Final Results for the Year ended 31 December 2021

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain. 

30 June 2022

Kropz Plc

("Kropz" or the "Company")

Final Results for the Year ended 31 December 2021,
Posting of Annual Report and Accounts
and
Notice of General Meeting

Kropz Plc (AIM: KRPZ), an emerging African producer and developer of plant nutrient feed minerals, announces Final Results for the Year ended 31 December 2021 and the publication of the Company's Annual Report and Accounts.

The full financial report and Notice of General Meeting will be available online shortly on the Company's website at www.kropz.com and are being posted to shareholders today.

The Company will hold a General Meeting for the purposes of approving the Annual Report which will be held at the offices of Memery Crystal at 165 Fleet Street, London EC4A 2DY on 25 July 2022 at 1 p.m.

HIGHLIGHTS 2021

Key developments during the 2021 financial year

Corporate

·     Activities during the year were focused on completion of construction activities at Elandsfontein and finalisation of the Hinda updated feasibility study ("Hinda Updated FS");

·     Kropz Plc ("Kropz" or the "Company") secured a further convertible loan facility of up to US$ 5 million (not exceeding a maximum of ZAR 85 million) from the ARC Fund ("ARC"), Kropz's major shareholder in February 2021 ("Further Equity Facility"), used exclusively for the Hinda Updated FS and general corporate purposes;

·    The fourth drawdown on the convertible loan facility, secured from ARC in June 2020, of up to US$ 40 million (not exceeding a maximum of ZAR 680 million) ("Original Equity Facility") occurred on 10 March 2021 for US$ 7 million;

·      The first drawdown on the Further Equity Facility occurred on 10 March 2021 for US$ 2 million;

·      The fifth drawdown on the Original Equity Facility occurred on 23 June 2021 for US$ 11 million;

·      The second drawdown on the Further Equity Facility occurred on 23 June 2021 for US$ 2 million;

·      The sixth and final drawdown on the Original Equity Facility occurred on 10 September 2021 for US$ 3 million;

·      The third drawdown on the Further Equity Facility occurred on 10 September 2021 for US$ 400,000;

·     On 15 October 2021, Kropz secured a new conditional convertible equity facility of up to ZAR 200 million (approximately US$ 13 million) ("New ZAR Equity Facility"), with ARC in order to deliver the Company's Elandsfontein phosphate project to first revenue;

·      The first drawdown on the New ZAR Equity Facility occurred on 26 October 2021 for ZAR 90 million (approximately US$ 6 million);

·      The fourth drawdown on the Further Equity Facility occurred on 10 December 2021 for US$ 400,000;

·     The second drawdown on the New ZAR Equity Facility occurred on 10 December 2021 for ZAR 37 million (approximately US$ 2 million);

·      US$200,000 remained undrawn on the Further Equity Facility at 31 December 2021; and

·      ZAR 73 million (approximately US$ 5 million) remained undrawn at 31 December 2021 on the New ZAR Equity Facility.

Elandsfontein

·      Activities focussed on completion of construction and commissioning activities at Elandsfontein;

·      As announced on 9 September 2021, the appeal against the award of the integrated Water Use Licence ("WUL") for the Elandsfontein project was dismissed by the South African Water Tribunal. The appeal was lodged by a small group calling themselves the West Coast Environmental Protection Association ("WCEPA"), on 26 June 2017. The appeal was heard, over four sittings, from October 2019 to February 2021;

·    Mining activities commenced in October 2021, and significant volumes of ore were made available to support commissioning ramp-up;

·      In November 2021, earthworks, civil construction, fabrication and erection of structural steel, platework and piping was completed and all mechanical equipment installed;

·      Pre-commissioning (C2) and cold commissioning (C3) activities commenced in November 2021;

·      Construction activities at Elandsfontein were completed in December 2021, under budget and on time;

·      "First-fill" reagents, sourced in South Africa and imported from the USA, were received on site in December 2021;

·      On 23 December 2021, a major milestone was achieved when first ore was introduced into the Elandsfontein plant; and

·     As announced on 23 November 2021, Transnet provided Elandsfontein with a draft port access agreement to support the long-term export of Elandsfontein's phosphate rock through the port of Saldanha. Signature of the contract is now being finalised between the parties. Exports through Cape Town will only be required for a maximum of 350,000 tonnes of Elandsfontein's export production of approximately 1 million tonnes per annum, and only if capacity through Saldanha is unavailable for a limited period of time.

Hinda

·    As announced on 4 February 2021, Kropz appointed Hatch Africa (Pty) Ltd ("Hatch"), a global engineering and construction firm, to complete the Hinda Updated FS;

·     The updated Environmental and Social Impact Assessment ("ESIA") was completed in December 2021 by WSP Global Inc ("WSP") out of Montreal, Canada;

·     The updated ESIA was lodged with the Republic of Congo ("RoC") Ministry of Environment in late December 2021; and

·     Hatch completed the Hinda Updated FS and the outcomes, as detailed below, were announced on 22 December 2021.

Aflao

·      Kropz divested its 50% + 1 share interest in Aflao, as announced on 16 February 2021.

Key developments post the financial year end

Corporate

·      Issued 6,700,000 ordinary shares, at an exercise price of £0.001 an ordinary share, in the Company to key members of the executive management team, including certain Persons Discharging Managerial Responsibilities ("PDMRs"). The issue of ordinary shares was due to awards vesting that had been issued under its Long-Term Incentive Plan ("LTIP Awards") on 31 July 2020 and as announced on 4 August 2020;

·      The fifth and final drawdown on the Further Equity Facility occurred on 10 March 2022 for US$ 200,000;

·      The third drawdown on the New ZAR Equity Facility occurred on 25 March 2022 for ZAR 40 million;

·      The fourth drawdown on the New ZAR Equity Facility occurred on 26 April 2022 for ZAR 33 million;

·    On 27 April 2022, Kropz announced that it had entered into an agreement with ARC for a ZAR 25 million (approximately US$ 1.60 million) bridge loan facility (the "Loan") to meet cash requirements in April 2022 and draw down of the Loan took place on 28 April 2022;

·      As announced on 11 May 2022, Kropz entered into a new conditional convertible equity facility of up to ZAR 177 million (approximately US$ 11 million) ("ZAR 177 Million Equity Facility") with ARC to fund Elandsfontein to first revenues from bulk concentrate sales;

·      The ZAR 177 Million Equity Facility was approved by Kropz shareholders and became unconditional on 1 June 2022; and

·    The first drawdown on the ZAR 177 Million Equity Facility occurred on 2 June 2022 for ZAR 103.5 million (approximately US$ 7 million). After set-off of the Loan, Kropz received an amount of ZAR 78.5 million (approximately US$ 5 million).

