. of the Company's issued share capital at 31 December 2020. Following the grant of the LTIP
Awards, together with the existing 4,827,746 ESOP Awards, the ESOP Awards and LTIP Awards
represent 2.1 per cent. of the Company's issued share capital at 31 December 2020.
Equity warrants
As part of the equity facility and fundraising, on 4 August 2020 the Company granted 121,837 warrants
over the ordinary shares of 0.1 pence each in the Company, exercisable at 6.75 pence per Ordinary
Share for a period of two years from issue.
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 in respect of warrants issued during the year was US$ 10,000
(31 December 2019: US$ 30,000). An amount totalling US$ 30,000 has been credited to share premium
in respect of warrants that lapsed during the year (31 December 2019: US$ nil).
No equity warrants have been exercised and 1,200,000 warrants were forfeited during the year.
Accordingly, 121,837 equity warrants remained in place at 31 December 2020 (31 December 2019:
1,200,000 equity warrants).
(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. An addition to the reserve of
US$ 2,281,000 (2019: US$ 1,279,000) was recorded due to changes in the foreign currencies used to
translate assets, liabilities and equity at consolidation.
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.
100
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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.
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
2020
US$’000
15,703
31 December
2019
US$’000
14,701
The loans are: (i) US$ denominated, but any repayments will be made in ZAR at the then prevailing
ZAR/US$ 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).
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
Balance brought forward
Additions during the year
Repayments during the year
Foreign exchange differences
Lease liabilities at end of year
Maturity
Current
Non-current
Total lease liabilities
Year ended
31 December
2020
US$’000
Year ended
31 December
2019
US$’000
40
60
(53)
1
48
-
54
(15)
1
40
As at
31 December
2020
US$’000
As at
31 December
2019
US$’000
42
6
48
19
21
40
101
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(17) Other financial liabilities
BNP
Greenheart Foundation
Total
Non-current financial liabilities
Current financial liabilities
Total
31 December
2020
US$’000
30,118
495
30,613
31 December
2019
US$’000
29,537
445
29,982
28,113
2,500
30,613
-
29,982
29,982
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. The waiver and restructured facility were only contingent on the
admission of Kropz plc’s shares to trading on AIM by 30 November 2018, which did occur on that date.
The facility has been fully drawn down.
During January 2020, given the delays in the recommissioning 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. In addition, the amended BNP facility agreement locked up ZAR 200 million of cash held in
the bank account of Kropz Elandsfontein at that time, to be released by BNP to Kropz Elandsfontein
pro rata drawdowns from ARC in terms of the Original Equity Facility. The locked up funds would be
released by BNP in the ratio of 1:3, representing a drawdown of ZAR 1 for every ZAR 3 drawn down
from ARC in terms of the Original Equity Facility. Financial closure occurred on 25 June 2020.
In accordance with IFRS 9, the Group has recognised a loss of US$ 1,109,000 in profit and loss arising
from the modification of the loan.
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.
102
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(18) Provisions
Reconciliation of provisions – Year ended 31 December 2020
Provision for dismantling costs
Provisions for rehabilitation
Total
Opening
Balance
US$’000
650
3,052
3,702
Additions/
Adjustments
US$’000
1,854
(1,089)
765
Reconciliation of provisions – Period 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
gains
US$’000
(27)
(129)
(156)
Foreign
exchange
gain/loss
US$’000
13
82
95
Closing
balance
US$’000
2,477
1,834
4,311
Closing
balance
US$’000
650
3,052
3,702
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
mine. Estimates are based on costs that are reviewed regularly and adjusted as appropriate for new
circumstances. In determining the environmental rehabilitation liability, an inflation rate of 6% was
assumed to increase the rehabilitation liability for the next 10 years, and a rate of 8.59% to discount that
amount to present value.
(19) Trade and other payables
Trade payables
Other payables
Accruals
Total
31 December
2020
US$’000
4,471
17
292
4,780
31 December
2019
US$’000
932
91
513
1,536
Fair value of trade and other payables
Trade and other payables are carried at amortised cost, with their carrying value approximating their
fair value.
103
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(20) Other tax liabilities
Withholding taxes
Total
The withholding tax liabilities relate to the loan from ARC.
(21) Commitments
Authorised capital commitments
The committed expenditure relates to plant construction.
(22) Directors’ remuneration, interests and transactions
31 December
2020
US$’000
-
-
31 December
2019
US$’000
451
451
31 December
2020
US$’000
14,815
31 December
2019
US$’000
5,698
The Director of the Company and the two executives of Kropz Elandsfontein and Cominco Resources
are considered to be the Key Management Personnel of the Group. Details of the Directors
remuneration, Key Management Personnel remuneration which totalled US$ 1,413,184 (2019:
US$ 1,503,485) (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 2020 GBP exchange
rate of 0.733 and ZAR exchange rate of ZAR 14.661.
