2019 Annual Report
April 9, 2020
Dear Geodrill Shareholders,
2019 was a year in which Geodrill was able to demonstrate its resilience and leadership in the face of
adversity, ending the year on solid footing. Now, with the strongest gold price in 7 years, driven by the
ongoing recovery in the global mining industry and the resulting uptick in exploration spending,
Geodrill is well positioned to thrive in the coming year and beyond.
Late in the year, a militant attack killed two Geodrill employees and curtailed the drilling activities of
one of our clients. Again, Geodrill would like to formally express its sincere sympathies to families of
all of those affected and reiterate our firm support of Burkina Faso’s security forces.
Unable to redeploy our rigs as a result of security concerns, the Company’s annual revenue was
negatively impacted, albeit only modestly. That we were able to withstand the financial impact of this
type of event is a testament to the strength of our business model, the strong client and industry
relationships we have diligently fostered and the winning reputation we have worked tirelessly to
maintain.
Now, stoked by a strong gold price, the outlook for the global mining industry is optimistic, with
increased rig utilization and better pricing resulting in a strong operating environment that we are poised
to take advantage of.
Geodrill’s fleet of 67 high efficiency rigs in West Africa and our highly trained employees are equipped
with the training and skills they need to provide our top-tier mining clients with seamless, gold-standard
service. And with three full-service workshops and a drill rod manufacturing plant near our operating
territories to provide our clients with rapid response to service issues, they know they can count on
Geodrill to meet their drilling needs. It is this dedication to our offering of quality that resonates with
our clients, from junior miners to top tier bellwethers.
In today’s market it is difficult to make bold predictions of what is to come. The current pandemic of
the Coronavirus (COVID-19) could have an adverse impact on global economic conditions. Nobody
foresaw the scale of what the world has become. The markets ride the rollercoaster on an hourly basis,
front line health workers are risking their lives, our education system, indeed every-day life, paralysed
and nobody knows what a new normal will look like. In light of this global challege, Geodrill has
prepared for an adverse impact on our operations, the operations of our suppliers, contractors and
service providers by remaining prudent with our capital. Additionally, we have heightened awareness
around the COVID-19 virus to prevent its spread, stepped up screening and surveillance of employees,
banned non-essential travel, instituted clear self-quarantine measures where applicable and increased
hygiene awareness and facilities across its operations. Our efforts have the single purpose - to protect
employees, customers, their families and our host communities.
Amid the global swirl, Geodrill remains committed to deliver on our strategy of operational excellence
and capital discipline. In keeping with our strategy, we will remain value-conscious in these uncertain
times, allocating capital to opportunities for value-creating growth and increased profitability.
A sincere thank you to our shareholders for their ongoing support, our board of directors for their
instinctive and seasoned guidance and our valued employees for their continued dedication.
Sincerely,
“Dave Harper”
Dave Harper
President and Chief Executive Officer
GEODRILL LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
(in United States dollars)
CONTENTS
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
3-6
7
8
9
10
11-45
INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Contents
1. GENERAL INFORMATION ............................................................................................................. 11
2. SIGNIFICANT ACCOUNTING POLICIES ...................................................................................... 11
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS ......................................................... 19
4. NEW AND FUTURE ACCOUNTING STANDARDS ....................................................................... 20
5. DETERMINATION OF FAIR VALUES ............................................................................................ 22
6. SEASONALITY OF OPERATIONS................................................................................................. 23
7. SEGMENT REPORTING ................................................................................................................ 23
8. EXPENSES BY NATURE ............................................................................................................... 24
9. TAXATION ...................................................................................................................................... 24
10. PROPERTY, PLANT AND EQUIPMENT ........................................................................................ 27
11. RIGHT-OF-USE ASSETS ............................................................................................................... 29
12. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS ........................................ 30
13.
INVENTORIES ................................................................................................................................ 30
14. TRADE AND OTHER RECEIVABLES ............................................................................................ 30
15. CASH .............................................................................................................................................. 31
16. LOANS PAYABLE ........................................................................................................................... 32
17. TRADE AND OTHER PAYABLES .................................................................................................. 33
18. EMPLOYEE BENEFIT OBLIGATIONS ........................................................................................... 33
19. FAIR VALUES OF FINANCIAL INSTRUMENTS ............................................................................ 33
20. FINANCIAL RISK MANAGEMENT ................................................................................................. 34
21. RELATED PARTY TRANSACTIONS ............................................................................................. 40
22. COMMITMENTS ............................................................................................................................. 41
23. SHARE CAPITAL AND RESERVES .............................................................................................. 41
24. EARNINGS PER SHARE ................................................................................................................ 42
25. DIVIDENDS ..................................................................................................................................... 43
26. EQUITY-SETTLED SHARE-BASED PAYMENTS .......................................................................... 44
27. CONTINGENCY .............................................................................................................................. 45
28. COMPARATIVE INFORMATION .................................................................................................... 45
2
Independent auditor’s report
To the Shareholders of Geodrill Limited
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Geodrill Limited and its subsidiaries (together, the Company) as at December 31, 2019 and
its financial performance and its cash flows for the year then ended in accordance with International Financial
Reporting Standards (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statement of financial position as at December 31, 2019;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include a summary of significant accounting
policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of
the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance
with these requirements.
Comparative information
The consolidated financial statements of the Company for the year ended December 31, 2018 excluding the
reclassification adjustments described in notes 8 and 10, were audited by another auditor who expressed an
unmodified opinion on those consolidated financial statements on March 4, 2019.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
3
As part of our audit of the consolidated financial statements for the year ended December 31, 2019, we also
audited the reclassification adjustments described in notes 8 and 10. In our opinion, the adjustments described
in notes 8 and 10 are appropriate and have been properly applied.
We were not engaged to audit, review or apply any procedures to the consolidated financial statements of the
Company for the year ended December 31, 2018 other than with respect to the reclassification adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the consolidated financial
statements for the year ended December 31, 2018 taken as a whole.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
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.
Responsibilities of management and those charged with governance for the consolidated
financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
4
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated 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 Canadian generally accepted auditing standards 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 consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
5
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Michael Eric Clarke.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 29, 2020
6
GEODRILL LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2019 and 2018
December 31,
2019
US$
December 31,
2018
US$
Note
Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Total non-current assets
Current assets
Financial assets at fair value through profit or loss
Inventories
Prepayments
Trade and other receivables
Cash
Total current assets
Total assets
Equity and liabilities
Equity
Share capital
Share-based payment reserve
Retained earnings
Total equity
Liabilities
Non-current liabilities
Deferred tax liability
Loans payable
Lease liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Loans payable
Lease liabilities
Taxes payable
Related party payables
Total current liabilities
Total equity and liabilities
Approved by the Board of Directors
10
11
12
13
14
15
23
9(iv)
16
17
16
9(ii)
21(iii)
41,698,227
460,285
42,158,512
428,787
17,660,278
598,510
15,315,453
10,558,184
44,561,212
86,719,724
23,204,469
4,351,899
38,242,108
65,798,476
3,383,765
1,083,333
115,375
4,582,473
11,588,931
2,287,190
323,088
1,689,566
450,000
16,338,775
86,719,724
43,196,365
-
43,196,365
-
17,199,513
1,237,032
19,061,758
4,617,083
42,115,386
85,311,751
22,428,417
4,464,416
34,365,745
61,258,578
707,499
3,370,523
-
4,078,022
13,258,413
2,907,713
-
2,886,000
923,025
19,975,151
85,311,751
Chairman of the Board
Chairman of the Audit Committee
7
GEODRILL LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2019 and 2018
Revenue
Cost of sales
Gross profit
December 31,
December 31,
Note
2019
US$
2018
US$
87,407,835
88,539,126
8
(65,221,195)
(66,071,456)
22,186,640
22,467,670
Selling, general and administrative expenses
Foreign exchange gain
Other losses
8
12
(9,885,776)
474,323
(142,003)
(13,180,843)
420,354
-
Results from operating activities
12,633,184
9,707,181
Finance income
Finance costs
2,966
(485,426)
9,919
(528,000)
Income before taxation
12,150,724
9,189,100
Income tax expense
9(i)
(8,274,361)
(8,526,855)
Income and total comprehensive income for
the year
3,876,363
662,245
Earnings per share
Basic
Diluted
24(i)
24(ii)
$0.09
$0.09
$0.02
$0.01
8
GEODRILL LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2019 and 2018
Share-
based
Payment
Reserve
US$
Share
Capital
US$
Retained
Earnings
US$
Total
Equity
US$
Balance at January 1, 2019
22,428,417
4,464,416
34,365,745
61,258,578
Income and total comprehensive income for the year
Exercise of stock options
Share-based payment expense
-
776,052
-
-
3,876,363
(257,852)
145,335
-
-
3,876,363
518,200
145,335
Balance at December 31, 2019
23,204,469
4,351,899
38,242,108
65,798,476
Balance at January 1, 2018
Adoption of IFRS 9
Balance at January 1, 2018 (restated)
22,129,477
4,319,175
-
-
22,129,477
4,319,175
33,980,478
(217,845)
33,762,633
60,429,130
(217,845)
60,211,285
Income and total comprehensive income for the year
Share buy-back and cancellation
Exercise of stock options
Share-based payment expense
-
(31,345)
330,285
-
-
-
(124,709)
269,950
662,245
(59,133)
-
-
662,245
(90,478)
205,576
269,950
Balance at December 31, 2018
22,428,417
4,464,416
34,365,745
61,258,578
9
GEODRILL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2019 and 2018
Cash flows from operating activities
Income before taxation
Adjustments for :
Depreciation expense
Movement in expected lifetime credit losses
Change in provision for inventory obsolescence
Equity-settled share-based payment expense
Finance income
Finance costs
Fair value losses on current financial assets at fair value through
profit and loss
Unrealized foreign exchange gain
Change in financial assets at fair value through profit and loss
Change in inventories
Change in prepayments
Change in trade and other receivables
Change in trade and other payables
Cash generated from operations
Finance income received
Finance costs paid
Income taxes paid
Net cash generated from operating activities
Investing activities
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities
Loan repayments
Lease liabilities payments
Related party payables repayments
Shares issued on options exercised
Loans received
Share buy-back
Net cash (used in) / provided from financing activities
Effect of movement in exchange rates on cash
Net increase / (decrease) in cash
Cash at beginning of the year
December 31,
2019
US$
December 31,
2018
US$
12,150,724
9,189,100
7,381,454
(29,588)
298,964
145,335
(2,966)
485,426
142,003
(420,226)
20,151,126
(570,790)
(759,729)
563,343
3,775,893
(1,263,795)
21,896,048
2,966
(447,149)
(6,794,529)
14,657,336
(5,387,644)
(5,387,644)
(2,907,713)
(412,709)
(473,025)
518,200
-
-
(3,275,247)
(53,344)
5,941,101
4,617,083
6,580,413
893,066
395,471
269,950
(9,919)
528,000
-
(346,562)
17,499,519
-
(609,860)
50,007
(2,512,063)
1,442,890
15,870,493
9,919
(568,380)
(7,452,421)
7,859,611
(10,494,598)
(10,494,598)
(5,480,979)
-
-
205,576
7,000,000
(90,478)
1,634,119
(73,791)
(1,074,659)
5,691,742
Cash at end of the year
10,558,184
4,617,083
10
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
1.
GENERAL INFORMATION
Geodrill Limited (the “Company” or “Geodrill”) is a company registered and domiciled in the Isle of
Man. The address of the Company’s registered office is Ragnall House, 18 Peel Road, Douglas,
Isle of Man, IM1 4LZ. The audited consolidated financial statements of the Company for the years
ended December 31, 2019 and 2018 comprise the financial statements of the Company and its
wholly owned subsidiaries, Geodrill Ghana Limited, Geotool Limited, Geo-Forage BF SARL, Geo-
Forage Cote d’Ivoire SARL, Geo-Forage Mali SARL, Geo-Forage Senegal SARL, Geodrill
Mauritius Limited, Geodrill Cote d’Ivoire SARL, D.S.I. Services Limited (“DSI”), D.S.I. Services
(IOM) Limited (“DSI IOM”), Geodrill Zambia Limited being Geodrill Limited’s registered foreign
Zambian operating entity and Geodrill BF SARL being Geodrill Cote d’Ivoire SARL’s registered
foreign Burkina Faso operating entity, collectively referred to as the “Group”.
The Company is primarily a provider of mineral exploration drilling services. These audited
consolidated financial statements were approved and authorized for issuance by the Board of
Directors of Geodrill on February 29, 2020.
2.
a.
SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(IASB) using the accounting policies Geodrill adopted in its annual consolidated financial
statements as at and for the year ended December 31, 2019. The financial statements are prepared
on a going concern basis.
b.
Basis of measurement
The consolidated financial statements are prepared on the historical cost basis except where
otherwise stated.
c.
Functional and presentation currency
The consolidated financial statements are presented in United States dollars which is the
Company’s functional and presentation currency.
d.
(i)
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed,
or has rights, to variable returns from its involvement with the subsidiaries and has the ability to
affect those returns through its power over the subsidiaries. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases. Consistent accounting policies and the same
reporting period are used for all Group entities.
(ii)
Transactions eliminated on consolidation
Intra-Group balances, unrealized intercompany gains and losses, transactions and dividends are
eliminated in preparing the consolidated financial statements.
11
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
2.
e.
(i)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments
Recognition
Financial assets and financial liabilities are recognized in the Statement of Financial Position when
a Group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities (other
than financial assets and financial liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognized immediately in the Statement of
Comprehensive Income.
Financial assets are classified into the following specified categories: financial assets ‘at fair value
through profit or loss' (“FVTPL”), financial assets ‘at fair value through other comprehensive income'
(“FVTOCI”), and financial assets at ‘amortized cost'. The classification depends on the nature and
purpose of the financial assets and is determined at the time of initial recognition.
Subsequent to initial recognition, the treatment of financial assets depends on their classification.
Those recognized as FVTPL and FVTOCI are carried in the Consolidated Statement of Financial
Position at fair value with changes in fair value recognized in the Statement of Comprehensive
Income. Financial assets at amortized cost are measured at amortized cost using the effective
interest method, less impairment.
Financial liabilities are classified as either financial liabilities “at FVTPL” or financial liabilities at
“amortized cost”.
Subsequent to initial recognition, the treatment of financial liabilities depends on their classification.
Those recognized as FVTPL are carried in the Consolidated Statement of Financial Position at fair
value with changes in fair value recognized in the Statement of Comprehensive Income. Financial
liabilities at amortized cost are measured at amortized cost using the effective interest method.
(ii)
Derecognition
Financial assets are derecognized when the contractual rights to the cash flows from the asset
expire, or the Company transfers the rights to receive the contractual cash flows or the financial
asset in a transaction in which substantially all the risks and rewards of ownership of the financial
asset are transferred. Any interest in transferred financial assets that is created or retained by the
Company is recognized as a separate asset or liability.
Financial liabilities are derecognized when, and only when, the Company’s obligations are
discharged, cancelled or they expire. The difference between the carrying amount of the financial
liability derecognized and the consideration paid and payable is recognized in the Statement of
Comprehensive Income.
12
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
2.
e.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (continued)
(iii)
Measurement
The Company applies a hierarchy to measure financial instruments carried at fair value. Levels 1
to 3 are defined based on the degree to which fair value inputs are observable and have a
significant effect on the recorded fair value, as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Valuation techniques using significant observable inputs, either directly (i.e. as prices) or
indirectly (i.e. derived from prices), or valuations that are based on quoted prices for similar
instruments; and
Level 3: Valuation techniques using significant inputs that are not based on observable market data
(unobservable inputs).The fair values of financial instruments are determined using market prices
for quoted instruments and widely accepted valuation techniques for other instruments. Valuation
techniques include discounted cash flows, standard valuation models based on market parameters,
dealer quotes for similar instruments and expert valuations.
When fair values of unquoted instruments cannot be measured with sufficient reliability, such
instruments are carried at cost less impairments, if applicable.
Trade and other receivables, Cash, Trade and other payables, Related party payables and Loans
payable are all measured at amortized cost.
Further information relating to the fair values of financial instruments is provided in notes 5 and 19.
(iv)
Amortized cost measurement
The amortized cost of a financial asset or liability is the amount at which the financial asset or
liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative
amortization using the effective interest method of any difference between the initial amount
recognized and the maturity amount, minus any reduction for impairment.
(v)
Offsetting
Financial assets and liabilities are set off and the net amount presented in the Consolidated
Statement of Financial Position when, and only when, the Company has a legal right to set off the
amounts and intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously.
(vi)
Share capital
Proceeds from the issue of ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares and stock options are recognized as a deduction from
equity, net of any tax effects.
13
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
2.
e.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (continued)
(vii)
Compound financial instruments
From time to time the Company may issue compound financial instruments such as convertible
notes that can be converted to share capital at the option of the holder, when the number of shares
to be issued does not vary with changes in their fair value.
The liability component of a compound financial instrument is recognized initially at the fair value
of a similar liability that does not have an equity conversion option. The equity component is
recognized initially at the difference between the fair value of the compound financial instrument as
a whole and the fair value of the liability component.
Any directly attributable transaction costs are allocated to the liability and equity component in the
proportion of their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is
measured at amortized cost using the effective interest method. The equity component of a
compound financial instrument is not re-measured subsequent to initial recognition.
Interest, and gains and losses related to the financial liability, are recognized in the Statement of
Comprehensive Income. On conversion, the financial liability is reclassified to equity.
(viii)
Trade receivables
Trade receivables are initially stated at their fair value. The carrying amounts for accounts
receivable are net of allowances for doubtful accounts. The Company recognizes lifetime expected
credit losses (“ECL”) for trade receivables. The expected credit losses on these financial assets
are estimated using a provision matrix based on the Company’s historical credit loss experience,
adjusted for factors that are specific to the debtors, general economic conditions and an
assessment of both the current as well as the forecast direction of conditions at the reporting date.
f.
(i)
Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at acquisition or construction cost, less
accumulated depreciation and impairment losses. Cost includes expenditures that are directly
attributable to the acquisition of the asset and, for qualifying assets, capitalized borrowing costs.
The cost of self-constructed assets includes the cost of materials and direct labor, and any other
costs directly attributable to bringing the asset to a working condition for its intended use.
Purchased software that is integral to the functionality of the related equipment is capitalized as
part of that equipment. When significant parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items (major components) of property,
plant and equipment.