Elandsfontein

·      The focus at Elandsfontein continues to be production ramp-up of the mine and beneficiation plant, to reach nameplate capacity;

·      To date, 5,000 tonnes of saleable concentrate have been produced and are being stored in the Saldanha Bay storage facility;

·      BNP Paribas ("BNP") released the ZAR 77 million restricted cash in the bank account of Kropz Elandsfontein (Pty) Ltd ("Kropz Elandsfontein") on 10 January 2022, upon satisfaction of the requirement by BNP for Kropz to bridge the funding shortfall in respect of Elandsfontein as announced on 1 September 2021. The funding shortfall was satisfied when the New ZAR Equity Facility was secured from ARC;

·     As announced on 27 April 2022, a further funding shortfall of ZAR 177 million was expected due to slower than expected progress in the ramp up of operations at Elandsfontein;

·      First bulk sales are now expected to move into Q3 2022 as a result of early geological challenges in the mining area - higher than expected volumes of indurated material is limiting the mining rate that can be achieved with the current equipment on site;

·     The delay was also driven by the need to re-engineer parts of the fine flotation circuit as proposed by the vendor, but has also been affected lack of operator expertise and experience; and

·      Measures taken by management to address these issues are set out later in the annual report.

Hinda

·    Since 31 December 2021, management has been interrogating the Hinda Updated FS and financial model as prepared by Hatch;

·      Various capital cost optimisation initiatives have been identified for investigation ahead of detailed design; and

·      Development alternatives are being considered and potential funding options investigated.

General

·    The current and further potential effects of COVID-19, and the possibility of further waves in South Africa and the RoC remain a risk to Kropz's projects. Kropz has mitigated this risk as far as reasonably practicable by compliance with the Kropz COVID-19 policies and procedures.

About Kropz Plc

Kropz is an emerging African phosphate producer and developer with projects in South Africa and the Republic of Congo. The vision of the Group is to become a leading independent phosphate rock producer and to develop into an integrated, mine-to-market plant nutrient company focusing on sub-Saharan Africa.

Chairman's Statement

Dear shareholder,

The 31 December 2021 financial year was another challenging year, particularly given the continued global COVID pandemic and associated impact on the global economy.

Thankfully, the COVID pandemic had no significant impact on the conclusion of construction activities at Elandsfontein. First ore was introduced into the Elandsfontein plant in December 2021, on time and under budget, a significant milestone given the challenges faced.

Hatch completed the Hinda Updated FS in late December 2021 and we are encouraged by the outcome and conclusions. Management are interrogating the findings and the next step would be to select the way forward for the progression of the project and sourcing the required funding for its development.

Thanks to the ARC Fund, Kropz's major shareholder, funding was secured to complete the Elandsfontein project and ramp-up operations and complete the Hinda Updated FS.

Progress continues to be made at Elandsfontein, but slower than expected progress in the ramp-up of operations, as announced on 27 April 2022, resulted in an additional funding requirement. Again ARC responded by agreeing to provide the required ZAR 177 million required to see Elandsfontein through to positive cash flow by way of a convertible equity facility.

The Board thanks all the members of the executive, management, the teams on the ground, contractors, auditors and advisers for all their efforts and assistance during the year. We once again want to thank our major shareholder, ARC, for their further commitment and continued support.

Lord Robin William Renwick of Clifton

Non-Executive Chairman

28 June 2022

Strategic Report for the year ended 31 December 2021

Market overview

Since February 2022, phosphate prices have reached new highs, largely due to the sanctions imposed on Russia, following their invasion of the Ukraine. Russia is a significant supplier of fertiliser feed products and associated sanctions increased the prices of phosphate products significantly as producers that relied on Russian sources sought to secure alternative sources of amongst others, low cadmium phosphate rock. The cessation of exports of phosphate products from China until mid-2022, has also inflated prices of phosphate related fertilizers.

The phosphate rock market remains strong and has shown good interest in Elandsfontein's low cadmium concentrate.

Significant changes in the state of affairs

Share issues

The issued share capital at 31 December 2020 was 558,627,558 ordinary shares (2019: 283,406,307).

On 3 March 2021, Kropz announced the fourth drawdown of US$ 7 million of the Original Equity Facility and the first drawdown of US$ 2 million under the Further Equity Facility. These drawdowns resulted in the issue of 89,185,185 ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and 34,745,359 ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The 123,930,544 ARC drawdown shares were admitted to trading on AIM on 10 March 2021.

On 16 June 2021, Kropz announced the fifth drawdown of US$ 11 million of the Original Equity Facility and the second drawdown of US$2 million under the Further Equity Facility. These drawdowns resulted in the issue of 140,148,148 ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and 34,745,359 ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The 174,893,507 ARC drawdown shares were admitted to trading on AIM on 23 June 2021.

On 7 September 2021, Kropz announced the sixth drawdown of US$ 3 million of the Original Equity Facility and the third drawdown of US$ 400,000 under the Further Equity Facility. These drawdowns resulted in the issue of 38,222,222 ordinary shares to ARC at an issue price of 6.75 pence per ordinary share and 6,949,072 ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The 45,171,294 ARC drawdown shares were admitted to trading on AIM on 10 September 2021.

On 8 December 2021, Kropz announced the fourth drawdown of US$ 400,000 under the Further Equity Facility. This drawdown resulted in the issue of 6,949,072 ordinary shares to ARC at an issue price of 4.20 pence per ordinary share. The 6,949,072 ARC drawdown shares were admitted to trading on AIM on 13 December 2021.

The issued share capital at 31 December 2021 was 909,571,975 ordinary shares (2020: 558,627,558).

Projects

Elandsfontein

Elandsfontein hosts the second largest phosphate deposit in South Africa, after Foskor's operation at Phalaborwa.  Elandsfontein has been developed with the capacity to produce circa one million tonnes per annum ("Mtpa") of phosphate rock concentrate from a shallow mineral resource which is expected to be sold on both local and international markets. The Company owns 74% of the issued share capital of Kropz Elandsfontein, the company which owns the Elandsfontein project.

Prior to 2021, in excess of US$ 135 million was spent at Elandsfontein on project capital expenditure to construct the processing plant and infrastructure, initial mining and capitalised working capital. Following a suspended commissioning process in 2017, Kropz Elandsfontein conducted further geological drilling and metallurgical test programme to define a robust process circuit, to cater for all ore types present within the Elandsfontein resource.

Elandsfontein's logistics are advantageous and allow for easy access to both local and international markets.

Activity for the year ended 31 December 2021

The focus for the 2021 financial year was completion of the construction activities on site. All major contracts were finalised to enable site establishment by the mining and plant operators. Mining activities recommenced in October 2021.

Mining and geology

The Elandsfontein resource is defined below, on a total (gross) and net attributable basis. No further geological drilling was conducted in 2021.

Mineral Resource Statement, as declared by Snowden and SRK on 31 October 2018

Plant and processing

Pre-commissioning (C2) and cold commissioning (C3) activities commenced in November 2021 and construction activities at Elandsfontein were completed in December 2021, under budget and on time. On 23 December 2021, a major milestone was achieved when first ore was introduced into the Elandsfontein plant.