The highest paid Director in the year received remuneration, excluding notional gains on share options,
of US$ 295,516 (2019: US$ 388,742).
(23) Finance income
Foreign currency gains
Interest income received
Total
Year ended
31 December
2020
US$’000
109
1,135
1,244
Year ended
31 December
2019
US$’000
855
783
1,638
104
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(24) Operating expenses
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
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
Year ended
31 December
2020
US$’000
18
51
780
1,171
238
807
16
167
833
951
145
32
703
5,912
Year ended
31 December
2019
US$’000
43
18
894
1,361
137
886
6
429
884
1,043
83
29
955
6,631
Year ended
31 December
2020
No.
Year ended
31 December
2019
No.
9
6
3
18
8
5
3
16
Year ended
31 December
2020
US$’000
Year ended
31 December
2019
US$’000
823
109
238
1
1,171
1,112
111
137
1
1,361
105
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(26) Finance expense
Shareholder loans
Foreign exchange losses
Bank debt
BNP – debt modification loss (Note 17)
BNP – debt modification present value adjustment
BNP amendment fee
Finance leases
Other
Total
(27) Taxation
Major components of tax charge
Deferred
Originating and reversing temporary differences
Current tax
Local income tax recognised in respect of current year
Local income tax recognised in respect of prior year
Total
Reconciliation of tax charge
Loss before tax
Applicable UK tax rate
Tax at applicable tax rate
Adjustments for different tax rates in the Group
Non-taxable gains
Disallowable expenditure
Prior year tax charge
Losses carried forward not recognised
Tax (credit) / charge
Year ended
31 December
2020
US$’000
611
1,857
2,061
1,109
(119)
104
2
289
5,914
Year ended
31 December
2019
US$’000
768
-
2,892
-
2
-
3,662
Year ended
31 December
2020
US$’000
Period ended
31 December
2019
US$’000
-
-
(36)
(36)
-
34
84
118
Year ended 31
December
2020
US$’000
(1,967)
Year ended
31 December
2019
US$’000
(8,646)
19%
(374)
(1,219)
(1,631)
648
(36)
2,576
(36)
19%
(1,643)
(981)
-
146
84
2,512
118
106
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
The movement in tax liabilities is summarised below:
Balance brought forward
Prior year tax charge
Current year charge
Tax paid
Foreign exchange differences
Balance carried forward
Year ended
31 December
2020
US$’000
Year ended
31 December
2019
US$’000
174
-
(36)
(128)
(10)
-
66
-
118
(15)
5
174
The Group had losses for tax purposes of approximately US$ 43.8 million as at 31 December 2020
(2019: US$ 37.6 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$ 12.3 million (2019: US$ 10.5 million), after set off of
accelerated depreciation allowances in respect of fixed assets of US$ 29.9 million (2019: US$ 27.1
million), arises in respect of these losses. It has not been recognised 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:
Profit / (loss) attributable to ordinary shareholders
Year ended
31 December
2020
US$’000
1,531
Year ended
31 December
2019
US$’000
(6,290)
Weighted average number of ordinary shares in Kropz plc
383,896,428
273,467,747
Basic and diluted earnings / (loss) per share (US$ cents)
0.40
(2.30)
Because the Group was in a net loss position in 2019, diluted loss per share excludes the effects of
ordinary share equivalents consisting of stock options and warrants, which are anti-dilutive.
