Annual Report and Accounts

LONDON--()-- 

China Nonferrous Gold Limited

("CNG" or the "Company")

Annual Report and Accounts

China Nonferrous Gold Limited 中国有色黄金有限公司 (AIM: CNG), the mineral exploration and development company currently developing the Pakrut gold project in the Republic of Tajikistan, today announces its final results for the year ended 31 December 2018.

The results below are extracted from the Company’s audited Annual Report and Financial Statements. Copies of the Annual Report have been dispatched to shareholders today and are available on the Company’s website (www.cnfgold.com) and will also be available from the Company’s office at Unit 2.24, The Plaza, 535 Kings Road, London SW10 0SZ.

For further information please visit the Company’s website (www.cnfgold.com) or contact:

China Nonferrous Gold Limited

Yu Lixian, Managing Director

Tel: +86 10 8442 6681

WH Ireland Limited (NOMAD & Broker)

Katy Mitchell, James Sinclair-Ford

Tel: 0207 220 1666

Blytheweigh (PR)

Tim Blythe, Camilla Horsfall

Tel: +44 (0)20 7138 3224

Project Summary

The Pakrut gold project, of which CNG has 100 per cent ownership, is situated in Tajikistan approximately 120 km northeast of the capital city Dushanbe. Pakrut is located within the Tien Shan gold belt, which extends from Uzbekistan into Tajikistan, Kyrgyzstan and Western China, and which hosts a number of multi-million ounce gold deposits.

CNG is currently in a commissioning phase with mining contractors on site finalising construction of the mine, plant, tailings dam and refinery.

About Tajikistan

Tajikistan is a secular republic located in Central Asia. The country is a member of the Commonwealth of Independent States and the Shanghai Cooperation Organisation. Tajikistan hosts numerous operating precious metal mines as well as the largest aluminium smelter in Central Asia. CNG's management team has extensive experience in the mining industry in Tajikistan.

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

CEO’s Statement

As CEO, it gives me great pleasure to present the CEO’s statement of the annual report for the year ended 31 December 2018. With the full cooperation of the construction companies, designers and equipment suppliers, the construction of the mine site at the Pakrut gold project was successfully completed at the end of 2018 with US$17.9m revenue being generated from trial production in the period. Following the successful completion of infrastructure and construction works at the mine site, the Pakrut gold project entered full operation in 2019 and is currently producing at levels of 2,000 tons per day.

This marks a new chapter for the Group as it becomes an important gold producer in Tajikistan and brings steady cash flows to support the sustainable development of the company.

Construction

2018 was a critical year for the Pakrut gold mine. The flotation tailings pond, filling station, mine camp and underground ventilation system, all of which began construction after the snowfall damage, were successfully completed and commissioned at the end of 2018, meaning that the construction works surrounding the Pakrut gold project were finalised and it has been possible to commence full production in 2019.

Operation

Through the joint efforts of company staff, the Pakrut gold mine produced the first gold since the suspended production in 2017 as a result of the snowfall disaster. In 2018, from trial production, a total of 268,200 tons of ore were processed at a grade of 2.18 g/t, 9,030 tons of gold concentrate were produced at a grade of 63.58 g/t, 451.46kg of gold bullion were poured with a comprehensive recovery rate of 80.89%. This achievement was hard-won because both construction and trial production for Pakrut gold project were carried out at the same time in 2018 to ensure that the Group could enter full production in 2019.

Full production commenced at the start of 2019 and from January to April 2019, 186,800 tons of ore were processed, 5,325 tons of gold concentrate were produced, the recovery rate of processing was 86.77%, the recovery rate of smelting was 87.3% and the output of gold ingots was 350kg. Revenue to April 2019 is US$12.5m and gross margin for the same period is 31.14%.

Financial results

As progress on the Pakrut project moved towards completion during the year, expenditure continued to be incurred by the Group on development and construction work and as at 31 December 2018 the value of mines under construction stood at US$397,876,955 (2017: US$331,160,369). Administration expenditure was US$6,371,750 (2017: US$5,084,991). The main reason for the increase is due to higher local taxes paid in Tajikistan during 2018 as a result of increases in subsoil taxes.

The overall loss incurred by the Group was US$4,483,499 (2017: US$15,036,884). The reduced loss is mainly as a result of the 2017 impairment to Mines under construction of US$10,702,895. In addition, in the current year other income of US$2.8 million (2017: US$Nil) has been generated, being compensation from the insurance provider following the snowfall disaster in early 2017.

During the course of the year, the Group signed financing agreements with CNMC International Capitals Company Limited(Ⅱ), an associate of China Nonferrous Metals International Mining Co., Ltd for a loan facility of USD$90 million (“CNMC Loan”). The time limits on the loan contracts previously signed with China National Capital International Co, Ltd., China Nonferrous Metals International Mining Co., Ltd. and China Nonferrous Metals Mining Group Co., Ltd. were extended to December 2019.

In July 2018, CNMC and China National Economic Trade Co, Ltd. signed an agreement transferring one of the loans of US$20 million to China Nonferrous Mining Group Co, Ltd. to Zhongse Economic and Trade Co., Ltd which constitutes a related party under the AIM Rules for Companies. In 2018, the Group repaid a loan of US$35 million to China Construction Bank Corporation Macau Branch.

The existing CCBC loan facility of US$85 million and the CNMC and CNMIM loan facilities of US$260 million amounted to US$345 million in total of loans payable as at 31 December 2018. Of this, US$163 million is payable within one year of the financial statements, which includes US$10 million due to CCBC and the remaining balance due to shareholders. The CCBC loan is due for repayment in March 2021.

Events after the Reporting Period

In January 2019, the Group drew down US$20 million on a US$30 million loan facility with China Construction Bank Corporation Macau Branch. The contract was signed in November 2018 but at that time there was no withdrawal.

As mentioned earlier, in order to ensure the repayment of existing loans, a broader refinancing is required. Discussions are ongoing and with the signing of the new loan agreement, the remaining discussions are expected to be completed in the near term. The Group has now entered full production and this should enable sufficient working capital to be raised. As previously announced, to ensure repayment of the existing facilities as they fall due, a wider refinancing will be required.

Outlook

With the completion of mine construction and improvement of technology, the Pakrut gold mine has now entered into full production, and the annual revenue target of ore is expected to increase based on normal operations in 2019.

The Group is currently continuing to enhance its production capacity and intends to double this capacity by 2021. Whilst improving production, the Group is also focusing on perfecting and improving the smelting process by reducing production costs, increasing recovery rates and improving competitiveness.