Dewatering of the aquifer continues in accordance with the updated ground water management plan.

The Department of Mineral Resources and Energy ("DMRE") issued a directive to Kropz Elandsfontein during 2020 to upgrade its Environmental Management Programme ("EMPr") in line with latest South African legislation. The updated EMPr was submitted to the DMRE in September 2020. On 26 March 2021, management received the updated EMPr for the Elandsfontein project from the DMRE. The updated EMPr strongly emphasizes the adherence to the required rehabilitation measures.

Offsets

In July 2020, Kropz Elandsfontein submitted a revised Offset Study to the DMRE. Management informed the DMRE that the 2015 Offset Study for the Elandsfontein project did not adequately consider Kropz Elandsfontein's effective rehabilitation measures which have demonstrated successful implementation over the past three growing seasons. Kropz Elandsfontein's rehabilitation measures have been shown to guarantee future rehabilitation success, if conducted in accordance with the approved mine rehabilitation plan drafted by Kropz Elandsfontein's appointed rehabilitation specialist.

Following due consideration of all the comments and responses received during the thirty-day public participation period, management received notification from the DMRE on 4 March 2021 that the conditions required to cater for the offsets of land will be removed from the Elandsfontein EMPr.

Several appeals against the DMRE's decision have been lodged and are being dealt with by the Department of Forestry, Fisheries and the Environment.

Water use licence ("WUL")

The outstanding appeal against the Elandsfontein WUL was heard from 1 to 4 February 2021. During this fourth sitting of the matter, final evidence was presented to the Water Tribunal.

The Water Tribunal issued a directive to all parties, setting out the dates to be met for heads of arguments, to allow a ruling in March 2021. The appellant was subsequently granted numerous postponements for the submission of their heads of arguments, which delayed the date of the ruling to September 2021.

As announced on 9 September 2021, the appeal was dismissed by the Water Tribunal.

Safety, health and environment

As at 31 December 2021, the lost time injury frequency rate, per 200,000 man hours, was 0.698 (2020 - zero). For the reporting period, three Lost Time injuries were regrettably suffered during the construction phase.  No reportable and major environmental or safety incidents were reported during the year.

Corporate social responsibility ("CSR") and sustainability

The execution of the five-year Social and Labour Plan ("SLP"), aligned with the 2018 South African Mining Charter, and approved by the DMRE, remains on track. During the reporting period, the five-year closure plan was submitted and subsequently accepted by the DMRE.  Kropz Elandsfontein has commenced with the development of the next iteration of the SLP for submission to the DMRE in Q3 2022.  The plan includes progressive improvements to obtain compliance on the employment equity and procurement objectives of the South African Mining Charter scorecard. The following strategic focus areas have been identified:

·      Education;

·      Social wellness;

·      Local economic development; and

·      Urban reconstruction and infrastructure upgrades.

Through collaboration with the local community forum, various community development projects continued during 2021 and the selection of new projects will form part of the 2022 SLP.

Education support

During 2021 Kropz Elandsfontein continued to support the Hopefield Primary School teacher's programme.

Metallurgical skills development

As a result of the strong drive to employ from within the local municipal area, the commissioning of the plant necessitated skills development training in metallurgy to ensure successful commissioning and operation of the processing facility. This training was provided for the local employees who were recruited as part of the plant operating team.

Small, medium, micro enterprise ("SMME") development

During 2021, the second phase of the SMME development programme was completed. The focus during this phase was to assist the SMME's identified in the initial phase through a digital enablement programme, boosting the digital competencies of young start-ups in the community.

Adult matric certification

The previous two-year programme enabling individuals to complete their secondary school qualification resumed in 2021. Nine adults obtained a pass rate to qualify for their senior certificate at the end of 2021.

Thusong community centre upgrade

The construction of an additional classroom and meeting venues at the local community centre was completed towards the end of 2021, with final handover in early 2022.  Opportunities are being investigated with other business partners to review further projects at the Thusong community centre.

Kropz Elandsfontein continues to engage with the local community on a regular basis.

Post reporting period events

Transport and logistics

As announced on 23 November 2021, Transnet provided Kropz Elandsfontein with a draft port access agreement to support the long-term export of Elandsfontein's phosphate rock through the port of Saldanha. Contract negotiations have been finalised and final signature is expected prior to the shipment of first product. Exports through Cape Town will potentially be required for no more than 350,000 tonnes of Elandsfontein's production of approximately 1 million tonnes per annum, if capacity through the port of Saldanha is unavailable for a limited period of time.

Hinda

The Hinda project, currently 100% owned by Cominco S.A., is believed to be one of the world's largest undeveloped phosphate reserves. Ownership is expected to be diluted to 90% through the participation of the RoC government. Hinda consists of a sedimentary hosted phosphate deposit located approximately 40 km northwest of the city of Pointe-Noire. The project is fully permitted.

Prior to acquisition by Kropz, more than US$ 40 million was spent on project development, including drilling, metallurgical test work and feasibility studies.

Activity for the year ended 31 December 2021

In early 2020, Kropz completed a competitive tender for an updated feasibility study for the Hinda project. Hatch was appointed in February 2021 to complete the Hinda Updated FS, targeting a phased approach in line with the terms of the mining investment agreement.

Hatch completed the Hinda Updated FS and the outcomes were announced on 22 December 2021.

Highlights

·      The phased approach studied will initially deliver 1 Mtpa phosphate rock concentrate through the existing Port of Pointe-Noire ("Phase 1"), expanding to 2 Mtpa phosphate rock concentrate through a new port facility at Pointe Indienne ("Phase 2");

·      The Hinda Updated FS demonstrates low technical and mining risk and attractive project economics;

·      The mineral resource is unchanged from the 2018 Competent Persons Report, with 201 million tonnes of measured mineral resource at 11.6% P₂O₅ and 381 million tonnes of indicated mineral resource at 9.8% P₂O₅;

·      The Hinda Updated FS delivers a 28-year life of mine ("LOM"), extracting 31 million tonnes of ore in Phase 1 and 214 million tonnes of ore in Phase 2;

·      Estimated Phase 1 capital cost is US$ 355 million, Phase 2 capital cost is US$ 310 million (in real 2021 terms), with a nominal, peak funding requirement of US$ 392 million, as the first phase supports the subsequent Phase 2 expansion capital expenditure;

·      Phase 1 operating cost on a free-on-board ("FOB") basis is US$ 63 per tonne phosphate rock concentrate, and Phase 2 operating cost is US$ 70 per tonne phosphate rock concentrate, inclusive of mining royalties;

·      Using a December 2021 price forecast received from CRU on a FOB Pointe-Noire basis, the real LOM earnings before interest and taxation margin is US$ 65 per tonne of phosphate rock concentrate;

·      Estimated three-year execution schedule allows first revenue in 2025, assuming that the required funding is in place by the end of 2022; and

·      Base case, nominal internal rate of return ("IRR") of 19.2% and base case, ungeared, nominal net present value ("NPV") (at 11.1% discount rate) of US$ 397 million.