107
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(29) Notes to the statement of cash flows
Issue of shares
Year ended 31 December 2020
Non-cash
consideration
US$’000
-
-
-
-
-
Cash
consideration
US$’000
354
19,000
2,162
(320)
21,196
Non-cash
consideration
US$’000
710
Cash
consideration
US$’000
-
419
-
-
1,129
-
4,243
(31)
4,212
Total
US$’000
354
19,000
2,162
(320)
21,196
Total
US$’000
710
419
4,243
(31)
5,341
Placing of shares
Equity facility – issue of shares
Open offer - issue of shares
Cost of issuing 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 2020
Opening
Balance
US$’000
15,530
1,534
(14,701)
(29,982)
(40)
(27,659)
Accrued
interest
US$’000
-
-
(1,624)
(1,935)
-
(3,559)
New
agreements
US$’000
Cash
movements
US$’000
Foreign
exchange
gain/(loss)
US$’000
-
-
-
-
(60)
(60)
3,984
-
-
-
53
4,037
(587)
(57)
622
1,304
(1)
1,281
Closing
balance
US$’000
18,927
1,477
(15,703)
(30,613)
(48)
(25,960)
Cash and cash
equivalents
Other financial assets
Shareholder loan
payable
Other financial liabilities
Finance leases
Total
108
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Year ended 31 December 2019
Opening
Balance
US$’000
New
agreements
US$’000
Cash
movements
US$’000
Cash and cash
equivalents
Other financial assets
Shareholder loan payable
Other financial liabilities
Finance leases
Total
30,457
1,623
(14,386)
(30,068)
-
(12,374)
-
-
-
-
(55)
(55)
(15,792)
(124)
32
814
16
(15,054)
Foreign
exchange
gain/(loss)
US$’000
865
35
(347)
(728)
(1)
(176)
Reconciliation of working capital items:
Year ended 31 December 2020
Opening
Balance
US$’000
Cash
movements
US$’000
329
875
(1,536)
(3,702)
1,278
(17)
(3,356)
(304)
Issue of
shares
(Note 13)
US$’000
Foreign
exchange
gain/(loss)
US$’000
-
-
-
-
4
(37)
112
156
Trade and other
receivables
Inventories
Trade and other payables
Provisions
Year ended 31 December 2019
Trade and other
receivables
Inventories
Trade and other payables
Provisions
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$’000
15,530
1,534
(14,701)
(29,982)
(40)
(27,659)
Closing
balance
US$’000
1,611
821
4,780
(3,850)
Closing
balance
US$’000
329
875
(1,536)
(3,702)
109
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(30) Related parties
Kropz plc and its subsidiaries
The following parties are related to Kropz plc:
Name
Mark Summers
Ian Harebottle
Mike Nunn
Linda Beal
Mike Daigle
Lord Robin William Renwick
Machiel Johannes Reyneke
Kropz SA
ELH
Kropz Elandsfontein
West Coast Fertilisers (Pty) Ltd
Xsando (Pty) Ltd
First Gear Exploration Limited
Cominco Resources Limited
Cominco S.A.
Cominco Resources (UK) Ltd
Kropz International
ARC
Relationship
Director
Director
Director
Director
Director
Director
Director
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Shareholder
Shareholder
Details of remuneration to KMP are contained in Note 22 to the Consolidated Financial Statements.
In addition to share issues to related parties set out in Note 13 to the Consolidated Financial Statements,
the following transactions were carried out with related parties:
Related party balances
Loan accounts – owed to related parties
ARC
Total
Related party balances
Interest paid to related parties
ARC
Total
31 December
2020
US$’000
(15,703)
(15,703)
31 December
2019
US$’000
(14,701)
(14,701)
Year ended
31 December
2020
US$’000
611
611
Year ended
31 December
2019
US$’000
768
768
110
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Convertible loan facility
As described in Note 13, the Company made drawdowns totalling US$ 19 million under its convertible
loan facility from ARC.
(31) Categories of financial instrument
Financial assets by category
The accounting policies for financial instruments have been applied to the line items below:
Financial assets at amortised cost
Trade and other receivables
Other financial assets
Derivative asset
Restricted cash
Cash and cash equivalents
Total
31 December
2020
US$’000
31 December
2019
US$’000
1,611
1,477
8,586
7,355
11,572
30,601
329
1,534
-
-
15,532
17,395
Recognised fair value measurements
The net fair value and carrying amounts of financial assets and financial liabilities are disclosed in the
Consolidated Statement of Financial Position and in the notes to the Consolidated Statement of
Financial Position.
This note provides an update on the judgements and estimates made by the Group in determining the
fair values of the financial instruments.
(i)
(ii)
Financial instruments Measured at Fair Value
The financial instruments recognised at fair value in the Statement of Financial Position have
been analysed and classified using a fair value hierarchy reflecting the significance of the inputs
used in making the measurements. At the reporting date, the Group had a convertible facility
with ARC. The US$ amount of the facility is convertible into ordinary shares of the parent entity
(Note 13).
Fair value hierarchy
The fair value hierarchy consists of the following levels
• Quoted prices in active markets for identical assets and liabilities (Level 1);
•
Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and
Inputs for the asset and liability that are not based on observable market date
(unobservable inputs) (Level 3).
•
2020
Derivative asset
2019
Derivative asset
Level 1
US$’000
Level 2
US$’000
Level 3
US$’000
Total
US$’000
-
-
-
-
8,586
8,586
-
-
111
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
There were no transfers between levels for recurring fair value measurements during the year.
The Group’s policy is to recognise transfers into and transfer out of fair value hierarchy levels
as at the end of the reporting period.
Level 1: the fair value of financial instruments traded in active markets (such as publicly traded
derivatives, and trading and available-for-sale securities) is based on quoted market prices at
the end of the reporting period. The quoted market price used for financial assets held by the
Group is the current bid price. These instruments are included in level 1.