(ii)
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take substantial time to ready for their intended use or
sale, are included in the cost of those assets, until such time as the assets are available for their
intended use. All other borrowing costs are recognized in net earnings in the period in which they
are incurred.
14
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
2.
f.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment (continued)
(iii)
Subsequent costs
The cost of overhauls and of replacing part of an item of property, plant and equipment is
recognized in the carrying amount of the item if it is probable that the future economic benefits
embodied within the part will flow to the Company and its cost can be measured reliably. The costs
of the day-to-day maintenance, repair and servicing expenditures incurred on property, plant and
equipment are recognized in the Statement of Comprehensive Income, as incurred.
(iv)
Depreciation
Depreciation is recognized in comprehensive income on a straight-line basis over the estimated
useful lives of each part of an item of property, plant and equipment. Assets leased under a finance
lease are depreciated over the shorter of their useful lives and the term of the lease. Land and
capital work in progress are not depreciated. The estimated useful lives of major classes of
depreciable property, plant and equipment are:
Motor vehicles
Plant and equipment
Leasehold improvements
Buildings
Drill rigs
Drill rig components
5 years
5 years
over the term of the lease
15 years
10 years
5 years
Depreciation methods, useful lives and residual values of property plant and equipment are
reassessed at each reporting date. The useful lives of these assets and residual values can vary
depending on a variety of factors, including technological innovation and maintenance programs.
Changes in estimates can result in significant variations in the carrying value and amounts charged,
on account of depreciation, to profit or loss in specific periods.
Gains and losses on disposal of property, plant and equipment are determined by comparing
proceeds from disposal with the carrying amounts of property, plant and equipment, and are
recognized in the Statement of Comprehensive Income.
(v)
Impairment
The Company’s property, plant and equipment are reviewed at each reporting date to determine
whether there is any indication of impairment. If any such indication exists, the respective asset’s
or cash-generating unit’s recoverable amount is estimated.
The Company’s market capitalization is currently below the Company’s net book value which is
considered to be an indicator of potential impairment of the carrying value of the Company’s
property, plant and equipment as at December 31, 2019. The outcome of the analysis was such
that the expected net recoverable amount exceeded the carrying value of the property, plant and
equipment and, accordingly, no impairment loss was recognized in the year.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amounts. A cash-generating unit is the smallest identifiable asset group
that generates cash inflows that are largely independent from other assets and groups. Due to the
integrated nature of operations and re-deployment of drill rigs between countries, property, plant
and equipment is tested as a single cash generating unit.
15
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
2.
f.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment (continued)
The recoverable amount of the asset or cash-generating unit is based on the higher of value-in-
use and fair value less costs to sell. The value-in-use calculation requires an estimation of the
future cash flows expected to arise from the asset or cash-generating unit and a pre-tax discount
rate in order to calculate the present value. Fair values less costs to sell are based on recent market
transactions where available and, where not available, appropriate valuation models are used. An
impairment loss is recognized immediately in the Statement of Comprehensive Income.
At the end of each reporting period, the Company assesses whether there is any indication that an
impairment loss recognized in prior periods for an asset or cash-generating unit may no longer exist
or may have decreased. If any such indication exists, the Company estimates the recoverable
amount of the asset or cash-generating unit. Where an impairment loss subsequently reverses, the
carrying amount of the asset or cash-generating unit is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognized for the asset or
cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in
the Statement of Comprehensive Income.
g.
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of spare parts is
based on the first-in first-out principle and includes expenditures incurred in acquiring/building the
inventories and bringing them to their existing location and condition. Net realizable value is the
estimated selling price in the ordinary course of business, less estimated selling expenses.
Inventory is assessed on a per unit basis to determine whether indicators exist which would lead
to a downward revision in the net realizable value of inventory. This assessment is performed at
each reporting date.
h.
(i)
Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions to a separate entity and will have no legal or constructive obligation to pay future
amounts. Obligations for contributions to defined contribution schemes are recognized as an
expense in the Statement of Comprehensive Income in the periods during which services are
rendered by employees.
(ii)
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed
as the related service is provided. A provision is recognized for the amount expected to be paid
under short-term cash bonus or profit-sharing plans if the Company has a present legal or
constructive obligation to pay this amount as a result of past services provided by the employee,
and the obligation can be estimated reliably.
16
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
2.
h.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Employee benefits (continued)
(iii)
Share-based payment transactions
The grant-date fair value of equity-settled share-based payment awards granted to employees is
recognized as an employee expense, with a corresponding increase in share based payments
reserve, over the period that the employees unconditionally become entitled to the awards.
Estimations are made at the end of each reporting period of the number of instruments which will
eventually vest. The impact of any revision is recognized in the Statement of Comprehensive
Income such that the cumulative expense reflects the revised estimate, with a corresponding
adjustment to the share-based payment reserve.
i.
Income tax
Income tax expense comprises current and deferred tax expenses.
Current tax and deferred tax are recognized in comprehensive income except to the extent that
they relate to items recognized directly in other comprehensive income or equity. Current tax is the
expected tax payable on taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the asset and liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and their tax
base. Deferred tax is measured at the tax rates that are expected to be applied to the temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted
by the reporting date. A deferred tax asset is recognized only to the extent that it is probable that
future taxable profits will be available against which the asset can be utilized. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized.
j.
Dividends
Dividends payable/receivable are recognized in the period in which the dividend is appropriately
authorized.
k.
Revenue – drilling revenue
Revenue is measured based on the consideration specified in a contract with a customer. The
Company recognizes revenue when it transfers control of a product or service to a customer using
the five step approach in the revenue framework in IFRS 15. The Company provides drillings
services to its customers. Drilling revenue is recognized as revenue when the outcome of the
drilling can be estimated reliably to the actual chargeable meters drilled. Such services are
recognized as a performance obligation is satisfied at points in time when the drilling service has
met the performance obligations under IFRS 15. Payment for drilling services is not due from the
customer until the drilling service has been performed and invoiced. Revenue from the provision of
services in the course of ordinary activities is measured at the fair value of the consideration
received or receivable, net of discounts and value added taxes.
17
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
2.
k.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue – drilling revenue (continued)
The outcome can be estimated reliably when all the following conditions are satisfied:
-
-
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the drilling service rendered will flow
to the Company;
the work performed of the drilling service at the end of the reporting period can be measured
reliably and has been agreed with the customer; and
the costs incurred for and to complete the drilling can be measured reliably.
-
-
l.
Finance income
Finance income comprises interest income on funds invested or held in bank accounts. Interest
income is recognized in the Statement of Comprehensive Income using the effective interest
method.
m.
Finance costs
Finance costs comprise interest expense on borrowings, including all financing arrangements.
n.
Foreign exchange
Monetary assets and liabilities denominated in foreign currencies have been translated into United
States dollars using the reporting date exchange rate, with realized and unrealized gains and losses
included in the determination of profit and loss. Revenues and expenses denominated in foreign
currencies are translated at the average exchange rate for the period which approximate date of
transaction exchange rates.
o.
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability.
p.
Post balance sheet events
Events subsequent to the reporting date are reflected in the financial statements only to the extent
that they relate to the period under consideration and the effect is material.
q.
Earnings per share
The Company presents basic and diluted earnings per share data for its ordinary shares. Basic
earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares outstanding during the period,
adjusted for own shares held. Diluted earnings per share is determined by adjusting the weighted
average number of ordinary shares outstanding for the effects of all dilutive potential shares, which
currently comprise stock options granted to employees and directors.
18
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
3.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis of making
judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision affects both current and future periods.
(i)
a.
Estimates
Depreciation of property, plant and equipment
Property, plant and equipment are often used in demanding environments and may be subject to
accelerated depreciation. Management considers the reasonableness of useful lives and whether
known factors reduce or extend the lives of certain assets. This is accomplished by assessing the
changing business conditions, examining the level of expenditures required for additional
improvements, observing the patterns of gains or losses on disposition, and considering the various
components of the assets.
b.
Share-based payment transactions
The fair value of share-based payment transactions is based on certain assumptions determined
by management. The main areas of estimate relate to the determination of the risk free interest
rate, stock price volatility and the forfeiture rate.
c.
Net realizable value of inventory
Management reviews inventories at each reporting period to determine whether indicators exist
which would lead to a downward revision in the net realizable value of the inventory. Management’s
estimate of net realizable value of such inventories is based primarily on sales price and current
market conditions.
d.
Allowance for doubtful accounts
The Company always recognizes lifetime ECL for trade receivables, contract assets and lease
receivables. The expected credit losses on these financial assets are estimated using a provision
matrix based on the Company’s historical credit loss experience, adjusted for factors that are
specific to the debtors, general economic conditions and an assessment of both the current as well
as the forecast direction of conditions at the reporting date.
19
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)
e.
Income tax
Tax interpretations, regulations and legislation in the various countries in which the Company
operates are subject to change and management uncertainty. Current income tax expense is based
on tax currently payable or current withholding tax rates in countries in which the Company
operates. In addition, deferred income tax liabilities are assessed by management at the end of the
reporting period and are measured at the tax rates that are expected to be applied to the temporary
differences when they reverse. The sufficiency of estimated future taxable income is also assessed
by management in the context of the recognition of deferred tax assets attributable to unused tax
losses.
The amount recognized as accrued liabilities is the best estimate of the consideration required to
settle the related liability, including any related interest charges, taking into account the risks and
uncertainties surrounding the obligation. The Company assesses its liabilities at each reporting
period, based upon the best information available, relevant to the tax laws and other appropriate
requirements.
(ii)
a.
Judgments
Assessment of impairment of property, plant and equipment
The Company tests at each reporting period whether there are indicators of impairment with respect
to its property, plant and equipment, in accordance with the accounting policy stated in Note 2f(v).
If such indicators are identified, the recoverable amounts of each cash-generating unit have been
determined based on value-in-use calculations. These determinations require the use of judgment.
Where indicators of impairment exist, the Company tests impairment based on the discounted cash
flows related to each cash generating unit. The value-in-use determination is sensitive to changes
in cash flow assumptions and the discount rate applied. No impairment charge has been recognized
in the periods presented.
b.
Functional currency
The Company applied judgment in determining the functional currency of the Company. Functional
currency was determined based on the currency that mainly influences sales prices, labor, material
and other costs of providing services.
4.
NEW AND FUTURE ACCOUNTING STANDARDS
Adoption of new and amended accounting pronouncements
IFRS 16 – Leases
The Company has adopted IFRS 16 retrospectively from January 1, 2019, but has not restated
comparatives for the 2018 reporting period, as permitted under the specific transitional provisions
in the standard. The reclassifications and the adjustments arising from the new leasing rules are
therefore recognized in the opening Statement of Financial Position on January 1, 2019.
20
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
4.
NEW AND FUTURE ACCOUNTING STANDARDS (CONTINUED)
IFRS 16 – Leases (continued)
On transition, the Company has opted to apply the following practical expedients:
1) Used a single discount rate to the portfolio of operating leases
2) Opted not to apply IFRS 16 to operating leases for which the lease term ends within 12 months
of the date of initial application.
As the opening balances have not been restated, the 2018 balance are classified and measured
as follows:
(i)
Classification
Leases are classified as finance leases whenever the terms of the lease transfer substantially all
the risks and rewards of ownership to the lessee. Assets held under finance leases are stated as
assets of the Company at the lower of their fair value and the present value of the minimum lease
payments at inception of the lease, less accumulated depreciation and impairment losses. The
corresponding liability to the lessor is included in the Consolidated Statement of Financial Position
as a finance lease obligation. Finance costs are charged to profit or loss over the term of the
relevant lease so as to produce a constant periodic interest charge on the remaining balance of the
obligations for each accounting period.
Leases where significant portions of the risks and rewards of ownership are retained by the lessor
are classified as operating leases.
(ii)
Lease payments
Payments made under operating leases are charged to comprehensive income on a straight-line
basis over the period of the lease. When an operating lease is terminated before the lease period
has expired, any payment required to be made to the lessor by way of penalty is recognized as an
expense in the period in which termination takes place. Minimum lease payments made under
finance leases are apportioned between finance expense and a reduction of the outstanding lease
liability.
Adjustments recognized on adoption of IFRS 16
On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had
previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of January 1, 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 8%.
21
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
4.
NEW AND FUTURE ACCOUNTING STANDARDS (CONTINUED)
IFRS 16 – Leases (continued)
Operating lease commitments disclosed as at December 31, 2018
Discounted using the lessee’s incremental borrowing rate at the date of initial
application
Add: Additional lease liabilities recognized as at December 31, 2018
(Less): short-term leases recognized on a straight-line basis as expense
Lease liabilities recognized as at January 1, 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
January 1, 2019
US$
663,600
608,314
89,536
(4,800)
693,050
332,969
360,081
693,050
The right-of-use assets of US$768,299 were measured at the amount equal to the lease liabilities
of US$693,050, adjusted by the amount of any prepaid or accrued lease payments relating to that
lease recognized in the Statement of Financial Position as at December 31, 2018 of US$75,249.
There were no onerous lease contracts that would have required an adjustment to the right-of-use
assets at the date of initial application.
The recognized right-of-use assets relate to the following types of assets:
Properties
Total right-of-use assets
5.
DETERMINATION OF FAIR VALUES
January 1, 2019
US$
768,299
768,299
A number of the Company’s accounting policies and disclosures require the determination of fair value, for
both financial and non-financial assets and liabilities. Where applicable, further information about the
assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
The following sets out the Company’s basis of determining fair values:
a.
Trade and other receivables
The fair value of trade and other receivables approximates their carrying value due to their short
term nature.
b.
Cash
Cash consists of cash at bank and cash on hand. The fair value of cash approximates their carrying
values due to their short term nature.
c.
Trade and other payables
The fair value of trade and other payables approximates their carrying values, due to their short
term nature.
22
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
5.
d.
DETERMINATION OF FAIR VALUES (CONTINUED)
Loans payable
The fair value of the loans payable approximates their carrying value.
e.
Share-based payment transactions
The fair value of stock options is measured using the Black-Scholes model. Measurement inputs
include the share price on the measurement date, exercise price of the instrument, expected
volatility, expected term of the instruments (based on historical experience and general option
holder behavior), expected dividends, expected forfeiture rates and the risk-free interest rate
(based on government bonds). Service and non-market performance conditions attached to the
transactions are not taken into account in determining fair value.
f.
Financial assets held at fair value through profit and loss
Financial assets held at fair value through profit and loss consist of listed equity securities and their
fair value is measured using quoted market prices.
6.
SEASONALITY OF OPERATIONS
The operations have tended to exhibit a seasonal pattern. The first and fourth quarters are affected
due to shutdown of exploration activities, often for extended periods over the holiday season. The
second quarter is typically affected by the Easter shutdown of exploration activities affecting some
of the rigs for up to one week. The wet season occurs (in some geographical areas where the
Company operates, particularly in Burkina Faso and Mali) normally in the third quarter, but in the
recent years the global weather pattern has become somewhat erratic. In the third quarter of 2019,
the Company was impacted by the wet season. The Company has historically taken advantage of
the wet season and has scheduled the third quarter for maintenance and rebuild programs for drill
rigs and equipment.
7.
SEGMENT REPORTING
The primary format of operating segments is based on the Company’s management and internal
reporting structure, which is submitted to the Chief Executive Officer (CEO) who is the Chief
Operating Decision Maker. Due to the integrated nature of the Company’s operations and re-
deployment of drill rigs within Africa, the Company maintains only one operating segment.
For the year ended December 31, 2019, three customers individually contributed 10% or more to
the Group’s revenue. One customer contributed 19% and two customers contributed 11%.
For the year ended December 31, 2018, three customers individually contributed 10% or more to
the Group’s revenue. One customer contributed 15%, one customer contributed 14% and one
customer contributed 11%.
23
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
8.
EXPENSES BY NATURE
The Company presents certain expenses in the Consolidated Statements of Comprehensive Income by
function. The following table presents those expenses by nature:
Expenses
Wages and employee benefits
Drill rig expenses and fuel
External services, contractors and others
Depreciation
Repairs and maintenance
Expected lifetime credit (recovery) / losses
Cost of sales
Selling, general and administrative expenses
2019
US$
28,632,386
22,469,382
13,075,268
7,381,454
3,578,069
(29,588)
75,106,971
2019
US$
65,221,195
9,885,776
75,106,971
2018
US$
31,432,639
20,097,050
15,532,743
6,580,414
4,716,386
893,067
79,252,299
2018
US$
(1)
(1)
66,071,456
13,180,843
79,252,299
(1) For the year ended December 31, 2018, the Group reclassified US$16,161,429 from selling, general
and administrative expenses to cost of sales. This reclassification had no impact on the net income or
earnings per share for the current or prior periods presented as the reclassification relates to the
Consolidated Statement of Comprehensive Income only and has no effect on the other financial
statements.
9.
(i)
TAXATION
Income tax expense
Current tax expense (iii)
Deferred tax expense (iv)
2019
US$
5,598,095
2,676,266
8,274,361
2018
US$
7,819,356
707,499
8,526,855
24
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
TAXATION (CONTINUED)
Taxes payable
9.
(ii)
2019
2018
Balance at
Jan. 1
US$
Payments
during the
year
US$
Charge for
the year
US$
Balance at
Dec. 31
US$
2,886,000
(6,794,529)
5,598,095
1,689,566
2,519,065
(7,452,421)
7,819,356
2,886,000
(iii)
Reconciliation of effective tax rate
Income before tax
Ghana corporate tax at 25%
Add:
Effect of different rate tax countries
Adjustments for current tax of prior years
Tax effect of amounts that are not deductible in
calculating taxable income
Tax expense before withholding tax
Add:
Withholding tax
Total tax expense
Effective tax rate
2019
US$
12,150,724
3,037,681
720,011
(97,075)
826,748
4,487,365
36.9%
3,786,996
8,274,361
68.1%
2018
US$
9,189,100
2,297,275
(1,205,714)
488,215
335,672
1,915,448
20.8%
6,611,407
8,526,855
92.8%
During the year ended December 31, 2019, the Group recognized an over provision in tax payable in the
amount of US$97,075 (2018: under provision of US$488,215) reflecting the outcome of a review by the tax
authorities in jurisdictions in which it operates.
(iv)
Deferred tax liability
Balance at January 1
Charge for the year
Balance at end of the year
2019
US$
707,499
2,676,266
3,383,765
2018
US$
-
707,499
707,499
25
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
9.
