Edenville Energy Plc (LON:EDL), an African focused mine operator and developer, has announced its audited results for the year ended 31 December 2022.
CHAIRMAN’S REPORT
For the year ending 31 December 2022, the Company experienced a period of major transition in terms of both operations and management and board changes. This has continued into the first half of 2023 with a major strategic financial investment in the Company and further management changes underway.
On 3 February 2022, the Company’s coal mining subsidiary, Edenville International (Tanzania) Limited (“EITL”), entered into a contract with Nextgen Coalmine Limited (“Nextgen”) for the operation of the Rukwa Coal Project (“Rukwa” or the “Project”) in Tanzania. However, and disappointingly the agreement with Nextgen was terminated within 3 months on 31 May 2022 due to a lack of progress, allowing the Company to assume full operating control of the Project site and explore alternative arrangements for coal mining operations to continue at Rukwa on what management considered were significantly improved economic terms.
The second half of 2022 was dominated by several significant changes to the Board and management team in Tanzania undertaken after consulting with key shareholders. These changes included the appointments of experienced executives Noel Lyons as CEO, Paul Ryan as Executive Director and Andre Hope as a Non-executive Director following the resignations of Alistair Muir, Jeff Malaihollo, and Franco Caselli . During this period of change I assumed the role of Non-Executive Chairman .
On site in Tanzania, the changes in operational management resulted in a more coordinated and dedicated workforce and this had immediate benefits with the newly appointed executive team entering into an initial 12-month agreement in August 2022 with local mine operator and commercial and logistics specialist Brahma Energies Limited to secure higher production and sales. This agreement subsequently, underwent a tender process and was eventually restructured on a more cost-effective basis, which is how the current operations at Rukwa are now being managed.
To support the ongoing activities in Tanzania and corporate activities, late in the year in December 2022, the Company raised gross proceeds of £400,000 through the placement of 5,714,286 new ordinary shares at a price of 7.0 pence per share.
The transformation of the Company has continued post period end and, in June 2023, the Company entered into a major strategic funding agreement to conditionally raise £1,468,000 which involved attracting a new shareholder group, which includes Q Global Commodities Group (QGC), a prominent independent commodity, mining, logistics, and investment fund from South Africa, and Gathoni Muchai Investments (GMI), an East African Mining Investment Group. Mr. Jason Brewer from GMI has already joined the Board as an Executive Director, and Mr. Quinton van der Burgh from QGC is expected to join the Board in due course, as Director and Non-Executive Chairman.subject to satisfactory completion of due diligence checks by the Company’s nominated adviser. , Once Mr. Van der Burgh assumes his position, I intend to resign from the Board..
2022 was certainly a challenging period for the Company however, the Board has not shied away from making tough management and Board level decisions to look at ways of delivering value to its shareholders. We believe that the recent recapitalization of the Company, together with planned continuing exploitation of Rukwa with the support of the experienced our enhanced Board to determine how to best maximise production and output which should lead to a successful period ahead into 2023.
I would like to extend my gratitude to all our stakeholders and former board directors, Jeff Malaihollo, Alistair Muir, and Franco Caselli, for their contributions to the Company.
Yours Sincerely,
Nick von Schirnding
29 June 2023
CHIEF EXECUTIVE OFFICER’S REPORT
The year 2022 marked a period of significant transition in the management and prospects of the Company, encompassing the Rukwa coal mine and our broader vision for future growth.
Funding
On 6 December , 2022, we announced an equity placing that raised gross proceeds of £400,000, supported by both new investors and some of Edenville’s existing shareholders.
Edenville Energy has transferred the long outstanding debt owed by the Envirom GroupAB to debt collectors in Norway. We had agreed a settlement of a lesser amount with Envirom Group AB to ensure timely payment. However, due to their failure to honour the terms of such settlement, we are pursuing the full amount owning of £246,781.80 . This debt was inherited by the current executive team.
We have also resolved our employee litigation relating to an unfair dismissal claim. without any liability. During the course of 2022, at the time of the change of management in Tanzania, the EITL’s bank account was temporarily suspended while the bank awaited confirmation of, inter alia, new directors being appointed. This has now been fully resolved and the account is fully operational.
Additionally, as part of our vigorous defense against the spurious claim by Upendo Group and former local Director Mr. Kegele Cassiano, who has claimed a right to 10% of turnover (instead of 10% of returns as per the agreements), we made a payment of $108,000 into the Tanzanian courts of appeal which enables the Company to defend this case going forward..
