KEFI Gold and Copper plc (LON:KEFI), the gold and copper exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, has announced its audited financial results for the year ended 31 December 2021.
Notice of AGM and Annual Report
The Annual General Meeting will be held at 10.00am on Thursday 30 June 2022 at Marlin Waterloo, Lower Ground Floor, 111 Westminster Bridge Road, Waterloo, SE1 7HR, United Kingdom.
Information on the resolutions to be considered at the AGM can be found in the Notice of AGM that has been made available to shareholders of the Company as an electronic communication along with forms of proxy and direction as well as the Annual Report and Accounts for the year ended 31 December 2021. The AGM Materials and Annual Report are available on KEFI’s website at www.kefi-minerals.com.
EXECUTIVE CHAIRMAN’S REPORT
Due to the improvement in the local working environment in both Ethiopia (security) and Saudi Arabia (regulatory) since late 2021, KEFI now has three (not one) advanced projects in two countries. Combined with the recently reported excellent exploration results at Hawiah and Al-Godeyer in Saudi Arabia, KEFI now has a much-improved position as an early-mover in both countries and with a more balanced portfolio of advancing projects.
We can at last focus on a sequential development path to build a mid-tier mining company with aggregate annual production of 365,000 ounces of gold and gold equivalent, in which KEFI will have a beneficial interest of 187,000 ounces of gold and gold equivalent.
Our reported Mineral Resources provide a solid starting position for our imminent growth. Since mid-2021, total Mineral Resources have increased from 3.9 million to 4.7 million gold-equivalent ounces. KEFI’s beneficial interest in the in-situ metal content of our three projects now totals 2.1 million gold-equivalent ounces. KEFI’s current market capitalisation of circa £30 million equates to only $19 per gold-equivalent ounce compares very favourably to the prevailing gold price range during 2022 of approximately $1,830-2000/ounce.
The underlying intrinsic value of KEFI’s assets has increased from December 2020 to December 2021 based on the three projects’ NPV (at an 8% discount rate and using 31 December 2021 metal prices). At that same deck of metal prices, NPV per share has grown from 3 pence as at mid-2020 to 7 pence as at mid-2021 and 9 pence as at mid-2022 (calculated on the shares in issue today).
The growth in underlying intrinsic value is due to our progress in Saudi Arabia in particular – at the Hawiah Copper-Gold Project and the Jibal Qutman Gold Project. These statistics are merely illustrative indicators, but the same pattern emerges whether one assumes prevailing metal prices or analysts’ consensus forecast metal prices.
Our operating alliances are with the following strong organisations:
| · | Partners: | ||
| o | in Saudi Arabia: Abdul Rahman Saad Al Rashid and Sons Ltd (“ARTAR”) | ||
| o | in Ethiopia: | ||
| § | Federal Government of the Democratic Republic of Ethiopia | ||
| § | Oromia Regional Government | ||
| · | Principal contractor for process plants in both Ethiopia and Saudi Arabia: Lycopodium Ltd (“Lycopodium”). | ||
| · | Senior project finance lenders for Tulu Kapi: | ||
| o | East African Trade and Development Bank Ltd (“TDB”) | ||
| o | African Finance Corporation Limited (“AFC”) | ||
Ethiopia – Tulu Kapi
Until a few years ago, Ethiopia had been one of the world’s top 10 growth countries for nearly 20 years and now, having overcome its recent security issues, is demonstrating a clear determination to expedite economic recovery and pursue its economic objectives. Tulu Kapi will be the country’s first large-scale mining project for some 30 years and is designed to the highest international standards. It therefore is imposing many demands on a regulatory system which the Ethiopian Government is upgrading. Under strong Ministerial leadership, the Government is determined to build a modern minerals sector.
There is significant potential to increase Tulu Kapi’s current Ore Reserves of 1.05 million ounces of gold and Mineral Resources of 1.7 million ounces. Economic projections for the Tulu Kapi open pit indicate the following returns assuming a gold price of US$1,591/ounce:
| · | Average EBITDA of $100 million per annum (KEFI’s now planned c. 70% interest being c. $70 million); |
| · | All-in Sustaining Costs (“AISC”) of $826/ounce, (note that royalty costs increase with the gold price); and |
| · | All-in Costs (“AIC”) of $1,048/ounce. |
The assumptions underlying these projections are detailed in the Annual Report.