TAXATION (CONTINUED)
(v)
Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Tax losses carried forward (1)
Provision for inventory obsolescence
Movement in expected lifetime credit losses
Property, plant and equipment
Deferred tax asset not recognized (2)
Total
2019
US$
833,708
140,659
33,684
(3,498,072)
(893,744)
(3,383,765)
2018
US$
3,936,508
86,637
207,766
(4,375,298)
(563,112)
(707,499)
(1) Effective January 1, 2016, the Ghana Revenue Authority introduced the Income Tax Act 2015 (Act 896). This had
the impact of transferring unutilized capital cost allowances to losses carried forward. These losses which were
available for a period of five years expiring on December 31, 2021 were fully utilized during the year.
The Group also has tax losses in Zambia available for a period of five years expiring during the years December 31,
2020 through December 31, 2024.
(2) The deferred tax asset has not been recognized in the financial statements because it is not probable that future
taxable profit will be available against which the Group can utilize the related tax benefits.
26
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2
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
10.
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation has been charged in the Statement of Comprehensive Income as follows:
Cost of sales
Selling, general and administrative expenses
2019
US$
6,712,573
248,417
6,960,990
2018
US$
(1)
(1)
6,391,258
189,155
6,580,413
(1) For the year ended December 31, 2018, the Group reclassified US$481,981 in depreciation expense
from selling, general and administrative expenses to cost of sales. This reclassification had no impact
on the net income or earnings per share for the current or prior periods presented as the reclassification
relates to the Consolidated Statement of Comprehensive Income only and has no effect on the other
financial statements.
As at December 31, 2019, property, plant and equipment with a carrying amount of US$12,856,211
(December 31, 2018: US$14,436,298) has been pledged as security for certain loans (note 16).
11.
RIGHT-OF-USE ASSETS
Cost
Balance at December 31, 2018
Amount recognized on transition of IFRS 16
Balance at January 1, 2019
Additions
Movement in foreign exchange
Balance at December 31, 2019
Accumulated Depreciation
Balance at December 31, 2018
Amount recognized on transition of IFRS 16
Balance at January 1, 2019
Charge for the year
Balance at December 31, 2019
Carrying amounts
at December 31, 2019
Right-of-use Assets
Leased Properties
US$
-
768,299
768,299
117,234
(4,784)
880,749
-
-
-
420,464
420,464
460,285
The amount of depreciation recognized as expense in the year ended December 31, 2019 was
US$420,464.
29
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
12.
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The Group classifies equity investments that are held for trading as financial assets at fair value through
profit or loss (FVTPL). Financial assets mandatorily measured at FVPL include the following:
Current assets
Listed equity securities
2019
US$
428,787
428,787
2018
US$
-
-
During the year the Group realized a loss on FVTPL of US$142,003 (2018: US$ Nil).
13.
INVENTORIES
Inventories on hand
Inventories in transit
Provision for obsolescence
2019
US$
17,896,565
482,864
(719,151)
17,660,278
2018
US$
17,133,638
471,640
(405,765)
17,199,513
The amount of inventories recognized as expense for the year is US$28,851,717 (2018: US$28,182,036).
Inventory write downs in the year amounted to US$14,422 (2018: US$417,546).
14.
TRADE AND OTHER RECEIVABLES
Trade receivables
Expected life time credit losses
Net trade receivables
Cash advances
Sundry receivables
2019
US$
14,964,141
(303,884)
14,660,257
98,924
556,272
15,315,453
2018
US$
20,005,224
(1,110,911)
18,894,313
50,751
116,694
19,061,758
As at December 31, 2019, trade receivables with a carrying amount of US$6,144,830 (December 31, 2018:
US$8,681,897) have been pledged as security for certain loans (note 16).
30
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
14.
TRADE AND OTHER RECEIVABLES (CONTINUED)
The movements in the expected life time credit losses is as follows:
Balance at January 1
Movement in expected lifetime credit losses in the year
Specific provisions made in the year
Amounts written off in the year
Balance at end of year
2019
US$
1,110,911
(29,588)
-
(777,439)
303,884
2018
US$
217,845
20,296
872,770
-
1,110,911
Trade and other receivables are recorded at amortized cost. Bad debt recovery recorded on trade and other
receivables during the year ended December 31, 2019 amounted to US$Nil (December 31, 2018: US$Nil).
The Group’s exposure to credit and currency risk and impairment losses related to trade and other
receivables is disclosed in note 20(i).
The Group measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The
expected credit losses on trade receivables are estimated using a provision matrix by reference to past
default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for
factors that are specific to the debtors, general economic conditions of the industry in which the debtors
operate and an assessment of both the current as well as the forecast direction of conditions at the reporting
date.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe
financial difficulty and there is no realistic prospect of recovery.
15.
CASH
Cash at bank
Cash on hand
2019
US$
10,456,335
101,849
10,558,184
2018
US$
4,503,641
113,442
4,617,083
As at December 31, 2019, cash of US$10,558,184 was available to the Group (December 31, 2018:
US$4,617,083).
Bank balances denominated in currencies other than the Group’s functional currency are detailed in note
20iii(a).
31
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
16.
LOANS PAYABLE
US$6.5M Medium Term Loan (i)
US$3.5M Revolving Line of Credit (ii)
Equipment Loan (iii)
Total
Current portion of loans
Non-current portion of loans
(i)
US$6.5M Medium Term Loan
2019
US$
3,250,000
-
120,523
3,370,523
2,287,190
1,083,333
2018
US$
5,416,667
500,000
361,569
6,278,236
2,907,713
3,370,523
On April 24, 2018, the Group entered into a Medium Term Loan with Ecobank Ghana Limited. The Medium
Term Loan in the amount of US$6.5 million (the “US$6.5M Medium Term Loan”) matures on April 30, 2021.
Principal is repaid in 12 equal quarterly instalments required to satisfy the principal over the term of the loan
commencing on July 31, 2018. Interest is payable monthly in arrears. The US$6.5M Medium Term Loan
bears interest at a rate of 8.5% per annum and is subject to periodic review in line with market conditions.
The US$6.5M Medium Term Loan is secured by certain assets of the Group (Note 10 and Note 14). The
US$6.5M Medium Term Loan may be repaid prior to maturity by the Group without penalty or other costs
other than interest accrued to the date of such repayment. The effective interest rate of the US$6.5M
Medium Term Loan is 9.1%. The US$6.5M Medium Term Loan is subject to, and as at December 31, 2019,
the Group was in compliance with normal course covenants.
(ii)
US$3.5M Revolving Line of Credit
On April 23, 2019, the Group entered into a new Revolving Line of Credit with Ecobank Ghana Limited
maturing on April 30, 2020. The Revolving Line of Credit in the amount of US$3.5 million (the “US$3.5M
Revolving Line of Credit”) repayable interest only monthly and principal one year after initial drawdown,
bears interest at a rate of 8.5% per annum on any utilized portion and is subject to periodic review in line
with market conditions. The US$3.5M Revolving Line of Credit is secured by certain assets of the Group
(Note 10 and Note 14). The US$3.5M Revolving Line of Credit may be repaid prior to maturity by the Group
without penalty or other costs other than interest accrued to the date of such repayment. The US$0.5M
drawdown on the US$3.5M Revolving Line of Credit was fully repaid on December 31, 2019 and resulting
in a NIL balance drawn on the US$3.5M Revolving Line of Credit as at December 31, 2019. The US$3.5M
Revolving Line of Credit is subject to, and as at December 31, 2019, the Group was in compliance with
normal course covenants.
(iii)
Equipment Loan
On March 6, 2017, the Company entered into a Supply of Goods and Services Contract (“Equipment Loan”)
with Sandvik Canada Inc. relating to the purchase of two drill rigs with a total purchase price of US$0.9
million. The Equipment Loan required a down payment and the repayment of the balance over a period of
36 months with payments being made once a quarter. The Equipment Loan bears interest at 7.7% per
annum, includes an arrangement fee and stipulates that the final title to the rigs will only pass once the
purchase price has been paid in full. All other risks and rewards of ownership lie with the Company. The
effective interest rate of the Equipment Loan is 7.93%.
32
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
17.
TRADE AND OTHER PAYABLES
Trade payables
Other creditors and accrued expenses
VAT liability
2019
US$
5,491,743
4,902,974
1,194,214
11,588,931
2018
US$
6,321,261
4,439,756
2,497,396
13,258,413
Trade and other payables denominated in currencies other than the Group’s functional currency are
detailed in note 20iii(a).
18.
EMPLOYEE BENEFIT OBLIGATIONS
Defined Contribution Plans
(i)
Social Security
The Group contributes to various social security plans. Under the plans, the Group makes contributions
into government funds. The amounts contributed during the year were US$84,518 (2018: US$96,112). The
Group’s obligation is limited to the relevant contributions which have been recognized in the year-end
financial statements as expenses, and liabilities if due but not paid.
(ii)
Provident Fund
The Group contributes for certain staff to a provident fund plan. The amounts contributed during the year
were US$25,227 (2018: US$48,151). The Group’s obligation is limited to the relevant contributions which
have been recognized in the year-end financial statements as expenses, and liabilities if due but not paid.
19.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of cash, trade and other receivables, trade and other payables and related party
payables approximate their fair value due to the relatively short period to maturity of the instruments. The
carrying value of loans payable approximates their fair value as the fixed rate loans have been acquired
recently and their carrying value continues to reflect fair value. The fair value of financial assets held at fair
value through profit and loss are measured using quoted market prices.
There were no financial instruments classified as level 2 or 3 in the fair value hierarchy at December 31,
2019 and 2018.
33
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
20.
FINANCIAL RISK MANAGEMENT
Overview
The Group has exposure to the following risks from its use of financial instruments:
(cid:120) credit risk
(cid:120) liquidity risk
(cid:120) market risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s
objectives, policies and processes for managing risk, methods used to measure the risks and the Group’s
management of capital.
Risk management framework
The Board of directors has overall responsibility for the oversight of the Group’s risk management
framework.
The Group’s management team is responsible for developing and monitoring the Group’s risk management
policies. The team meets periodically to discuss corporate plans, evaluate progress reports and establish
action plans to be taken. The day-to-day implementation of risk management rests with the CEO.
(i)
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial asset fails to
meet its contractual obligations, and arises principally from the Group’s receivables from customers and
cash.
Trade and other receivables
The Group’s exposure to credit risk is minimized as customers are given 30 to 60 day credit periods for
services rendered.
As at December 31, 2019, three customers individually contributed 10% or more to the Group’s trade
receivables. Those customers all contributed 13% each.
As at December 31, 2018, four customers individually contributed 10% or more to the Group’s trade
receivables. Two customers each contributed 12% and two customers each contributed 11%.
Exposure to credit risks
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure
to credit risk at the reporting date was:
Trade and other receivables
Cash
2019
US$
15,315,453
10,558,184
25,873,637
2018
US$
19,061,758
4,617,083
23,678,841
34
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
20.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(i)
Credit risk (continued)
The maximum exposure to credit risk for trade and other receivables at the reporting dates by type was:
Mining and exploration companies
Others
2019
US$
14,660,257
655,196
15,315,453
2018
US$
18,894,313
167,445
19,061,758
The ageing of trade receivables due from mining and exploration companies at the reporting dates was:
Less than 30 days
31 - 60 days
61 - 90 days
91 days and greater
2019
US$
3,867,220
4,740,423
2,908,234
3,144,380
14,660,257
2018
US$
5,868,225
7,014,854
3,270,075
2,741,159
18,894,313
35
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
20.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(ii)
Liquidity risk
Liquidity risk is the risk that the Group either does not have sufficient financial resources available to meet
all of its obligations and commitments as they fall due, or can access them only at excessive cost. The
Group’s approach to managing liquidity is to ensure that it will maintain adequate liquidity to meet its
liabilities when due by monitoring and scheduling cash in bank movements and reinvesting profits earned.
The Group’s obligation and principal repayments on its financial liabilities are presented in the following
table:
December 31, 2019
Non-derivative financial liability
Trade and other payables
Related party payables
Loans payable
Lease liabilities
Balance at December 31, 2019
December 31, 2018
Non-derivative financial liability
Trade and other payables
Related party payables
Loans payable
Balance at December 31, 2018
(iii)
Market risk
Total
US$
Within
One Year
US$
Greater than
One Year
US$
10,394,717
450,000
3,370,523
438,463
14,653,703
10,761,017
923,025
6,278,236
17,962,278
10,394,717
450,000
2,287,190
323,088
13,454,995
10,761,017
923,025
2,907,713
14,591,755
-
-
1,083,333
115,375
1,198,708
-
-
3,370,523
3,370,523
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and
equity prices will affect the Group’s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimizing returns. Management regularly monitors the level of market risk and considers
appropriate strategies to mitigate those risks. Sensitivity analysis relating to key market risks has been
provided below.
36
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
20.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(iii)
Market risk (continued)
(a)
Foreign currency risk
The Group is exposed to currency risk on cash, trade receivables, trade payables and taxes payable that
are denominated in currencies other than the functional currency. The other currencies in which these
transactions are denominated are EURO, Ghana Cedis (GH¢), the British Pound (GBP), Central African
Franc (CFA), Australian Dollar (AUD), Canadian Dollar (CAD) and Zambian Kwacha (ZMW).
The Group’s exposure to foreign currency risk was as follows based on foreign currency amounts.
December 31, 2019
Cash
Financial assets at fair value
through profit and loss
Trade receivables
Trade payables
Taxes payable
Gross exposure
December 31, 2018
EURO
GH¢
GBP
CFA
AUD
CAD
ZMW
4,912
637,338
4,860
1,514,693,621
94,991
49,656
237,030
-
-
-
-
(515,388)
(2,837,560)
-
-
(510,476)
(2,200,222)
278,819
-
(30,017)
-
253,662
-
3,286,417,630
(674,632,654)
(507,934,381)
3,618,544,216
90,264
-
(2,008,911)
-
(1,823,656)
-
-
(207,644)
-
(157,988)
-
-
(655,366)
-
(418,336)
EURO
GH¢
GBP
CFA
AUD
CAD
ZMW
Cash
Trade receivables
Trade payables
Taxes payable
Gross exposure
2,145
-
126,830
-
(480,903)
(5,085,430)
-
-
(478,758)
(4,958,600)
26,841
-
(100,239)
-
(73,398)
848,542
2,146,295,670
(657,149,715)
(36,660,408)
1,453,334,089
21,881
-
(2,734,887)
-
(2,713,006)
100,483
-
(791,798)
-
(691,315)
4,172
-
(53,555)
-
(49,383)
The following significant exchange rates applied during the years:
US$1=
Reporting Rate
Average Rate
Reporting Rate
Average Rate
2019
2018
EURO
GH¢
GBP
CFA
AUD
CAD
ZMW
0.8915
5.6878
0.7583
584.8143
1.4257
1.3016
14.0394
0.8931
5.3404
0.7833
585.8560
1.4380
1.3266
12.8761
0.8737
4.8471
0.7851
573.0901
1.4174
1.3630
11.8973
0.8471
4.6669
0.7496
555.6681
1.3385
1.2956
10.4236
37
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
20.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(iii)
Market risk (continued)
(a)
Foreign currency risk (continued)
Sensitivity analysis on currency risks
The following table shows the effect of a strengthening or weakening US$ against all other currencies on
equity and profit or loss. This sensitivity analysis indicates the potential impact on equity and profit or loss
based upon the foreign currency exposures, (see “foreign currency risk” above) and it does not represent
actual or future gains or losses. The sensitivity analysis is based on a change of 10% in the closing
exchange rate per currency recorded in the course of the respective financial year.
A strengthening/weakening of the US$, by the rates shown in the table, against the following currencies
would have increased/decreased equity and profit or loss by the amounts shown below.
This analysis assumes that all other variables, in particular interest rates, remain constant.
As at December 31,
2019
EURO
GH¢
GBP
CFA
AUD
CAD
ZMW
% Change
±10
±10
±10
±10
±10
±10
±10
Profit or Loss
impact before tax
US$
Equity US$
±57,260
±38,683
±33,451
±618,751
±127,913
±12,138
±2,980
±57,260
±38,683
±33,451
±618,751
±127,913
±12,138
±2,980
2018
Profit or Loss
impact before tax
US$
±54,797
±102,300
±9,349
±258,348
±191,407
±50,720
±415
% Change
±10
±10
±10
±10
±10
±10
±10
Equity US$
±54,797
±102,300
±9,349
±258,348
±191,407
±50,720
±415
(b)
Interest rate risk
The Group is exposed to interest rate risk on its bank balances and loans.
Profile
At the reporting dates, the interest rate profiles of the Group’s interest-bearing financial instruments were:
Variable rate instruments
Bank balances
Fixed rate instruments
Loans
2019
US$
2018
US$
10,456,335
4,503,641
3,370,523
6,278,236
38
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
20.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(iii)
Market risk (continued)
(b)
Interest rate risk (continued)
Sensitivity analysis for variable rate instruments
A change of 200 basis points in the interest rate at the reporting date would have increased / (decreased)
equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in
particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2019
and 2018.
As at December 31,
2019
Profit or
Loss
impact
before tax
US$
%
Change
2018
Profit or
Loss
impact
before tax
US$
Equity
US$
Equity
US$
%
Change
Bank balances
±2%
±209,127 ±209,127
±2%
±90,073
±90,073
(iv)
Capital management
The Group manages its capital structure and makes adjustments to it to effectively support the Group’s
operations. In the definition of capital the Group includes, as disclosed on its Consolidated Statement of
Financial Position: share capital, retained earnings, reserves and loans.
The Group’s capital at December 31, 2019 and 2018 is as follows:
Capital Management
Loans payable
Share capital
Share-based payment reserve
Retained earnings
(c)
Equity price risk
2019
US$
3,370,523
23,204,469
4,351,899
38,242,108
69,168,999
2018
US$
6,278,236
22,428,417
4,464,416
34,365,745
67,536,814
The Group holds equity investments and is exposed to equity price risk. The equity investments are held
for sale and not held for strategic purposes.
If equity prices had been 10% higher or lower and all other variables were held constant, the Groups equity
and profit or loss for the year ended December 31, 2019 would increase/decrease by US$42,879 (2018:
US$Nil).
39
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
21.