The phased approach was intended to reduce up-front execution capital requirements by making use of existing port facilities, thus limiting the first phase to 1 Mtpa phosphate rock concentrate.

The Hinda Updated FS included detailed engineering of the open pit mine, associated mine dewatering and surface water management, the beneficiation plant and all associated infrastructure, tailings storage facilities and water storage dam, a gas fired power plant and gas supply pipeline, a 30 kV overhead line ("OHL") to support construction and early works, mine access roads, an accommodation camp and port infrastructure. Costs and schedules associated with procurement, construction management and commissioning are also included.

Hatch delivered a robust execution strategy, which provides high confidence in achieving execution success. The beneficiation plant employs standard and proven technologies, and the design is based on extensive laboratory and pilot-scale test work completed between 2013 and 2016.

Further Opportunities

A mine plan was run, scheduling the immediate commencement of Phase 2 production, i.e. 2 Mtpa of phosphate rock concentrate to be exported through a new port facility. This opportunity led to a conservative increase in ungeared NPV (at 11.1% discount rate) to US$ 543 million with an IRR of 21%. The estimated capital cost for the immediate commencement of Phase 2 is US$ 618 million, based on the study work completed. If this option is studied further, it will be possible to optimise both capital and operating costs further.

Opportunities also exist to enter into a long-term power purchase agreement with one of several companies already established in-country. The capital cost of the gas fired power plant would therefore be removed from the estimate, although this would be offset by an increase in power costs.

A number of other capital cost optimisation initiatives have been identified for investigation ahead of detailed design.

Updated ESIA

The project has an approved environmental compliance certificate issued in April 2020, valid for 25 years. As a result of the modifications to the project in the Hinda Updated FS, the ESIA has been updated to comply with local regulations. The updated ESIA has been conducted in parallel with the execution of the Updated FS and was submitted to the RoC Ministry of Environment in December 2021.

Mining Investment Agreement ("MIA")

At the end of 2018, Kropz received the supervisory authority to initiate the process of ratification of the Hinda exploitation convention or MIA, which sets out the legal and fiscal framework under which Cominco S.A. would invest and operate within the RoC. The MIA was signed by all parties on 10 July 2018 and ratified by the RoC Government on 8 November 2021.

Declaration d'Utilite Publique ("DUP")

The Ministry of Land Tenure and Public Domain is responsible for managing land tenure and legal land rights in RoC. The land commission evaluates the land usage requirements of the Hinda Project and liaises with legal property owners and traditional land users to determine, based on the legislation, a baseline for land use to be used for compensation and relocation. This process is undertaken in line with IFC and other relevant standards.

The main declaration of public utility (DUP) process covering an area of 33 km² was launched in September 2020. Public consultations were organized by Cominco and CM2E. The initial land survey was carried out from end of November 2020 until mid-January 2021. Following optimisation through the Updated FS, the land footprint was reduced to 30 km².

The MIA states that expropriation costs and compensations are to be borne by the government of the RoC.

General

In country, given the COVID pandemic, focus was on progressing the port occupancy agreement and sustaining solid relations with the local communities. Kropz maintains communications with a number of key stakeholders, including government, and local service providers.

Mineral resources

The Hinda resource is defined below, on a total (gross) and net attributable basis. No additional drilling was conducted in 2021.

Mineral Resource Statement, as declared by SRK on 31 August 2018

Safety, health and environment

No environmental or safety incidents were reported during the year.

Sustainability

Cominco S.A. continued its interactions with the local communities associated with the Hinda project. On-going projects include the funding of teachers at local schools, educational support for vulnerable children, and food security projects through the establishment of nurseries.

Post reporting period events

The first phase of construction of a small office at the future construction site near PK Mbili has been complete. Additional works are ongoing. The routing for the 30 kV OHL has been finalised and surveyed, and the tie-in point with the existing Mboundi power station has been confirmed.

A memorandum of understanding has been signed with Italian gas major, ENI, in a move to secure the gas supply for the gas fired power plant and the concentrate dryer, both located at the mine site. Discussions with the port authority are ongoing to secure a port access agreement.

Strategy

The Company's long-term strategy is to build a portfolio of high-quality phosphate mines and to be a major player within the sub-Saharan African plant nutrient sector. Its priority is to bring Elandsfontein to steady-state production and then to develop Hinda.

Business model

The Company's business model is to source high-quality resources and to bring them into production to contribute to the Company's strategic competitiveness and profitability.

Once production has commenced at Elandsfontein and Hinda, the Company may consider acquiring additional assets and/or adding downstream beneficiation opportunities, where the Board believes shareholder value could be increased.

Objectives and outlook for the year ahead

Objectives

Kropz

Kropz's overriding objective is to deliver strong shareholder and stakeholder returns over the long term.

Elandsfontein

The primary focus of the year ahead will be to increasing ramp-up of operations to achieve nameplate capacity and enable the first commercial bulk shipment of phosphate rock concentrate while optimising process recoveries. Full production capacity is expected in Q4 2022.

Hinda

Further to the completion of the Hinda Updated FS in December 2021, management is working to secure funding to commence with project development in accordance with the MIA.

Outlook

Kropz's Elandsfontein project delivered first production in early 2022. The Company is confident in the inherent value contained within each of its core assets. Global phosphate rock demand and pricing is robust, and the work being carried out will provide Kropz with direction for the next phase of its development, subject to short-term challenges being managed. The year ahead should provide the Company with a solid foundation for its future development.

Financial review for the year ended 31 December 2021

Summary financial highlights for the year:

·      Cash and cash equivalents of US$ 2 million (2020: US$ 12 million)

·      Restricted cash in terms of the amended facility agreement between Kropz Elandsfontein and BNP of US$ 5 million (2020: US$ 7 million). The restricted cash was released by BNP on 10 January 2022;

·      Various equity and debt raises as set out in "Highlights" on page 1;

·      Trade and other payables of US$ 4 million (2020: US$ 5 million); and

·      Property, plant, equipment and development and exploration assets of US$ 180 million (2020: US$ 159 million).

Key performance indicators

The Company is a mining and development entity whose assets comprise a mine and plant in the ramp-up phase in South Africa and an exploration asset in the RoC. Currently, minor revenues have been generated from local sales in South Africa. The key performance indicators for the Company will be first bulk production of phosphate rock from Elandsfontein, achieving steady state production and the successful advancement of the Hinda project.

Principal risks and uncertainties

The Company and its subsidiaries ("the Group") are subject to various risks relating to political, economic, legal, social, industry, business and financial conditions. The following risk factors, which are not presented in any order of priority, do not purport to be a complete list or explanation of all the risks involved in the Company or the Group's activities.

