NOTES TO THE INTERIM REPORT FOR SIX MONTHS ENDED 30 JUNE 2023

1.  Basis of preparation

These condensed consolidated interim financial statements include results of Kavango Resources Plc ("the Company") and its subsidiaries ("the Group") and have been prepared under the historical cost convention except for revaluation of certain financial instruments and on a going concern basis and in accordance with UK-adopted International Accounting Standards.

In the opinion of the directors, the condensed consolidated interim financial statements for this period fairly presents the financial position, results of operations and cash flows for this period. 

The board of directors approved these condensed consolidated interim financial statements on 13 September 2023. 

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'. They do not constitute statutory accounts as defined in s434 of the Companies Act 2006.

The condensed consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements for the year ended 31 December 2022, which have been prepared in accordance with UK-adopted International Accounting Standards. 

The condensed consolidated financial information for the year ended 31 December 2022 does not constitute the Company's statutory accounts for that year, but is derived from those accounts. Statutory accounts for the year ended 31 December 2022 have been delivered to the Registrar of Companies. The auditors reported on those accounts and their report was unqualified and did not contain a statement under s498(2) or (3) of the Companies Act 2006, but it did draw attention to material uncertainty regarding going concern and an outstanding balance of share placing proceeds (detailed in note 9).

The condensed consolidated interim financial statements for the period ended 30 June 2023 have not been audited or reviewed in accordance with the International Standard on Review Engagements 2410 issued by the Auditing Practices Board. 

Accounting policies

The condensed consolidated interim financial statements have been prepared using applicable accounting policies and practices consistent with those adopted in the statutory audited consolidated annual financial statements for the year ended 31 December 2022. A number of amendments to accounting standards have became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these amended standards.

Critical accounting judgements and estimates

The preparation of the condensed consolidated interim financial statements requires directors to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these judgements and estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited consolidated financial statements for the year ended 31 December 2022.

Going Concern

The condensed consolidated interim financial statements have been prepared on a going concern basis. Although the Group's assets are not generating revenue and an operating loss has been reported, the directors have concluded that, subject to successful completion of the second share placing with Purebond Limited for £4,600,000, the Group will have sufficient funds to meet its working capital requirements and planned exploration expenditure for at least 12 months from the date of approval of these interim financial statements.

2.  Financial risk management and financial instruments

Risks and uncertainties

The Board continually assesses and monitors the key financial risks of the business.  The key financial risks that could affect the Group's medium-term performance and the factors that mitigate those risks have not substantially changed from those set out in the Group's 2022 Annual Report and Financial Statements, a copy of which is available from the Group's website: www.kavangoresources.com.  The key financial risks are market risk (including currency risk), credit risk and liquidity.

3.  Segmental disclosures

The Group has two reportable segments, Exploration and Corporate, which are the Group's strategic divisions, for each of the strategic divisions, the Board reviews internal management reports on a regular basis. The Group's reportable segments are:

Exploration: the exploration operating segment is presented as an aggregate of all licences in which the Group has economic interest as well as pre-licence expenditure. Expenditure on exploration activities for each licence is used to measure agreed upon expenditure targets for each licence to ensure the licence clauses are met.

Corporate: the corporate segment includes the holding and intermediate holding companies' costs in respect of managing the Group.

Loss after tax for each segment is detailed below:

Segmental assets and liabilities are detailed below:

4.  Administrative expenses

Administrative expenses for the period ended 30 June 2023 of US$ 1,043,000 (June 2022: US$ 794,000) include a share-based payment charge of US$ 295,000 (June 2022: US$ 197,000) in relation to the Company's share options (note 10).

5.  Loss per share

The calculation of earnings per share is based on the loss attributable to equity holders divided by the weighted average number of shares in issue during the period.

6.    Intangible assets

Intangible assets comprise entirely of exploration and evaluation assets.

During the period ended 30 June 2023, the additions balance relates to the Group's exploration activity in Botswana. Details on the exploration activity can be found in the Interim Management Report.

Impairment review

The directors have undertaken a review to assess whether the following impairment indicators existed as at 30 June 2023 or subsequently prior to the approval of these condensed consolidated interim financial statements:

1.      Licences to explore specific areas have expired or will expire in the near future and are not expected to be renewed;

2.      No further substantive exploration expenditure is planned for a specific licence;

3.      Exploration and evaluation activity in a specific licence area have not led to the discovery of commercially viable quantities of mineral resources and the Board has decided to discontinue such activities in the specific area; and

4.      Sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full of successful development or by sale.

Following their assessment, the directors concluded that no impairment indicators exist and thus no impairment charge is necessary.