On June 6, 2023, the Company announced a placing of £1,468,000. of which £893,000 is subject to shareholder approval at the forthcoming AGM. As of 23 June 2023, the Company had cash balances of approximately £400,000, which is likely sufficient for its current needs at Rukwa, provided that it can achieve cashflow positivity later this year as production stabilizes at a consistent level.
Operational Review
The following statement is in relation to the Company’s subsidiary EITL.
Production during the year showed intermittent encouraging signs, particularly during periods of favourable weather and when the aged plant operated without major breakdowns or outside labour disruptions. We have also identified strong demand with the condition that a consistent supply can be assured having recently signed a supply contract with Rwandan client for the supply of up to 5,000 tonnes of washed coal per month. However, the intermittent and unpredictable operational performance significantly strains resources and hampers access to regular and high-margin sales. Additionally, legacy issues, such as unmet production level expectations set with the mining commission, jeopardize the license, and strained relationships with local service providers, suppliers, and advisers, all impact day-to-day operations and require a disproportionate amount of attention and resources. Due to the change of local management in the second half of 2022 and the subsequent challenges, together brought with lack of certain historic company documentation some historic expenditure was difficult to verify and while not material in the overall review of the Group’s activities, it is noted by the local auditors and in the auditor’s report as further referenced below. The new management team immediately enhanced all financial control procedures on their arrival in the company and these strict policies are adhered to throughout the company today.
Corporate Social Responsibility
The Company remains committed to fulfilling its corporate and social responsibilities. We recognise the importance of meeting social requirements as an operator in Tanzania. The construction of the mining operation at Rukwa has already led to improvements in local infrastructure, most notably the construction of a road from Kipandi to Mkomolo village and beyond, benefiting farmers, the local population, and the mine itself. We have also prioritised the employment of local individuals from surrounding villages, resulting in highly competent and skilled employees. The positive social impact extends to the broader community, where enterprising individuals are providing services such as food supply for workers.
Post Period Events
Following the end of the reporting period in June 2023, the Company entered into an agreement to conditionally raise £1,468,000 as part of a larger restructuring effort. This involved welcoming a new shareholder group, including Q Global Commodities Group (QGC), a leading independent commodity, mining, logistics, and investment fund from South Africa, and Gathoni Muchai Investments (GMI), an East African Mining Investment Group. Mr. Jason Brewer from GMI has joined the Board as an Executive Director, and Mr. Quinton van der Burgh of QGC is expected to join the Board in due course, following the completion of customary due diligence by the Company’s Nominated Adviser. It is anticipated that Mr. Nicholas Von Schirnding will resign from the Board once Mr. van der Burgh joins.
Audit opinion qualification
The financial statements of the group include certain costs pertaining to the subsidiary EITL.
As noted previously, the new Executive Board instigated a number of changes in the management of EITL. In particular, certain former stakeholders and suppliers deemed no longer suitable were removed. In addition, together with the replacement of on-the-ground senior management who the Board believes were impacting progress of Rukwa, new local advisers and personnel were recruited. However, as a result of these significant changes, the Company and auditors have experienced difficulty in obtaining supporting documents to substantiate and verify some of the aforementioned expenditures.
In addition, the financial statements of the group include a trade payables balance of £58,614, consisting of supplier balances related to EITL. As above, largely due to the aforementioned changes, the Company has experienced difficulties in obtaining the requisite creditor confirmations or supplier statements necessary to confirm the accuracy or otherwise of these balances.
Accordingly the auditor’s opinion on the financial statements have been qualified in respect of these aforementioned matters. The Board has concluded that, following a review and an analysis of previous years expenditure, the unverified expenses incurred in 2022 prior to new management joining, are in line with what would be expected based on fixed overhead and production numbers.
Tanzanian Government participation in Edenville International (Tanzania) Limited
The Company will engage with the relevant local Government authorities to negotiate an appropriate participation of the Government in the shareholding of EITL of up to 16%. This shareholding will have no voting power and will simply be reflected as a participation on behalf of the Government. There is no fixed amount specified to be issued to Government and each company needs to hold its own negotiations. Historically the issue of Government participation has been unclear and subject to change frequently. EITL is carrying significant tax losses so it will be some time, regardless of improved performance, before profit share will be considered. We will keep the market updated as this situation develops.