RELATED PARTY TRANSACTIONS
Related party
Relationship
Subsidiary
Geodrill Ghana Limited
D.S.I. Services Limited
Subsidiary
D.S.I. Services (IOM) Limited Subsidiary
Subsidiary
Geotool Limited
Subsidiary
Geo-Forage BF SARL
Registered foreign
operating entity
Geodrill BF SARL
Geodrill Limited Zambia
Geo-Forage Cote d'Ivoire SARL Subsidiary
Subsidiary
Geo-Forage Mali SARL
Subsidiary
Geo-Forage Senegal SARL
Registered foreign
operating entity
Subsidiary
Subsidiary
Significant shareholder
Geodrill Cote d'Ivoire SARL
Geodrill Mauritius Limited
The Harper Family Settlement
Country of
Incorporation
Ownership Interest
2019
2018
Ghana
British Virgin Islands
Isle of Man
British Virgin Islands
Burkina Faso
Cote d'Ivoire
Cote d'Ivoire
Mali
Senegal
Zambia
Cote d'Ivoire
Mauritius
Isle of Man
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
-
100%
100%
-
100%
100%
100%
100%
100%
100%
-
(i)
Transactions with related parties
Transactions with companies within the Group have been eliminated on consolidation.
The Harper Family Settlement owns 39.3% (December 31, 2018: 40.1%) of the issued share capital of
Geodrill Limited.
On October 1, 2015, Geodrill Ghana Limited entered into lease agreements with The Harper Family
Settlement for the Anwiankwanta property and for the Accra property, both for a five year term at rates
consistent with those determined pursuant to the October 1, 2014 rent review. The material terms of the
five year lease agreements include: (i) the annual rent payable shall be reviewed on an upward only basis
every two years; and (ii) only Geodrill Ghana Limited can terminate the leases by giving twelve months’
notice. On October 1, 2016, in conjunction with the rent review, Geodrill Ghana Limited agreed to the
increase in rent for the Anwiankwanta property to US$186,000 per annum and the increase in rent for the
Accra property to US$78,000 per annum. It was also agreed that all future rent increases will be based on
USA inflation data. On August 17, 2018, the lease agreements were updated to arrange for appropriate
property damage and liability insurance but all other terms and conditions remained unchanged. On
October 1, 2018, in conjunction with the rent review, Geodrill Ghana Limited agreed to the increase in rent
for the Anwiankwanta property to US$194,000 per annum and the increase in rent for the Accra property
to US$82,000 per annum.
For the year ending December 31, 2019, the right-of-use assets relating to the properties above was
US$195,214 and the related lease liabilities were US$179,499.
The Group has paid fees to Clearwater Fiduciary Services Limited during the year ended December 31,
2019 of US$13,873 (2018: US$13,893). One of the directors of Clearwater Fiduciary Services Limited is
also a director of Geodrill Limited.
The Group has paid fees to MS Risk Limited during the year ended December 31, 2019 of US$NIL (2018:
US$10,181). One of the directors of MS Risk Limited is also a director of Geodrill Limited.
40
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
21.
RELATED PARTY TRANSACTIONS (CONTINUED)
(ii)
Key management personnel and directors’ transactions
The Company’s key management personnel, and persons connected with them, are also considered to be
related parties for disclosure purposes. The definition of key management includes the close members of
the family of key personnel and any entity over which key management exercises control. The key
management personnel have been identified as directors of the Company and other management staff.
Close members of family are those family members who may be expected to influence, or be influenced by
that individual in their dealings with the Company.
Key management personnel and directors’ compensation for the year comprised:
Short-term benefits
Share-based payment arrangements
(iii)
Related party payables
2019
US$
3,996,681
145,334
4,142,015
2018
US$
3,585,138
241,947
3,827,085
The related party payables balance payable to The Harper Family Settlement as at December 31, 2019
amounts to US$450,000 (December 31, 2018: US$923,025). The related party payables balance is
unsecured, interest free and is repayable on demand at the option of The Harper Family Settlement.
22.
COMMITMENTS
As at December 31, 2019 and December 31, 2018, the Group had no capital commitments.
23.
SHARE CAPITAL AND RESERVES
(i)
Share capital
Shares have no par value and the number of authorized shares is unlimited.
Share capital
Shares issued and fully paid
Shares reserved for share option plan
Total shares issued and reserved
Reconciliation of changes in issued shares
Shares issued at January 1,
Stock options exercised
Share buy-back
Shares issued at end of year
41
2019
2018
44,430,400
4,443,040
48,873,440
43,574,500
4,357,450
47,931,950
2019
2018
43,574,500
855,900
-
44,430,400
43,300,400
335,000
(60,900)
43,574,500
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
23.
SHARE CAPITAL AND RESERVES (CONTINUED)
(i)
Share capital (continued)
All shares rank equally with regards to the Company’s residual assets. The holders of ordinary shares are
entitled to receive dividends as declared from time to time and are entitled to one vote per share at the
shareholders’ meetings of the Company.
During the year ended December 31, 2018, the Company re-purchased and cancelled 60,900 shares at an
average price of C$1.94.
(ii)
Share-based payment reserve
The share-based payment reserve is comprised of the equity portion of the share-based payment
transaction as per the Company’s stock option plan.
The share based payment expense for the year of US$145,334 (2018: US$269,950) was included in selling,
general and administrative expenses in the Consolidated Statements of Comprehensive Income.
(iii)
Retained earnings
This represents the residual of cumulative profits that are available for distribution to shareholders.
24.
EARNINGS PER SHARE
(i)
Basic earnings per share
The calculation of basic earnings per share for the year ended December 31, 2019 was based on the
income attributable to ordinary shareholders of US$3,876,363 (2018: US$662,245), and on the weighted
average number of ordinary shares outstanding of 44,016,667 (2018: 43,527,853) calculated as follows:
Income attributable to ordinary shareholders
3,876,363
662,245
Weighted average number of ordinary shares
2019
US$
2018
US$
Issued ordinary shares
Earnings per share
2019
Shares
2018
Shares
44,016,667
43,527,853
$0.09
$0.02
42
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
24.
EARNINGS PER SHARE (CONTINUED)
(ii)
Diluted earnings per share
The calculation of diluted earnings per share for the year ended December 31, 2019 was based on the
income attributable to ordinary shareholders of US$3,876,363 (2018: US$662,245), and on the weighted
average number of ordinary shares after adjustment for the effects of all dilutive potential ordinary shares
outstanding of 44,555,265 (2018: 44,676,530), calculated as follows:
2019
US$
2018
US$
Income attributable to ordinary shareholders
3,876,363
662,245
Weighted average number of ordinary shares - diluted
Weighted average number of
ordinary shares - basic
Effect of share options in issue
2019
Shares
44,016,667
538,598 (1)
44,555,265
2018
Shares
43,527,853
1,148,683 (2)
44,676,536
Diluted earnings per share
$0.09
$0.01
(1) For the year ended December 31, 2019, 1,355,700 options in issue were dilutive and were included in the
calculation of the diluted earnings per share, however, they did not have an effect on the diluted earnings per
share amount.
(2) For the year ended December 31, 2018, 2,206,600 options in issue were dilutive and were included in the
calculation of the diluted earnings per share and they did have an effect on the diluted earnings per share amount.
25.
DIVIDENDS
No dividends were paid in 2019 or 2018, nor were dividends declared through to February 29, 2020.
43
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
26.
EQUITY-SETTLED SHARE-BASED PAYMENTS
Stock Option Plan (“SOP”)
The Company has established a SOP, which is intended to aid in attracting, retaining and motivating the
Company’s employees, directors, consultants and advisors through the granting of stock options.
The maximum aggregate number of Ordinary Shares reserved for issuance pursuant to the SOP shall not
exceed 10% of the total number of Ordinary Shares then outstanding. The maximum number of Ordinary
Shares reserved for issuance pursuant to the SOP and any other security-based compensation
arrangements of the Company is 10% of the total number of Ordinary Shares then outstanding.
2019
2018
Number of shares
subject to option
Weighted average
exercise price
Number of shares
subject to option
Weighted average
exercise price
Balance beginning, Jan. 1
Granted May 15, 2019
Granted May 16, 2018
Total Granted
Exercised March 11, 2019
Exercised March 12, 2019
Exercised March 14, 2019
Exercised March 18, 2019
Exercised March 19, 2019
Exercised March 21, 2019
Exercised May 15, 2019
Exercised June 13, 2019
Exercised June 13, 2019
Exercised June 21, 2019
Exercised August 9, 2019
Exercised September 11, 2019
Exercised December 16, 2019
Exercised January 15, 2018
Exercised March 8, 2018
Exercised March 8, 2018
Exercised March 15, 2018
Exercised March 19, 2018
Exercised May 9, 2018
Exercised May 11, 2018
Exercised May 14, 2018
Total Exercised
Forfeited September 2, 2019
Total Forfeited
3,931,600
365,000
-
365,000
(45,000)
(45,000)
(25,000)
(150,000)
(30,000)
(15,000)
(15,000)
(30,000)
(15,000)
(135,000)
(185,000)
(30,900)
(135,000)
C$1.44
C$1.36
-
C$1.36
C$0.84
C$0.84
C$0.84
C$0.84
C$0.84
C$0.84
C$0.84
C$0.51
C$0.79
C$0.79
C$0.81
C$0.79
C$0.79
(855,900)
(70,000)
(70,000)
C$0.80
C$1.88
C$1.88
4,156,600
-
110,000
110,000
C$1.38
-
C$2.00
C$2.00
(24,500)
(90,000)
(5,500)
(35,000)
(15,000)
(45,000)
(15,000)
(105,000)
(335,000)
C$0.81
C$0.72
C$0.81
C$0.81
C$0.81
C$0.81
C$0.81
C$0.81
C$0.79
Balance ending
3,370,700
C$1.58
3,931,600
C$1.44
The following table summarizes the options outstanding at December 31, 2019:
Options
Granted on May 19, 2015
Granted on March 14, 2016
Granted on June 30, 2016
Granted on May 12, 2017
Granted on May 16, 2018
Granted on May 15, 2019
Exercise prices
Number of options
outstanding
Weighted average
remaining
contractual life
Number of options
exercisable
150,000
860,700
330,000
1,595,000
90,000
345,000
5 mos
1 Yrs & 3 mos
1 Yr & 6 mos
2 Yrs & 5 mos
3 Yrs & 5 mos
4 Yrs & 5 mos
150,000
860,700
330,000
1,595,000
90,000
345,000
C$0.51
C$0.79
C$1.62
C$2.14
C$2.00
C$1.36
44
GEODRILL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
26.
EQUITY-SETTLED SHARE-BASED PAYMENTS (CONTINUED)
Stock Option Plan (“SOP”) (continued)
The fair values of options granted were calculated using the Black-Scholes option pricing model with the
following assumptions:
Granted on
Risk free interest rate
Expected dividend yield
Stock price volatility
Expected life of options
Forfeiture rate
May 19, 2015 March 14, 2016 June 30, 2016 May 12, 2017 May 16, 2018 May 15, 2019
1.54%
0%
42%
5 years
30%
1.10%
0%
111%
5 years
30%
1.10%
0%
46%
5 years
30%
0.57%
0%
52%
5 years
30%
1.04%
0%
50%
5 years
30%
1.04%
0%
40%
5 years
30%
Where relevant, the expected life used in the model used to determine the accounting value attributable to
the options has been adjusted based on management’s best estimate of the effects of non-transferability,
exercise restrictions (including the probability of meeting market conditions attached to the option), and
behavioural considerations. Expected volatility is based on historical share price volatility over relevant
periods.
27.
CONTINGENCY
On December 20, 2019, the Burkina Faso Tax Authority’s Head of Taxpayers Management Department
(“BFTA”) made an assessment on Geodrill Limited claiming tax and penalties of $17.9 million
(10,460,774,574 CFA) for the years 2016 through 2018. For the years of assessment, the BFTA has
assessed that Geodrill Limited had a permanent establishment in Burkina Faso and was subject to taxes,
penalties and interest provided in Burkina Faso’s tax legislation. Geodrill Limited maintains that it did not
have a permanent establishment in Burkina Faso in the years of assessment and operated in Burkina Faso
as a non-resident tax payer. As a non-resident tax payer, Geodrill Limited was subject to a withholding tax
on a percentage of its revenue as it was not registered with the BFTA and had never obtained a unique
financial identification number. During the years 2016 and 2017, Geodrill Limited was subject to a non-
resident ten percent (10%) withholding tax and during the year 2018, Geodrill Limited was subject to a
twenty percent (20%) non-resident withholding tax. The non-resident withholding tax is paid to the Director
General of taxes directly from Geodrill Limited’s clients on Geodrill Limited’s behalf.
Geodrill has reviewed the BFTA assessment and disagrees with their conclusion and believes it is without
merit. Geodrill Limited maintains that is does not have a permanent establishment in Burkina Faso and
believes it was appropriately taxed for the years 2016 – 2018 through the non-resident withholding tax
system.
28.
COMPARATIVE INFORMATION
Certain of the comparative information has been reclassified to conform to the presentation adopted in the
current year. The impact of the reclassification on selling, general and administrative and cost of sales is
disclosed in Note 8 and Note 10. There was no impact to the financial position or net income as a result of
the reclassification.
45
GEODRILL LIMITED
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2019
Management’s discussion and analysis (“MD&A”) is a review of the operations, the liquidity and the results
of operations and capital resources of Geodrill Limited (“Geodrill”, the “Company” or the "Group"). The
consolidated financial statements were prepared in accordance with International Financial Reporting
Standards (“IFRS”). This discussion contains forward-looking information. Please see “Forward-Looking
Information” for a discussion of the risks, uncertainties and assumptions relating to this MD&A.
This MD&A should be read in conjunction with the audited annual consolidated financial statements for
the years ended December 31, 2019 and 2018 and notes thereto.
This MD&A is dated February 29, 2020. Disclosure contained in this document is current to that date unless
otherwise stated.
Additional information relating to Geodrill, including the Company’s Annual Information Form, can be found on
SEDAR at www.sedar.com.
All references to “US$” are to United States dollars and all references to “CDN$” are to Canadian dollars.
FORWARD-LOOKING INFORMATION
This MD&A contains “forward-looking information” which may include, but is not limited to, statements
with respect to the future financial or operating performance of the Company, its subsidiaries, future
growth, results of operations, capital needs, performance, business prospects and opportunities. Often,
but not always, forward-looking information can be identified by the use of words such as “plans”,
“expects”, “is expected ”, “budget”, “scheduled ”, “estimates”, “forecasts”, “intends”, “anticipates” or
“believes” or variations (including negative variations) of such words or by the use of words or phrases
that state that certain actions, events or results “may”, “could ”, “would ”, “might” or “will ” be taken,
occur or be achieved.
Forward-looking information is based on certain assumptions and analyses made by the Company in light
of its experience and perception of historical trends, current conditions and expected future
developments and other factors it believes are appropriate. Forward-looking information involves known
and unknown risks, uncertainties and other factors which may cause the actual results, performance or
achievements of the Company and/or its subsidiaries to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking information contained in this
MD&A. Although the Company has attempted to identify important factors that could cause actual
actions, events or results to differ materially from those described in such forward-looking information,
there may be other factors that may cause actions, events or results to differ from those anticipated,
estimated or intended. Should one or more of these risks or uncertainties materialize or should
assumptions underlying such forward-looking information prove incorrect, actual results, performance or
achievements may vary materially from those expressed or implied by the forward-looking information
contained in this MD&A.
Forward-looking information contained herein is made as of the date of this MD&A and the Company
disclaims any obligation to update any forward-looking information, whether as a result of new
information, future events or results or otherwise, except as required by law. There can be no assurance
that forward-looking information will prove to be accurate, as actual results and future events could differ
1
materially from those anticipated in such information. Accordingly, readers should not place undue
reliance on forward-looking information.
Corporate Overview
Geodrill operates a fleet of Multi-Purpose, Core, Air-Core, Grade Control and Underground drill rigs. The
multi-purpose rigs can perform both reverse circulation (“RC”) and diamond core (“Core”) drilling and can
switch from one to the other with little effort or downtime. Multi-purpose rigs provide clients with the
efficiency and high productivity of RC drilling and the depth and accuracy of Core drilling without the need
to have two different drill rigs on site.
The Company’s rigs and support equipment also incorporate a fleet of boosters and auxiliary compressors,
which enable Geodrill to achieve high-quality sampling and operations to greater depths.
The state-of-the-art workshops and supply bases at Anwiankwanta, Ghana, at Ouagadougou, Burkina
Faso, at Bouake, Cote d’Ivoire, at Bamako, Mali and at Chingola, Zambia provide centralized locations for
storage of inventory, equipment and supplies, which in turn minimizes trucking, shipping and supply costs
and allows the rigs and inventory to be mobilized to drill sites with minimal delay.
An experienced management team and workforce, a modern fleet of drill rigs and state-of-the-art
workshops and supply bases have contributed to Geodrill’s reputation as a results-oriented drilling
company that strives to achieve greater drilling depths and provide better quality samples than its
competitors in the shortest possible time, safely and in a cost-effective and environmentally conscious
manner.
Business Strategy
The Company competes with other drilling companies on the basis of price, accuracy, reliability and
experience in the marketplace. The Company’s competitors consist of both large public companies as well
as small local operators.
Management believes that the Company has a number of attributes that result in competitive advantages
including:
•
•
•
Business Development: The Company continually improves its operations including the following
recent and ongoing developments:
Maintaining of the Company’s strong presence in West Africa in four primary countries being
Ghana, Burkina Faso, Cote d’Ivoire and Mali, and the Company is operating in the African
Copperbelt in Zambia.
A Modern Fleet of Drill Rigs and World Class Workshops: The Company has accumulated modern
state-of-the-art drilling rigs, and established centrally located world class workshops to promote
client satisfaction through reliable operational performance. In addition, within the workshop in
Ghana is a manufacturing facility with the capacity to produce ancillary equipment such as RC drill
rods and RC wire-line drill subs in-house, reducing downtime and reliance on suppliers for these
items.
Establishing, building and maintaining long-standing relationships with customers: The Company
has strong client relationships. Typically, a longer term client relationship for the Company originally
commenced as a short term drill contract won under a competitive bidding process, which has been
2
•
•
•
•
•
(cid:120)
(cid:120)
continually renewed as the respective drilling program of the client has progressed through various
phases.
Support of well-established international and local vendors: The Company has maintained long
standing relationships with international vendors in Australia, Europe, North and South America
and China and has also been supported in West Africa and Zambia by local branches of these
suppliers and other local suppliers.
