The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (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 September 2024

Kropz Plc

("Kropz" or the "Company")

Final Audited Results for the period ended 31 March 2024

and

Notice of General Meeting

 

 

Kropz plc (AIM: KRPZ), an emerging African phosphate producer, is pleased to announce its Final Audited Results for the 15-month period ended 31 March 2024 and the publication of the Company's Annual Report and Accounts.

 

The full financial report will be available online immediately on the Company's website at www.kropz.com and will be posted to shareholders that have elected to receive printed copies today.  Printed copies will, therefore, be available to shareholders who have elected to receive them during the course of the week.

 

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 4 November 20224 at 12:30 p.m.

 

 

Highlights

 

 

Key developments during the financial period ended 31 March 2024

 

Corporate

 

·    Kropz plc ("Kropz'' or the "Company'') changed its accounting reference date from 31 December to 31 March in November 2023. Accordingly, these financial statements cover the 15 months from 1 January 2023 to 31 March 2024. Comparative amounts are for the year ended 31 December 2022.

·      As announced on 16 January 2023, Kropz appointed Louis Loubser to the board of the Company as Chief Executive Officer ("CEO") and executive director.

·      Michelle Lawrence resigned as Chief Operating Officer of Kropz and as an executive director of Kropz Elandsfontein with effect from 1 January 2023. Mark Maynard was appointed Chief Operating Officer with effect from 1 January 2023.

·      PKF Littlejohn LLP has been appointed as the group auditors for the financial period to 31 March 2024.

·      The third, fourth and final fifth drawdown on the ZAR 550 million Equity Facility with the ARC Fund occurred during the financial period.

·      As announced on 14 March 2023, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 285 million (approximately US$ 15.5 million) of bridge loan facility ("Loan 1") to meet immediate cash requirements at Kropz Elandsfontein.  The full loan was drawn down at 31 March 2024.

·      As announced on 14 September 2023, Kropz Elandsfontein and ARC Fund ("ARC") agreed to a further ZAR 250 million (approximately US$ 13.2 million) of bridge loan facility ("Loan 2") to meet immediate cash requirements at Kropz Elandsfontein. The full loan was drawn down at 31 March 2024.

·      As announced on 15 December 2023, Kropz Elandsfontein and ARC Fund ("ARC") agreed to a ZAR 115 million (approximately US$ 6 million) of bridge loan facility ("Loan 3") to meet immediate cash requirements at Kropz Elandsfontein. The full loan was drawn down at 31 March 2024.

·      As announced on 27 March 2024, Kropz Elandsfontein and ARC Fund ("ARC") agreed to a ZAR 170 million (approximately US$ 9 million) of bridge loan facility (the "Loan 4") to meet immediate cash requirements at Kropz Elandsfontein. The full loan was drawn down at 31 March 2024.

 

Elandsfontein

·      The focus at the Elandsfontein project continued to be the production ramp-up of the mine and beneficiation plant.

·      The first bulk shipments and trial sales have been recorded with a total of 343,366 tonnes of phosphate concentrate sales over the 15 months ending 31 March 2024 from Elandsfontein.

·      Sales volumes are below expectations due to the lack of available stock on hand. Production has been negatively impacted by unprecedented seasonal rains during the period under review and continued ore variability. While the Company is still ramping up to steady state production a gross loss has been recognised in the period due to discounted sales prices as a new market entrant and operating below full production level resulting in a cost per tonne higher than would be expected once in full production.

·      During the financial period, further delays were experienced in the commissioning ramp up of operations at Elandsfontein resulting in further funding shortfalls due to:

·      The requirement to re-engineer parts of the fine flotation circuit as proposed by the vendor;

·      The lack of operator expertise and experience;

·      Mining rates and associated delivery of ore to the plant being compromised due to the presence of competent banks of hard material within the orebody, that were previously unknown. Subsequently, the vendor has provided design changes which were implemented at the plant, additional operator training was conducted and new equipment was brought to site to facilitate mechanical breaking which has been effective to date, but alternative methods are being considered;

·      The Western Cape has experienced unprecedented rain this season which has led to severely wet mining conditions and has hindered ore delivery to the plant and concentrate production during the period. This is being addressed by increased drainage, and

·      Production throughput is also being limited by the nature of slimes material and, the Company is investing in new equipment to seek to overcome this and aims to increase production throughput.