Ramp-up of Elandsfontein

The Elandsfontein project may require further funding to achieve steady state operations in Q4 2022. Any delays in securing of additional funding will have an adverse impact on the business and financial performance of the operation. There can be no guarantee that implementation of the recently completed modifications identified by the Company and its technical consultants will result in a successful long-term operation of the mine. Failure to achieve ramp-up of the Elandsfontein project, or a significant delay in the completion of ramp-up, could result in a material adverse impact on the business, and the financial performance and position of the Group. Further, see risk factor: COVID outbreak.

Access to infrastructure

Mining, processing, development and exploration activities depend, to a significant degree, on adequate infrastructure. In the course of developing Hinda, the Group may need to construct and support the construction of infrastructure, which includes permanent water supplies, tailings storage facilities, power, logistics services and access roads.

Reliable roads, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could materially adversely affect the Group's operations, financial condition and results of operations. Any such issues arising in respect of the supporting infrastructure or on the Group's sites could materially adversely affect the Group's results of operations or financial condition.

Furthermore, any failure or unavailability of the Group's operational infrastructure (for example, through equipment failure, disruption to its transportation arrangements or reduced port capacity) could materially adversely affect the production output from its mines or development of a mine or project.

Limited or reduced port capacity at the Port of Saldanha, as well as the associated cost increase for procuring alternative logistics could have an adverse impact on the business and financial performance of the Group.

Operational targets

The Group's principal asset, the Elandsfontein project, is an early stage mining and production project that has no operating track record upon which to base estimates of future production rates, operating costs, capital expenditures or financial performance. The operational targets of the Group will be subject to the completion of planned operational goals on time and according to budget, and are dependent on the effective support of personnel, systems, procedures and controls. Any failure of these may result in delays in the achievement of operational targets with a consequent material adverse impact on the business, operations and financial performance of the Group. It is, therefore, possible that mining and production rates might fluctuate.

The financial performance of the Group is subject to its ability to achieve a target concentrate specification and production efficiency at its Elandsfontein project, according to its pre-determined budget. Failure to do this may result in failure to achieve operational targets with a consequent material adverse impact on the business, operations and financial performance of the Group. Further, mining and production rates might fluctuate.

Excessive overburden stripping, non-economical mining of ore and the dilution of feed grade to the processing facility could all have an adverse impact on the processing operations. Furthermore, a high variability in the daily feed grades could also have an adverse impact on operations and financial performance of the Group.

Any further unscheduled interruptions in the Group's operations due to mechanical or other failures or industrial relations related issues or problems or issues with the supply of goods or services could have a serious impact on the financial performance of those operations.

New entrant risk

Kropz Elandsfontein will, once production has been achieved of a commercial saleable grade product, be a new entrant in the global phosphate rock market, selling its products into a globally competitive and established market.

There can be no guarantee that the sales estimates set by Kropz Elandsfontein will be achieved until a successful track record has been achieved. Not achieving appropriate selling prices for its commercial grade products, would have a material adverse effect on the business, operations and financial performance of the Group.

Mining risks

The business of mining and mineral processing involves a number of risks and hazards, including industrial accidents, labour disputes, community conflicts, activist campaigns, unusual or unexpected geological conditions, geotechnical risks, ore variability, equipment failure, changes in the regulatory environment, environmental hazards, ground water and weather and other natural phenomena such as earthquakes and floods. The Group may experience material mine or plant shutdowns or periods of reduced production as a result of any of the above factors. Such occurrences could result in material damage to, or the destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental and natural resource damage, delays in mining, monetary losses and possible legal liability, and may result in actual production differing, potentially materially, from estimates of production, whether expressly or by implication. There can be no assurance that the realisation of operating risks and the costs associated with them will not materially adversely affect the results of operations or financial conditions of the Group.

Geotechnical, ore variability, geological and hydrogeological risks could have a material adverse impact on the safety, business and financial performance of the Group's operation.

Failure to successfully dewater the mining area and maintain water levels in the mining area at the Elandsfontein project could have a material adverse impact on the operational performance, financial performance and financial condition of the Group.

Enforcement of contractual rights in the RoC

The legal system in the RoC is based on the French civil law system (the Civil Code of the former French Equatorial Africa), which has enacted the Uniform Act to harmonise business law in Africa in order to guarantee legal and judicial security for investors and companies in its member states, as well as a Uniform Act on Arbitration Law, allowing recourse to a standard arbitration mechanism for the settlement of contractual disputes arising from civil or commercial contracts concluded in the RoC as an alternative to RoC courts for legal proceedings relating to contracts.

Under Congolese law, parties may enter into private contracts in the language of their choice, however, a French translation is always required for them to be used before any constituted authority in the RoC. In addition, enforcement of contracts concluded outside of Congo before an RoC court, administrations and other constituted authorities, requires their prior registration with the Office for Registration and Stamp Duties and, in the absence of a specific exemption, payment of the applicable registration fees and stamp duties.

Certain contracts concluded in the RoC (such as leases) must also be presented for registration with the Office for Registration and Stamp Duties, due to their nature and listing in the General Tax Code, Volume 2. Moreover, certain contracts (such as commercial leases) must also be notarised or authenticated by a notary if concluded as private deeds, prior being registered as described above.

If any of these processes are not strictly followed, the RoC courts and administrations may disregard the concerned contract and, as regards the requirement to register certain contracts with the Office for Registration and Stamp Duties, the tax administration may apply fines of 100% of the amount of registration fees due. Further, the tax administration tends to disregard any payment convention exemption for the purpose of applying these fines.

If any of the Group's contracts are deemed unenforceable, this could have a material adverse effect on the operations and financial results of the Group.

COVID outbreak

The outbreak of COVID has had an impact on the Group's businesses and operations and will continue to do so. The timescale attached to this risk is not currently known. There is a risk that the outbreak, and subsequent waves of infections in different countries, has a material adverse impact on the Group's operations and financial results.

Directives are issued and measures implemented, from time to time, by the South African and RoC Governments to contain the spread of COVID involving lockdowns, curfews, quarantine requirements and travel restrictions ("Directives"). Kropz continuously monitors the situation closely, both in South Africa and the RoC, and codes of practice are in place to deal with outbreaks on site.

Kropz is currently unable to quantify the impact of the Directives going forward, but the Group will continue to progress all its workstreams as previously outlined.

Commodity pricing

The future profitability and viability of the Group's operations will be dependent upon the market price of phosphate rock to be sold by the Group. Mineral prices fluctuate widely and are affected by numerous factors beyond the control of the Company. The level of interest rates, the rate of inflation, the world supply of mineral commodities, the global level of demand from consumers and the stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems and political developments. Commodity prices have fluctuated widely in recent years, and future price declines could cause commercial production to be impracticable, thereby having a material adverse effect on the Company's business, financial condition and results of operations. A significant or sustained downturn in commodity prices would adversely affect the Group's available cash and liquidity and could have a material adverse effect on the business, results of operations and financial condition of the Group in the longer term.