The Group has long been dedicated to becoming a significant gold producer in Central Asia and participating in the “Belt and Road Initiative” with the substantial support and advantages of major shareholders. The Group has also established a strong relationship with the government of Tajikistan and other Central Asian countries and is well positioned to potentially gain more gold resources and gold mines so as to create greater benefits for its shareholders in the future.

I would like to take this opportunity to thank all our employees, management and advisors for their continued efforts in 2018 and thank our shareholders for their continued support. I very much look forward to updating our shareholders further on the mine developments, production levels, new strategy and direction.

Yu Lixian

CEO

28 June 2019

Consolidated Statement of Comprehensive Income, Year Ended 31 December 2018

 

 

 

2018

2017

 

Note

 

US$000

US$000

 

 

 

 

 

Revenue

3

 

17,926

5,784

Cost of sales

 

 

(17,926)

(5,784)

Gross Profit

 

 

-

-

Other operating income

 

 

2,838

-

Administrative expenses

6

 

(6,192)

(5,017)

(Loss)/gain on foreign exchange

 

 

(1,873)

750

Impairment of mines under construction

 

 

-

(10,703)

 

 

 

 

 

Operating Loss

 

 

(5,227)

(14,970)

Finance income

8

 

923

1

Finance costs

8

 

-

-

 

 

 

 

 

Loss before Income Tax

 

 

(4,304)

(14,969)

Income tax

7

 

(179)

(68)

 

 

 

 

 

Loss for the year attributable to owners of the parent

 

 

(4,483)

(15,037)

 

 

 

 

 

Total comprehensive income attributable to owners of the parent for the year

 

 

(4,483)

(15,037)

 

 

 

 

 

Basic and Diluted Earnings per share attributable to owners of the parent (expressed in cents per share)

9

 

(1.17)

(3.93)

 

 

 

 

 

All of the activities of the Group are classed as continuing.

Consolidated Statement of Financial Position

Note

 

As at

31 December 2018

US$000

As at

31 December 2017

US$000

   

Non-Current Assets

 

Intangible assets

10

 

-

-

Mines under construction

11

 

399,400

331,160

Property, plant and equipment

12

 

7,422

8,967

Total Non-Current Assets

 

406,822

340,127

 

 

 

Current Assets

 

 

 

Inventories

15

 

17,343

18,216

Trade and other receivables

16

 

3,709

629

Cash and cash equivalents

 

8,363

12,067

Total Current Assets

 

29,415

30,912

Non-Current Liabilities

 

 

 

Borrowings

17

 

(182,285)

(106,500)

Provisions for other liabilities and charges

19

 

(838)

(767)

Total Non-Current Liabilities

 

(183,122)

(107,267)

 

 

 

Current Liabilities

 

 

 

Borrowings

17

 

(162,724)

(172,684)

Trade and other payables

18

 

(82,194)

(78,409)

Total Current Liabilities

 

(244,918)

(251,093)

Net Current Liabilities

 

(215,503)

(220,180)

Net Assets

 

8,196

12,679

 

 

 

Equity attributable to the owners of the parent

 

 

 

Share capital

21

 

38

38

Share premium

 

65,901

65,901

Other reserve

 

10,175

10,175

Retained earnings

 

(67,918)

(63,435)

Total Equity

 

8,196

12,679

   

Notes for the Financial Statements will be posted on the Company’s website (www.cnfgold.com).

Notes to the Financial Statements

1. Financial Risk Management

The Group’s operations expose it to a number of financial risks; principally the availability of adequate funding, movements in interest rates and fluctuations in foreign currency exchange rates. Continuous monitoring of these risks ensures that the Group is protected against any adverse effects of such risks so far as it is possible and foreseeable.

Market Risk

a) Cash Flow and Interest Rate Risk

The continued operation of the Group is dependent on the ability to raise sufficient working capital until commencement of commercial production. The Group currently finances itself through the issue of equity share capital and the secured loan facilities from CNMIM, CNMC and CCB. Management monitors its cash and future funding requirements through the use of cash flow forecasts. All cash not immediately required for working capital purposes is held on short term deposit. The Group’s exposure to interest rate fluctuations on cash balances is restricted to the rate earned on these short-term deposits. At the year end the Group had cash reserves of US$20,786 held in a sterling deposit account. A 0.25% change to the interest rate would give rise to a US$52 increase or decrease in interest on this deposit, on an annual basis.

The Group’s interest rate risk arises from long-term borrowings. The Group has both variable and fixed rate borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash invested at variable rates. The annual fixed interest rate for the CNMIM loan is 9% for all USD and RMB denominated tranches. All payments of principal and interest in respect of the RMB denominated tranche are repayable at a fixed RMB: USD exchange rate. The interest rate on the CCB loan is 2.10% per annum over the quarterly LIBOR rate and the loan is repayable in US$. The interest rate on the new CNMC loan of US$90 million is fixed at 5.8% per annum, calculated and paid on a half yearly basis. The interest rate on all other CNMC loans is a fixed annual interest rate of 4% on the amount drawn down, payable in arrears.

At 31 December 2018, if interest rates on variable rate borrowings at that date had been 0.25% higher/lower, with other variables held constant, the recalculated loss for the year would be US$9,978 higher/lower due to the higher/lower interest expense.

b) Foreign Currency Risk

The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures. Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has cash assets denominated in UK Sterling, United States Dollars, Tajik Somoni and PRC Renminbi and incurs liabilities for its working capital expenditure in all of these denominations, primarily Tajik Somoni. Payments are made in all of these denominations at the pre-agreed price and converted (if necessary) as soon as payment needs to occur. Currency conversions and provisions for expenditure are only made as soon as debts are due and payable. The Group is therefore exposed to currency risk in so far as its liabilities are incurred in UK Sterling, PRC Renminbi and Tajik Somoni, and fluctuations occur due to changes in the exchange rates against the functional and presentational currency of US Dollar. The table below details the split of the cash held as at 31 December 2018 between the various currencies.

Somoni

GBP Sterling

US Dollar

Renminbi

Total US$000

1,098

31

7,142

92

8,363

The Group manages this risk by matching receipts and payments and monitoring movements in exchange rates. The Group does not currently hedge its exposure to foreign currencies and recognises the profits and losses resulting from currency fluctuations as and when they arise. At the year end the Group did not have material exposure to foreign exchange risk relating to its non-US$ denominated bank deposits and as such this not disclosed.

1. Financial Risk Management (continued)

Liquidity Risk and Credit Risk

The continued operation of the Group is dependent on the ability to raise sufficient working capital. As noted above, the Group currently finances itself through the issue of equity and borrowings from CNMIM, CNMC and CCB. Management monitors its cash and future funding requirements through the use of cash flow forecasts. The Group enters into capital commitments for exploration and construction expenditure, and any surplus cash not immediately required for working capital purposes is held on short term deposit.

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. 