Level 2: the fair value of financial instruments that are not traded in an active market (for
example, over-the-counter derivatives) is determined using valuation techniques which
maximises the use of observable data and rely as little as possible on entity-specific estimates.
If all significant inputs required to fair value an instrument is observable, the instrument is
included in level 2.
Level 3: if one or more of the significant inputs is not based on observable market data, the
instrument is included in level 3. This is the case for unlisted equity securities. The fair value of
the convertible loan not traded in an active market is determined using an internally prepared
discounted cash flow valuation technique using observable imports (such as share price and
terms and conditions of the convertible loan) and released of the initial calibration adjustment
to the profit and loss.
(iii)
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments include:
• Use of the quoted market price or dealer quotes for similar instruments;
• The fair value of interest rate swaps is calculated as the present value of the estimated
future cash flows based on observable yield curves;
• The fair value of forward foreign exchange contracts is determined using forward exchange
rates at the balance sheet date; and
• The fair value of the remaining financial instruments as determined using discounted cash
flow analysis.
Financial liabilities by category
The accounting policies for financial instruments have been applied to the line items below:
Financial liabilities at amortised cost
Shareholder loans payable
Trade and other payables
Finance leases
Other financial liabilities
Total
(32) Financial risk management objectives
31 December
2020
US$’000
31 December
2019
US$’000
15,703
4,780
48
30,613
51,144
14,701
1,536
40
29,982
46,259
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.
112
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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, 16 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 2020
Shareholder loans payable
Trade and other payables
Finance leases
Other financial liabilities
Total
At 31 December 2019
Shareholder loans payable
Trade and other payables
Finance leases
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
-
4,780
42
2,500
7,322
-
-
6
5,155
5,161
-
-
-
27,479
27,479
15,703
-
-
-
15,703
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
2,726
4,281
-
-
21
2,281
2,302
-
-
-
33,751
33,751
28,021
-
-
-
28,021
113
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
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 2020, if interest rates on
the shareholder and BNP loans (denominated in US$) had been 1 per cent higher/lower with all other
variables held constant, post-tax losses and equity for the year would have been approximately
US$ 450,000 (2019: US$ 440,000) 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 South African 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.
114
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
The Group’s net exposure to foreign exchange risk was as follows:
As at 31 December 2020
Functional currency
South
African
Rand
US$’000
British
Pound
US$’000
Total
US$’000
Financial assets denominated in US$
-
971
971
Financial liabilities denominated in US$
(44,238)
-
(44,238)
Net foreign currency exposure
(44,238)
971
(43,267)
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
Financial liabilities denominated in US$
(44,689)
-
(44,689)
Net foreign currency exposure
(44,689)
1,252
(43,437)
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.
As at
31 December
2020
Increase/
(Decrease)
US$’000
As at
31 December
2019
Increase/
(Decrease)
US$’000
(4,424)
4,424
(4,469)
4,469
97
(97)
125
(125)
115
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(33) Segment information
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 two principal geographical
areas – South Africa and the RoC.
The Group’s non-current assets by location of assets are detailed below.
As at 31 December 2020
Total non-current assets
As at 31 December 2019
Total non-current assets
(34) Non-controlling interests
As at beginning of year
Share of losses for the year
Share of other comprehensive income
Purchase of non-controlling interests in subsidiaries
As at end of the year
South
Africa
US$’000
Congo
US$’000
Group
US$’000
116,027
44,316
160,343
South
Africa
US$’000
Congo
US$’000
Group
US$’000
106,851
40,136
146,987
31 December
2020
US$’000
(1,728)
(3,462)
(86)
-
(5,276)
31 December
2019
US$’000
1,138
(2,474)
33
(425)
(1,728)
Non-controlling interests in cash flows
(4,093)
(4,403)
(35) Material subsequent events
EMPr
On 1 July 2020, the DMRE issued a directive to Kropz Elandsfontein to submit an updated EMPr, in line
with the requirements of the National Environmental Management Act. The updated EMPr was
submitted to the DMRE in the first week of September 2020.
On 26 March 2021, management received the updated EMPr for the Elandsfontein project from the
DMRE. The updated EMPr strongly emphasizes the adherence to the required rehabilitation measures.
Offsets
In July 2020, Kropz Elandsfontein submitted a revised Offset Study to the DMRE. Management
informed the DMRE that the 2015 Offset Study for the Elandsfontein project did not adequately consider
116
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
Kropz Elandsfontein’s effective rehabilitation measures which have demonstrated successful
implementation over the past three growing seasons. Kropz’ Elandsfontein’s rehabilitation measures
have been shown to guarantee future rehabilitation success, if conducted in accordance with the
approved and financially secured mine rehabilitation plan drafted by Kropz Elandsfontein’s appointed
rehabilitation specialist.