Summary and Outlook
Despite the numerous changes in the Company during 2022, we have emerged stronger with our new management team and valuable new investors who bring extensive experience, finance, and expertise in the mining business on the African continent. With their positions on the Board, we are well-prepared for an exciting second half of 2023 and beyond. Furthermore, with an improved cash position, we will continue to target additional asset acquisitions, leveraging the natural resources and capital markets expertise of the Board and significant shareholders.
I look forward to the future of Edenville, both for the remainder of 2023 and beyond, with confidence in its potential to generate shareholder value.
Noel Lyons
Chief Executive Officer
29 June 2023
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF EDENVILLE ENERGY PLC
Qualified opinion
We have audited the financial statements of Edenville Energy Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2022 which comprise the Group Statement of Comprehensive Income, the Group and Parent Company Statement of Financial Position, the Group and Parent Company Statement of Changes in Equity, the Group and Parent Company Cash Flows Statements and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion, except for the effects of the matter described in the Basis for qualified opinion section of our report:
| · | the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2022 and of the group’s loss for the year then ended; |
| · | the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; |
| · | the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and |
| · | the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. |
Basis for qualified opinion
The financial statements of the group include direct costs amounting to £423,352, other administration expenses of £75,674, and other operating expenses of £80,961, pertaining to the subsidiary Edenville International (Tanzania) Limited. In the course of the audit, we were not provided with the necessary supporting documents to substantiate these expenditures. Consequently, we were unable to obtain sufficient appropriate audit evidence to determine whether the amounts recorded in the statement of comprehensive income and the statement of financial position are materially misstated. In the absence of supporting evidence, we were unable to evaluate the occurrence and accuracy of these amounts. As such, we were unable to determine whether any adjustments are necessary to the financial statements.
The financial statements of the group include a trade payables balance of £58,614, consisting of supplier balances related to the subsidiary Edenville International (Tanzania) Limited. We were unable to obtain creditor confirmations or supplier statements necessary to perform the required audit procedures to confirm accuracy and existence of these balances. As such, we were unable to determine whether any adjustments are necessary in the financial statements.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Emphasis of matter
Operationalisation of up to 16% Government of Tanzania non-dilutable free carried share interest.
We draw attention to Note 28 of the financial statements, which highlights that the group has not completed the operationalisation of the issuance of up to 16% non-dilutable free carried interest shares in its subsidiary, Edenville Energy (Tanzania) Limited, as required by the Tanzania State Participation Mining legislation.
Our opinion is not modified in this respect.
Recoverability of Value Added Tax
We draw attention to Note 4 of the financial statements, which describes the group’s assessment over the Value Added Tax (VAT) receivable balance of £279,157 in its subsidiary, Edenville Energy (Tanzania) Limited. The group has assessed and concluded within its critical accounting estimates that the VAT is recoverable. The financial statements do not include the adjustments that would result if the group was unable to fully recover this.
Our opinion is not modified in this respect.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting included:
· Reviewing and evaluating management’s assessment of going concern, including cash flow forecasts prepared until June 30, 2024, derived from run-of-mine forecasts for the mine’s entire lifespan;
· Assessing the completeness of forecasted expenditures, ensuring that all relevant information such as planned mining and capital expenditure, has been considered;
· Analysing cash flow forecasts and budgets until 30 June 2024, challenging the underlying assumptions regarding estimated quantities of coal production and sales, selling prices, and associated expenditures, while verifying mathematical accuracy.;
· Verified and agreeing the cash position at the year-end and post the year-end to bank statements, taking into account funds raised after the year-end; and
· Challenging management’s forecasts by assessing the stress test scenario and evaluating the financial resources available to address this outcome, specifically examining the ability of the group and parent company to raise funds.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s or parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Our application of materiality
The quantitative and qualitative thresholds for materiality determine the scope of our audit and the nature, timing, and extent of our audit procedures. The materiality for the financial statements as a whole applied to the group financial statements was £74,000 (2021: £74,700) based on 1% of gross assets. We chose gross assets as the basis for materiality because in a mining company, the primary focus of users is the efficient utilisation and exploitation of mining assets to generate production, making it a key performance indicator for stakeholders. The performance materiality for the group was set at £44,400 (2021: £44,800) representing 60% (2021: 60%) of the overall materiality. The materiality for the financial statements as a whole applied to the parent company financial statements was £11,400 (2021: £12,500) based on 2% of the expenses. We chose expenses as the basis for materiality for the parent company financial statements because it aligns with the key cost components associated with its administrative and management functions, considering the parent company primarily serves as a holding entity for the subsidiary. The performance materiality for the parent company was £6,840 (2021: £7,500) representing 60% (2021: 60%) of the overall materiality. Performance materiality is based at a medium risk level of 60% considering the inherent risks in the mining industry and the specific risks identified and disclosed in the key audit matters. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.