 

Less than 1 Year US$000

Between

1 and 2 Years US$000

Between

2 and 5 Years

US$000

Over

5 Years

US$000

Total

US$000

Carrying amount

US$000

 

 

 

 

 

 

 

Year ended

31 December 2018

 

 

 

 

 

 

Interest-bearing borrowings

162,724

117,285

65,000

-

345,010

345,010

Trade and other payables

82,194

-

-

-

82,194

82,194

Provisions for other liabilities

-

-

-

2,481

2,481

837

 

244,918

117,285

65,000

2,481

429,685

428,041

 

 

 

 

 

 

 

Year ended

31 December 2017

 

 

 

 

 

 

Interest-bearing borrowings

172,684

31,500

75,000

-

279,184

279,184

Trade and other payables

78,409

-

-

-

78,409

78,409

Provisions for other liabilities

-

-

-

2,481

2,481

767

 

251,093

31,500

75,000

2,481

360,074

358,360

 

 

 

 

 

 

 

The Group holds bank accounts with banks in the UK, PRC and Tajikistan with the following credit ratings:

Credit rating

2018

US$000

2017

US$000

 

 

 

A

7,216

11,489

AA-

-

-

BBB+

-

60

No independent credit rating available

992

518

 

8,208

12,067

If a bank has no credit rating, the Group assesses the credit quality through local knowledge and past experience in the particular jurisdiction.

Capital Risk Management

The Group consider equity to be their capital. The Group’s objective when managing their capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to enable the Group to continue its exploration, evaluation and mine construction. The Group holds debt in the form of both shareholder and external loans and defines capital based on the total equity of the Company. Except for the secured loan facilities from CNMIM, CNMC and CCB, the Group’s current policy for raising capital is through equity issues and debt financing. The Group is not currently required to monitor its gearing ratio and is not exposed to any externally imposed capital requirements.

2. Critical Accounting Estimates, Assumptions and Judgments

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are set out below. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets and liabilities affected in future periods.

The Group has identified the following areas where significant estimates, assumptions and judgments are required. The most significant judgment for the Group is the assumption that exploration and development at its sites will ultimately lead to a commercial mining operation. Failure to do so could lead to impairment of the mine.

Estimated impairment of mines under construction (note 11)

The Group tests annually whether exploration, evaluation and licensing assets and mines under construction have suffered any impairment. The recoverable amounts of the cash generating units (“CGUs”) have been determined based on value in use calculations which require the use of estimates and assumptions such as long-term commodity prices, gold recovery rates, discount rates, operating costs and therefore expected margins, future capital requirements and mineral resource estimates (see below). These estimates and assumptions are subject to risk and uncertainty and therefore there is a possibility that changes in circumstances will impact the recoverable amount. Management has assessed its CGUs as being individual exploration and mine sites, which is the lowest level for which cash inflows are independent of those of other assets or CGUs.

In assessing the carrying amounts of its exploration, evaluation and licensing assets and mines under construction at Pakrut, the Directors have used an independently prepared and Director approved bankable feasibility study. The period used in management’s assessment is the anticipated life of the mine to the expiration of the license in 2030 with revenues being generated from full production from January 2019. Gold revenues have been estimated over that period at a price of US$1,300. These estimates are based on, and are consistent with, external sources of information. The calculation assumes a mining capacity of 2,000 tonnes of ore daily increasing to 4,000 tonnes per day. The total cost per ounce is estimated to be around US$650 with a gross margin of circa 60%. Royalties have been calculated at 6% of sales revenues and corporate income tax at 15%, according to the relevant laws in Tajikistan. A discount rate of 10% has been utilised.

The calculations have been tested for sensitivity to changes in the key assumptions. The most sensitive inputs in the calculation of the value in use are operating costs, the gold price, and the discount rate. An impairment to the mine value would occur if the discount rate were to increase to 12%, gold prices fell by 1% or costs were to increase by 1%.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Approval of Pakrut reserves by Tajik Department of Geology

In November 2011, the Government of the Republic of Tajikistan issued the Pakrut Gold Project mining license to LLC Pakrut. According to the terms of the license, the amount of ore that can be mined is variable depending upon the mine plan. The plan submitted by the Group envisages an initial processing capacity of 660,000 tons of ore per annum, increasing to 1,320,000 tons per annum. The mining license is valid until 2 November 2030.

The mining license issued in November 2011 currently entitles the Group to mine JORC compliant resources (measured, indicated and inferred) of 904,000 ounces out of total JORC compliant resources of 4,383,000 ounces at Pakrut, excluding the Eastern Pakrut, Rufigar and Sulfidnoye ore zones. The JORC compliant resources include the results from the Group’s exploration and evaluation work subsequent to the mining license issue date.

LLC Pakrut has sought approval of the increased JORC compliant resources from the Tajik Department of Geology and the Scientific and Technical Counsel which includes the results of all exploration and evaluation activities undertaken by the Group between 2009 and 2013. The application is currently subject to that approval process and the Directors are not aware of any legal or other impediments which would prevent approval of their application and therefore permit the Group to mine the increased resources. However, the approval process currently remains incomplete.

The mine design and construction work undertaken to date, together with the assessment of the recoverable amount of ‘Mines under Construction’ (see below), is based upon the total quantity of JORC compliant resources of which part falls outside the area covered by the mining license and still subject to formal approval, as noted above. Failure to obtain this approval would lead to an impairment of ‘Mines under Construction’, together with inventories, and also impact the going concern basis of preparation of the Financial Statements. The Group has made the judgement that this approval will be forthcoming. No provision for impairment has been recognised in these Financial Statements relating to this uncertainty.

Mineral resource and reserve estimates

Reserves are estimates of the amount of resources that can be economically and legally extracted from the Group’s mining properties. The Group estimates its mineral resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. This analysis requires complex geological judgments to interpret the data. The estimation of the recoverable amount is based upon factors such as estimates of commodity prices, future capital expenditure and production costs along with geological assumptions made in estimating the size and grade of the resources. Details of the mineral resources and reserve estimates can be found on www.cnfgold.com.

The Group estimates and reports mineral resource estimates in line with the principles contained in the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (December 2004), which is prepared by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia, known as the “JORC Code”. The determination of a JORC resource is itself an estimation process that involves varying degrees of uncertainty depending on how the resources are classified (i.e. measured, indicated or inferred).