In addition to adversely affecting the Group's reserve estimates and its financial condition, declining commodity prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the Elandsfontein project and the Hinda project are ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed.

Environmental regulation and environmental compliance

Mining operations have inherent risks and liabilities associated with damage to the environment and the disposal of waste products occurring as a result of mineral exploration and production. Environmental and safety legislation and regulation (e.g. in relation to reclamation, disposal of waste products, pollution and protection of the environment, protection of wildlife and otherwise relating to environmental protection) is frequently changing and is generally becoming more restrictive with a heightened degree of responsibility for companies and their Directors and employees and more stringent enforcement of existing laws and regulations. Future changes could impose significant costs and burdens on the Group (the extent of which cannot be predicted) both in terms of compliance and potential penalties, liabilities and remediation.

Breach of any environmental obligations could result in penalties and civil liabilities and/or suspension of operations, any of which could adversely affect the Group. Further, approval may be required for any material plant modifications or additional land clearing and for ground disturbing activities. Delays in obtaining such approvals could result in the delay to anticipated exploration programmes or mining activities.

There may also be unforeseen environmental liabilities resulting from mining activities, which may be costly to remedy. If the Group is unable to fully remedy an environmental problem, it may be required to stop or suspend operations or enter into interim compliance measures pending completion of the required remedy. The potential exposure may be significant and could have a material adverse effect on the Group. The Group has not purchased insurance for environmental risks (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) as it is not generally available at a price which the Group regards as reasonable.

In South Africa, the Regulations Pertaining to the Financial Provision for Prospecting, Exploration, Mining or Production Operations 2015 (R1147 of 20 Nov 2015) provides that the holder of a mining right must provide for rehabilitation and remediation costs, with particular reference to when the mine is decommissioned at the end of mining, or production operations. It is expected that mining operations at Elandsfontein will cease in year 2032. The under-provision of such a rehabilitation liability could result in future liabilities being payable, which could have a material adverse impact on the financial condition of the Group.

Government regulation and political risk

The Group's operating activities are subject to laws and regulations governing expropriation of property, health and worker safety, employment standards, waste disposal, protection of the environment, mine development, land and water use, prospecting, mineral production, exports, taxes, labour standards, occupational health standards, toxic wastes, the protection of endangered and protected species and other matters. While the Directors believe that the Group is in compliance with all material current laws and regulations affecting its activities, future changes in applicable laws, regulations, agreements or changes in their enforcement or regulatory interpretation could result in changes in legal requirements or in the terms of existing permits and agreements applicable to the Group or its properties, which could have a material adverse impact on the Group's current operations or planned development projects. Where required, obtaining necessary permits and licences can be a complex, time consuming process and the Group cannot assure whether any necessary permits will be obtainable on acceptable terms, in a timely manner or at all.

The costs and delays associated with obtaining necessary permits and complying with these permits and applicable laws and regulations could stop or materially delay or restrict the Group from proceeding with any future exploration or development of its properties. Any failure to comply with applicable laws and regulations or permits, even if inadvertent, could result in interruption or closure of exploration, development or mining operations or material fines, penalties or other liabilities.

The Group has operations located in South Africa and the RoC and the Group's activities may be affected in varying degrees by political stability and governmental regulations. Any changes in regulations or shifts in political attitudes in South Africa and the RoC are beyond the control of the Group and may adversely affect its operations.

Adverse sovereign action

The Group is exposed to the risk of adverse sovereign action by the governments of South Africa, RoC and other governments. The mining industry is important to the economies of these countries and thus can be expected to be the focus of continuing attention and debate. In similar circumstances in other developing countries, mining companies have faced the risks of expropriation and/or renationalisation, breach or abrogation of project agreements, application to such companies of laws and regulations from which they were intended to be exempt, denials of required permits and approvals, increases in royalty rates and taxes that were intended to be stable, application of exchange or capital controls, and other risks.

Environmental, social and governance ("ESG") and climate change

As the focus on ESG increases, there are increasing environmental, social and governance risks that may affect the Group's ability to raise capital; obtain permits; work with communities, regulators and NGOs; and/or protect its assets from impairments.

At Kropz, we acknowledge that our business activities affect the society and environment around us, and that we have an opportunity and an implicit duty to ensure this impact is positive. We also believe that efficient and sustainable operations are a necessities for long-term value creation.

We are committed to taking responsibility when conducting our business by integrating ESG factors into our investment decisions and operational processes. Given the stage of development of Kropz, social initiatives have been limited to those outlined above at Elandsfontein.

Climate change could potentially affect the demand for fertilisers by impacting global agricultural activity.  This in turn could affect the demand for fertiliser feed materials, and could cause events such as prolonged droughts that could reduce the availability of water at the different project sites.

As the Kropz operations develop, more initiatives will be undertaken on the ESG front and progress on these will be reported on in the next annual report.

Governance

The Board considers sound governance as a critical component of the Group's success and the highest priority. The Company has an effective and engaged Board, with a strong non-executive presence from diverse backgrounds, and well-functioning governance committees. Through the Group's compensation policies and variable components of employee remuneration, the Remuneration and Nomination Committee ("Remuneration Committee") of the Board seeks to ensure that the Company's values are reinforced in employee behaviour and that effective risk management is promoted.

More information on our corporate governance can be found in the Corporate Governance Report on pages 43 to 55.

Directors' section 172 statement

The following disclosure describes how the Directors have had regard to the matters set out in section 172 and forms the Directors' statement required under section 414CZA of The Companies Act 2006. This reporting requirement is made in accordance with the corporate governance requirements identified in The Companies (Miscellaneous Reporting) Regulations 2018, which apply to company reporting on financial years starting on or after 1 January 2019.

The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

a.     the likely consequences of any decision in the long term;

b.     the interests of the Company's employees;

c.     the need to foster the Company's business relationships with suppliers, customers and others;

d.     the impact of the Company's operations on the community and the environment;

e.     the desirability of the Company maintaining a reputation for high standards of business conduct; and

f.      the need to act fairly between members of the Company.

The analysis is divided into two sections, the first to address stakeholder engagement, which provides information on stakeholders, issues and methods of engagement. The second section addresses principal decisions made by the Board and focuses on how the regard for stakeholders influenced decision-making.

Section 1: Stakeholder mapping and engagement activities within the reporting period

The Company continuously interacts with a variety of stakeholders important to its success, such as equity investors, joint venture partners, debt providers, employees, government bodies, local community and vendor partners. The Company works within the limitations of what can be disclosed to the various stakeholders with regards to maintaining confidentiality of market and/or commercially sensitive information.