We reactivated Tulu Kapi project launch preparations in early 2022. Ethiopia’s Ministry of Mines has recently been formally advised that progress is on schedule to have secured project finance by mid-year if the security situation is satisfactory and if the few remaining regulatory administrative tasks are also completed punctually.
Saudi Arabia – Jibal Qutman
Jibal Qutman was KEFI’s first discovery in Saudi Arabia with Mineral Resources in excess of 700,000 ounce of gold.
As a result of a new regulatory system and indications from the Saudi Arabia’s Government that the Mining Licence would progress in 2022, development planning studies have recommenced at Jibal Qutman.
The current gold price is considerably higher than the $1,200/ounce used in 2015 when the Company lodged its initial Mining Licence application. Another key change is that several alternative processing options are likely to have become more attractive since 2015.
Several consultants have recently been engaged to evaluate processing options for Jibal Qutman and update elements of the Mining Licence application. This work includes open-pit design and scheduling, metallurgy, processing options and updating the Environmental and Social Impact Assessment.
Saudi Arabia – Hawiah
Hawiah was discovered in September 2019 and now ranks in the:
| · | top three base metal projects in Saudi Arabia; and |
| · | top 15% VMS projects worldwide. |
A three-year 42,000m drilling program has delineated a Mineral Resource of 24.9 million tonnes at 0.90% copper, 0.85% zinc, 0.62g/t gold and 9.8g/t silver. As a scale-comparison with Tulu Kapi, Hawiah’s recoverable metal is now estimated to be in the order of 2.2 million gold-equivalent ounces versus Tulu Kapi’s 1.2 million ounces of gold.
The team is progressing at great speed on this exciting project which is located close to major infrastructure. We are working towards completing a Preliminary Feasibility Study (“PFS”) and an updated Mineral Resource in late 2022.
Two Exploration Licences (“ELs”) located immediately west of the Hawiah EL were granted in December 2021. Initial exploration of these Al Godeyer ELs has confirmed similar copper-gold mineralisation to the Hawiah VMS deposit and indicated good continuity of the mineralised horizon.
Conclusion
KEFI is preparing to develop the Tulu Kapi Gold Project, advancing development studies on the Jibal Qutman Gold Project, progressing the PFS for the Hawiah Copper-Gold Project and testing exploration targets in Ethiopia and Saudi Arabia.
Simultaneous with the triggering of full development at Tulu Kapi, we intend to re-commence exploration programs in Ethiopia and expand our exploration program in Saudi Arabia. In Ethiopia, the initial focus will be underneath the planned open pit where we already have established an initial resource for underground mining at an average grade of 5.7g/t gold. We also intend to follow-up drilling which indicated good potential for nearby gold deposits in the Tulu Kapi District. In Saudi Arabia, further drilling is in progress at Hawiah and the adjacent Al Godeyer prospect.
Along with my fellow Directors, I am very sensitive to the need to generate returns on investment. It is frustrating and disappointing that the pandemic and the geopolitics of both Ethiopia and Saudi Arabia has retarded our progress in recent years and we have been unable to achieve targeted progress. However, our operating environment has turned for the better in both countries and we can now progress on all fronts.
By emphasizing conventional project-level development financing, we seek to alleviate the past responsibility of KEFI shareholders to provide all funding and therefore more than 80% of the development capital is planned to be contributed by our partners and other syndicate parties. However, exploration and other pre-development funding will continue to rely exclusively on equity funding by KEFI and its in-country partners.
The Directors expect that as milestones are achieved, the Company’s share price should naturally narrow the gap between the Company’s market capitalisation and what we believe to be the significantly higher fundamental valuations of the Company’s projects using conventional measures such as NPV.
We are indeed at an opportune moment, created by our team’s hard work, your support as shareholders and the serendipity of markets strengthening as we launch our projects. The Directors are deeply appreciative of all personnel’s tenacity and steadfast dedication and of the support the Company receives from shareholders and other stakeholders.