For the component in the scope of our group audit, we allocated a materiality that was less than our overall group materiality. This component materiality, determined to be £65,800 (2021: £60,900), aligns with the same benchmarks used for the group.
We agreed with those charged with governance that we would report all differences identified during the course of our audit in excess of £3,700 (2021: £3,735) for the group and £570 (2021: £625) for the parent company.
Our approach to the audit
In designing our audit approach, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we assessed the areas involving significant accounting estimates and judgements by the directors in respect of the carrying value of the mining assets and carrying values of the parent company’s investments in, and loans to, subsidiaries and considered future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluation of whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Of the four components of the group, two components being the London parent company and its Tanzanian subsidiary that owns the mining license were identified as significant and material components. We performed a full scope audit of the London parent company’s complete financial information using a team with specific experience of auditing mining entities and publicly listed entities, and the Tanzanian subsidiary’s audit was conducted by component auditors from a PKF network firm. Analytical procedures were performed in respect of the remaining components of the group because they were not significant to the group.
The subsidiary located in Tanzania was audited by a component auditor operating under our instructions as the group auditor. The Senior Statutory Auditor interacted regularly with the component audit team during all stages of the audit and was responsible for the scope and direction of the audit process. This, in conjunction with additional procedures performed, gave us appropriate evidence for our opinion on the group and parent company’s financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for qualified opinion section, we have determined the matters described below to be the key audit matters to be communicated in our report.
| Key Audit Matter | How our scope addressed this matter |
| Carrying value of mining assets (Note 15) | |
| The entity has capitalised mining assets of £5,727,379. The mining assets are being amortised on unit of production method. Given the low mining levels, there is a risk that the current level of amortisation may not be appropriate, potentially leading to a need for impairment assessment. Management assess annually whether there is any indication of impairment of these assets. The impairment test involves estimation of the recoverable amount of the assets requires management to make significant judgement and estimation in relation to the assumptions and inputs used in the Net Present Value (NPV) valuation model. The carrying value of mining assets is a key audit matter because of the significant level of estimation uncertainty and judgement involved in determining the carrying value of these assets reliably and accurately. | Our audit work in this area included: – Reviewing and challenging management’s impairment review process, including the consideration of NPV calculations and challenging the assumptions and inputs used in the models. We conducted a sensitivity analysis on key assumptions, evaluating them against third-party evidence;- Assessing the reasonableness of assumptions used in the impairment model by comparing them to industry benchmarks and other external sources of information;- Considering the group’s resources, coal processing capacity, and sales margins, we assessed the carrying value of mining assets in light of market conditions, such as changes in commodity prices or demand. This assessment included corroborating our findings with sales agreements signed post year end to gain insights into future revenue streams;- Conducting a sensitivity analysis to evaluate the impact of changes in key assumptions on the carrying value of mining assets, providing insights into the potential range of outcomes and estimation uncertainty;- Performing testing to ensure the existence and ownership of licenses and consideration has been given to whether a decommissioning provision is required. ; and- Considering whether the treatment of mining assets is in accordance with International Accounting Standard 16 and has been correctly classified. In addition, we evaluated the appropriateness of accounting policies used for mining assets, including the recognition and measurement of mineral reserves and mine development costs. In forming our opinion, which is not modified, based on the work performed, we are satisfied that the carrying value of the mining assets in the financial statements is not materially misstated. The future carrying value of the mining assets is dependent on the ability of the subsidiary to fully realise the potential of the mine and increase the mining activities and extraction to pre-pandemic levels. |
| Valuation of the parent company’s investment in, and loans to, subsidiaries (Note 14) | |