Local Knowledge: The Company’s West African market knowledge, expertise and experience have
enabled Geodrill to further develop the local networks required to support its operations.
Presence in West Africa and the African Copperbelt: The Company is able to mobilize drill rigs and
associated ancillary equipment within a few days of a request by a client. The well-resourced,
centrally located workshops further reduce downtime, as the Company can fairly quickly reach most
of its current customer sites.
An Active and Experienced Management Team: Geodrill is led by Dave Harper, President and Chief
Executive Officer, Terry Burling, Chief Operating Officer, Greg Borsk, Chief Financial Officer and
Greig Rodger, Executive General Manager. This group is also supported by: Stephan Rodrigue, Zone
Manager – Francophone West Africa and Don Seguin, Health, Safety and Environmental (“HSE”)
Manager.
A Skilled and Dedicated Workforce: A favorable compensation and benefits package, coupled with
the Company’s track record of quality hiring and commitment to frequent, relevant continuous
training programs for both permanent and contract employees, has reduced unplanned workforce
turnover even during robust mining cycles. This has also increased efficiency and productivity,
ensuring the availability and continuity of a skilled labor force.
Maintaining a high level of safety standards to protect its people and the environment: The
Company’s HSE Group oversees the design, implementation, monitoring and evaluation of the
Company’s HSE standards, which standards are generally considered to be stringent standards for
drilling firms globally and are higher than what is currently required in all local markets in which
Geodrill currently operates. Every aspect of Geodrill’s operations is designed to meet the highest
HSE standards and includes induction meetings, at least one safety meeting per work site, including
non-exploration work sites, regular safety audits and detailed investigations of incidents.
Commitment to Excellence: Geodrill is committed to being a company of the highest standard in
every aspect of its business operations. This is the framework used by the Company to guide its
personnel towards the Company’s goals and to be the customer-preferred partner in providing
world class drilling services in West Africa and the African Copperbelt.
Market Participants and Geodrill’s Client Base
The Company’s client base is predominately in Ghana, Burkina Faso, Cote d’Ivoire and Mali.
Management’s plans include continuing to add new clients in West Africa where gold is the primary
mineral and adding new clients in the African Copperbelt where copper is the primary mineral. The
Company will, however, take advantage of opportunities in other minerals, including lithium, iron ore,
manganese, uranium, phosphate and energy. In addition, the proximity to countries such as Senegal,
Mauritania, Liberia, Sierra Leone, Nigeria and Cameroon positions the Company favorably in its ability to
service these markets as well, if it so chooses. The Company’s drilling focus is still predominately on gold
3
and is still predominately in Ghana, Burkina Faso, Cote d’Ivoire and Mali, however, the Company has also
been drilling for copper in Zambia.
The signing of a drilling contract and the actual commencement of drilling do not always happen
simultaneously, and in numerous situations there may be a two to three month interval between the
signing of an agreement and the commencement of drilling. In addition, given the short-term nature of
drilling contracts, there can be no assurance that any contract that the Company currently has will be
extended or renewed on terms favorable to the Company. In the event that any of its current contracts
are not extended or renewed on favorable terms, or replaced with new contracts, this could have a
significant impact on the Company’s operations.
For the year ended December 31, 2019, three customers individually contributed 10% or more to the
Group’s revenue. One customer contributed 19% and two customers each contributed 11%.
For the year ended December 31, 2018, three customers individually contributed 10% or more to the
Group’s revenue. One customer contributed 15%, one customer contributed 14% and one customer
contributed 11%.
OUTSTANDING SECURITIES AS OF FEBRUARY 29, 2020
The Company is authorized to issue an unlimited number of Ordinary Shares. As of February 29, 2020, the
Company has the following securities outstanding:
Number of Ordinary Shares
Number of Options
Diluted
44,475,400
3,325,700
47,791,100
From January 1, 2019 to February 29, 2020, 900,900 shares were issued as a result of options being
exercised and 2,200 shares were repurchased and cancelled under the Company’s Normal Course Issuer
Bid. The Company also issued 365,000 options and 70,000 options were forfeited during the period.
4
OVERALL PERFORMANCE
The Company generated revenue of US$87.4M for 2019, a decrease of US$1.1M or 1% when compared
to US$88.5M for 2018. The Company’s revenue decreased as a result of reduced revenue in Q4 2019. In
Q4 2019, the Company was impacted by a militant attack in Burkina Faso. The attack resulted in the fatality
of two of the Company’s employees and significantly impacted operations in Burkina Faso. Throughout
the remainder of the quarter, the Company focused on the safety and security of its personnel and the
safe-guarding of its equipment. One of the Company’s clients in Burkina Faso suspended all exploration
activities throughout the quarter which resulted in a decline in revenue as the Company was unable to
have the rigs it committed to that client restart drilling nor was the Company able to redeploy these rigs
to other clients due to the ongoing security situation in that area of Burkina Faso. In addition to the impact
of Q4 2019, the Company drilled less meters and had a different mix of meters drilled in 2019 compared
to 2018. Meters drilled in 2019 totaled 1,070,112 which is a decrease of 7% when compared to 1,154,062
meters drilled in 2018. Total meters drilled decreased by 7% compared to 2018, however, revenue only
decreased by 1% as a result of the change in the mix of meters drilled.
The gross profit for 2019 was US$22.2M, being 25% of revenue compared to a gross profit of US$22.5M,
being 25% of revenue for 2018. The gross profit decrease is a result of the decrease in revenue of US$1.1M
set off against the decrease in cost of sales of US$0.9M. See “Supplementary Disclosure – Non IFRS
Measures” on page 15.
EBITDA (as defined herein) for 2019 was US$20.0M, being 23% of revenue compared to US$16.3M, being
18% of revenue for 2018. See “Supplementary Disclosure – Non-IFRS Measures” on page 15.
The EBIT (as defined herein) for 2019 was US$12.6M, compared to EBIT of US$9.7M, for 2018. See
“Supplementary Disclosure - Non - IFRS Measures" on page 15.
The net income for 2019 was US$3.9M or US$0.09 per Ordinary Share (US$0.09 per Ordinary Share
diluted), compared to US$0.7M for 2018 or US$0.02 per Ordinary Share (US$0.01 per Ordinary Share
diluted).
5
RESULTS OF OPERATIONS
SELECTED FINANCIAL INFORMATION
(in US$ 000s)
Revenue
Cost of Sales
Cost of Sales (%)
Gross Profit
Gross Profit Margin (%)
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses (%)
Foreign Exchange Gain / (Loss)
Other Loss
Profit from Operating Activities
Profit from Operating Activities (%)
Finance Income
EBIT*
EBIT (%)
Finance Cost
Finance Cost (%)
Profit Before Taxation
Profit Before Taxation (%)
Income Tax Expense
Income Tax Expense (%)
Net Income
Net Income (%)
EBITDA **
EBITDA (%)
Meters Drilled
Income Per Share
Basic
Diluted
Total Assets
Fiscal Year Ended
% Change
% Change
2019
2018
2017
2019 vs 2018 2018 vs 2017
87,408
88,539
82,614
(65,221)
(66,071)
(1)
(61,204)
(2)
75%
75%
74%
22,187
22,468
25%
25%
21,410
26%
(1%)
(1%)
(1%)
7%
8%
5%
(9,886)
(13,181)
(1)
(12,008)
(2)
(25%)
10%
11%
474
(142)
12,633
14%
15%
420
-
9,707
11%
3
10
12,635
14%
(485)
1%
12,151
14%
9,717
11%
(528)
1%
9,189
10%
15%
(385)
-
9,017
11%
2
9,019
11%
(516)
1%
8,503
10%
30%
8%
30%
8%
32%
8%
(8,274)
(8,527)
(4,013)
9%
3,876
4%
10%
662
1%
5%
4,490
5%
485%
(85%)
20,017
16,297
15,673
23%
4%
23%
18%
19%
1,070,112 1,154,062
975,754
(7%)
18%
0.09
0.09
0.02
0.01
0.10
0.10
86,741
85,312
80,907
2%
12%
5%
73%
Total Long - Term Liabilities
4,582
4,078
2,362
Cash Dividend Declared
Nil
Nil
Nil
(1) For the year ended December 31, 2018, to conform to the presentation adopted in the current year, the Company
reclassified US$16,161,429 from selling, general and administrative expenses to cost of sales. This reclassification had no
impact on the net income or earnings per share for the current or prior periods presented as the reclassification relates to
the Consolidated Statement of Comprehensive Income only and has no effect on the other financial statements.
(2) For the year ended December 31, 2017, to conform to the presentation adopted in the current year, the Company
reclassified US$12,126,603 from selling, general and administrative expenses to cost of sales. This reclassification had no
impact on the net income or earnings per share for the current or prior periods presented as the reclassification relates to
the Consolidated Statement of Comprehensive Income only and has no effect on the other financial statements.
*EBIT = Earnings before interest and taxes.
**EBITDA = Earnings before interest, taxes, depreciation and amortization.
See "Supplementary Disclosure - Non-IFRS Measures" on page 15.
6
FISCAL 2019 COMPARED TO FISCAL 2018
Revenue
The Company recorded revenue of US$87.4M for 2019, compared to US$88.5M for 2018, representing a
decrease of 1%. The Company had decreased revenue as the Company drilled less meters and had a
different mix of meters drilled in 2019 compared to 2018. Meters drilled in 2019 totaled 1,070,112 which
is a decrease of 7% when compared to 1,154,062 meters drilled in 2018. Total meters drilled decreased
by 7% compared to 2018, however, revenue only decreased by 1% as a result of the change in the mix of
meters drilled.
Cost of Sales and Gross Profit
Cost of Sales for 2019 was US$65.2M, compared to US$66.1M for 2018, being a decrease of US$0.9M. For
2018, to conform to the presentation adopted in the current year, the Company reclassified US$16.2M to
cost of sales from selling, general and administrative expenses. This reclassification had no impact on the
net income or earnings per share for the current or prior periods presented as the reclassification relates
to the Consolidated Statement of Comprehensive Income only and has no effect on the other financial
statements.
The gross profit for 2019 was US$22.2M, compared to a gross profit of US$22.5M for 2018, being a
decrease of US$0.3M. The gross profit percentage for 2019 and 2018 was 25%.
The decrease in cost of sales for 2019 as compared to 2018 of US$0.9M reflects the following:
(cid:120) Wages, employee benefits, external services, contractors and other expenses decreased by
US$2.5M due to less workers being employed throughout the Company and less services being
required in conjunction with less meters being drilled.
(cid:120) Drill rig expenses and fuel costs increased by US$2.4M despite less meters being drilled as the
Company drilled more reverse circulation meters.
(cid:120) Repairs and maintenance decreased by US$1.1M as less repairs were completed on the
Company’s drill rigs and plant and equipment.
(cid:120) Depreciation expense increased by US$0.3M as a result of significant additions in the previous
years to the Company’s property, plant and equipment.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses for 2019 was US$9.9M, compared to US$13.2M for 2018, being a decrease of US$3.3M.
For 2018, to conform to the presentation adopted in the current year, the Company reclassified US$16.2M
from selling, general and administrative expenses to cost of sales.
The decrease in SG&A expenses of US$3.3M for 2019 compared to 2018 reflects the following:
(cid:120) Wages, employee benefits, external services, contractors and other expenses decreased by
US$2.8M associated with less wages and less external services being required in 2019 and the
reduction of rental expense due to the recording of the lease liabilities on January 1, 2019.
(cid:120) Provision for doubtful accounts decreased by US$0.9M due to a provision of US$0.9M being made
in 2018 against a specific trade receivable, no such provision was required for 2019.
7
(cid:120) Repairs and maintenance decreased by US$0.1M as less repairs were completed on the
Company’s motor vehicles.
(cid:120) Depreciation expense increased by US$0.5M as a result of additional depreciation on the right-
of-use assets.
Income from Operating Activities
Income from operating activities (after cost of sales, SG&A expenses and foreign exchange gain or loss)
for 2019 was US$12.6M, compared to US$9.7M in 2018.
EBITDA Margin (see “Supplementary Disclosure – Non-IFRS Measures” on page 15)
EBITDA margin for 2019 was 23% compared to 18% for 2018.
EBIT Margin (see “Supplementary Disclosure – Non-IFRS Measures” on page 15)
EBIT margin for 2019 was 14% compared to an EBIT margin of 11% for 2018.
Depreciation
Depreciation of property, plant and equipment for 2019 was US$7.4M (US$6.7M in cost of sales and
US$0.7M in SG&A) for 2019 compared to US$6.6M (US$6.4M in cost of sales and US$0.2M in SG&A) for
2018.
Income Tax Expense
Income tax expense for 2019 was US$8.3M compared to income tax expense of US$8.5M for 2018. The
current tax expense was US$5.6M comprised of withholding tax on revenue of US$3.8M and tax expense
on taxable income of US$1.8M. In addition to the current tax expense the 2019 tax expense includes an
amount of US$2.7M relating to deferred taxes primarily relating to the utilization of the tax loss carry
forwards in 2019. Overall for 2019 the effective tax rate was 68% versus 93% for 2018.
Net income
The net income for 2019 was US$3.9M, or US$0.09 per Ordinary Share (US$0.09 per Ordinary Share
diluted), compared to US$0.7M for 2018, or US$0.02 per Ordinary Share (US$0.01 per Ordinary Share
diluted).
8
SELECTED FINANCIAL INFORMATION
(in US$ 000s)
Revenue
Cost of Sales
Cost of Sales (%)
Gross Profit
Gross Profit Margin (%)
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses (%)
Foreign Exchange Gain
Other Loss
(Loss) / Profit from Operating Activities
(Loss) / Profit from Operating Activities (%)
Finance Income
EBIT*
EBIT (%)
Finance Cost
Finance Cost (%)
(Loss) / Profit Before Taxation
Profit Before Taxation (%)
Income Tax Expense
Income Tax Expense (%)
Net (Loss) / Income
Net Income (%)
EBITDA **
EBITDA (%)
Meters Drilled
(Loss) / Income Per Share
Basic
Diluted
Total Assets
Fourth Quarter Ended
% Change
2019
2018
2019 vs 2018
17,202
20,396
(14,876)
86%
2,326
14%
(2,270)
13%
7
(142)
(79)
(0%)
-
(79)
(0%)
(103)
1%
(182)
(1%)
(776)
5%
(958)
(6%)
1,807
11%
(15,058)
(1)
74%
5,338
26%
(3,082)
(1)
15%
145
-
2,401
12%
2
2,403
12%
(136)
1%
2,267
11%
(1,881)
9%
386
2%
4,163
20%
(16%)
(1%)
(56%)
(26%)
(103%)
(103%)
(108%)
(59%)
(348%)
(57%)
244,613
248,288
(1%)
(0.02)
(0.02)
0.01
0.01
86,741
85,312
2%
12%
Total Long - Term Liabilities
4,582
4,078
Cash Dividend Declared
(1) For the quarter ended December 31, 2018, to conform to the presentation adopted in the current year, the Company
reclassified US$4,008,870 from selling, general and administrative expenses to cost of sales. This reclassification had no
impact on the net income or earnings per share for the current or prior periods presented as the reclassification relates to
the Consolidated Statement of Comprehensive Income only and has no effect on the other financial statements.
NIL
NIL
*EBIT = Earnings before interest and taxes.
**EBITDA = Earnings before interest, tax, depreciation and amortization.
See "Supplementary Disclosure - Non-IFRS Measures" on page 15.
9
FOURTH QUARTER ENDED DECEMBER 31, 2019 COMPARED TO FOURTH QUARTER ENDED
DECEMBER 31, 2018
Revenue
The Company recorded revenue for the fourth quarter ended December 31, 2019 of US$17.2M, compared
to US$20.4M for the fourth quarter ended December 31, 2018, representing a decrease of US$3.2M or
16%. During the quarter, in early November, the Company was impacted by a militant attack in Burkina
Faso. The attack resulted in the fatality of two of the Company’s employees and significantly impacted
operations in Burkina Faso. Throughout the remainder of the quarter, the Company focused on the safety
and security of its personnel and the safe-guarding of its equipment. One of the Company’s clients in
Burkina Faso suspended all exploration activities throughout the quarter which resulted in a decline in
revenue as the Company was unable to have the rigs it committed to that client restart drilling nor was
the Company able to redeploy these rigs to other clients due to the ongoing security situation in that area
of Burkina Faso.
Cost of Sales and Gross Profit
Cost of Sales for the fourth quarter of 2019 was US$14.9M, compared to US$15.1M for the fourth quarter
of 2018, being a decrease of US$0.2M. For the fourth quarter of 2018, to conform to the presentation
adopted in the current year, the Company reclassified US$4.0M to cost of sales from selling, general and
administrative expenses. This reclassification had no impact on the net income or earnings per share for
the current or prior periods presented as the reclassification relates to the Consolidated Statement of
Comprehensive Income only and has no effect on the other financial statements.
The gross profit for the fourth quarter ended December 31, 2019 was US$2.3M, compared to a gross
profit of US$5.3M for the fourth quarter ended December 31, 2018, being a decrease of US$3.0M. The
gross profit percentage for the fourth quarter ended December 31, 2019 was 14% compared to 26% for
fourth quarter ended December 31, 2018. The decline in the gross profit percentage for the fourth quarter
of 2019 compared to the fourth quarter of 2018 from 26% to 14% was primarily the result of less revenue
without a corresponding decrease in cost of sales. Throughout the remainder of the quarter, the Company
focused on the safety and security of its personnel and the safe-guarding of its equipment. One of the
Company’s clients in Burkina Faso suspended all exploration activities throughout the quarter which
resulted in a decline in revenue as the Company was unable to have the rigs it committed to that client
restart drilling and was not able to redeploy these rigs to other clients due to the ongoing security situation
in that area of Burkina Faso.
The decrease in cost of sales for the fourth quarter ended December 31, 2019 as compared to the fourth
quarter ended December 31, 2018 of US$0.2M reflects the following:
(cid:120) Drill rig expenses and fuel costs increased by US$0.3M. The reason that drill rig expenses and fuel
costs increased by US$0.3M was mainly due to lower than expected drill rig expenses and fuel
costs in Q4 2018 as in Q4 2018 the Company was able to reverse some previously accrued Value
Added Tax (“VAT”) provisions resulting in a credit to drill rig expenses and fuel of US$0.7M in Q4
2018.