Executive Chairman
Harry Anagnostaras-Adams
1 June 2022
FINANCE DIRECTOR’S REVIEW
KEFI is a first-mover within a fast-changing geopolitical environment and has been financing its activities in the midst of a global pandemic – a challenging environment indeed. We see the current global supply chain strains as an aftershock which will abate but leave a legacy of cost inflation which has already impacted our projects. We have been adjusting our planning assumptions since the pandemic began.
Successful implementation will see KEFI emerge in 2024 as a profitable gold producer of 140,000 ounces per annum. Our growth plans in Ethiopia and Saudi Arabia are likely to lead to much higher gold equivalent production within the following few years.
Subject to the signing of Tulu Kapi’s umbrella financing agreement in June 2022 and its adherence over the following few months, the Company has been positioned to commence full construction of the Tulu Kapi mine at the end of the current wet season. Implementation of this plan provides KEFI with project ownership levels as follows:
| · | c. 70% of the Ethiopian mining development and production operation, via the shareholding in TKGM; |
| · | 100% of the Ethiopian exploration projects, via the shareholding in KEFI Minerals (Ethiopia) Limited (“KME”); and |
| · | 30% of the Saudi development and exploration projects, via the shareholding in G&M. |
KEFI has funded all of its past activities with approximately £72 million equity capital raised at then prevailing share market prices. This avoided the superimposing of debt-repayment risk onto the risks of exploration, permitting and other challenges that always exist during the early phases of project exploration and development in frontier markets. We do however avail ourselves of unsecured advances from time to time as arranged by our Corporate Broker to provide working capital pending the achievement of a short-term business milestone.
Overall, the current finance plan is shown below and caters for all planned development expenditure at TKGM in addition to all exploration and corporate funding requirements, estimated at c.$356 million (including the mining fleet provided by the contractor of US$56 million, the original budget of US$240 million and provisions for cost-inflation US$50 million) which is dependent upon final procurement price confirmations. These estimates were made in mid-2022 and took into account cost-inflation in the industry until then. We are now re-checking pricing for project launch and final finance planning. The various offers and commitments are made on a non-binding basis for finalisation as we now move to project launch. The financing syndicate has expressed willingness to adjust and refine amongst itself when final procurement and budget prices, expected in the coming two months, are set. It will be optimised by KEFI and the TKGM syndicate which has already conditionally indicated the following participation as at 31 May 2022:
| $ M | |
| 56 | Mining fleet to be provided by the mining contractor |
| 140 | Senior project debt, to be repaid out of operating cash surpluses |
| 196 | |
| Equity Risk Capital | |
| 38 | Government and Local Investors directly into TKGM |
| 122 | KEFI-funded component, separate and in addition to historical investment |
| 160 | Total TKGM capital requirement, subject to final procurement clarifications |
| 356 | Total of original project budget, plus provision for cost-inflation plus mining fleet |
| KEFI Component to be funded as follows: | |
| 60 | Subordinated non-convertible, offtake-linked debt |
| 15 | Subordinated debt convertible into KEFI shares at VWAP in 3 years |
| 20 | Subordinated convertible at a premium over market in H2-2022 |
| 27 | Recent issues of KEFI shares and the exercise of the attached warrants |
| 122 | Provided by KEFI |
The following needs to be carried out so as to proceed to earliest project finance settlement:
| · | Field activities to demonstrate readiness to launch from a security viewpoint; |
| · | Final construction and mining pricing updates confirmed; and |
| · | Definitive individual party documentation to be approved with relevant Government agencies, including the Ministry of Mines and the Central Bank of Ethiopia, so that execution may proceed by all syndicate parties. Early preparatory works have commenced to give clearance to both banks to lend on same terms. |
Ownership Value and Ownership Dilution
An £8.0 million Placing completed in April 2022 will mainly be used to fund:
| · | selected development activities at Tulu Kapi, |
| · | exploration at Hawiah and the adjacent Al Godeyer prospect; and |
| · | development planning at Jibal Qutman. |
This paves the way for full construction in Ethiopia from October 2022 at the end of the local wet season, with the initial signing at end of June 2022 setting out any residual conditions to be satisfied.