Following due consideration of all the comments and responses received during the thirty day public
participation period, management received notification from the DMRE on 4 March 2021 that the
conditions required to cater for the offsets of land will be removed from the Elandsfontein EMPr.
Several appeals against the DMRE’s decision have been lodged and are being dealt with and Kropz
will update the market once these matters have been resolved.
Water use licence (“WUL”)
The outstanding appeal against the Elandsfontein WUL was heard from 1 to 4 February 2021. During
this fourth sitting of the matter, all evidence was heard by the Water Tribunal. The Water Tribunal issued
a directive to all parties, setting out the dates to be met for heads of arguments, to allow a ruling on 10
March 2021. The appellant has subsequently been granted two postponements for the submission of
their heads of arguments, which has delayed the possible date of the ruling to 31 July 2021.
Convertible loan facility for $5 million from ARC, entered into on 15 February 2021
Kropz secured a further convertible loan facility of up to US$ 5 million (not exceeding a maximum of ZAR
85 million) from ARC (“Further Equity Facility”) in February 2021, to be used exclusively for the Hinda
Updated FS and general corporate purposes for Kropz. Quarterly drawdowns under the Equity Facility are
at the sole discretion of Kropz. The first draw down on the Further Equity Facility occurred on 10 March
2021 and second draw down of US$ 2 million occurred on 23 June 2021. No specific shareholder approval
was required for the Further Equity Facility as the Company received the necessary authority at the AGM
in August 2020 to allot shares for cash, without first offering them to existing shareholders in proportion to
their existing shareholdings, of approximately 20 per cent. of the Company’s issued share capital at that
time, representing 88,792,180 new ordinary shares. Ordinary shares to be issued to ARC in terms of the
Further Equity Facility will be a maximum of 86,863,398 ordinary shares.
The next drawdown is anticipated on 10 September 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 4.202 pence per ordinary share each quarter, and any US$ amount will be
converted to GBP at an agreed rate of US$ 1 = 0.73 GBP. US$ 1 million of the Further Equity Facility
remains to be drawn down in 2021 / 2022.
Divestment by the Company of its equity interest in Aflao, Ghana, entered into on 16 February 2021
During 2020, 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. During February 2021, Kropz disposed of its
interest in FGE to Consortium Minerals Ltd (“Consortium”), for a consideration of US$ 327,529, made up
as follows:
• US$ 5,000 in cash (“Share Consideration”); and
• US$ 322,529 (“Loan Consideration”) deferred cash consideration in respect of the shareholder loan
from Kropz to FGE, which is being novated to Consortium.
The Share Consideration will be payable by Consortium within seven days of completion. The Loan
Consideration will be payable by Consortium to Kropz upon, the earlier of,
(i)
the sign-off by a competent person of a definitive feasibility study on the Aflao deposit, as defined in
the JORC Code 2012 edition; or
(ii) Consortium disposing or transferring the Shares prior to the event described in (i) being achieved; or
117
Kropz plc Annual Report for 2020
Notes to the Consolidated Financial Statements for the year ended 31 December 2020
(continued)
(iii) Consortium disposing or transferring the prospecting right prior to the event described in (i) being
achieved.
Derivative asset
As disclosed in Note 10, a US$ 8.6 million derivative asset was recognised in relation to the undrawn
Original Equity Facility from ARC to Kropz totalling US$ 21 million as at 31 December 2020. As at signing
of these financial statements, US$ 3 million remains undrawn and in accordance with IFRS the derivative
is revalued for changes in the share price prior to draw downs with a resulting loss for revaluation booked
to Profit and Loss and the remaining receivable extinguished through equity based on the relative draw
down percentage of the US$ 21 million undrawn at year end. As at signing of the report the derivative asset
value is approximately US$ 0.5 million.
COVID Outbreak
The COVID pandemic 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 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
and construction operations have continued on site.
(36) Ultimate controlling party
The Directors consider Ubuntu-Botho Commercial Enterprises Proprietary Limited to be the ultimate
controlling party of the Company.
118
Kropz plc Annual Report for 2020
Company Statement of Financial Position
(Registered number: 11143400)
As at 31 December 2020
Fixed assets
Investment in subsidiaries
Amounts due from subsidiaries
Current assets
Debtors
Derivative asset
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
2020
US$’000
Notes
31 December
2019
US$’000
(Restated)
31 December
2018
US$’000
(Restated)
4
5
6
9
7
98,991
43,926
142,917
98,241
41,790
140,031
95,144
39,820
134,964
54
8,586
1,120
9,760
(153)
(153)
9,607
187
-
1,654
1,841
(354)
(354)
1,487
201
-
5,144
5,345
(2,449)
(2,449)
2,896
152,524
141,518
137,860
152,524
141,518
137,860
706
168,212
14,878
4,191
385
(35,848)
363
147,339
14,878
2,270
167
(23,499)
335
142,026
14,878
(956)
-
(18,423)
152,524
141,518
137,860
The Company has elected to take the exemption under section 408 of the Companies Act 2006, to not present
the Statement of Comprehensive Income. Capital and reserves include losses for the year of the parent company
of US$ 12,349,000 (2019: US$ 5,076,000).