·      To quantify and assess the impact of the hard material on the future mine plan, an infill drilling programme was undertaken.

·      Independent geological consultants were commissioned which provided an updated JORC (2012) compliant Mineral Resource Estimate ("MRE"):

·      The 2023 Reserve estimate was positively affected by the completed infill and exploration drilling, which significantly improved the total declared Measured and Indicated Mineral Resources. The Ore Reserves are stated at 30 September 2023, and account for the pit depletions up until the end of September 2023;

·      Total Measured and Indicated resource tonnage has increased by approximately 72%, while the total resource tonnage has reduced by 30%;

·      Decrease in total phosphate resources at Elandsfontein to 74.23 million tonnes ("Mt") from 106.58 million tonnes in 2022; and

·      Total Reserves are estimated at 26.63 Mt at a P₂O₅ grade of 9.38% of which 16.56 Mt is Proven at 10.25% P₂O_5, this compares to the previous estimate of 17.42 Mt at 9.19% P₂O₅.

 

Hinda

 

·      The Company is still in the process of identifying potential funding solutions for the development of Hinda.

·      Engagement is ongoing with local government regarding project development and progress.

·      A reduced-sized project is being assessed to propose a fit-for-purpose low capex project to prove the concept of producing phosphate concentrate in the Congo and exporting it.

 

Key developments post the financial period end

 

Corporate

 

·        As more fully described in Note 34 Material Subsequent Events, in September 2024, the Group announced a restructuring of its debt obligations ("Restructuring") and a fundraising that was conditional on shareholders' approval . and approval by the South African Reserve Bank ("SARB").. As a result of the Restructuring, Kropz Elandsfontein (Pty Ltd and Kropz Elandsfontein Land Holdings (Pty) Ltd (the "Elandsfontein Subsidiaries") will extinguish their debt obligations to ARC. Kropz will have convertible debt of £88.9 million (including accumulated interest) outstanding with ARC, being the aggregate of a new Convertible Loan Note ("CLN") and existing equity facilities (the "Existing Equity Facilities"). Additionally, , Kropz will complete a fundraising of £8.9 million from ARC and other shareholders before expenses through the issue of new Ordinary Shares an Issue Price of 1.387 pence per new Ordinary Share in the capital of the Company (the "Fundraising").. The Issue Price represents a discount of approximately 5 per cent. to the 30-day volume weighted average share price per existing Ordinary Share to 23 August 2024. In aggregate, 643,873,018 new Ordinary Shares will be allotted and issued pursuant to the Fundraising.

·      The Company previously announced on 3 April 2024 that BNP had extended its waiver to allow compliance for the period to 30 June 2024. BNP have also extended the waiver to 30 September 2024, the latest waiver expiry date coincides with the final payment date.

·      As announced on 11 July 2024, Kropz Elandsfontein and ARC Fund ("ARC") agreed to a ZAR 140 million (approximately US$ 8 million) bridge loan facility (the "Loan") to meet immediate cash requirements at Kropz Elandsfontein. The loan was fully drawn at 22 August 2024.

 

Elandsfontein

 

·        Elandsfontein achieved production of 132,706 tonnes of phosphate concentrate and sales of 112,752 tonnes of phosphate concentrate from April 2024 to August 2024.

·        Kropz had started building its customer base over the 15 months ending 31 March 2024. The Company's rock phosphate has been qualified at customers in South Korea, Australia, New Zealand and Brazil at both single superphosphate ('SSP") and Phosphoric acid producers.

·        Since the start of the 2024 calendar year, Kropz's core customer base was narrowed down to focus on South Korea, Australia, New Zealand and Brazil, where the special properties of Kropz Rock Phosphate (Low Cadmium, - toxic metals, - moisture, - odour and - CaO levels) are complementary to country rules dictating the final product properties.

·        Management expects there to be more than sufficient demand for Elandsfontein's Rock Phosphate forecast production to the end of 2025. Two shipments have been planned for qualification trials in both India and Europe to further diversify the customer base.