From an ownership value perspective and measuring the Company’s underlying assets on an NPV basis, compared with the position as at the time of the last AGM, this plan has resulted in the indicative value of KEFI’s share of its three main assets having more than tripled from $154 million in June 2020 to c.$471 million (£348 million) in May 2022. This is the result of KEFI raising its planned interest in Tulu Kapi from 45% to c.70%, making a significant discovery at Hawiah and now, due to progress with regulatory approvals, the inclusion of Jibal Qutman. The basis for these estimates is prevailing metal prices and other explanations provided in the footnotes below.
From an ownership dilution perspective, successful completion of the finance plan will necessarily increase issued capital, hopefully via the exercise of the recently issued warrants at 1.6 pence per share. But ownership dilution will be minimised because much of the capital is being raised at the project level and some of the share issues by KEFI will be at prices two and three years after project finance completion.
Financial Risk Management
In designing the balance sheet senior debt gearing overall, the senior debt to equity ratio for TKGM is 47%:53% ($140 million:$160 million) excluding equity funded historical pre-development costs and 37%:63% ($140 million:$240 million) including equity funded historical pre-development costs.
And in structuring the TKGM project finance, a number of key parameters had a driving influence on Company policy:
| · | The breakeven gold price after debt service is c.$1,107/ounce (flat) for 10 years, while over the past 10 years the gold price was under that price for only 2.4% of the time; and |
| · | At current analyst consensus gold price of $1,641/ounce, senior debt could be repaid within 2 years of production start. |
It is important that we now proceed to financial completion in accordance with the latest plans agreed with the Government. Indeed, the Government has warned of administrative consequences if we fail to do so and all of our finance syndicate members have made it clear that they wish to proceed according to plan subject only to normal safety and compliance procedures.
We have conditionally assembled all of the development finance, mostly at the project level from our small, efficient and economical corporate office in Nicosia, Cyprus. Other than our Nicosia-based financial control/corporate governance team, all operational staff are based at the sites for project work. This approach increases efficiency at a lower cost.
Accounting Policy
KEFI writes off all exploration expenditure in Saudi Arabia.
KEFI’s carrying value of the investment in KME, which holds the Company’s share of Tulu Kapi is £14.3 million as at 31 December 2021. It is important to note KEFI’s planned circa.70% beneficial interest in the underlying valuation of Tulu Kapi is c.£191 million based on project NPV at an assumed gold price of $1,830/ounce and including the underground mine.
In addition, the balance sheet of TKGM at full closing of all project funding will reflect all equity subscriptions which are currently estimated to exceed £113 million or $156 million (Ethiopian Birr equivalent).
John Leach
Finance Director
1 June 2022
Footnotes:
| · | Long term analysts’ consensus forecast is sourced from CIBC Global Mining Group Analyst Consensus Long Term Commodity Price Forecasts 30 April 2022. |
| · | NPV calculations are based on:Metal prices as at 31 December 2021 of US$1,830/ounce for gold, $9,750/tonne for copper, $3,590/tonne for zinc and $23/ounce for silver; and 8% discount rate applied against net cash flow to equity, after debt service and after tax. |
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KEFI GOLD AND COPPER PLC
Opinion on the financial statements
In our opinion:
| • | the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2021 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. |
We have audited the financial statements of Kefi Gold and Copper Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2021 which comprise the consolidated statement of comprehensive income, the statements of financial position, the consolidated statement of changes in equity, the company statement of changes in equity and the consolidated statement of cash flow, the company statement of cash flows and notes to the financial statements, including a summary of 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Material uncertainty relating to going concern
We draw your attention to note 2 of the financial statements which explains that the Parent Company and the Group’s forecasts indicate that they will require additional funding in Q3 of 2022 to meet working capital needs and other obligations and that while there is potential access to short term funding from shareholders and other alternatives on offer it is currently not committed. These conditions, along with other matters set out in note 2, indicate the existence of a material uncertainty which may cast significant doubt over the Parent Company’s and the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. We have highlighted going concern as a key audit matter as a result of the estimates and judgements required by the Directors in their going concern assessment and the effect on our audit strategy. We performed the following work in response to this key audit matter:
| · | We obtained the Directors’ going concern assessment and supporting forecasts and performed a detailed review of the cash flow forecasts, challenging the key assumptions based on empirical data and comparing of historic actual monthly expenditure. |