As additional geological information is produced during the operation of a mine and through additional exploration activity, mineral resource estimates may change. Such changes may impact on the Group’s reported financial position which includes the carrying value of mines under construction, property, plant and equipment and inventories.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Production start date

Estimations are made in the determination of the point at which development ceases and production commences for a mine development project. This point determines the cut-off between pre-production and production accounting. The group ceases to capitalise pre-production costs and begins depreciation and amortisation of mine assets at the point at which the mine’s plant becomes available for use as intended by management. Determining when this is achieved is an assessment made by the group’s management and includes the following factors:

  • The level of development expenditure compared to project cost estimates.
  • Completion of a reasonable period of testing of the mine plant and equipment.
  • Achieved mineral recoveries, plant availability and throughput levels are at or near expected / budgeted levels.
  • The ability to produce gold into a saleable form.
  • The achievement of continuous production.

In December 2018, the construction and infrastructure projects at the mine site were completed and production levels began to ramp up. However, management have assessed that it was not until early 2019 that the mine’s plant has been available for use as intended by management, as it has been seen since the year end that production levels are stable, process technologies have improved leading to efficiencies and target mineral recoveries of reliable and high-quality gold are being achieved in line with budgeted levels.

Therefore, in the 2019 financial year, the mine assets in the consolidated financial statements will be presented accordingly.

3. Segment Information

The following segments are based on the management reports received by the Executive Directors, who are the chief operating decision makers. The Group operates principally in three geographical areas, UK, PRC and Tajikistan, with operations managed on a project by project basis within Tajikistan. For segment reporting purposes, the operations of the Cayman Islands registered parent company are included in the UK and PRC segment as these segments are jointly managed

The Group’s exploration and evaluation activities are located in Tajikistan, principally within the Pakrut Gold Project. Support and administration services are provided from the UK and PRC. Inter-segment revenue is eliminated on consolidation and is conducted on mutually agreed terms between Group companies.

2018

UK and PRC

US$000

Tajikistan Pakrut

US$000

Total

US$000

 

 

 

 

Revenue

-

17,926

17,926

Cost of sales

-

(17,926)

(17,926)

Administrative expenses (including foreign exchange)

(3,257)

(4,808)

(8,065)

Impairment

-

-

-

Other operating income

-

2,838

2,838

Operating loss

(3,257)

(1,970)

(5,227)

Finance income

923

-

923

Income tax

-

(179)

(179)

Loss for the year

(2,334)

(2,149)

(4,483)

Intersegment revenue

 

 

 

Total assets

10,375

425,862

 

436,237

Total liabilities

394,784

33,257

428,041

Depreciation

23

50

73

Additions to property, plant and equipment

-

-

-

Additions to mines under construction

-

66,717

66,717

 

 

 

 

Revenue generated in the period was from two customers, the government of Tajikistan and an independent bank, the latter being minimal at TJS 363,139.

 2017

 

 

 

 

-

5,784

5,784

Revenue

-

(5,784)

(5,784)

Cost of sales

(870)

(3,397)

(4,267)

Administrative expenses (including foreign exchange)

-

(10,703)

(10,703)

Operating loss

(870)

(14,100)

(14,970)

Finance income

1

-

1

Income tax

-

(68)

(68)

Loss for the year

(869)

(14,168)

(15,037)

 

 

 

 

Total assets

2,747

368,292

371,039

Total liabilities

337,413

20,947

358,360

Depreciation

25

81

106

Additions to property, plant and equipment

-

11

11

Additions to mines under construction

-

23,622

23,622

 

 

 

 

4. Particulars of Employees

The average number of staff employed by the Group during the financial year amounted to:

 

2018

No.

2017

No.

 

 

 

Administrative and management

121

130

Construction in progress

375

409

 

496

539

 

The aggregate costs of the above were:

 

 

 

2018

US$000

 

2017

US$000

 

 

 

Wages and salaries

3,380

3,984

Social security costs

693

882

 

4,072

4,866

Staff costs include US$2.045 million (2017: US$2.26 million) of costs capitalised and included within additions to ‘Mines under Construction’.

5. Directors’ Emoluments

During the year, no Directors (2017 – none) exercised share options.

The Directors’ emoluments in respect of qualifying services were:

 

Salary and fees

Bonus and holiday pay

Other benefits

Termination fees

Total

2018

US$

US$

US$

US$

US$

Mr Xiang Wu

31,950

-

-

-

31,950

Mr Lixian Yu

296,148

-

-

-

296,148

Mr Yong Li

23,737

-

-

-

23,737

Mr Xiuzhi Shi

23,620

-

-

-

23,620

Mr Hao Zhang *

246,812

-

-

-

246,812

 

622,267

-

-

-

622,267

 

 

 

 

 

 

 

 

Salary and fees

Bonus and holiday pay

Other benefits

Termination fees

Total

2017

US$

US$

US$

US$

US$

Mr Xiang Wu

31,732

-

-

-

31,732

Mr Lixian Yu

79,991

-

-

-

79,991

Mr Yong Li

839

-

-

-

839

Mr Xiuzhi Shi

839

-

-

-

839

Mr Weili Tang

13,256

-

-

-

13,256

Mr Hao Zhang

66,664

-

-

-

66,664

Mr Pizhao Che

23,047

-

-

-

23,047

 

216,368

-

-

-

216,368

Key management comprises Executive and Non-Executive Directors and all emoluments are short term in nature.

* Mr Hao Zhang resigned on 22 November 2018.

6. Expenses by nature

 

2018

2017

 

US$000

US$000

 

 

 

Employee benefit expenses

2,530

2,818

Operating lease expenses

94

393

Depreciation

3,526

2,488

Less transfer to mines under construction

(3,453)

(2,382)

Legal, professional and regulatory costs

911

1,069

Travel and entertaining

289

371

Social & other taxes

1,232,354

-

Other Expenses

922

159

Commission/bank fees

142

101

 

 

 

Total administrative expenses

6,192

5,017

 

 

 

 

 

 

 

2018

US$000

 

2017

US$000

Fees payable to the Company’s auditor for the audit of the consolidated financial statements

137

135

 

 

 

Fees payable to the Company’s auditor for other services:

- Tax compliance services

12

-

 

 

 

 

149

135

 

 

 

 

 

 

7. Income Tax

a) Analysis of Charge in the Year

 

2018

2017

 

US$000

US$000

Current tax:

 

 

Current tax

179

68

Deferred tax

-

-

 

 

 

Total

179

68

 

 

 

No provision for income taxes arose in the Cayman Islands, the UK, British Virgin Islands. A current income tax expense arose in Tajikistan during the year as LLC Pakrut sold gold in the amount of TJS 164,152,371 – equivalent to US$ 17,926,000 (2017: TJS 49,442,586 – equivalent to US$5,784,000). Thereby, the Company paid the amount of advance payments of income tax according to the Tax Code of the Republic of Tajikistan, being 1% of revenue. During the year ended 31 December 2018, LLC Pakrut was in development stage of the mine. Although Pakrut produced income, it is in a state of loss, so does not incur corporation tax at 15%.