The Notes on pages 121 to 128 form an integral part of these Financial Statements.
The Financial Statements on pages 119 to 128 were approved and authorised for issue by the Board of Directors
and were signed on its behalf by:
Mark Summers, Chief Executive Officer
29 June 2021
119
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
335
-
335
142,026
-
142,026
14,878
-
14,878
-
-
-
28
-
-
28
-
-
-
5,344
(31)
-
5,313
-
-
-
-
-
-
-
(956)
-
(956)
-
3,226
3,226
-
-
-
-
-
-
-
-
-
-
30
-
137
167
(1,961)
(16,462)
(18,423)
154,322
(16,462)
137,860
(5,076)
(5,076)
-
3,226
(5,076)
(1,850)
-
-
-
-
5,402
(31)
137
5,508
363
147,339
14,878
2,270
167
(23,499)
141,518
-
-
-
343
-
-
-
-
-
-
-
21,173
(320)
(10)
30
-
343
20,873
-
-
-
-
-
-
-
-
-
-
1,921
1,921
-
-
-
-
-
-
-
-
-
-
-
10
(30)
238
218
(12,349)
(12,349)
-
1,921
(12,349)
(10,428)
-
-
-
-
-
-
21,516
(320)
-
-
238
21,434
At 1 January 2019, as
previously reported
Prior year adjustment
As restated
Loss for the year as
restated
Other comprehensive
income
Total comprehensive
income for the period
Issue of shares
Costs of issuing shares
Share-based payment
charges
Transactions with
owners
At 31 December 2019
as restated
Loss for the year
Other comprehensive
income
Total comprehensive
income for the year
Issue of shares
Costs of issuing shares
Issue of warrants
Lapsed warrants
Share-based payment
charges
Transactions with
owners
At 31 December 2020
706
168,212
14,878
4,191
385
(35,848)
152,524
120
Kropz plc Annual Report for 2020
Notes to the Company Financial Statements for the year ended 31 December 2020
1.
General information
The Company was incorporated on 10 January 2018 and is a public limited company limited by shares,
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 2020 is US$ 12,349,000 (2019: US$ 5,076,000).
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$ 1.1 million as at 31 December 2020 (2019: US$ 1.7 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.
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 Original Equity Facility
was expected to bring the Company’s Elandsfontein project into production in Q4 2021. The Original
Equity Facility is ringfenced in Kropz Elandsfontein and the Kropz group does not have access to the
remaining US$ 14 million of the Original Equity Facility. ZAR 77 million is currently locked up by BNP
Paribas in the accounts of Kropz Elandsfontein in terms of the BNP Paribas amended facility agreement.
The ZAR 77 million ringfenced by BNP will be released pro rata to the drawdowns in terms of the Original
Equity Facility. Existing cash holdings, plus the remainder of the undrawn Original Equity Facility of
US$ 14 million and the ZAR 77 million to be released by BNP Paribas, will be utilised towards funding
the construction and completion of Elandsfontein in Q4 2021.
121
Kropz plc Annual Report for 2020
Notes to the Company Financial Statements for the year ended 31 December 2020
(continued)
During 2020, ZAR 92 million of the ZAR 200 million ringfenced by BNP was 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 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.
In February 2021, Kropz secured a further convertible loan facility of up to US$ 5 million (not exceeding
a maximum of ZAR 85 million) from ARC (“Further Equity Facility”), to be used exclusively for the Hinda
Updated FS and general corporate purposes for Kropz. On 10 March 2021, Kropz received a drawdown
of US$ 2 million on the Further Equity Facility and on 23 June 2021, a further US$ 2 million draw down.
Drawdowns under the Further Equity Facility are at the sole discretion of Kropz. US$ 1 million remains
to be drawn down at the date of this report, with further quarterly drawdowns scheduled for 2021 and
early 2022.
The COVID pandemic 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 outbreak. The timing and extent of the impact and recovery from COVID is unknown but it may
affect planned activities and potentially display a post balance sheet date impact.