| The parent company owns a significant investment in Edenville International (Tanzania) Limited of £18,173,697, which includes loans to the subsidiary of £11,130,386. The carrying value of this investment is linked to the value of the underlying assets held in Edenville International (Tanzania) Limited. These assets are primarily mining assets located in Tanzania, and their valuation is subject to significant estimation and judgement. Significant estimation and judgement involve determining the future cash flows expected to be generated from the mining assets and comparing this to the carrying value of the investment in the subsidiary. The estimation of future cash flows is based on assumptions made by management, including factors such as commodity prices, production volumes, and operational costs. Hence, there is a risk that the value in use of the mining assets is below the carrying value of the investment, which could result in a material misstatement of the amounts reported, and as such, the valuation of the parent company’s investment in loans to subsidiaries is a key audit matter. | Our audit work in this area included: – Reviewing and challenging management’s impairment review of the investments held, including consideration of the NPV calculations. We challenged the assumptions and inputs included in the models and performed a sensitivity analysis on the key assumptions. We also challenged management’s assumptions by obtaining corroborative evidence to support the sales projections. We also considered the reasonableness of the discount rate applied in the NPV calculations.- Reviewing the work of the component auditor around the indicators of impairment in relation to the Tanzania based subsidiary.- Reviewing the value of the net investment in subsidiaries against the underlying assets and corroborating the estimates and judgements used by management to assess the recoverability of investments and intercompany receivables. We assessed the reliability of the underlying assumptions made by management regarding the expected future cash flows from the mining assets held by the subsidiary. We also performed a sensitivity analysis on the key assumptions and inputs used in the valuation and challenge management’s estimates where necessary.- Corroborating the supporting documentation provided by management, such as mineral resource reports and feasibility studies, to assess the reasonableness of the estimates and judgements made. In forming our opinion, which is not modified, based on the work performed, we are satisfied that the value of the investment and loans in the financial statements are not materially misstated. The recoverability is dependent on the ability of the subsidiary to fully realise the potential of the mine and increase the mining activities and extraction to pre-pandemic levels. |
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the group and parent company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
As described in the Basis for qualified opinion on other matters prescribed by the Companies Act 2006 section of out report, we have concluded that a material misstatement of the other information exists.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
| · | the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and |
| · | the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. |
Matters on which we are required to report by exception
Except for the material misstatement described in the Basis for qualified opinion on other matters prescribed by the Companies Act 2006 section of our report, in the light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Arising solely from the basis for qualified opinion paragraph referred to above :
| • | we have not received all the information and explanations we require for our audit; and |
| • | We were unable to determine whether adequate accounting records have not been kept by the subsidiary Edenville International (Tanzania) Limited |
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
| · | adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or |
| · | the parent company financial statements are not in agreement with the accounting records and returns; or |
| · | certain disclosures of directors’ remuneration specified by law are not made; or |
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the group and parent company financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the group and parent company financial statements, the directors are responsible for assessing the group and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
| · | We obtained an understanding of the group and parent company as well as the sector in which they operate to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with management, industry research, application of our cumulative audit knowledge and experience of the sector. |
| · | We determined the principal laws and regulations relevant to the group and parent company in this regard to be those arising from the Companies Act 2006, AIM Rules for Companies and Mining Act (14/2010) and various regulations made there under applicable to subsidiary in Tanzania. |
| · | We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the group and parent company with those laws and regulations. These procedures included, but were not limited to enquiries of management, review of minutes and Regulatory News Service (RNS) announcements, and review of legal and regulatory correspondence. |
| · | We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management override of controls, that the potential for management bias was identified in relation to the impairment assessment of mining assets and parent company’s valuation of investments in loans to subsidiaries. We addressed this by challenging the assumptions and judgements made by management when evaluating any indicators of impairment. |
| · | As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to: the testing of journals; reviewing accounting estimates for evidence of bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. |
| · | For the significant component within the group, the audit procedures performed by the component auditors relating to non-compliance with laws and regulations and the posting of journal entries was reviewed for evidence of non-compliance or potential instances of fraud detected. As noted in the Emphasis of matter section of our report, non-compliance with requirement of the Government of Tanzania on operationalisation of up to 16% non-dilutable free carried interest shares was identified in the year. |
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Zahir Khaki (Senior Statutory Auditor) 15 Westferry Circus
For and on behalf of PKF Littlejohn LLP Canary Wharf
Statutory Auditor London E14 4HD
29 June 2023