Section 2: Principal decisions by the Board

Principal decisions are defined as both those that have long-term strategic impact and are material to the Group, but also those that are significant to key stakeholder groups. In making the following principal decisions, the Board considered the outcome from its stakeholder engagement, the need to maintain a reputation for high standards of business conduct and the need to act fairly between the members of the Company.

During the financial year ending 31 December 2021

Divestment by the Company of its equity interest in Aflao, Ghana, entered into on 16 February 2021

During 2020, the Board agreed to divest from its 50% plus 1 share interest in First Gear Exploration Limited ("FGE"), the owner of the Aflao prospecting right. During February 2021, Kropz disposed of its interest in FGE to Consortium Minerals Ltd ("Consortium"), for a consideration of US$ 327,529, made up as follows:

·      US$ 5,000 in cash ("Share Consideration"); and

·      US$ 322,529 ("Loan Consideration") deferred cash consideration in respect of the shareholder loan from Kropz to FGE, which is being novated to Consortium.

The Share Consideration was payable by Consortium within seven days of completion. The Loan Consideration will be payable by Consortium to Kropz upon, the earlier of,

(i)      the sign-off by a competent person of a definitive feasibility study on the Aflao deposit, as defined in the JORC Code 2012 edition; or

(ii)     Consortium disposing or transferring the Shares prior to the event described in (i) being achieved; or

(iii)    Consortium disposing or transferring the prospecting right prior to the event described in (i) being achieved.

Consortium is a subsidiary of Russell Brooks Ltd, who is a minority shareholder in FGE, with a 15% shareholding prior to the acquisition from Kropz.

The decision is aligned with the business model set out in the Company strategy, which was to invest in high quality assets in the phosphate rock market.

In making the above principal decisions, the Directors believe that they have considered all relevant stakeholders, potential impact and conflicts, the Company's business model and its long-term strategic objectives, and have acted accordingly to promote the success of the Company for the benefit of its members as a whole.

Convertible loan facility for US$ 5 million from ARC, entered into on 15 February 2021

Kropz secured the Further Equity Facility of up to US$ 5 million (not exceeding a maximum of ZAR 85 million) from ARC in February 2021, to be used exclusively for the Hinda Updated FS and general corporate purposes for Kropz. Quarterly drawdowns under the Equity Facility are at the sole discretion of Kropz. The first draw down of US$ 2 million on the Further Equity Facility occurred on 10 March 2021, the second draw down of US$ 2 million occurred on 23 June 2021, the third drawdown of US$ 400,000 occurred on 10 September 2021 and the fourth drawdown of US$ 400,000 occurred on 10 December 2021. The fifth and final drawdown of the Further Equity Facility occurred on 10 March 2022.

No specific shareholder approval was required for the Further Equity Facility as the Company received the necessary authority at the AGM in August 2020 to allot shares for cash, without first offering them to existing shareholders in proportion to their existing shareholdings, of approximately 20% of the Company's issued share capital at that time, representing 88,792,180 new ordinary shares. Ordinary shares to be issued to ARC in terms of the Further Equity Facility will be a maximum of 86,863,398 ordinary shares.

Repayment of the Further Equity Facility and any interest thereon will be in the form of immediate conversion into ordinary shares in Kropz and issued to ARC, at a conversion price of 4.202 pence per ordinary share each quarter, and any US$ amount will be converted to GBP at an agreed rate of US$ 1 = 0.73 GBP.

The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.

Existing shareholders may have conflicting interests with the Further Equity Facility due to potential dilution of their shareholding. The Directors considered the impact of this and concluded that obtaining the convertible facility from ARC was the only funding opportunity available to the Company in order to secure funding for the Hinda Update FS and for general working capital for the Group. Various funding alternatives had been investigated by the Directors, in conjunction with its brokers and advisers, over the last year, both from an equity raise perspective and through possible project finance facilities.  Equity markets were subdued and no new or existing equity investors were prepared to provide the funding required for the Hinda Updated FS and Kropz's working capital requirements.

Due to the fact that Machiel Reyneke, the ARC representative on the Board, and Mike Nunn, representing Kropz International are considered to be concert parties, they were not permitted to consider or vote on the approval of the proposed US$ 5 million Further Equity Facility by the Board. The independent, non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, considered the transaction to be fair and reasonable.

As a result of the Further Equity Facility, ARC could increase its interest in the Company by a further approximate 2%, taking its eventual interest in the Company to approximately 84%.

The conclusion was that the Further Equity Facility was fair and reasonable, and the transaction was approved by the independent Directors, in consultation with the nominated adviser, and announced on RNS on 26 February 2021.

Convertible loan facility for ZAR 200 million from ARC, entered into on 29 September 2021

Kropz secured the New ZAR Equity Facility of up to ZAR 200 million from ARC in September 2021, to be used exclusively for the delivery of the Company's Elandsfontein project to first revenue.

The New ZAR Equity Facility comprised a total commitment of up to ZAR 200 million provided by ARC, which can be drawn down at the discretion of Kropz, as follows:

·      ZAR 127 million from 15 October 2021 and up to 30 April 2022; and

·      ZAR 73 million from the date as determined by ARC, and at its discretion, but no earlier than 15 October 2021 and until a further date as determined by ARC.

At any time during the term of the New ZAR Equity Facility, repayment of the New ZAR Equity Facility capital amount will, at the election of ARC, either be:

·      In the form of the conversion into ordinary shares of 0.1 pence each in the Company and issued to ARC, at a conversion price of 4.5058 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21 September 2021, and at fixed exchange rate of GBP 1 = ZAR 20.24 ("Conversion"); or

·      Payable in cash by the Company at the end of the term of the New ZAR Equity Facility.

The New ZAR Equity Facility would bear interest at 14% per annum and would be compounded monthly ("Interest"). Interest would be payable in cash to ARC by the Company. The term of the New ZAR Equity Facility would be from 15 October 2021, to the earlier of 5 years from 15 October 2021, or one year after the term loan facility provided by BNP Paribas to Kropz Elandsfontein (Pty) Ltd (in the amount not exceeding US$ 30 million), had been repaid.

The New ZAR Equity Facility was secured by the shares which Kropz holds in Cominco Resources Ltd ("Share Charge").

The first draw down of ZAR 90 million on the New Equity Facility occurred on 26 October 2021 and the second draw down of ZAR 37 million occurred on 10 December 2021.

Post 31 December 2021, the third drawdown of ZAR 40 million occurred on 16 March 2022 and the fourth drawdown of ZAR 33 million occurred on 26 April 2022. The New ZAR Equity Facility is fully drawn at the date of this annual report.

Specific shareholder approval was required for the New ZAR Equity Facility, which shareholder approval was obtained on 15 October 2021. Ordinary shares to be issued to ARC in terms of the New ZAR Equity Facility, if so elected by ARC, would be a maximum of 219,304,517 ordinary shares.