The Directors have reviewed the Group's overall cash position and outlook, for a period of at least the next
twelve months following the date of signature of this Annual Report and have considered sensitivities and
stress tested various scenarios, in respect of the matters identified above and are of the opinion that it is
appropriate to adopt the going concern of accounting in preparing these financial statements. Certain key
contracts associated with operational readiness and commencement of production activities at
Elandsfontein are yet to be finalised. Current estimates are based on ongoing negotiations and proposals
received from third party contractors. Failure to enter into contracts, based on these negotiated terms and
expected timeframes, could negatively impact commissioning and create an additional funding
requirement. Additionally, at the date of these financial statements, the potential future impact of COVID is
uncertain, and any delays or interruptions could cause cost overruns that would require additional funding
through the raising of debt or equity. As announced on RNS on 25 May 2021, there is a funding shortfall in
respect of the Original Equity Facility for the commissioning of Elandsfontein in Q4 2021, due to the
strengthening of the ZAR against the US$ and further funds would be required. Management has
successfully raised money in the past from its supportive shareholder base, but there is no guarantee that
adequate funds will be available when needed in the future. 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.
122
Kropz plc Annual Report for 2020
Notes to the Company Financial Statements for the year ended 31 December 2020
(continued)
(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.
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.
(g) Derivative assets
Derivatives that are embedded in a host contract are accounted for separately as derivatives if they are
not closely related to the host contract, unless the hybrid (combined) instrument is measured at fair
value with changes in fair value recognised directly in the income statement.
Embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss.
A derivative is a financial instrument that changes in value in response to an underlying price and
creates the rights and obligations that usually have the effect of transferring between parties to the
instrument one or more of the financial risks inherent in an underlying instrument. A key characteristic
of derivatives is that they require little or no initial net investment and will be settled at a future date.
Separable embedded derivatives are measured at fair value with all changes in fair value recognised in
the income statement.
123
Kropz plc Annual Report for 2020
Notes to the Company Financial Statements for the year ended 31 December 2020
(continued)
3.
Prior year adjustment
Impairment of fixed asset investments
As described in Note 2 to the financial statements, fixed asset investments (comprising both
investments in ordinary shares and investment in non-redeemable preference shares) are stated at the
lower of cost and estimated recoverable amount.
At each reporting date fixed asset investments and loans made to subsidiaries are reviewed to
determine whether there is any indication that those assets have suffered an impairment loss. If there
is an indication of possible impairment, the recoverable amount of any affected asset is estimated and
compared with its carrying amount. If estimated recoverable amount is lower, the carrying amount is
reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in profit
or loss.
Whilst undertaking the impairment test for 2020 an error was identified in the previous impairment test
methodology in prior periods, whereby the non-redeemable preference shares had been compared to
available dividend future cash flows of the Elandsfontein mine whereas the terms of the instrument
restrict the returns to a 3.15% per annum preferred dividend for a maximum of 14 years with no other
distributions.
The Directors have carried out an impairment test on the value of the fixed asset investments in
subsidiaries separately for the investments in ordinary shares and the non-redeemable preference
shares and have concluded that an impairment provision of US$ 41,887,000 is required as at
31 December 2020 (2019: US$ 21,132,000) in respect of the non-redeemable preference shares and
accrued dividends to write down the investments to their estimated recoverable amount. The estimated
recoverable amount of the non-redeemable preference shares and accrued dividends in Kropz
Elandsfontein was determined based on the present value of future anticipated dividends using the
preference dividend rate of 3.15% per annum and a discount rate of 7.71% per annum.
This test indicated an impairment provision in respect of the Company’s investment in Kropz
Elandsfontein was necessary for the year ended 31 December 2020 but also for each of the two years
ended 31 December 2019 and 31 December 2018. As a result, the Company has recognised an
impairment provision of US$ 16,462,000 at the beginning of the earliest period presented (1 January
2019) and a further US$ 4,670,000 as at 31 December 2019. Accordingly the prior periods have been
restated. An impairment charge of US$ 20,755,000 has been recognised as an expense in the year
ended 31 December 2020.
Additionally, an error was identified in that at 31 December 2019 the accrued contractual dividends
arising under the non-redeemable preference share were classified as current receivables whereas the
anticipated receipts were due in greater than one year. Accordingly the receivable has been reclassified
to investments and then included in the impairment test above.