(cid:120) Wages, employee benefits, external services, contractors and other expenses decreased by
US$0.2M due to lower wages as a result of less employees being required and lower salary costs
due to reduced amounts of overtime for employees that worked in Q4 2019 versus Q4 2018.
10
(cid:120) Repairs and maintenance decreased by US$0.3M as less repairs were completed on the
Company’s drill rigs and plant and equipment in Q4 2019 versus Q4 2018.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses for the fourth quarter ended December 31, 2019 were US$2.3M, compared to US$3.1M
for the fourth quarter ended December 31, 2018, or a decrease of US$0.8M.
The decrease in SG&A expenses of US$0.8M for the fourth quarter ended December 31, 2019, compared
to the fourth quarter ended December 31, 2018 reflects the following:
(cid:120) Wages, employee benefits, external services, contractors and other expenses decreased by
US$0.8M associated with less wages and less external services being required in Q4 2019 and the
reduction of rental expense due to the recording of the lease liabilities on January 1, 2019.
Income from Operating Activities
Income from operating activities (after cost of sales, SG&A expenses and foreign exchange gain or loss)
for the fourth quarter ended December 31, 2019 was US$0.1M, compared to US$2.4M for the fourth
quarter ended December 31, 2018.
EBITDA Margin (see “Supplementary Disclosure – Non-IFRS Measures” on page 15)
EBITDA margin for the fourth quarter ended December 31 2019 was 11% compared to 20% for the fourth
quarter ended December 31, 2018.
EBIT Margin (see “Supplementary Disclosure – Non-IFRS Measures” on page 15)
There was no EBIT margin for the fourth quarter ended December 31, 2019 compared to 12% for the
fourth quarter ended December 31, 2018.
Depreciation
Depreciation of property, plant and equipment for the fourth quarter ended December 31, 2019 was
US$1.9M (US$1.7M in cost of sales and US$0.2M in SG&A) compared to US$1.8M (US$1.6M in cost of
sales and US$0.2M in SG&A) for the fourth quarter ended December 31, 2018.
Income Tax Expense
Income tax expense for the fourth quarter ended December 31, 2019 was US$0.8M compared to income
tax expense of US$1.9M for the fourth quarter ended December 31, 2018. The current tax recovery was
US$0.6M comprised of a tax recovery on taxable losses of US$1.0M offset by withholding tax on revenue
of US$0.4M. In addition to the current tax recovery, the fourth quarter 2019 tax expense includes an
amount of US$1.4M relating to deferred taxes primarily relating to the utilization of the tax loss carry
forwards in the fourth quarter of 2019.
Net Loss
Net loss was US$(1.0)M for the fourth quarter ended December 31, 2019, or US$(0.02) per Ordinary Share
(US$(0.02) per Ordinary Share diluted), compared to net income of US$0.4M for the fourth quarter ended
December 31, 2018, or US$0.01 per Ordinary Share (US$0.01 per Ordinary Share diluted).
11
SUMMARY OF QUARTERLY RESULTS
(in US$ 000s)
Dec 31
Sep 30
2019
Jun 30
Mar 31
Dec 31
Sep 30
Jun 30
Mar 31
2018
Revenue
Revenue (Decrease) / Increase %
17,202
(15%)
20,292
(27%)
27,787
22,127
20,396
26%
8%
23%
16,610
(39%)
27,280
12%
24,252
18%
Gros s Profi t
Gross Margin (%)
Net (Los s ) / Ea rni ngs
Per Sha re - Ba s i c
2,326
14%
(958)
( 0.02 )
4,582
23%
826
0.02
8,903
32%
2,481
0.06
6,376
29%
1,528
0.04
5,338 (1)
26%
1,218 (1)
7%
8,376 (1)
31%
7,535 (1)
31%
386
0.02
(3,468)
( 0.08 )
2,376
0.05
1,369
0.03
Per Sha re - Di l uted
(1) The Company reclassified amounts from selling, general and administrative expenses to cost of sales to conform to the
presentation adopted in the current year.
( 0.02 )
( 0.08 )
0.05
0.03
0.01
0.06
0.03
0.02
The Company’s revenue of US$17.2M represents a decrease on a quarter over quarter basis by US$3.1M
or 15% for the fourth quarter ended December 31, 2019 compared to the third quarter ended September
30, 2019. During the quarter, in early November, the Company was impacted by a militant attack in
Burkina Faso. The attack resulted in the fatality of two of the Company’s employees and significantly
impacted operations in Burkina Faso. Throughout the remainder of the quarter, the Company focused on
the safety and security of its personnel and the safe-guarding of its equipment. One of the Company’s
clients in Burkina Faso suspended all exploration activities throughout the quarter which resulted in a
decline in revenue as the Company was unable to have the rigs it committed to that client restart drilling
and was not able to redeploy these rigs to other clients due to the ongoing security situation in that area
of Burkina Faso. The Company was able to generate gross profit of US$2.3M in the current quarter. On a
quarter to quarter basis, the Company’s revenue decreased by US$3.2M compared to the fourth quarter
ended December 31, 2018.
The operations have tended to exhibit a seasonal pattern. The first and fourth quarters are affected due
to shutdown of exploration activities, often for extended periods over the holiday season. The second
quarter is typically affected by the Easter shutdown of exploration activities affecting some of the rigs for
up to one week. The wet season occurs (in some geographical areas where the Company operates,
particularly in Burkina Faso and Mali) normally in the third quarter, but in the recent years the global
weather pattern has become somewhat erratic. In the third quarter of 2019, the Company was impacted
by the wet season. The Company has historically taken advantage of the wet season and has scheduled
the third quarter for maintenance and rebuild programs for drill rigs and equipment.
Effect of Exchange Rate Movements
The Company’s receipts and disbursements are denominated in US Dollars and local currencies. The
Company’s main exposure to exchange rate fluctuations arises from certain capital costs, wage costs and
purchases denominated in other currencies.
The Company's revenue is invoiced in US Dollars and local currencies. The Company’s purchases are in
Australian Dollars, US Dollars, Euros, Canadian Dollars and local currencies. Other local expenses include
purchases and wages which are paid in the local currency.
12
SELECTED INFORMATION FROM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in US$ 000s)
Net Cash generated from operating activities
Net Cash used in investing activities
Net Cash (used in) / provided from financing activities
Effect of movement in exchange rates on cash
Net increase / (decrease) in cash
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Fiscal year end
2019
14,657
(5,388)
(3,275)
(53)
5,941
2018
7,860
(10,495)
1,634
(74)
(1,075)
Fourth quarter end
2018
2019
4,097
(1,138)
(1,098)
78
1,939
(820)
(1,718)
(102)
10
(2,630)
As at December 31, 2019, the Company had cash of US$10.6M and US$3.5M still available on the US$3.5M
Revolving Line of Credit. As at December 31, 2019, the Company had loans payable of US$3.4M. Since
the Company has loans payable, the Company continues to monitor its cash and its capital spending in
conjunction with the loans that need to be repaid.
FISCAL 2019
Operating Activities
In 2019, the Company generated net cash from operating activities of US$14.7M, as compared to
generating net cash from operating activities of US$7.9M in 2018. The Company realized profit before
taxation of US$12.2M for 2019, plus, the changes in non-cash items and changes in working capital items
increased cash by US$2.5M, resulting in cash generated from operations of US$14.7M.
Investing Activities
In 2019, the Company’s net investment in property, plant and equipment was US$5.4M compared to
US$10.5M in 2018. The Company continues reinvent and upgrade its fleet in order to maintain a modern
fleet of drill rigs and related equipment. The Company understands the importance of this and has
significantly invested in its property, plant and equipment. Plant and equipment additions in 2019
included costs associated with rebuilding existing drill rigs and related equipment, new light vehicles and
costs associated with completing certain sites at client premises.
Financing Activities
In 2019, the Company used net cash of US$3.3M relating to financing activities. The Company repaid loans
in the amount of US$2.9M, paid lease liabilities of US$0.4M, paid related party balances of US$0.5M and
received US$0.5M from the exercise of stock options. In 2018, the Company increased its loans by
US$7.0M as a result of entering into the new Ecobank loan, repaid loans of US$5.5M relating to the old
Zenith loans, paid US$0.1M relating to the Company’s share buy-backs and received US$0.2M from the
exercise of stock options.
13
FOURTH QUARTER ENDED DECEMBER 31, 2019
Operating Activities
The Company realized loss before taxation of US$0.2M for the fourth quarter of 2019 but the impact of
changes in non-cash items and changes in working capital items increased cash by US$4.3M resulting in
US$4.1M cash being generated in operations in the fourth quarter of 2019, compared to no cash being
used or generated from operating activities in the fourth quarter of 2018.
Investing Activities
In the fourth quarter of 2019, the Company’s investment in property, plant and equipment was US$1.1M
compared to US$1.7M in the fourth quarter of 2018. The Company continues to believe that one of the
Company’s greatest attributes is its ability to maintain a modern fleet of drill rigs and related equipment.
The Company understands the importance of this and has significantly invested in its property, plant and
equipment. Plant and equipment additions in the fourth quarter of 2019 included costs associated with
rebuilding existing drill rigs and related equipment, new light vehicles and costs associated with
completing certain sites at client premises.
Financing Activities
During the fourth quarter of 2019, the Company used cash of US$1.1M in its financing activities. The
Company repaid loans in the amount of US$1.1M, paid lease liabilities of US$0.1M and received US$0.1M
from the exercise of stock options. In the fourth quarter of 2018, the Company used cash of US$0.1M in
its financing activities. The Company increased its loans by US$0.5M and made loan repayments of
US$0.6M.
Contractual Obligations
Contractual Obligations
in US$
(1)
Loans
Lease liablities (2)
Payments Due by
Total
2020
2021
2022
3,700,000
2,600,000
1,100,000
-
405,000
320,000
60,000
25,000
Total Contractual Obligations
(1) Loans refer to the US$6.5M Medium Term Loan and the Equipment Loan, including the related interest.
(2) The lease liabilities relate to the lease payments for the two real estate properties, as fully disclosed under “Transactions with Related Parties”. In addition, the
lease liabilities includes amounts for other operating sites.
4,105,000
1,160,000
2,920,000
25,000
Contractual obligations will be funded in the short-term by cash as at December 31, 2019 of US$10.6M,
cash flow generated from operations, and the US$3.5M amount still available on the US$3.5M Revolving
Line of Credit.
OUTLOOK
The Company is continuing to see a recovery in the mineral drilling sector as evidenced by the Company
generating more than US$80M in revenue in each of the last three years. The Company is optimistic that
the recovery will continue throughout 2020. The Company is well positioned for 2020 as at December 31,
2019, the Company had 67 drill rigs, of which 62 drill rigs were available for operation and five drill rigs
were in the workshop.
14
SUPPLEMENTARY DISCLOSURE - NON-IFRS MEASURES
EBIT is defined as Earnings before Interest and Taxes and EBITDA is defined as Earnings before Interest,
Taxes, Depreciation and Amortization. The definitions are used in this MD&A as measures of financial
performance. The Company believes EBIT and EBITDA are useful to investors because they are frequently
used by securities analysts, investors and other interested parties to evaluate companies in the same
industry. However, EBIT and EBITDA are not measures recognized by IFRS and do not have standardized
meanings prescribed by IFRS. EBIT and EBITDA should not be viewed in isolation and do not purport to be
alternatives to net income or gross profit as indicators of operating performance or cash flows from
operating activities as a measure of liquidity. EBIT and EBITDA do not have standardized meanings
prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by
other publicly traded companies. Also, EBIT and EBITDA should not be construed as alternatives to other
financial measures determined in accordance with IFRS.
Additionally, EBIT and EBITDA are not intended to be measures of free cash flow for management’s
discretionary use, as they do not consider certain cash requirements such as capital expenditures,
contractual commitments, interest payments, tax payments and debt service requirements.
Gross profit margin is defined as gross profit as a percentage of revenue. Gross profit margin does not
have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled
measures presented by other publicly traded companies.
The following table is a reconciliation of Geodrill’s results from operations to EBIT and EBITDA
(US$ 000s)
Total comprehensive income / (loss)
Add: Income taxes
Add: Finance costs
Earnings Before Interest and Taxes (EBIT)
Year ended
Three months ended
Dec 31, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
3,876
8,274
485
12,635
662
8,527
528
9,717
(958)
776
103
(79)
386
1,881
136
2,403
Add: Depreciation & Amortization
Earnings Before Interest, Taxes, Depreciation & Amortization
(EBITDA)
7,382
6,580
1,886
1,760
20,017
16,297
1,807
4,163
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”) of the Company are
responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) for the
issued by the Canadian Securities
Company as defined under Multilateral Instrument 52-109
Administrators. The CEO and the CFO have designed such DC&P, or caused them to be designed under
their supervision, to provide reasonable assurance that information required to be disclosed by the
Company in its annual filings, interim filings or other reports filed or submitted by it under securities
legislation is recorded, processed, summarized and reported within the time periods specified in the
securities legislation and include controls and procedures designed to ensure that information required
to be disclosed by an issuer in its annual filings, interim filings or other reports filed or submitted under
securities legislation is accumulated and communicated to the Company’s management, including its
certifying officers, as appropriate to allow timely decisions regarding required disclosure. As at December
31, 2019, the CEO and CFO evaluated the design and operation of the Company’s DC&P. Based on that
evaluation, the CEO and CFO concluded that the Company’s DC&P were effective as at December 31,
2019.
15
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial
reporting to provide reasonable assurance regarding the reliability of the Company’s financial reporting
and the preparation of its consolidated financial statements in accordance with IFRS.
There were no changes in the Company’s internal control over financial reporting during the period
beginning on January 1, 2019 and ending on December 31, 2019, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
RISK FACTORS
The following discussion outlines certain relevant risk factors according to the Company’s business and
industry within which it operates. These risks are not the only risks facing the Company. Additional risks
and uncertainties presently not known to the Company may also impair the operations and could
potentially affect the Company.
Risks Related to the Business and the Industry
Political Instability
The Company’s drilling activities are in West Africa (Ghana, Burkina Faso, Cote d’Ivoire and Mali) and
Zambia. Conducting business in West Africa and Zambia presents political and economic risks including,
but not limited to, terrorism, hostage taking, military repression, expropriation, extreme fluctuations in
currency exchange rates, high rates of inflation and labour unrest. Changes in mining or investment
policies or shifts in political attitudes may also adversely affect the Company’s business. Business may be
affected in varying degrees by government regulations with respect to, but not limited to, restrictions on
production and exploration activities, currency remittance, income taxes, environmental legislation, land
use, land claims of local people, water use and safety. The effect of these factors cannot be accurately
predicted, however, the Company keeps abreast of all political issues and is prepared to act accordingly.
In early November, the Company was impacted by a militant attack in Burkina Faso. The attack resulted
in the fatality of two of the Company’s employees and significantly impacted operations in Burkina Faso.
Throughout the remainder of the quarter, the Company focused on the safety and security of its personnel
and the safe-guarding of its equipment. One of the Company’s clients in Burkina Faso suspended all
exploration activities throughout the quarter which resulted in a decline in revenue as the Company was
unable to have the rigs it committed to that client restart drilling and was not able to redeploy these rigs
to other clients due to the ongoing security situation in that area of Burkina Faso.
Tax Risk
The Company has organized its group structure and its operations in part based on certain assumptions
about various tax laws including, among others, income tax and withholding tax, foreign currency and
capital repatriation laws and other relevant laws of a variety of jurisdictions. While the Company believes
that such assumptions are correct, there can be no assurance that foreign taxing or other authorities will
reach the same conclusion. If such assumptions are incorrect, or if such jurisdictions were to change or
modify such laws or the current interpretation thereof, the Company may suffer adverse tax and financial
consequences. The Group has drilling activities currently in Ghana, Burkina Faso, Cote d’Ivoire, Mali and
Zambia. The Group has subsidiaries or branches in the British Virgin Islands, Ghana, Burkina Faso, Cote
d’Ivoire, Mali, Senegal, Zambia, and Mauritius. There is a risk in which the countries where Geodrill
operates may change their current tax regime with little prior notice or that the tax authorities in these
jurisdictions may attempt to claim tax on the global revenues of the Company. A change to the tax regimes
16
in these countries or an unfavorable interpretation of the current tax legislation could have a material
adverse effect on the profitability of the Company.
On December 20, 2019, the Burkina Faso Tax Authority’s Head of Taxpayers Management Department
(“BFTA”) made an assessment on Geodrill Limited claiming tax and penalties of $17.9 million
(10,460,774,574 CFA) for the years 2016 through 2018. For the years of assessment, the BFTA has assessed
that Geodrill Limited had a permanent establishment in Burkina Faso and was subject to taxes, penalties
and interest provided in Burkina Faso’s tax legislation. Geodrill Limited maintains that it did not have a
permanent establishment in Burkina Faso in the years of assessment and operated in Burkina Faso as a
non-resident tax payer. As a non-resident tax payer, Geodrill Limited was subject to a withholding tax on
a percentage of its revenue as it was not registered with the BFTA and had never obtained a unique
financial identification number. During the years 2016 and 2017, Geodrill Limited was subject to a non-
resident ten percent (10%) withholding tax and during the year 2018, Geodrill Limited was subject to a
twenty percent (20%) non-resident withholding tax. The non-resident withholding tax is paid to the
Director General of taxes directly from Geodrill Limited’s clients on Geodrill Limited’s behalf.
Geodrill has reviewed the BFTA assessment and disagrees with their conclusion and believes it is without
merit. Geodrill Limited maintains that is does not have a permanent establishment in Burkina Faso and
believes it was appropriately taxed for the years 2016 – 2018 through the non-resident withholding tax
system.
Credit Risk
The Company provides credit to its clients in the normal course of its operations. In the past the Company
had noticed that certain accounts were taking longer to pay and certain accounts were having difficulty
paying and therefore the Company needed to provide for certain accounts. The Company has continued
working with larger clients and as at December 31, 2019, 21% of the trade accounts receivable are aged
over 91 days. The Company’s normal credit terms are 30 days.
Foreign Currency Exposure
The Company receives the majority of its revenues in US dollars. In January 2020, the Bank of Ghana
granted approval for the Company to issue and receive fifty percent of its payments in US dollars. The
approval is valid up to December 31, 2020. If the Company has significant cash and receivables in Ghana
Cedi it may be exposed to currency fluctuations between the US Dollar and the Ghana Cedi. The Company
also has significant amounts of CFA relating to operating in certain French West African countries.