7.  Trade and other receivables

Further details on the amounts due from shareholders are included in note 9.

8.  Financial assets at fair value through profit or loss

Listed securities

In January 2023 the Company acquired 11,000,000 shares in Power Metal Resources, an AIM-listed metal exploration company, for a total consideration of US$ 194,000. The fair value of the shares is based on their unadjusted quoted market price, which represents a Level 1 input within the fair value hierarchy of IFRS 13 Fair value measurement ("IFRS 13"). The fair value of the shares declined to US$ 101,000 as at 30 June 2023 with a loss of US$ 94,000 recognised in profit or loss.

Convertible loan notes

During the period ended 30 June 2023, the Company subscribed to a convertible loan notes ("CLNs") issued by an exploration company listed on the TSX Venture Exchange, for a total cash consideration of US$ 150,000. The CLNs carry no interest but are redeemable in October 2023 with a redemption premium of US$ 50,000. The redemption will be in company's shares (together with potential warrants) at a set conversion price subject to adjustments in the event of a fundraise. 

The CLNs are derivative financial assets measured at fair value through profit or loss. The fair value of the instruments was estimated using a Monte Carlo simulation as at subscription dates and 30 June 2023. The estimation of fair values required a significant use of unobservable inputs, such as the expected conversion price and share price on redemption, which represent Level 3 inputs within the fair value hierarchy of IFRS 13. In the period ended 30 June 2023, a net loss of US$ 31,000 was recognised in profit or loss with respect to the CLN.

9.  Share capital and share premium

On 14 June 2023, the Company successfully raised £1,400,000 (US$ 1,773,000) gross proceeds by placing 140,000,000 new ordinary shares at 1p.

In November 2022 the Company raised US$ 4,164,000 through the issue of 194,444,437 shares and 194,444,437 3p warrants. Of this amount, as at 30 June 2023 and the date of approval of these condensed consolidated interim financial statements, £500,000 (June 2023: US$ 635,000; December 2022: US$ 605,000) remain outstanding from one subscriber, Arigo Capital, and are included within the trade and other receivables balance (note 7). The directors are in continued discussions with Arigo Capital on arranging a settlement solution and expect this to be resolved in the second half of 2023. However, should the funds ultimately not be received, the directors have the ability to issue the shares to a new subscriber for a similar premium or may cancel the shares. Therefore, no expected credit loss provision has been recognised as at 30 June 2023 (December 2022: US$ nil).

10.  Share-based payments

On 3 February 2023, the Company granted 32,820,000 of new options to the Group's directors, employees and contractors. The Company also amended the vesting conditions and exercise price of 10,000,000 existing share options to align them with the new grant.

The directors have elected to account for the amendment as a cancelation of the existing options, leading to an accelerated recognition of the remaining option charge of US$ 200,000 in the period ended 30 June 2023, and treating the replacement options as a new grant.

Of the 42,820,000 new and amended options granted, 37,820,000 are subject the following vesting conditions:

(i)            a minimum service period, ranging between 6 and 18 months; and

(ii)           the Company share price closing at 6p or above on any 5 trading days; or

(iii)          the Company share price closing at 7.5p or above on any 5 trading days; or

(iv)          change of control of the Company.

The exercise of the options is subject to continuous employment or commercial engagement with the Group on the day of exercise, unless terminated by the Group or the usual 'good leaver provisions' apply.

The vesting period of the options is therefore variable and linked to market-based performance conditions. A Monte Carlo model was used to calculate the fair value of the options at the date of grant and to estimate their most likely vesting periods.

The options are valid for 7 years from the date of grant (or 7 years from the date of original grant for the amended options) with the exercise price of 5p.

The remaining 5,000,000 options were granted to the Company CEO on the same terms as above except there is no continuous employment requirements. Therefore in accordance with applicable accounting standard their fair value was recognised in full on the date of grant.

For the period ended 30 June 2023 a total charge of US$ 302,000 (June 2022: US$ 197,000) was recognised in profit or loss in relation the Company's share options.

Movements in the Company's share options during the period ended 30 June 2023 are detailed below:

11.  Significant events after the reporting date

On 25 July 2023, the Company signed an exclusive 6-month option to acquire two gold exploration projects in Matabeleland, southern Zimbabwe. The Company can exercise the exclusive options at its sole discretion. The option period will allow Kavango to perform an appropriate exploration program to assess the potential of the Hillside and Leopard Projects.

On 5 August 2023, 39,890,911 warrants issued by the Company in connection with its share placing in July 2021 lapsed unexercised.

12.  Other matters

A copy of the Interim Management Report and the condensed consolidated interim financial statements is available on Kavango's website: www.kavangoresources.com