| · | We discussed with the Directors how they intend to raise the funds necessary for the Group to continue as a going concern in the required timeframe and considered their judgement in light of the Group’s previous successful fundraisings and strategic financing. We reviewed agreements and term sheets from potential investors in connection with the planned project financing, and documentation from the potential sources for financing planned for September 2022. |
| · | We have agreed any projected fund raises to term sheets and any funds raised since year end to bank, we ensured these were reflected in the cash flow forecast. |
| · | We reviewed the adequacy and completeness of the disclosures in the financial statements in the context of our understanding of the Group’s operations and plans, and the requirements of the financial reporting framework. |
| · | We reviewed correspondence with the Ethiopian Ministry of Mines and the opinion of Kefi’s legal advisors, in order to assess the mining licence validity. |
| · | We discussed the impact of Covid-19 with management and the Audit Committee including their assessment of risks and uncertainties associated with areas such as the Group’s workforce, supply chain that are relevant to the Group’s business model and operations. We compared this against our own assessment of risks and uncertainties based on our understanding of the business and sector information. |
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Overview
| Coverage | 99% (2020: 98%) of Group loss before tax100% (2020: 100%) of Group total assets |
| Key audit matters | 20212020Carrying value of exploration assetsPPGoing concernPP |
| Materiality | Group financial statements as a whole £430k (2020: £400k) based on 1.5% (2020: 1.5%) of total assets |
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.
The Group operates through the Parent Company based in the United Kingdom whose main function is the incurring of administrative costs and providing funding to the subsidiaries in Ethiopia as well as one joint venture company in Saudi Arabia. In addition to the Parent Company, the two Ethiopian subsidiaries are considered to be significant components, while the Saudi Arabian joint venture is not considered a significant component. The financial statements also include a number of non-trading subsidiary undertakings, as set out in note 13.1, which were considered to be not significant components.
In establishing our overall approach to the group audit, we determined the type of work that needed to be performed in respect of each component. A full scope audit of the Ethiopian subsidiaries were carried out by a locally based component auditor, which was a BDO network firm. All significant risks were audited by the BDO Group audit team.
The joint venture company and the non-trading subsidiaries of the Group were subject to analytical review procedures performed by the Group audit team.
Our involvement with component auditors
For the work performed by component auditors, we determined the level of involvement needed in order to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a whole. Our involvement with component auditors included the following:
| · | Detailed Group reporting instructions were sent to the component auditor, which included the principal areas to be covered by the audits, and set out the information to be reported to the Group audit team. |
| · | The Group audit team was actively involved in the direction of the audits performed by the component auditor for Group reporting purposes, along with the consideration of findings and determination of conclusions drawn. |
| · | The Group audit team reviewed the component auditor’s work papers remotely, and engaged with the component auditor by video calls and emails during their planning, fieldwork and completion phases. |
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section of our report, we determined the following matter to be a key audit matter
| Key audit matter | How the scope of our audit addressed the key audit matter | |
| Carrying Value of Exploration Assets (see note 12) | The exploration and evaluation assets of the Group, as disclosed in note 12, represent the key assets for the Group. Costs are capitalised in accordance with the requirements set out in IFRS 6: ‘Exploration for and Evaluation of Mineral Resources’ (“IFRS 6”). The Directors are required to assess whether there are potential indicators of impairment for the Tulu Kapi exploration asset and whether an impairment test was required to be performed. No indicators of impairment to the asset were identified, and disclosure to this effect has been included in the financial statements. There are a number of estimates and judgements used by management in assessing the exploration and evaluation assets for indicators of impairment under IFRS 6. These estimates and judgements are set out in Note 4 of the financial statements and the subjectivity of these estimates along with the material carrying value of the assets make this a key audit area. | We considered the indicators of impairment applicable to the Tulu Kapi exploration asset, including those indicators identified in IFRS 6 and reviewed the Directors’ assessment of these indicators. The following work was undertaken: We reviewed the licence documentation to confirm that the exploration permits are valid, and to check whether there is an expectation that these will be renewed in the ordinary course of business. We have reviewed correspondence with the Ethiopian Ministry of Mines for any conditions regarding the validity of the licence. We made specific inquires of the Directors and reviewed market announcements, budgets and plans which confirms the plan to continue investment in the Tulu Kapi project subject to sufficient funding being available, as disclosed in note 2. Based on our knowledge of the Group, we considered whether there were any other indicators of impairment not identified by the Directors. We have reviewed the adequacy of disclosures provided within the financial statements in relation to the impairment assessment against the requirements of the accounting standards. Key observations:Based on our work performed we considered the Directors’ assessment and the disclosures of the indicators of impairment review included in the financial statements to be appropriate. |