Factors Affecting Current Tax Charge

The tax assessed on the loss for the year is higher than the weighted average standard rate of corporation tax of 20% (2017 – 20%).

 

2018

US$000

2017

US$000

Loss before income tax

(4,304)

(14,169)

 

 

 

Loss on ordinary activities by weighted average rate of tax at 20% (2017 – 20%)

 

(861)

 

(2,994)

Expenses not deductible for tax purposes

73

106

Tax losses for which no deferred income tax asset was recognised

967

2,956

 

179

68

The Group did not recognise deferred income tax assets of approximately US$967,000 (2017 – US$2,956,000). These were in respect of unused Tajikistan tax losses amounting to approximately US$16,772,000 (2017– US$14,802,000). The Tajikistan tax losses can be carried forward for three years from the year incurred and used against future taxable income at 15%.

8. Finance Income and Costs

2018

2017

 

US$000

US$000

 

Finance Income

 

 

 

Interest income on short term bank deposits

923

1

 

 

 

 

Finance Costs

 

 

 

Interest expense on shareholder’s loans wholly repayable within five years

11,871

7,531

 

Interest expense on bank borrowings wholly repayable within five years

4,522

4,404

 

Less: Borrowing costs capitalized in qualifying assets

(16,393)

(11,935)

 

Provisions: Unwinding of discount

69

63

 

Less: Unwinding of discount capitalized in qualifying assets

(69)

(63)

 

Finance costs

-

-

 

9. Earnings per Share

 

2018

2017

 

 

US$

US$

 

 

 

 

 

Basic and diluted earnings per share (cents)

(1.17)

(3.93)

 

The basic earnings per share is calculated by dividing the loss attributable to equity holders after tax of US$4,483,000 (2017– loss $15,037,000) by the weighted average number of shares in issue and carrying the right to receive dividend. For the year ended 31 December 2018 this was 382,392,292 (2017– 382,392,292) shares.

As the Group has incurred a loss for the year, no option or warrant is potentially dilutive, and hence the basic and diluted earnings per share are the same. At the year end, there were no (2017 – 50,000) share options outstanding that are potentially dilutive in the future.

10. Intangible Assets

 

Exploration and evaluation assets

US$000

Cost

 

At 1 January 2017, 31 December 2017 and 31 December 2018

9,941

 

 

Impairment

 

At 1 January 2017, 31 December 2017 and 31 December 2018

(9,941)

 

 

Net Book Value

 

At 31 December 2017 and 31 December 2018

-

 

 

The exploration and evaluation assets represent internally generated costs in connection with the Group’s exploration and evaluation activities. Expenditure is transferred from exploration and evaluation assets to mines under construction once the work completed to date supports the future development of the property and such development receives appropriate approvals.

The rights of LLC Pakrut to carry out exploration and evaluation activity at the Pakrut deposit expired on 1 April 2014. The renewal application by the Group to extend the exploration license is being considered by the Government of Tajikistan. Although the Directors are not aware of any legal or other impediments which would ultimately prevent approval of the license extension, the Directors fully impaired the carrying value of the exploration and evaluation assets during 2014 due to non-renewal of the Exploration License. Exploration and evaluation activities can continue at the Pakrut Gold Deposit in the area covered by the mining license. Currently, staff members of Pakrut are coordinating with the local government for exploration licenses.

11. Mines under Construction

Cost

Mining rights US$000

Construction in progress US$000

Total US$000

 

 

 

 

At 1 January 2017

35,022

283,219

318,241

Additions

 

23,622

23,622

Impairment

-

(10,730)

(10,730)

At 31 December 2017

35,022

296,138

331,160

 

Additions

-

68,240

68,240

Impairment

-

-

-

At 31 December 2018

35,022

364,378

399,400

The additions figure is stated net of costs relating to depletion of mine assets as a result of trial production of US$17,925,914 (2017: US$5,783,976).

Mining rights comprise exploration and evaluation assets up to the date the Pakrut Gold Project was determined to be technically feasible and commercially viable. All subsequent exploration and evaluation expenditure at this site is capitalised within mining rights. Mining rights also includes the subsoil contract signature bonus, a share-based payment for securing the Pakrut Mining License and payments to obtain land use rights.

Construction in progress comprises the mine, smelting plant, tailings pond, power lines and road construction work carried out at the Pakrut Gold Project by contractors and directly by the Group. It also includes the borrowing costs associated with the loan to finance the mine construction from China Nonferrous Metals Intl Mining Co. Limited (“CNMIM”) and China Construction Bank (“CCB”), together with associated legal, professional and consultancy costs.

Mines under construction are not depreciated until construction is completed and the assets are available for their intended use, signified by the formal commissioning of the mine for production. This is discussed further in Note 2.

12. Property, Plant and Equipment

Land

US$000

Office furniture

and equipment

US$000

Motor

vehicles

US$000

Plant and

machinery

US$000

Total

US$000

Cost

 

 

 

 

 

 

At 1 January 2017

32

848

8,894

14,823

24,596

Additions

-

11

-

-

11

Disposals

-

(8)

(26)

(6)

(40)

 

 

 

 

 

 

At 31 December 2017

32

851

8,868

14,817

24,567

 

 

 

 

 

 

Additions

-

114

1,904

242

2,260

Disposals

-

(209)

-

(68)

(278)

 

 

 

 

 

 

At 31 December 2018

32

755

10,772

14,990

26,549

 

 

 

 

 

 

 

Accumulated Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2017

-

428

3,611

9,091

13,130

Charge for the year

-

96

1,064

1,311

2,471

 

 

 

 

 

At 31 December 2017

-

524

4,675

10,402

15,601

 

 

 

 

 

 

Charge for the year

-

87

3,234

205

3,526

 

 

 

 

 

At 31 December 2018

-

611

7,909

10,607

19,127

 

 

 

 

 

 

Net Book Value

 

 

 

 

 

 

At 31 December 2018

32

144

2,862

4,384

7,422

At 31 December 2017

32

327

4,193

4,415

8,967

Depreciation of US US$3,453,000 (2017 – US$2,382,000) has been capitalised as part of mines under construction assets. The net book value of tangible assets used in exploration and evaluation was US$ Nil (2017 – US$ Nil). The net book value of tangible fixed assets used in mines under construction was US$5,277,980 (2017 – US$8,730,980).