 

Hinda

 

·       The reduced sized project continues to be assessed to propose a fit-for-purpose low capex project to prove the concept of producing phosphate concentrate in the Congo and exporting it. The update of the project feasibility is ongoing. Cominco has engaged with two engineering firms and local contractors.

·       The Company continues to invest in and prioritise ongoing community projects.

 

 

For further information visit www.kropz.com or contact:

Kropz Plc	Via Tavistock
Louis Loubser (CEO)	+44 (0) 207 920 3150
Grant Thornton UK LLP	Nominated Adviser
Samantha Harrison Harrison Clarke Ciara Donnelly	+44 (0) 20 7383 5100
Hannam & Partners	Broker
Andrew Chubb Ernest Bell	+44 (0) 20 7907 8500
Tavistock	Financial PR & IR (UK)
Nick Elwes Jos Simson	+44 (0) 207 920 3150 kropz@tavistock.co.uk
R&A Strategic Communications	PR (South Africa)
Charmane Russell Marion Brower	+27 (0) 11 880 3924 charmane@rasc.co.za  marion@rasc.co.za

About Kropz Plc

Kropz is an emerging African phosphate producer and developer with projects in South Africa and in 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,

 

 

Since early 2023, the management team have achieved substantially increased production at Elandsfontein, though not yet to planned levels. We have been pleased to announce our first overseas sales of phosphate rock. But much higher production levels and an improvement in phosphate grade still are required to achieve our goals. Thanks to our major shareholder, African Rainbow Capital ("ARC"), additional funding has been provided to help to meet these challenges.

 

On 03 September 2024, we announced a restructuring of the Group's financing arrangements (the "Restructuring"), including a simplification of the Group's Financial structure.

 

The Board thanks all the members of the executive team, management, the teams on the ground, contractors, auditors and advisers for all their efforts and assistance during the period. Particular thanks also are due to our major shareholder for their further commitment and continued support.

 

 

 

 

Lord Robin William Renwick of Clifton

Non-executive Chairman

30 September 2024

 

Strategic Report for the period ended 31 March 2024

 

Market overview

 

Global phosphate rock demand has shown growth compared to 2022. Demand early in 2024 was particularly strong in Asia, driven by Chinese import increases Already rebounding from the 2022 drop. Global demand is expected to exceed its previous high in 2021 by 2025, as the slower recovery in Brazil and Europe is offset by large import increases for China.

 

Elandsfontein rock concentrate is expected to be able to enjoy a slight premium in pricing due to its low cadmium, low calcium and P₂O₅ ratio as well as advantageous freight rates to Asia, Australia, Brazil and New Zealand.

 

Significant changes in the state of affairs

 

Share issues

 

The issued share capital at 31 March 2024 was 923,718,223 ordinary shares (2022: 923,718,223). There were no new share issues during the period. Since the period-end, the Company will issue 643,873,018 new Ordinary Shares, to increase its issued share capital to 1,567,591,241 Ordinary Shares through a fundraising. The Company will also complete a Restructuring of the debt obligations of Kropz Elandsfontein such that the Elandsfontein Subsidiaries will no longer have any debt obligations to ARC.

 

Projects

 

Elandsfontein overview

 

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.

 

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

 

Prior to the current financial period, in excess of US$ 150 million was spent at Elandsfontein on project capital expenditure to construct the original and optimisation phases of 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 a metallurgical test programme to define a robust process circuit, to cater for the increased variability of ore present within the Elandsfontein resource.  As a result of competent banks of hard material encountered in the pit, further drilling was conducted in the current financial period and consequently a revised mineral resource estimate was produced as further discussed below.

 

Activity for the period ended 31 March 2024

 

The first trial sales revenues (US$40 million) have been recognised by Kropz Elandsfontein (Pty) Ltd during the period ended 31 March 2024.

 

During the financial period, the plant moved from the commissioning phase to the ongoing production ramp up phase.

 

As the Group is still ramping up to steady-state production, a gross loss has been recognised in the period of US$ 7.06 million. The loss was largely due to Elandsfontein having to discount its sales prices as a new market entrant and to consider lower grades being achieved as part of the ramp-up process, coupled with higher production costs per tonne. With Elandsfontein operating below planned production levels operational cost per tonne remains elevated.