The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.

Existing shareholders may have conflicting interests with the New ZAR Equity Facility due to potential dilution of their shareholding. The Directors considered the impact of this and concluded that obtaining the convertible facility from ARC was the only funding opportunity available to the Company in order to secure funding for the delivery of the Elandsfontein project to first revenue. Various funding alternatives had been investigated by the Directors, in conjunction with its brokers and advisers, over the last year, both from an equity raise perspective and through possible project finance facilities. Equity markets were subdued and no new or existing equity investors were prepared to provide the required funding.

Due to the fact that Machiel Reyneke, the ARC representative on the Board, and Mike Nunn, representing Kropz International are considered to be concert parties, they were not permitted to consider or vote on the approval of the proposed New ZAR Equity Facility by the Board. The independent, non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, considered the transaction to be fair and reasonable.

As a result of the New Equity Facility, ARC could increase its interest in the Company by a further approximate 3%, taking its eventual interest in the Company to approximately 87%.

The conclusion was that the New ZAR Equity Facility was fair and reasonable and the transaction was approved by the independent Directors, in consultation with the nominated adviser, and announced on RNS on 29 September 2021.

Post 31 December 2021

As announced on 18 January 2022, Kropz issued 6,700,000 ordinary shares, at an exercise price of £0.001 an ordinary share, in the Company to key members of the executive management team, including certain PDMRs. The issue of ordinary shares are due to awards vesting and issued under its LTIP Awards, issued on 31 July 2020 as announced on 4 August 2020. Of the total above, 2,350,000 ordinary shares were issued to Mark Summers, 2,350,000 ordinary shares to Michelle Lawrence and 1,000,000 to Patrick Stevenaert.

BNP Paribas released the ZAR 77 million restricted cash in the bank account of Kropz Elandsfontein (Pty) Ltd on 10 January 2022, upon satisfaction of the requirement by BNP Paribas for the Group to bridge the funding shortfall in respect of Elandsfontein as announced on 1 September 2021. The funding shortfall was satisfied when the New ZAR Equity Facility was secured from ARC.

Convertible loan facility for ZAR 177 million from ARC, entered into on 11 May 2022

As announced on 27 April 2022, a funding shortfall of approximately US$ 11 million (approximately ZAR 177 million) was expected due to slower than expected progress in the ramp up of operations at Kropz Elandsfontein, production of sufficient phosphate rock concentrate for the first bulk sale would move to later than originally expected.

The ZAR 177 Million Equity Facility was in addition to the New ZAR Equity Facility, which ARC and the Company entered into in February 2021.

As announced on 27 April 2022, Kropz and ARC entered into a further ZAR 25 million (approximately US$ 1.60 million) bridge loan facility (the "Loan") to meet immediate cash requirements at Elandsfontein at the end of April 2022, expected to be ZAR 58 million. When the ZAR 177 Million Equity Facility becomes unconditional, the Loan will be offset against it leaving ZAR 152 million available for future drawdown. 

The ZAR 177 Million Equity Facility comprises a total commitment of up to ZAR 177 million provided by ARC, which can be drawn down at the discretion of ARC.

At any time during the term of the ZAR 177 Million Equity Facility, repayment of the ZAR 177 Million Equity Facility capital amount would, at the election of ARC, either be:

·      In the form of the conversion into ordinary shares of 0.1 pence each in the Company and issued to ARC, at a conversion price of 9.256 pence per ordinary share each, representing the 30-day VWAP on 4 May 2022, and at a fixed exchange rate of ZAR 1 = GBP 0.0504 ("Further Conversion"); or

·      Payable in cash by the Company at the end of the term of the ZAR 177 Million Equity Facility.

The first drawdown of ZAR 103.5 million was made on 2 June 2022. Following a Further Conversion, the Company would apply for the newly issued Ordinary Shares in the capital of the Company to be admitted to trading on AIM.

The ZAR 177 Million Equity Facility will bear interest at 14% per annum and will be compounded monthly and will be payable in cash to ARC by the Company.

The term of the ZAR 177 Million Equity Facility is from 2 June 2022 to the earlier of:

·      Five years from 2 June 2022; or

·      One year after the term loan facility provided by BNP Paribas to Kropz Elandsfontein (in the amount not exceeding US$ 30 million), has been repaid;

The ZAR 177 Million Equity Facility is secured by the shares that Kropz holds in Cominco Resources Ltd.

The ZAR 177 Million Equity Facility was conditional on:

·      approval from the SARB. The SARB application was lodged on 17 May 2022 and the approval received on 1 June 2022; and

·      shareholder approval of the Company which was received on 30 May 2022.

The ZAR 177 million Equity Facility was above the authorisation limits given at the last Annual General Meeting in June 2021. Specific shareholder approval was required for the ZAR 177 Million Equity Facility, which shareholder approval was obtained on 30 May 2022. Ordinary shares to be issued to ARC in terms of the New ZAR 177 Million Equity Facility, if so elected by ARC, would be a maximum of 96,378,566 ordinary shares.

The key stakeholder groups that could be materially impacted are existing shareholders and potential investors.

Existing shareholders may have conflicting interests with the ZAR 177 Million Equity Facility due to potential dilution of their shareholding. The Directors considered the impact of this and concluded that obtaining the convertible facility from ARC was the only funding opportunity available to the Company in order to secure funding for the delivery of the Elandsfontein project to first revenue. Various funding alternatives had been investigated by the Directors, in conjunction with its brokers and advisers, over the last year, both from an equity raise perspective and through possible project finance facilities.  Equity markets were subdued and no new or existing equity investors were prepared to provide the required funding.

Due to the fact that Machiel Reyneke, the ARC representative on the Board, and Mike Nunn, representing Kropz International are considered to be concert parties, they were not permitted to consider or vote on the approval of the proposed US$ 5 million Further Equity Facility by the Board. The independent, non-executive Directors, being Lord Robin Renwick, Linda Beal and Mike Daigle, and the CEO, Mark Summers, considered the transaction to be fair and reasonable.

As a result of the New ZAR Equity Facility and the ZAR 177 Million Equity Facility, ARC could increase its interest in the Company by a further approximate 4.3%, taking its eventual interest in the Company to approximately 87.5%.

The conclusion was that the ZAR 177 Million Equity Facility was fair and reasonable and the transaction was approved by the independent Directors, in consultation with the nominated adviser, and announced on RNS on 11 May 2022.

This Strategic Report was approved by the Board of Directors.

Mark Summers

Chief Executive Officer

28 June 2022

Consolidated Statement of Financial Position

As at 31 December 2021

Consolidated Statement of Financial Position

As at 31 December 2021 (continued)

The notes form an integral part of these Consolidated Financial Statements. The Financial Statements were approved and authorised for issue by the Board of Directors and signed on its behalf by:

Mark Summers

Chief Executive Officer

28 June 2022

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2021