Although the exchange rate of the CFA is linked to the EURO and it has been fairly stable in the past, there
can be no assurance that it will continue to be stable. In addition, there is also a significant part of the
Company’s foreign exchange exposure to the Australian dollar and Euro in relation to international
purchases. As a result, the Company is exposed to currency fluctuations and exchange rate risks. Currency
fluctuations and exchange rate risks between the value of the US dollar and the value of certain foreign
currencies may increase the cost of the Company’s operations and could adversely affect financial results.
Cyber Crime
Cyber Crime is now recognized as one of the biggest threats to global businesses. The agile nature of
business, along with remote working technology, has left more companies open to the risk of cyber-
attacks. These crimes range from the malicious, perhaps politically or ideologically motivated through to
data or financial theft which may be orchestrated by the amateur hacker or by organized crime. Failure
to identify and address these threats would leave the Company vulnerable to a cyber attack. The Company
continually updates its hardware and software to the highest standard to protect it against cyber crime.
17
In addition to this, on an annual basis the Company has a third party perform a vulnerability assessment
on its network.
Inability to Sustain Revenue Levels
The Company recorded revenue of US$87.4M in 2019, US$88.5M in 2018 and US$82.6M in 2017. The
Company’s ability to increase or sustain its revenue will depend on a number of factors, many of which
are beyond the Company’s control, including, but not limited to, commodity prices, the ability of mining
companies to raise financing and the global demand for materials. In addition, the Company is subject to
a variety of business risks generally associated with growing companies. The Company is not currently
contemplating adding a significant number of rigs but will continue to explore geographic expansion.
Expanding into other jurisdictions could place significant strain on the Company’s management personnel
and the Company may need to recruit additional personnel to service these jurisdictions.
There can be no assurance that the Company will be able to increase or sustain its revenue or that such
increased revenue, if achieved, will result in profitable operations, that it will be able to attract and retain
sufficient management personnel necessary. The failure to accomplish any of the foregoing could have a
material adverse effect on the Company’s financial performance, financial condition, cash flows and
growth prospects. Further, as the Company increases its geographical footprint, it may need to expand its
operations base or establish a new operations base in order to continue to maintain its fleet of drill rigs.
Business Interruptions
Business interruptions may result from a variety of factors, including regulatory intervention, delays in
necessary approvals and permits, health and safety issues or supply bottlenecks and seasonal or
extraordinary weather conditions. In addition, the Company operates in geographic locations which are
prone to political risks including terrorism and natural or other disasters. Further, logistical risks such as
road conditions, ground conditions and political interference may affect the Company’s ability to quickly
mobilize or demobilize its drill rigs. The occurrence of business interruptions or conditions could have a
material adverse effect on the Company’s financial performance, financial condition, cash flows and
growth prospects.
Uncertain Legal and Regulatory Frameworks
The Company’s business and operations are potentially subject to the uncertain legal and regulatory
frameworks in the countries in which it operates. Laws, regulations and local rules governing business
entities in these countries may change and are often subject to a number of possibly conflicting
interpretations by business entities, government departments and the courts. Laws and regulations may
be promulgated and overseen by different government entities or departments, which may be national,
regional or municipal and these entities may differ in their interpretation and enforcement of the laws
and regulations. The business, financial condition, profitability and results of operations of the Company
could potentially be adversely affected by changes in and uncertainty surrounding governmental policies,
in particular with respect to business laws and regulations, licenses and permits, taxation, exchange
control regulations, labor laws and expropriation.
Given the uncertain legal and regulatory framework in Zambia and some of the West African countries in
which the Company operates or may operate in the future, there is a risk that the necessary licenses,
permits, certificates, consents and authorizations to implement or conduct operations may not be
obtained by either the client or the Company under conditions or within time frames that make such
operations viable and that changes to applicable laws, regulations or the governing authorities may result
in additional material expenditure or time delays.
18
Cyclical Downturns
The Company’s business is highly dependent upon the levels of mineral exploration, development and
production activity by mining companies in West Africa. In recent years, certain countries in West Africa
such as Ghana, Burkina Faso, Cote d’Ivoire and Mali have seen an increase in mining and exploration
primarily focused on gold. In 2016 to 2019, the drilling industry in West Africa began to recover resulting
in increased demand for the Company’s services. In 2018, the Company achieved record revenues of
US$88.5M and in 2019 the Company recorded similar revenues of US$87.4M. Although the Company has
seen a rebound in its activities, there is no guarantee that this trend will continue due to the cyclical nature
of the industry.
The operations and financial results of Geodrill may be materially adversely affected by increases or
declines in the price of gold and other commodities. The prices of gold and other commodities fluctuate
widely and are affected by numerous factors beyond Geodrill’s control, such as the sale or purchase of
metals by various central banks and financial institutions, interest rates, exchange rates, inflation or
deflation, fluctuations in the value of the United States dollar and foreign currencies, global and regional
supply and demand and the political and economic conditions of major metals-producing countries
throughout the world. The price of gold and other commodities has fluctuated widely in the past, and
future serious price declines could cause continued exploration, development of and commercial
production by Geodrill’s clients to be impracticable. In such event, the operational and financial results
from drilling operations would suffer.
Industry experience indicates that prevailing and projected prices of commodities are major influences on
the Company’s clients’ activity levels and planned expenditures. In the past, strong commodities market
conditions have led to an increased supply of drill rigs to the market. In the event of a sustained decrease
in demand for drilling activities, the market may be oversupplied with drill rigs, which may result in
downward pressure on drilling service providers’ margins and drilling operations. In addition, historically
when commodity prices fall below certain levels, it is not uncommon for mining and exploration
expenditures to decline in the following twelve month period. There is a risk that a significant, sustained
fall in commodity prices could substantially reduce future mining expenditures, particularly in relation to
exploration and production, leading to a decline in demand for the drilling services offered by the
Company which may have a material adverse effect and impact on the Company’s business, financial
position, results of operations and prospects.
Competition
The Company faces considerable competition from several large drilling services companies and a number
of smaller regional competitors. Some of the Company’s competitors have been in the drilling services
industry for a longer period of time. This may mean that they are perceived as being able to offer a greater
range of services at more competitive prices than the Company. In addition, new and current competitors
willing to provide services at a lower cost will likely continue to occur as demand for drilling services in
the West African mining market tightens. Increased competition in the drilling services market may
adversely affect the Company’s current market share, profitability and growth opportunities. Any erosion
of the Company’s competitive position could have a material adverse effect on the Company’s business,
results of operations, financial condition and growth prospects.
A significant portion of the drilling services business is a result of being awarded contracts through a
competitive tender process. It is possible that the Company may lose potential new contracts to
competitors if it is unable to demonstrate reliable performance, technical competence and competitive
pricing as part of the tender process or if mining companies elect not to undertake a competitive tender
19
process, or the Company does not continue to provide a premium service as compared to other
competitors, to its existing client base which would cause it to lose its reputation in the market place.
Local Content
The Group has drilling activities currently in Ghana, Burkina Faso, Cote d’Ivoire , Mali and Zambia. The
Company has always considered the local communities and districts in which it operates and has
specifically hired local workers and supported local community initiatives. In 2019, approximately 95% of
the Company’s workforce was local to the countries in which it operated. In certain jurisdictions in which
the Company operates, there are discussions regarding granting contracts to companies that are locally
owned or a percentage of the company is locally owned. As the Company is a publicly listed entity, if local
ownership content requirements become mandated, this may affect the way the Company operates or is
structured in certain jurisdictions in which it operates.
Substance requirements
The Company is incorporated in the Isle of Man and certain of the Company’s other subsidiaries are
incorporated in other countries where, similar to the Isle of Man, there has been an increased focus on
substance requirements. The Company maintains its head office in the Isle of Man and has a local director
and corporate secretary based in the Isle of Man. The Company conducts at least half of its board meetings
in and from the Isle of Man and the Company will also hold its 2020 Annual General Meeting in the Isle of
Man. The Company has reviewed the necessary requirements and has concluded that it is directed and
managed in and from the Isle of Man, there is adequate physical presence in the Isle of Man, there is
adequate proportionate expenditure and there are core income generating activities conducted in the Isle
of Man and therefore has determined that it fulfils the relevant substance requirements however there
is always a risk that the authorities will dispute the Company’s conclusions. The Company has also
reviewed and has concluded that it meets the substance requirements for its Mauritius subsidiary. The
Company is currently reviewing the substance requirements for its subsidiaries incorporated in the British
Virgin Islands, one of which falls within the applicable categories and one which does not.
International Expansion and Instability
Expansion internationally entails additional political and economic risk. Some of the countries and areas
that the Company may target for expansion could be undergoing industrialization and urbanization and
do not have the economic, political or social stability that many developed nations now possess. Other
countries have experienced political or economic instability in the past and may be subject to risks beyond
the Company’s control, such as war or civil disturbances, political, social and economic instability,
corruption, nationalization, terrorism, expropriation without fair compensation or cancellation of contract
rights, significant changes in government policies, breakdown of the rule of law and regulations and new
tariffs, taxes and other barriers, changes in mining or investment policies or shifts in political attitude that
may adversely affect the business. There has been an emergence of a trend by some governments to
increase their participation, through increased taxation, expropriation, or otherwise. This could negatively
impact the level of foreign investment in mining and exploration activities and thus drilling demand in
these regions. Such events could result in reductions in revenue and transition costs as equipment is
shifted to other locations.
Environment, Labor and Health and Safety Requirements and Related Considerations
The drilling services industry is regulated by environmental and health and safety regulations. To the
extent that the Company fails to comply with laws and regulations, it could lose client contracts and be
subject to suspension of operations or other penalties. In addition, accidents at the sites at which the
20
Company operates could adversely affect the Company’s ability to retain client contracts and win new
business.
The Company is subject to the labour laws and regulations of the various countries in which it operates.
Although none of the Company’s employees are currently unionized, there is the potential that some or
all of its employees may become unionized in the future. There can be no assurance that the Company
will not experience labour problems in the future, such as prolonged work stoppages due to labour strikes,
which may have an adverse effect on its results of operations and financial conditions.
Clients are required to hold certain permits and approvals in order for the Company to conduct
operations. Clients are generally responsible for obtaining the environmental permits necessary for
drilling. There is no assurance that clients will be able to renew or obtain the permits or approvals which
are required for the drilling services the Company provides to them, in the time frame anticipated or at
all. Any failure to renew, maintain or obtain the required permits or approvals may result in interruption
or delay to operations and may have an adverse impact on the Company’s business, financial position,
results of operations and prospects. In addition, clients rely on concessions, licenses and permits to
conduct their activities. Any modification or revocation of these concessions, licenses or permits could
result in a decrease in demand for the services of the Company or in contracts with clients being
terminated.
Geographic Expansion
Expansion into new jurisdictions also brings additional geographic and currency risk. There is a risk that
the operations, assets, employees or repatriation of revenues could be impaired by factors specific to the
regions into which Geodrill may choose to expand.
Global Financial Condition
Global financial conditions may impact the ability of the Company and its clients to obtain equity or debt
financing in the future on terms that are favorable. Worldwide economic conditions, in particular,
economic conditions of countries such as the United States and China, influence the activity in the mining
industry which in turn has an effect on the demand for the drilling services provided by Geodrill. Increased
levels of volatility and market turmoil could adversely affect the Company’s results of operations and the
trading price of the Ordinary Shares.
Concentration of Currency
The Company receives the majority of its revenues in US dollars and as result, the majority of the
Company’s cash is in US dollars. To facilitate the payment of certain international suppliers and expenses,
the Company holds the majority of its cash in US dollars in jurisdictions where it can efficiently transfer
funds to international suppliers. There can be no assurance that in the future, the Company will be able
to continue to hold the majority of its cash in US dollars. The Company also has significant amounts of
CFA relating to operating in certain French West African countries. Although the exchange rate of the CFA
has been fairly stable in the past, there can be no assurance that it will continue to be stable.
Dependence on Certain Key Personnel
The success of the Company was, and is currently, largely dependent on the performance of senior
management and, in particular, Dave Harper, Terry Burling, Greg Borsk, Greig Rodger and Stephan
Rodrigue. The senior management group is also supported by numerous drilling supervisors, HSE
personnel and other management employees to manage its immediate operations as well as the
21
obligations of running a public company. The loss of the senior management personnel would likely have
a materially adverse effect on the Company’s business and prospects. Additionally, there is no assurance
that the Company can maintain the services of its other management or its key drillers required to operate
the business. The Company does not maintain key person insurance on the lives of any of its senior
management.
Debt Level
In response to the need to finance capital equipment and general corporate expenditures including
working capital needs, the Company has needed to borrow funds. As a result, the Company has loans
payable outstanding. With loans payable outstanding and the required payments, the Company will need
to monitor its cash on hand, and its investing activities in response to the level of debt and scheduled loan
repayments. The debt requires repayments of principal and interest of approximately US$2.3M in 2020
and US$1.1M in 2021. The Company has in the past been able to repay debt from cash on hand and cash
flow generated from operations, however, there is no certainty that the Company will continue to
generate positive cash flow from operations. As at December 31, 2019, the Company had US$10.6M of
cash and an unutilized amount of US$3.5M on the US$3.5M Revolving Line of Credit.
Sensitivity to General Economic Conditions
The operating and financial performance of the Company is influenced by a variety of international and
country-specific general economic and business conditions (including inflation, interest rates and
exchange rates), access to debt and capital markets, as well as monetary and regulatory policies. A
deterioration in domestic or international general economic conditions, including an increase in interest
rates or a decrease in consumer and business demand, could have a material adverse effect on the
financial performance, financial position and condition, cash flows, distributions, share price and growth
prospects of the Company.
Dependence on Customers with Capital Raising Challenges
From time to time, the Company may be dependent on customers for a significant portion of revenue and
net income who, due to their relative size, could be challenged to attract funding to achieve their business
plans. Should a number of our customers face serious capital raising constraints, there can be no
guarantee that the Company will be able to secure sufficient replacement customers, potentially leading
to future reduced revenue and income levels. Consequently, the Company continues to work to expand
its client base to mitigate its exposure to customers with capital raising challenges.
Specialized Skills and Cost of Labor Increases
The Company may not be able to recruit or retain drillers and other key personnel who meet the
Company’s high standards. A failure by the Company to retain qualified drillers or attract and train new
qualified drillers could have a material adverse effect on the Company’s financial performance, financial
condition, cash flows and growth prospects.
Increased Cost of Sourcing Consumables and Drilling Equipment
When bidding on a drilling contract, the cost of consumables (including fuel) is a key consideration in
deciding upon the pricing of a contract. A material increase in the cost of consumables (including fuel)
could result in materially higher costs and could materially reduce the Company’s financial performance,
financial condition, cash flows and growth prospects. Although the Company mitigates the risk of sourcing
22
and pricing of consumables by keeping an inventory and having the capacity to fabricate certain
consumable equipment, such as RC drill pipe and RC wire-line drill subs, there remains a risk that the
pricing and availability of certain other consumables such as fuel could have a material negative effect on
the Company’s operations. Additionally, the delay or inability of suppliers to supply key manufacturing
inputs, such as steel and other raw materials, may delay manufacturing certain consumables such as RC
drill pipe and RC wire-line drill subs, that may have an adverse effect on the operations and the financial
position of the Company’s business.
Client Contracts
The Company’s drilling client contracts are typically based on meters to drill and range for a term of one
month to one year and can be cancelled by the client on short or no notice in certain circumstances with
limited or no amounts payable to the Company. The short duration of contract periods, typical for the
drilling industry, does not provide any certainty of long term cash flows. There is a risk that existing
contracts may not be renewed or replaced and that the drill rigs may not be able to be placed with
alternative clients. The failure to renew or replace some or all of these existing contracts and cancellation
of existing contracts could have a material adverse effect on the Company’s financial performance,
financial condition, cash flows and growth prospects.
Operational Risks and Liability
Risks associated with drilling include, in the case of employees, personal injury and loss of life and, in the
case of the Company, damage and destruction to property, equipment, release of hazardous substances
to the environment, including potential environmental liabilities associated with the Company’s fuel
storage activities, and interruption or suspension of drill site operation due to unsafe drill operations. The
occurrence of any of these events may have an adverse effect on the Company, including financial loss,
key personnel loss, legal proceedings and damage to the Company’s reputation.
In addition, poor or failed internal processes, people or systems, along with external events could
negatively impact the Company’s operational and financial performance. The risk of this loss, known as
operational risk, is present in all aspects of the business of the Company, including, but not limited to,
business disruptions, drill rig failures, theft and fraud, damage to assets, employee safety, regulatory
compliance issues and business integration issues.
Advances in exploration, development and production technology which could reduce the demand for
drilling services may have an adverse impact on the financial performance of the Company.
Risk to the Company’s Reputation
Risks to the reputation of the Company, including any negative publicity, whether true or not, could cause
a decline in the Company’s customer base and have a material adverse impact on the Company’s financial
performance, financial condition, cash flows and growth prospects. All risks have an impact on reputation
and, as such, reputational risk cannot be managed in isolation from other types of risk. Every employee
and representative of the Company is charged with upholding its strong reputation by complying with all
applicable policies, legislation and regulations as well as creating positive experiences with the Company’s
customers, stakeholders and the public.
Insurance Limits
The Company maintains, to a limited extent, fixed property, motor and general liability insurance. The
Company does not insure all of its drill rigs nor its goods in transit, as management has determined that
23
the cost of the premiums outweigh the benefits at this time. Regarding the insurance that the Company
does have, there can be no assurance that such insurance will continue to be offered on an economically
feasible basis, that all events that could give rise to a loss or liability are insurable or that the amounts of
insurance will at all times be sufficient to cover each and every loss or claim that may occur involving the
assets or operations of the Company. The Company does not carry business interruption insurance or key
man insurance and, as such, any such interruption or loss would have an adverse effect on the financial
position of the Company. To the extent that Geodrill incurs losses not covered by its insurance policies,
the funds available for operations will be reduced.
Supply of Consumables
The Company’s operations could place pressure on the ability of its vendors to manufacture and deliver
to the Company consumables used in its drilling activities. Any negative impact on the ability of the
vendors to deliver their products may constrain the Company’s ability to increase its capacity and increase
or maintain revenue and profitability.