The effects of the adjustments are shown in the following tables:
124
Kropz plc Annual Report for 2020
Notes to the Company Financial Statements for the year ended 31 December 2020
(continued)
Impact on adjustment on the Company’s statement of financial position
Fixed asset investments
Investment in subsidiaries
Current assets
Debtors
Prior year
adjustment
US$’000
As at 31
December
2019
US$’000
(As
previously
stated)
117,709
117,709
(19,468)
(19,468)
1,851
1,851
(1,664)
(1,664)
As at 31
December
2019
US$’000
(As re-
stated)
98,241
98,241
187
187
Net Assets
162,650
(21,132)
141,518
Capital and reserves
Share capital
Share premium account
Merger reserve
Foreign
reserve
Share-based payment reserve
Retained losses
currency
translation
363
147,339
14,878
2,270
167
(2,367)
162,650
-
-
-
-
-
(21,132)
(21,132)
363
147,339
14,878
2,270
167
(23,499)
141,518
Impact on adjustment on the Company’s income statement
Net result for the year
Loss for the year
Year
ended 31
December
2019
US$’000
(As
previously
stated)
Prior year
adjustment
US$’000
Year
ended 31
December
2019
US$’000
(As re-
stated)
(406)
(406)
(4,670)
(4,670)
(5,076)
(5,076)
125
Kropz plc Annual Report for 2020
Notes to the Company Financial Statements for the year ended 31 December 2020
(continued)
4.
Investment in subsidiaries
Cost / recoverable amount
At beginning of the year (as previously stated)
Prior year impairment provision
At beginning of year as restated
Acquisition of non-controlling interests
Purchase of non-redeemable preference shares in
Kropz Elandsfontein
Impairment of non-redeemable preference shares in
Kropz Elandsfontein
Preference dividends due from subsidiary – Kropz
Elandsfontein
Share-based payment transaction with subsidiaries
Impairment of investment in First Gear
At 31 December (as restated)
31
December
2020
US$’000
31
December
2019
US$’000
117,709
(19,468)
98,241
-
111,606
(16,462)
95,144
419
20,000
5,689
(22,420)
(4,670)
3,102
68
-
98,991
1,664
-
(5)
98,241
Details of the Company’s subsidiaries as at 31 December 2020 are set out in Note 3 to the Consolidated
Financial Statements.
The Company granted a total of 6,700,000 share options to its employees during the year ended
31 December 2020. The Company has an obligation to settle the transactions with the subsidiary’s
employees by providing its own equity instruments and has measured its obligation in accordance with
the requirements applicable to equity-settled share-based payment transactions through the recognition
of an increase to the cost of investment in each subsidiary.
The Company invested, in aggregate, US$ 52 million (2019: US$ 32 million) in non-redeemable
preference shares of Kropz Elandsfontein. The non-redeemable preference shares principal is not
repayable but bear interest at the 1 month US Libor plus 3%, compounded monthly in arears, and is
repayable the earlier of 14 December 2022, or the first date that Kropz Elandsfontein is permitted to
pay a distribution pursuant to the provisions of the BNP facility agreement.
5.
Debtors
VAT recoverable
Other debtors
Net Book Value
6.
Derivative assets
31
December
2020
US$’000
15
39
54
31
December
2019
US$’000
(As re-
stated)
16
171
187
Details of the Company’s derivative assets are set out in Note 10 to the Consolidated Financial
Statements.
126
Kropz plc Annual Report for 2020
Notes to the Company Financial Statements for the year ended 31 December 2020
(continued)
7.
Share capital
Details of the Company’s authorised, called-up and fully paid share capital are set out in Note 13 to the
Consolidated Financial Statements.
The ordinary shares of the Company carry one vote per share and an equal right to any dividends
declared.
8.
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).
9.
Creditors: amounts falling due within one year
Trade creditors
Taxes and social security
Corporation taxes
Other creditors and accruals
Net Book Value
10. Related party transactions
31
December
2020
US$’000
37
12
-
104
153
31
December
2019
US$’000
95
19
122
118
354
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.
127
Kropz plc Annual Report for 2020
Notes to the Company Financial Statements for the year ended 31 December 2020
(continued)
The following transactions and balances with subsidiaries occurred in the year:
Opening balance
Loans advanced
Impairment provision – First Gear
Net Book Value
11. Subsequent events
31
December
2020
US$’000
41,790
2,141
(5)
43,926
31
December
2019
US$’000
39,820
2,276
(306)
41,790
Disclosures in relation to events after 31 December 2020 are shown in Note 35 to the Consolidated
Financial Statements.
128
Kropz plc Annual Report for 2020
Company information
Directors
Lord Robin William Renwick of Clifton, Non-executive Chairman
Mark Robert Summers, Chief Executive 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
Broker
H&P Advisory Limited
2 Park Street
Mayfair
London W1K 2HX
Legal advisers as to English Law
Memery Crystal Limited
165 Fleet Street
London EC4A 2DY
Legal advisers as to South African Law
Werksmans Attorneys
The Central, 96 Rivonia Road
Sandton 2196
Johannesburg
South Africa
Bowmans
22 Bree Street
Cape Town 8000
South Africa
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Kropz plc Annual Report for 2020
Company information (continued)
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
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Principal bankers
Barclays
One Churchill Place
London E14 5HP
BNP Paribas
11 Crescent Place
Melrose Arch
Johannesburg 2196
South Africa
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
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