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
| Group financial statements | Parent company financial statements | |||
| 2021£k | 2020£k | 2021£k | 2020£k | |
| Materiality | 430 | 400 | 330 | 230 |
| Basis for determining materiality | 1.5% total assets | |||
| Rationale for the benchmark applied | We consider total assets to be the financial metric of the most interest to shareholders and other users of the financial statements given the Group and Parent Company’s status as a mining exploration company and therefore consider this to be an appropriate basis for materiality. | |||
| Performance materiality | 320 | 300 | 247 | 172 |
| Basis for determining performance materiality | 75% of materiality for the financial statements as a whole. This is based on our overall assessment of the control environment and the low level of expected misstatements. |
Component materiality
We set materiality for each significant component of the Group based on 1.5% total assets (2020: 1.5%), based on the size and our assessment of the risk of material misstatement of that component. Component materiality was set at £280k (2020: £230k). In the audit of each component, we further applied performance materiality levels of 75% (2020: 75%) of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £21k (2020: £20k). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
| Strategic report and Directors’ report | In our opinion, based on the work undertaken in the course of the audit:· the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and· the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.· In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. |
| Matters on which we are required to report by exception | We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:· adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or· the Parent Company financial statements are not in agreement with the accounting records and returns; or· certain disclosures of Directors’ remuneration specified by law are not made; or· we have not received all the information and explanations we require for our audit. |
Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
We obtained an understanding of the legal and regulatory frameworks that are applicable to the Company. We determined that the most significant which are directly relevant to specific assertions in the financial statements are those related to the reporting framework (UK adopted international accounting standards, the Companies Act 2006. AIM rules and the QCA Corporate Governance Code), and terms and requirements included in the Group’s exploration and evaluation licenses. Our procedures included:
| · | We understood how the Company is complying with those legal and regulatory frameworks by making enquiries to the Directors, and those responsible for legal and compliance procedures. We corroborated our enquiries through our review of board minutes and other supporting documentation. |
| · | We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. |
| · | Directing the component auditor to ensure an assessment is performed on the extent of the components’ compliance with the relevant local and regulatory framework. Reviewing this work and holding meetings with relevant Directors to form our own opinion on the extent of Group wide compliance |
| · | Reviewing minutes from board meetings of those charges with governance to identify any instances of non-compliance with laws and regulations |
We have considered the potential for material misstatement in the financial statements, including misstatement arising from fraud and considered that the areas in which fraud might occur were management override and missapropriation of cash. Our procedures to respond to these risks included:
| · | We made enquiries of Management and the Board into any actual or suspected instances of fraud. |
| · | Testing the appropriateness of journal entries made through the year by applying specific criteria to detect possible irregularities and fraud; |
| · | Performing a detailed review of the Group’s year end adjusting entries and investigating any that appear unusual as to nature or amount and agreeing to supporting documentation; |
| · | For significant and unusual transactions, particularly those occurring at or near year end, obtaining evidence for the rationale of these transactions and the sources of financial resources supporting the transactions; |
| · | Assessed whether the judgements made in accounting estimates were indicative of a potential bias (refer to key audit matters above); and |
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Jack Draycott (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, United Kingdom
1 June 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