Risks due to Foreign Incorporation
The Company is incorporated under and governed by the laws of the Isle of Man and consequently
shareholders may not have the same rights and protections as they would have under provincial or federal
corporate law in Canada. There can be no assurance that shareholder rights and remedies available under
the corporate law of the Isle of Man will be enforceable in Canada through Canadian courts or that any
orders of the courts of the Isle of Man made under such corporate law will be enforceable in Canada.
Equity Market Risks
There is a risk associated with any investment in the Ordinary Shares. The market price of securities such
as the Ordinary Shares of the Company are affected by numerous factors including, but not limited to,
general market conditions, actual or anticipated fluctuations in the Company’s results of operations,
changes in estimates of future results of operations by the Company or securities analysts, risks identified
in this section and other factors. In addition, the financial markets have experienced significant price and
volume fluctuations that have sometimes been unrelated to the operating performance of the issuers or
the industries in which they operate.
The Influence of Existing Shareholders and Future Sales by The Harper Family Settlement and Dave
Harper
The Harper Family Settlement and Dave Harper holds or controls, directly or indirectly, 17,683,500
Ordinary Shares representing approximately 39.8% of the Company’s issued Ordinary Shares. As a result,
The Harper Family Settlement and Dave Harper have the ability to influence the Company’s strategic
direction and policies, including any sale of all or substantially all of its assets, the election and composition
of the Board of Directors, the amendment of the Company’s Memorandum and Articles of Association
and the declaration of dividends. The foregoing ability to influence the control and direction of the
Company could adversely affect investors’ perception of the Company’s corporate governance and reduce
its attractiveness as a target for potential take-over bids and business combinations, and correspondingly
affect its share price.
Sales of a large number of Ordinary Shares by The Harper Family Settlement or Dave Harper in the public
markets, or the potential for such sales, could decrease the trading price of the Ordinary Shares and could
impair Geodrill’s ability to raise capital through future sales of Ordinary Shares.
24
Dilution
The Company may raise additional funds in the future by issuing equity securities. Holders of Ordinary
Shares will have no pre-emptive rights in connection with such further issues. Additional Ordinary Shares
may be issued by the Company in connection with the exercise of options. Such additional equity
issuances could, depending on the price at which such securities are issued, substantially dilute the
interests of the holders of Ordinary Shares.
Lack of Dividend Payments
Geodrill does not pay dividends other than a real estate dividend in 2010, issued in connection with the
IPO reorganization of the Company, no dividends on the Ordinary Shares have been paid to date. Payment
of any future dividends will be at the discretion of the Board of Directors after taking into account many
factors, including Geodrill’s earnings, operating results, financial condition, current and anticipated cash
needs and restrictions in financing agreements.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of cash, trade and other receivables, trade and other payables and related party
payables approximate their fair value due to the relatively short period to maturity of the instruments.
The carrying value of loans payable approximates their fair value as the fixed rate loans have been
acquired recently and their carrying value continues to reflect fair value. The fair value of financial assets
held at fair value through profit and loss are measured using quoted market prices.
There were no financial instruments classified as level 2 or 3 in the fair value hierarchy at December 31,
2019 and 2018.
FINANCIAL RISK MANAGEMENT
Overview
The Group has exposure to the following risks from its use of financial instruments:
(cid:120) credit risk
(cid:120) liquidity risk
(cid:120) market risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s
objectives, policies and processes for managing risk, methods used to measure the risks and the Group’s
management of capital.
Risk management framework
The Board of directors has overall responsibility for the oversight of the Group’s risk management
framework.
The Group’s management team is responsible for developing and monitoring the Group’s risk
management policies. The team meets periodically to discuss corporate plans, evaluate progress reports
25
and establish action plans to be taken. The day-to-day implementation of the Board’s decisions rests with
the CEO.
(i)
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial asset fails
to meet its contractual obligations, and arises principally from the Group’s receivables from customers
and cash.
Trade and other receivables
The Group’s exposure to credit risk is minimized as customers are given 30 to 60 day credit periods for
services rendered. New clients are approved by the CEO and trade receivables are monitored closely by
the CEO.
As at December 31, 2019, three customers individually contributed 10% or more to the Group’s trade
receivables. Those customers all contributed 13% each.
As at December 31, 2018, four customers individually contributed 10% or more to the Group’s trade
receivables. Two customers each contributed 12% and two customers each contributed 11%.
Exposure to credit risks
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure
to credit risk at the reporting date was:
Trade and other receivables
Cash
2019
US$
15,315,453
10,558,184
25,873,637
2018
US$
19,061,758
4,617,083
23,678,841
The maximum exposure to credit risk for trade and other receivables at the reporting dates by type was:
2018
US$
2019
US$
Mining and exploration companies
Others
14,660,257
655,196
15,315,453
18,894,313
167,445
19,061,758
The ageing of trade receivables due from mining and exploration companies at the reporting dates was:
Less than 30 days
31 - 60 days
61 - 90 days
91 days and greater
2019
US$
3,867,220
4,740,423
2,908,234
3,144,380
14,660,257
2018
US$
5,868,225
7,014,854
3,270,075
2,741,159
18,894,313
26
(ii)
Liquidity risk
Liquidity risk is the risk that the Group either does not have sufficient financial resources available to meet
all of its obligations and commitments as they fall due, or can access them only at excessive cost. The
Group’s approach to managing liquidity is to ensure that it will maintain adequate liquidity to meet its
liabilities when due by monitoring and scheduling cash in bank movements and reinvesting profits earned.
The Group’s obligation and principal repayments on its financial liabilities are presented in the following
table:
December 31, 2019
Non-derivative financial liability
Trade and other payables
Related party payables
Loans payable
Lease liabilities
Balance at December 31, 2019
December 31, 2018
Non-derivative financial liability
Trade and other payables
Related party payables
Loans payable
Balance at December 31, 2018
(iii) Market risk
Total
US$
Within
One Year
US$
Greater than
One Year
US$
10,394,717
450,000
3,370,523
438,463
14,653,703
10,761,017
923,025
6,278,236
17,962,278
10,394,717
450,000
2,287,190
323,088
13,454,995
10,761,017
923,025
2,907,713
14,591,755
-
-
1,083,333
115,375
1,198,708
-
-
3,370,523
3,370,523
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and
equity prices will affect the Group’s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimizing returns. Management regularly monitors the level of market risk and
considers appropriate strategies to mitigate those risks. Sensitivity analysis relating to key market risks
has been provided below.
27
(a)
Foreign currency risk
The Group is exposed to currency risk on cash, trade receivables, trade payables and taxes payable that
are denominated in currencies other than the functional currency. The other currencies in which these
transactions are denominated are EURO, Ghana Cedis (GH¢), Great British Pound (GBP), Central African
Franc (CFA), Australian Dollar (AUD), Canadian Dollar (CAD) and Zambian Kwacha (ZMW).
The Group’s exposure to foreign currency risk was as follows based on foreign currency amounts.
December 31, 2019
Cash
Financial assets at fair value
through profit and loss
Trade receivables
Trade payables
Taxes payable
Gross exposure
December 31, 2018
EURO
GH¢
GBP
CFA
AUD
CAD
ZMW
4,912
637,338
4,860
1,514,693,621
94,991
49,656
237,030
-
-
-
-
(515,388)
(2,837,560)
-
-
(510,476)
(2,200,222)
278,819
-
(30,017)
-
253,662
-
3,286,417,630
(674,632,654)
(507,934,381)
3,618,544,216
90,264
-
-
-
(2,008,911)
(207,644)
-
-
(1,823,656)
(157,988)
-
-
(655,366)
-
(418,336)
EURO
GH¢
GBP
CFA
AUD
CAD
ZMW
Cash
Trade receivables
Trade payables
Taxes payable
Gross exposure
2,145
-
126,830
-
(480,903)
(5,085,430)
-
-
(478,758)
(4,958,600)
26,841
-
(100,239)
-
(73,398)
848,542
2,146,295,670
(657,149,715)
(36,660,408)
1,453,334,089
21,881
-
100,483
-
(2,734,887)
(791,798)
-
-
(2,713,006)
(691,315)
4,172
-
(53,555)
-
(49,383)
The following significant exchange rates applied during the years:
US$1=
Reporting Rate
Average Rate
Reporting Rate
Average Rate
2019
2018
EURO
GH¢
GBP
CFA
AUD
CAD
ZMW
0.8915
5.6878
0.7583
584.8143
1.4257
1.3016
14.0394
0.8931
5.3404
0.7833
585.8560
1.4380
1.3266
12.8761
0.8737
4.8471
0.7851
573.0901
1.4174
1.3630
11.8973
0.8471
4.6669
0.7496
555.6681
1.3385
1.2956
10.4236
Sensitivity analysis on currency risks
The following table shows the effect of a strengthening or weakening US$ against all other currencies on
equity and profit or loss. This sensitivity analysis indicates the potential impact on equity and profit or
loss based upon the foreign currency exposures, (see “foreign currency risk” above) and it does not
represent actual or future gains or losses. The sensitivity analysis is based on a change of 10% in the
closing exchange rate per currency recorded in the course of the respective financial year.
A strengthening/weakening of the US$, by the rates shown in the table, against the following currencies
would have increased/decreased equity and profit or loss by the amounts shown below.
28
This analysis assumes that all other variables, in particular interest rates, remain constant.
As at December 31,
2019
EURO
GH¢
GBP
CFA
AUD
CAD
ZMW
% Change
±10
±10
±10
±10
±10
±10
±10
Profit or Loss
impact before tax
US$
Equity US$
±57,260
±38,683
±33,451
±618,751
±127,913
±12,138
±2,980
±57,260
±38,683
±33,451
±618,751
±127,913
±12,138
±2,980
2018
Profit or Loss
impact before tax
US$
±54,797
±102,300
±9,349
±258,348
±191,407
±50,720
±415
% Change
±10
±10
±10
±10
±10
±10
±10
Equity US$
±54,797
±102,300
±9,349
±258,348
±191,407
±50,720
±415
(b)
Interest rate risk
The Group is exposed to interest rate risk on its bank balances and loans.
Profile
At the reporting dates, the interest rate profiles of the Group’s interest-bearing financial instruments
were:
Variable rate instruments
Bank balances
Fixed rate instruments
Loans
Sensitivity analysis for variable rate instruments
2019
US$
2018
US$
10,456,335
4,503,641
3,370,523
6,278,236
A change of 200 basis points in the interest rate at the reporting date would have increased / (decreased)
equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in
particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2019
and 2018.
As at December 31,
2019
Profit or
Loss
impact
before tax
US$
%
Change
2018
Profit or
Loss
impact
before tax
US$
Equity
US$
Equity
US$
%
Change
Bank balances
±2%
±209,127 ±209,127
±2%
±90,073
±90,073
29
(iv)
Capital management
The Group manages its capital structure and makes adjustments to it to effectively support the Group’s
operations. In the definition of capital the Group includes, as disclosed on its consolidated statement of
financial position: share capital, retained earnings, reserves and loans.
The Group’s capital at December 31, 2019 and 2018 is as follows:
Capital Management
Loans payable
Share capital
Share-based payment reserve
Retained earnings
(c)
Equity price risk
2019
US$
3,370,523
23,204,469
4,351,899
38,242,108
69,168,999
2018
US$
6,278,236
22,428,417
4,464,416
34,365,745
67,536,814
The Group holds equity investments and is exposed to equity price risk. The equity investments are held
for sale and not held for strategic purposes.
If equity prices had been 10% higher or lower and all other variables were held constant, the Groups
equity and profit or loss for the year ended December 31, 2019 would increase/decrease by US$42,879
(2018: US$Nil).
RELATED PARTY TRANSACTIONS
Related party
Relationship
Subsidiary
Geodrill Ghana Limited
D.S.I. Services Limited
Subsidiary
D.S.I. Services (IOM) Limited Subsidiary
Subsidiary
Geotool Limited
Subsidiary
Geo-Forage BF SARL
Registered foreign
operating entity
Geodrill BF SARL
Geodrill Limited Zambia
Geo-Forage Cote d'Ivoire SARL Subsidiary
Subsidiary
Geo-Forage Mali SARL
Subsidiary
Geo-Forage Senegal SARL
Registered foreign
operating entity
Subsidiary
Subsidiary
Significant shareholder
Geodrill Cote d'Ivoire SARL
Geodrill Mauritius Limited
The Harper Family Settlement
Country of
Incorporation
Ownership Interest
2019
2018
Ghana
British Virgin Islands
Isle of Man
British Virgin Islands
Burkina Faso
Cote d'Ivoire
Cote d'Ivoire
Mali
Senegal
Zambia
Cote d'Ivoire
Mauritius
Isle of Man
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
-
100%
100%
-
100%
100%
100%
100%
100%
100%
-
(i)
Transactions with related parties
Transactions with companies within the Group have been eliminated on consolidation.
The Harper Family Settlement owns 39.3% (December 31, 2018: 40.1%) of the issued share capital of
Geodrill Limited.
30
On October 1, 2015, Geodrill Ghana Limited entered into lease agreements with The Harper Family
Settlement for the Anwiankwanta property and for the Accra property, both for a five year term at rates
consistent with those determined pursuant to the October 1, 2014 rent review. The material terms of the
five year lease agreements include: (i) the annual rent payable shall be reviewed on an upward only basis
every two years; and (ii) only Geodrill Ghana Limited can terminate the leases by giving twelve months’
notice. On October 1, 2016, in conjunction with the rent review, Geodrill Ghana Limited agreed to the
increase in rent for the Anwiankwanta property to US$186,000 per annum and the increase in rent for
the Accra property to US$78,000 per annum. It was also agreed that all future rent increases will be based
on USA inflation data. On August 17, 2018, the lease agreements were updated to arrange for appropriate
property damage and liability insurance but all other terms and conditions remained unchanged. On
October 1, 2018, in conjunction with the rent review, Geodrill Ghana Limited agreed to the increase in
rent for the Anwiankwanta property to US$194,000 per annum and the increase in rent for the Accra
property to US$82,000 per annum.
For the year ending December 31, 2019, the right-of-use assets relating to the properties above was
US$195,214 and the related lease liabilities were US$179,499.
The Group has paid fees to Clearwater Fiduciary Services Limited during the year ended December 31,
2019 of US$13,873 (2018: US$13,893). One of the directors of Clearwater Fiduciary Services Limited is
also a director of Geodrill Limited.
The Group has paid fees to MS Risk Limited during the year ended December 31, 2019 of US$NIL (2018:
US$10,181). One of the directors of MS Risk Limited is also a director of Geodrill Limited.
(ii)
Key management personnel and directors’ transactions
The Group’s key management personnel, and persons connected with them, are also considered to be
related parties for disclosure purposes. The definition of key management includes the close members of
the family of key personnel and any entity over which key management exercises control. The key
management personnel have been identified as directors of the Group and other management staff.
Close members of family are those family members who may be expected to influence, or be influenced
by that individual in their dealings with the Group.
Key management personnel and directors’ compensation for the year comprised:
Short-term benefits
Share-based payment arrangements
(iii)
Related party balances
2019
US$
3,996,681
145,334
4,142,015
2018
US$
3,585,138
241,947
3,827,085
The related party payable outstanding as at December 31, 2019 amounts to US$450,000 (December 31,
2018: US$923,025). The related party payable to The Harper Family Settlement is unsecured, interest free
and is repayable on demand at the option of the lender.
31
SIGNIFICANT ACCOUNTING POLICIES
The Company’s audited consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”). The significant accounting policies are described in
the audited financial statements for the years ended December 31, 2019 and 2018.
NEW AND FUTURE ACCOUNTING STANDARDS
a.
Adoption of new and amended accounting pronouncements
IFRS 16 – Leases
The Company has adopted IFRS 16 retrospectively from January 1, 2019, but has not restated
comparatives for the 2018 reporting period, as permitted under the specific transitional provisions
in the standard. The reclassifications and the adjustments arising from the new leasing rules are
therefore recognized in the opening Statement of Financial Position on January 1, 2019.
On transition, the Company has opted to apply the following practical expedients:
1) Used a single discount rate to the portfolio of operating leases
2) Opted not to apply IFRS 16 to operating leases for which the lease term ends within 12 months
of the date of initial application.
As the opening balances have not been restated, the 2018 balance are classified and measured
as follows:
(i)
Classification
Leases are classified as finance leases whenever the terms of the lease transfer substantially all
the risks and rewards of ownership to the lessee. Assets held under finance leases are stated as
assets of the Company at the lower of their fair value and the present value of the minimum lease
payments at inception of the lease, less accumulated depreciation and impairment losses. The
corresponding liability to the lessor is included in the Consolidated Statement of Financial Position
as a finance lease obligation. Finance costs are charged to profit or loss over the term of the
relevant lease so as to produce a constant periodic interest charge on the remaining balance of the
obligations for each accounting period.
Leases where significant portions of the risks and rewards of ownership are retained by the lessor
are classified as operating leases.
(ii)
Lease payments
Payments made under operating leases are charged to comprehensive income on a straight-line
basis over the period of the lease. When an operating lease is terminated before the lease period
has expired, any payment required to be made to the lessor by way of penalty is recognized as an
expense in the period in which termination takes place. Minimum lease payments made under
finance leases are apportioned between finance expense and a reduction of the outstanding lease
liability.
Adjustments recognized on adoption of IFRS 16
On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had
previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of January 1, 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 8%.
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Operating lease commitments disclosed as at December 31, 2018
Discounted using the lessee’s incremental borrowing rate at the date of initial
application
Add: Additional lease liabilities recognized as at December 31, 2018
(Less): short-term leases recognized on a straight-line basis as expense
Lease liabilities recognized as at January 1, 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
January 1, 2019
US$
663,600
608,314
89,536
(4,800)
693,050
332,969
360,081
693,050
The right-of-use assets of US$768,299 were measured at the amount equal to the lease liabilities
of US$693,050, adjusted by the amount of any prepaid or accrued lease payments relating to that
lease recognized in the Statement of Financial Position as at December 31, 2018 of US$75,249.
There were no onerous lease contracts that would have required an adjustment to the right-of-use
assets at the date of initial application.
The recognized right-of-use assets relate to the following types of assets:
Properties
Total right-of-use assets
January 1, 2019
US$
768,299
768,299
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis of making
judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future
periods.
The areas which require management to make significant judgments, estimates and assumptions in
determining carrying values are described in the Company’s audited consolidated financial statements for
the years ended December 31, 2019 and 2018.
Additional Information
Additional information relating to Geodrill, including the Company’s Annual Information Form can be
found on SEDAR at www.sedar.com.
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