13. Subsidiary Undertakings

The Group had the following principal subsidiaries at 31 December 2018:

Name of Company

Holding

Country of Incorporation

Proportion of Voting Rights held

Nature of Business

 

 

 

 

 

 

 

 

Directly held

 

 

 

 

 

Kryso Resources (BVI) Limited

Ordinary shares

British Virgin Islands

100%

Holding Company

 

 

 

 

 

 

 

Kryso Resources Limited

Ordinary shares

UK

100%

Holding Company

 

 

 

 

 

 

 

Indirectly held

 

 

 

 

International Mining

Supplies and Services

Limited (BVI holds 100% share)

Ordinary shares

UK

100%

Service Company

 

 

 

 

 

LLC Pakrut(BVI holds 100% share)

Ordinary Shares

Tajikistan

100%

Mineral exploitation,

development and mining

 

14. Financial Instruments by category

Financial assets at amortised cost

US$000

31 December 2018

Assets per Statement of Financial Position

Trade and other receivables, excluding prepayments

3,709

Cash and cash equivalents

8,363

Total

12,072

 

 

Financial liabilities at

amortised

cost

US$000

31 December 2018

Liabilities per Statement of Financial Position

Borrowings

345,010

Provisions for other liabilities and charges

838

Trade and other payables, excluding non-financial liabilities

82,194

Total

428,041

14. Financial Instruments by category (continued)

 

Financial assets at amortised cost

US$000

31 December 2017

Assets per Statement of Financial Position

Trade and other receivables, excluding prepayments

629

Cash and cash equivalents

12,067

Total

12,696

 

 

Financial liabilities at

amortised

cost

US$000

31 December 2017

Liabilities per Statement of Financial Position

Borrowings

279,184

Provisions for other liabilities and charges

767

Trade and other payables, excluding non-financial liabilities

78,409

Total

358,360

15. Inventories

2018

2017

 

US$000

US$000

 

 

 

 

 

Gold

49

49

 

Construction materials and processing equipment

17,294

18,167

 

17,344

18,216

 

Inventories categorised as construction materials and processing equipment are acquired for use in mine construction at which time they are charged to construction in progress within Mines under construction.

The cost of inventories recognised as an expense in profit or loss during 2018 was US$ Nil (2017 –US$Nil).

16. Trade and Other Receivables

Group

Group

2018

2017

US$000

US$000

Other receivables

2,983

75

Prepayments and deposits

725

554

Total

3,709

629

None of the receivables are past due. The fair values are equal to the carrying amounts.

Other receivables includes $2,739,702 (2017: $Nil) due from related party CNMIM in relation to funds received from the insurance provider after the snowfall disaster, which were received on behalf of CNG.

17. Borrowings

2018

2017

 

US$000

US$000

 

 

 

 

 

Bank borrowings

85,000

120,000

 

Other loans

260,010

159,184

 

Less: unamortised borrowing costs

-

-

 

Total

345,010

279,184

 

 

 

 

 

Non-current portion

182,285

106,500

 

 

 

 

Current portion

162,724

172,684

 

The fair value of borrowings equals their carrying amounts, as the impact of discounting is not significant.

CNMIM loan

In accordance with the terms of the Subscription Agreement and Warrant Instrument dated 27 July 2010 between Kryso Resources Limited (formerly Kryso Resources Plc) and CNMIM, a subsidiary company of significant shareholder China Nonferrous Metals Mining (Group) Co. Limited (“China Nonferrous”), CNMIM was required to use its best endeavors to secure mine funding for the construction and development of the Pakrut Gold Project.

The USD tranche of the loan has been settled in full and US$Nil was outstanding as at 31 December 2018 (2017: US$Nil). The amount outstanding on the RMB tranche of the loan as at 31 December 2018 was US$12,683,599 (2017: US$12,683,599).

CNMC loans

The loan agreement between CNMC International Capitals Company Limited (“CNMC”) and China Nonferrous Gold Limited was signed on 20 September 2017. Under this agreement, CNMC provided a loan facility of US$6,500,000 to China Nonferrous Gold Limited. This loan was used to improve the daily business operations of China Nonferrous Gold Limited.

The full amount of the loan was drawn down on the 20 September 2017. The loan contains annual fixed interest at 4%, however where the loan is used for a purpose other than that stated in the contract (see comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum. Payment of interest is made quarterly.

The loan is repayable in full on 20 December 2019. For any outstanding amounts owed after this date, interest will be charged at a rate of 6% per annual until the outstanding amount is paid.

The Group has pledged its 100% equity interest in China Nonferrous Gold Limited to CNMC as security for repayment of the loan.

A loan agreement between CNMC International Capitals Company Limited (“CNMC”) and China Nonferrous Gold Limited was signed on 27 April 2016. Under this agreement, CNMC provided a loan facility of US$120,000,000 to China Nonferrous Gold Limited. This loan was used to refinance the previous ICBC loan of the same amount, and the purpose of these funds is for development, operations and management of the Pakrut Gold Project, including operating and related expenses.

The full amount of the loan was drawn down on the 27 April 2016. The loan contains annual fixed interest at 4%, however where the loan is used for a purpose other than that stated in the contract (Pakrut Mine – see comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum. Payment of interest will be made biannually in June and December.

The loan is repayable in full on 20 December 2019. For any outstanding amounts owed after this date, interest will be charged at a rate of 6% per annum until the outstanding amount is paid.

The Group has pledged its 100% equity interest in LLC Pakrut to CNMC as security for repayment of the loan.

A loan agreement between CNMC and China Nonferrous Gold Limited was signed on 27 May 2016 for a total amount of US$20,000,000, which was drawn down in full on 27 June 2016. The loan period per the contract was 6 months, from 27 May 2016 to 26 November 2016. During 2018, the loan was transferred from CNMC to another member of the group, CNMCTC. As at 31 December 2017, a loan extension agreement was signed extending the repayment date until 26 November 2018. A further extension has been signed extending the repayment date until 26 November 2019.

The loan contains a fixed interest rate of 4% per annum, which is calculated on a monthly basis from the 21st of the month to the 20 of the following month. Interest payments are due on a quarterly basis on the 21st of the month. Interest on the overdue balance will be charged at 150% of the fixed interest rate per the agreement.

A loan agreement between CNMC and China Nonferrous Gold Limited was signed on 8 February 2018 for a total amount of US$90,000,000, which was drawn down in full on 9 February 2018. The loan was provided for the purposes of the construction, operations and management of the Pakrut Gold Project, including operating and related expenses. This use is in line with the terms of the agreement. The loan period per the contract was from 9 February 2018 to 8 December 2020.

The loan contains a fixed interest rate of 5.8% per annum, which is calculated on a half yearly basis from the 21st of December to the 20th June, and from the 21st June to 20th December. Payment of interest will be made biannually in June and December of each year. Where the loan is used for a purpose other than that stated in the contract (see comments above), the proportion of the loan used will incur interest at a fixed rate of 11.6% per annum. At the repayment date, interest will be charged at 8.7% on any unpaid balance.