 

The production ramp-up has been delayed due to the need to re-engineer parts of the fine flotation circuit based on actual particle size distribution ("PSD") observed in the ore body. Mining and processing have also been affected by early, unpredicted ore variability which led to implementation of more complex mining processes and challenged limited operator experience in these changing conditions. Kropz Elandsfontein is in the process of analysing the hard bank and other challenging ore variants identified with high phosphate content, within the ore body to select the appropriate method of mining and processing to extract phosphate. The mine is in the process of deploying pilot scale milling and flotation equipment as part of the plan to address the ore variability and to assist with the redesign of internal plant components.

 

During June to August 2023, the Western Cape experienced unprecedented rain which resulted in severely wet mining conditions during the period under review; this additionally hindered ore delivery to the plant and concentrate production. This is being addressed by increased in-pit drainage, intermediate ore stockpiling and has yielded good results.

 

Production throughput is also being limited by the nature and excessive amount of slimes material encountered in the ore deposit. Management believes that most of the issues related to the high slimes content ore will be addressed through the recently installed centrifuge unit. 

 

Management is intently focused on addressing the various challenges.

 

Mining and geology

 

The significant write-down in declared Ore Reserves from 2018 to 2022 has been partially reversed in the 2023 Ore Reserve estimate, largely due to the additional infill drilling which was completed in 2023.

 

It is expected that the future drilling campaigns will continue to improve the Mineral Resource estimates from Inferred to Measured or Indicated categories and will enable improved conversion of the Mineral Resources to Reserves.

 

While both the declared Reserve tonnes and grade have increased, the grade and tonnage estimate of the Resource has decreased. This aligns to the improved confidence in the grade estimation of the deposit and reflects the declining grade of the deposit over its life.

 

Based on the current mining conditions, on-site learnings and revised geological interpretations, it was considered prudent that the mineral resource be reclassified.

 

 

The updated Elandsfontein resource is defined below, on a total (gross) and net attributable basis.

 

ELANDSFONTEIN RESOURCE STATEMENT AS OF 30 SEPTEMBER 2023
CLASS	TONNES (Mt)	P2O5 (%)	SiO2 (%)	Al2O3 (%)	MgO (%)	Fe2O3 (%)	CaO (%)	CON-TAINED P2O5 (Mt)
Measured	19.96	10.25	63.86	1.22	0.15	0.79	14.68	2.05
Indicated	12.78	7.68	64.30	1.30	0.15	0.88	11.30	0.98
Total Measured & Indicated	32.74	9.24	64.03	1.25	0.15	0.83	13.36	3.03
Inferred	41.49	6.30	66.26	1.39	0.15	0.86	9.52	2.61
Total Resources	74.23	7.60	65.28	1.33	0.15	0.85	11.21	5.64
NETT ATTRIBUTABLE (74% TO THE COMPANY)
Measured	14.77	10.25	63.86	1.22	0.15	0.79	14.68	1.51
Indicated	9.45	7.68	64.30	1.30	0.15	0.88	11.30	0.73
Total Measured & Indicated	24.23	9.24	64.03	1.25	0.15	0.83	13.36	2.24
Inferred	30.70	6.30	66.26	1.39	0.15	0.86	9.52	1.93
Total Resources	54.93	7.60	65.28	1.33	0.15	0.85	11.21	4.17
Note: All numbers are reported to two decimals places. Rounding may cause minor discrepancies to the numbers reported in this table.

 

The 2023 Mineral Resource Estimate (MRE) for Elandsfontein reflects significant changes compared to 2022 and was notably affected by the completed infill and exploration drilling. The total Measured and Indicated resources have increased by approximately 72%, rising from 19.02 Mt in 2022 to 32.74 Mt in 2023, despite a slight decrease in the P₂O₅ grade from 9.54% to 9.24%. Conversely, the total Inferred resources have decreased substantially from 87.56 Mt in 2022 to 41.49 Mt in 2023, accompanied by a decline in the P₂O₅ grade from 7.68% to 6.30%. This reduction in Inferred resources and the simultaneous increase in Measured and Indicated resources indicate improved confidence in the resource estimates due to the successful infill drilling program. These changes highlight the enhanced accuracy in predicting the spatial distribution and grade of the ore body, leading to a more reliable reserve estimate and better strategic planning for future mining operations.

 

 

DIFFERENCE 2023 VS 2022 RESOURCE DECLARATION
CLASS	TONNES (Mt)	P2O5 (%)	SiO2 (%)	Al2O3 (%)	MgO (%)	Fe2O3 (%)	CaO (%)	CON-TAINED P2O5 (Mt)
Total Measured and Indicated 2023	32.74	9.24	64.03	1.25	0.15	0.83	13.36	3.03
Total Measured and Indicated 2022	19.02	9.54	70.45	1.15	0.14	0.88	13.64	1.81
Difference Measured and Indicated	13.72	-0.30	-6.42	0.10	0.01	-0.05	-0.28	1.22
Inferred 2023	41.49	6.30	66.26	1.39	0.15	0.86	9.52	2.61
Inferred 2022	87.56	7.68	73.92	1.20	0.16	1.03	11.15	6.72
Difference Inferred	-46.07	-1.38	-7.66	0.19	-0.01	-0.17	-1.63	-4.11
Note: All numbers are reported to two decimal places. Rounding may cause minor discrepancies to the numbers reported in this table.

 

The 2023 reserve statement for Elandsfontein reflects significant improvements compared to the 2022 estimates, driven by changes in the resource base and a better understanding of the modifying factors to be applied.

 

The combined total of proven and probable reserves has risen from 17.42 Mt at a P₂O₅ grade of 9.19% in 2022 to 26.63 Mt at a grade of 9.38% in 2023.

 

ELANDSFONTEIN RESERVE STATEMENT AS AT 30 SEPTEMBER 2023
CLASSIFICATION	TONNES (Mt)	P2O5 (%)	CONTAINED P2O5 (Mt)
Proven	16.56	10.25	1.70
Probable	10.07	8.01	0.81
Total Reserve	26.63	9.38	2.50
NETT ATTRIBUTABLE (74% TO THE COMPANY)
Proven	12.26	10.25	1.26
Probable	7.45	8.01	0.60
Total Reserve	19.70	9.38	1.85

 

There is a 9 Mt difference between the 2022 and 2023 estimates, as shown in the table below. These changes are largely attributable to the successful completion of infill and exploration drilling, which significantly improved the total declared Measured and Indicated Mineral Resources.

 

DIFFERENCE 2023 VS 2022 RESERVE DECLARATION
RESOURCE CLASSIFICATION	TONNES (Mt)		P2O5 (%)	CONTAINED P2O5 (Mt)
Total Proven 2023	16.56	10.25			1.70
Total Proven 2022	7.31	10.71			0.78
Total Probable 2023	10.07	8.01			0.81
Total Probable 2022	10.11	8.09			0.82
Total Proven and Probable 2023	26.63	9.38			2.50
Total Proven and Probable 2022	17.42	9.19			1.60
Difference Proven and Probable	9.21	0.19			0.9
Note: All numbers are reported to two decimal places. Rounding may cause minor discrepancies to the numbers reported in this table

 

Plant and processing

Plant stability was difficult to achieve due to the influence of varying quantities of ultra fine material contained in the ore and poor flotation conditioning.

 

Despite power generation issues in South Africa causing intermittent load shedding, we were able to mitigate the adverse effects on our production by utilizing emergency backup generators on several occasions.  However, it is important to note that this has led to increased operating costs. Following May 2024 load shedding has stopped and resulted in increased stability in power supply. The current outlook is positive and in the near future could possibly be the end of load shedding.

 

 

 

Safety, health, environment and community

 

As at 31 March 2024, the Lost Time Injury Frequency Rate ("LTIFR"), per 200,000 man hours, was nil (compared to 0.87 in March 2023), with zero LTIs incurred for the reporting period.  Commitment and focus on the forward energy model contributed mostly to the achievement of this significant milestone. 

 

No major environmental incidents were reported during the period and the external biennial Environmental Management Programme ("EMPr") performance assessment and Water Use License ("WUL") audits were conducted with no major non-conformances.  The Department of Forestry, Fisheries and the Environment, issued the permanent Atmospheric Emissions License ("AEL"). 