CCB loan

The first loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited was signed on 13 April 2016. Under this agreement CCB provided a loan facility of US$20,000,000 to China Nonferrous Gold Limited. This loan was used to improve operations and management of the Pakrut Gold Project as well as recovery from snow disaster. This use is in line with the terms of the agreement.

The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$20,618,556.70, with validity of not less than 12 months in favor of CCB.

The full amount of the loan was drawn down on 13 April 2016. The loan incurs interest at a rate of 3 months LIBOR + 1.3% and is payable in quarterly in arrears.

The principal amount of the loan was repaid on 12 October 2018.

The second loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited was signed on 14 June 2016. Under this agreement CCB provided a loan facility of US$100,000,000 to China Nonferrous Gold Limited. This loan was used to refinance a previous loan from CNMC of US$55,000,000, with the remainder used for development, operations and management of the Pakrut Gold Project, including operating and related expenses. This use is in line with the terms of the agreement.

The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$103,092,783.51, with validity of not less than 60 months in favor of CCB.

The full amount of the loan was drawn down on 30 June 2016. The loan incurs interest at a rate of 3 months LIBOR + 2.1% and is payable in arrears at the end of each applicable interest period.

The loan is repayable in 8 installments commencing 18 months from drawdown date and every 6 months thereafter as follows:

31/12/17 – US$5,000,000 (payment made in January 2018)

30/06/18– US$5,000,000

31/12/18 – US$5,000,000

30/06/19 – US$5,000,000

31/12/19 – US$5,000,000

30/06/20 – US$5,000,000

31/12/20 – US$5,000,000

30/06/21 (or 14 working days prior to expiry date of relevant Standby Letter(s) of Credit – whichever is earlier) – Balance of loan

18. Trade and other payables

2018

2017

US$000

US$000

 

 

 

Trade and other payables

82,194

78,409

 

 

82,194

78,409

Trade and other payables include amounts due of US$65,906,519 (2017 – US$70,474,164) in relation to exploration and evaluation activities and mines under construction.

19. Provisions for Other Liabilities and Charges

 

Rehabilitation

US$000

Total

US$000

 

 

 

At 1 January 2018

767

767

Unwinding of discount

71

71

 

 

 

At 31 December 2018

838

838

All provisions are non-current.

The Group makes full provision for the future cost of rehabilitating mine sites and associated production facilities on a discounted basis at the time of constructing the mine and installing those facilities.

The rehabilitation provision represents the present value of rehabilitation costs relating to the Pakrut mine site, which are expected to be incurred up to 2030, which is the expiration date of the mining license. The provision has been created based upon the feasibility study. Assumptions based upon the current economic environment within Tajikistan have been made, which management believes are a reasonable basis upon which to estimate the future liability and will be reviewed regularly to take into account any material changes to the assumptions. The actual rehabilitation costs and works required will ultimately depend upon future market prices for the necessary rehabilitation works required, changes in future regulatory requirements and the timing on when the mine ceases to operate commercially.

The discount rate used in the calculation of the provision as at 31 December 2018 is 9% per annum. The value of the undiscounted provision is US$2,481,000 (2017: US$2,481,000).

20. Treasury Policy and Financial Instruments

The Group operates informal treasury policies which include ongoing assessments of interest rate management and borrowing policy. The Board approves all decisions on treasury policy.

Facilities are arranged, based on criteria determined by the Board, as required to finance the long-term requirements of the Group. The Group has financed its activities by the raising of funds through the placing of shares and through the issue and subsequent exercise of options and warrants.

At 31 December 2018 and 2017 there were no monetary assets denominated in currencies other than the functional currencies of the Group’s operations.

There are no material differences between the book value and fair value of the financial assets at the year end. Except for the impact of discounting on the provisions for liabilities and other charges, there are no material differences between the book value and fair value of financial liabilities at the year end.

21. Share Capital

2018

2018

2017

2017

No. of

Share

No. of

Share

ordinary

Capital

ordinary

Capital

shares

US$000

shares

US$000

 

 

 

 

At 1 January (Ordinary shares of $0.0001) each

382,392,292

38

382,392,292

38

Issued during the year

-

-

-

-

 

 

 

 

At 31 December (Ordinary shares of US$0.0001 each)

382,392,292

38

382,392,292

38

All shares are authorised for issue and fully paid.

22. Share Based Payments

Options can be granted to any employee of the Group in accordance with the rules of the Unapproved Share Option Scheme. The option price is not to be less than the initial Placing Price or the price on the day of issue. The options cannot be exercised for a period of at least one year from the date of grant. In the event of any employee to whom options have been granted ceasing to be an employee of the Group he or she will have a set period in which to exercise those options (depending on the reasons for leaving), failing which, the options will lapse.

Details of share options granted by the Company were as follows:

2018

2017

Weighted

Weighted

No. of

average

No. of

average

share

exercise

share

exercise

options

price

options

price

Share Option Scheme

(pence)

(pence)

Outstanding at beginning of year

50,000

30.00

1,525,000

30.00

Expired during the year

50,000

30.00

(1,475,000)

30.00

 

 

 

 

Outstanding at end of year

-

-

50,000

30.00

 

Exercisable at 31 December

-

-

50,000

30.00

 

There were no share options outstanding at the year end.

23. Cash flow information

 

 

31 December 2018

31 December 2017

US$000

US$000

Cash flows from Operating Activities

 

 

Loss before income tax

(4,304)

(14,969)

Adjustments for:

 

 

Finance income

(923)

(1)

Depreciation

73

102

Impairment

 

-

10,703

Foreign exchange loss

 

-

 

Change in working capital:

 

 

Inventory

 

873

2,732

Trade and other receivables

(172)

90

Trade and other payables

(766)

(2,758)

Other current assets

(2,908)

-

Other current liabilities

11,684

-

Net Cash generated from Operating Activities

3,556

(4,101)

Net debt reconciliation

 

31 December 2018

US$000

31 December 2017

US$000

Cash and cash equivalents

8,363

12,067

Borrowings – repayable within one year

(162,724)

(172,684)

Borrowing – repayable after one year

(182,285)

(106,500)

Net debt

(336,646)

(267,117)

 

31 December 2018

US$000

31 December 2017

US$000

Cash and cash equivalents

8,363

12,067

Borrowings – fixed interest rates

(260,010)

(159,184)

Borrowings – variable interest rates

(85,000)

(120,000)

Net debt

(336,647)

(267,117)

 

 

Cash at bank

US$000

Borrowings

due within 1 year

US$000

Borrowings

due after 1 year

US$000

 

Total

US$000

 

 

 

 

 

Net debt as at 1 January 2017

12,563

(26,667)

(227,684)

(241,787)

 

 

 

 

 

Cash flows

(496)

(146,017)

121,184

(25,329)

 

 

 

 

 

Net debt as at 31 December 2017

12,067

(172,684)

(106,500)

(267,117)

 

 

 

 

 

Cash flows

(3,703)

9,960

(75,785)

(69,528)

 

 

 

 

 

Net debt as at 31 December 2018

8,363

(162,724)

(182,285)

(336,645)

24. Controlling Party

The Directors consider China Nonferrous Metals Mining (Group) Co. Limited (“CNMC”) to be the ultimate controlling party, by virtue of their shareholding and representation on the Board of Directors.

25. Capital Commitments – Pakrut Gold Project

Capital commitments contracted for at the end of the reporting period but not yet incurred is as follows:

 

2018

US$000

2017

US$000

Capital expenditure contracted for but not provided for in respect of new treatment facilities, electrical upgrades and construction design fees (2017: acquisition of mines under construction and

 

 

property, plant and equipment)

5,029

35,735

Capital commitments categorised within mines under construction relate to construction of the Pakrut gold mine.

26. Contingent Liabilities

a) During 2018, a contract was entered into between LLC Pakrut & LLC WenJian, a company set up by a former employee of Pakrut (Dept. 2), to provide outsourced services including the extraction of ore, delivery of ore to smelting plant, cleaning of mine, mine development and construction works. LLC WenJian is not considered to be a related party.

Although LLC WenJian hold the relevant license for the construction works, the company does not hold a license in accordance with the laws of Tajikistan “On subsoil” and “On licensing of certain types of activities” for implementing the other services they have been contracted to perform. This is a breach of Tajik laws and regulations which could result in penalties being imposed on both parties to the contract. The outcome of this situation is unclear and could result in fines imposed with the worst-case scenario being that Pakrut could have their own license rescinded by the Tajik government. There is no visibility surrounding the value or nature of any penalty at this time.

b) In accordance with the terms of the 'investment agreement' for sale of gold between the government of Tajikistan, Kryso Resources (BVI) Limited and LLC Pakrut, the employee ratio at Pakrut should be 80% Tajik citizens and 20% foreign. The actual ratio during 2018 was 68% Tajik & 32% foreign employees. Non-compliance could result in penalties or, in the worst case, unilateral termination of the agreement by government of Tajikistan (to which Pakrut currently makes all sales). The potential value of the monetary impact of any consequences is unknown at this time.

27. Related Party Transactions

The amount paid by the Company and Kryso Resources Limited to CNMIM for interest on the loan in 2018 amounted to US$Nil (2017: US$1,847,814). The amount due to CNMIM as at 31 December 2018 was US$17,299,431 (2017: US$16,095,682). CNMIM is a significant shareholder of China Nonferrous Gold Limited and Xiang Wu and Leo Yu are Chairman and President of CNMIM respectively. During 2018, CNG did not pay any interest to CNMC.

The amount payable by the Company to CNMC for interest on the loans in 2018 amounted to US$9,857,378 (2017: US$5,805,833). The amount due to CNMC as at 31 December 2018 was US$221,913,278 (2017: US$149,283,611). CNMC is the ultimate parent of China Nonferrous Gold Limited and Xiang Wu is Chief Accountant of CNMC.

During the year, the loan amount of US$20,000,000 and interest payable of US$811,111 due to CNMC was transferred to being due to CNMCTC a related party to China Nonferrous Gold Limited.

During 2018, 15MCC provided equipment and materials, together with installation and construction work to the Group amounting to US$27,684,899 (2017: $3,391,001) and the Group advanced payments to 15MCC amounting to US$20,462,214 (2017: $6,494,020). As at 31 December 2018, the total liability due to 15MCC was $33,976,176 (2017: US$33,762,180).

In 2015 the Group entered into an additional consultancy contract with CNMC Hongtoushan Fushun Mining Co Ltd., through CNMIM as agent as follows:

Smelting and Processing Agreement

CNMC Hongtoushan Fushun Mining Co Ltd. (CNHFMG) is a copper mine and processing operation owned by CNMC. On 7th of September 2015, the Group entered into a smelting and processing agreement with CNHFMG.

Under the terms of the Agreement, CNG will pay to CNHFMG an amount of RMB 17.99 (approximately US$2.8) per gram of finished gold once the Project commences the 12-month production period. Prior to this period the Company will cover the labour and associated costs of CNFMG. Once in production, in the event the recovery of the plant is above the Beijing General Research Institute of Mining and Metallurgy forecast rate over the life of production of 82.99 percent, CNHFMG will share 40 percent of the profits from the upside directly due to the increased recovery. In the event recovery is below 75 percent, CNHFMG will bear 20 per cent of any loss incurred by the Company from the Project due to directly to recovery levels.

During 2018, CNHFMG provided equipment and materials, together with installation and construction work to the Group amounting to US$Nil (2017: US$Nil) and the Group advanced payments to CNHFMG amounting to US$98,302 (2017: USD$102,263). As at 31 December 2018, the total liability due to CNHFMG was $1,047,414 (2017: US$1,217,446). In October 2018, the contract with CNHFMG was terminated by mutual agreement.

During the year of 2018 CNMC provided a guarantee for standby letters of credit amounting to US$103,092,784 as security for the Group’s bank loan facility with China Construction Bank. During the year of 2017, CNMC provided a guarantee from standby letters of credit amounting to US$118,556,701 as security for the Group’s bank loan facility with China Construction Bank.

During the year, there is a total receivable amount of $2,739,702 (2017: US$Nil) owed by CNMIM for the insurance claim on the 2017 snowfall disaster which is held on the Group’s behalf. There is also a total amount of US$10,123,046 payable by the entities within the group owed to CNMIM as at 31 December 2018 (2017: US$Nil).

There is an amount of US$1,911 (2017: $2,026) owed to Pizhao Che who is a retired director of the group.

28. Events after the Reporting Period

In January 2019, the Group drew down US$20 million on a US$30 million loan facility with China Construction Bank Corporation Macau Branch. The contract was signed in November 2018 but at that time there was no withdrawal.

The Group has resumed production in January 2019, enabling it to raise sufficient working capital. As mentioned earlier, in order to ensure the repayment of existing loans, a broader refinancing is required. Discussions are ongoing and with the signing of the new loan agreement, the remaining discussions are expected to be completed in the near term. The Group has now entered full production and this should enable sufficient working capital to be raised. As previously announced, to ensure repayment of the existing facilities as they fall due, a wider refinancing will be required.

Short Name: China Nonferrous Gold
Category Code: MSCU
Sequence Number: 671303
Time of Receipt (offset from UTC): 20190630T232427+0000

Contacts

China Nonferrous Gold Limited

Contacts

China Nonferrous Gold Limited