 

The annual closure costing was updated, and financial provision submitted and accepted by the Department of Mineral Resource and Energy ("DMRW).

 

 

Social and Labour plan ("SLP") and Corporate social responsibility ("CSR")

 

The second generation (2022-2026) Social and Labour Plan ("SLP") was approved by the DMRE, and Kropz commenced with the execution, aligned with the 2018 South African Mining Charter.

 

The following strategic focus areas have been identified:

 

·      Education and skills development;

·      Social wellbeing;

·      Local economic development ("LED"); and

·      Urban reconstruction and infrastructure upgrades.

 

Through collaboration, and inputs from various stakeholders, the execution of community development projects continued during the period. The Saldanha Bay Municipality ("SBM") confirmed alignment with their Infrastructure Development Plan ("IDP") and has endorsement of the various SLP projects.

 

SLP and LED Projects

 

Educational support (Education and skills development)

 

During the period Kropz Elandsfontein continued to support the Hopefield Primary School teacher's programme.  For the 2022-2026 SLP, education will remain a key focus area.

 

 Hopefield Thusong community centre upgrade (Skills development and infrastructure upgrades)

 

The infrastructure upgrade of the community centre included the addition of two new rooms, a kitchen and bathroom facilities. An E-learning centre has been established in one of the new rooms. It has been equipped with 12 computer cubicles and laptops have been acquired.  The launch of the E-learning centre took place in July 2024, providing a much-needed facility to the community of Hopefield.

 

Human resource development

 

As per our commitment in the SLP, Kropz awarded two undergraduate and one postgraduate bursaries. 

 

 

Ad-Hoc CSR Projects

 

Through engagements with various stakeholders, Kropz Elandsfontein supported the following initiatives and organizations:

 

1)   Youth Connect (Skills development program for youths 16-27 years old)

2)   Kids in Park and initiative from San Parks

3)   Mandela day celebration

4)   Eskom Expo for Young Scientists

 

Stakeholder Engagement

 

Kropz Elandsfontein continues to engage with the relevant stakeholders on a regular basis and hosted its first annual open day during April 2024. A newsletter was also issued to the community and other stakeholders to keep them updated on the business as well as various initiatives and projects.

 

 

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. Final contract negotiations are still underway and the agreement has not yet been signed. An interim agreement, with tariffs and a forecast of export quantities, is in place while the agreement is being finalised.

 

Sales

 

Elandsfontein achieved production of 132,706 tonnes of phosphate concentrate and sales of 112,752 tonnes of phosphate concentrate from April 2024 to August 2024. These exports occurred through the port of Saldanha.

 

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 Republic of Congo ("RoC") government. Hinda consists of a sedimentary hosted phosphate deposit located approximately 40 km northeast 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. Since its acquisition by Kropz, a further US$ 10 million has been spent.

 

Activity for the period ended 31 March 2024

 

Kropz has been reviewing the Hinda Updated Feasibility Study ("Updated FS") and the financial model as prepared by Hatch.

 

Highlights of the Updated FS

 

·      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 phased approach is 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 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 minimum 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 cash flows 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;

·      There is an estimated three-year execution schedule; 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 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 further optimise both capital and operating costs. Collaboration with other market players to share in costs of infrastructure such as port, power and roads are also an opportunity to consider.

 

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 which should further improve project economics.

 

Environmental Social Impact Assessment ("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 RoC Ministry of Environment has approved the updated ESIA and the project has a valid environmental compliance certificate.

 

 

 

 

Mining Investment Agreement ("MIA")

 

The MIA, which sets out the legal and fiscal framework under which Cominco S.A. would invest and operate within the RoC was signed by all parties on 10 July 2018 and ratified by the RoC Government on 27 December 2021.

 

Déclaration d'Utilité Publique ("DUP")

 

The Ministry of Land Affairs and Public Domain is responsible for managing land tenure and legal land rights in RoC. The main declaration of public utility (DUP) process for the Hinda Project has covered an area of 30 km². Public consultations were organized by Cominco and Cabinet Management et Etudes Environnementales SARL("CM2E"). A land commission has evaluated 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. Land surveys were carried out from end of November 2020 until mid-January 2021, followed by an optimisation session in line with the Updated FS. Cominco has not received the final reportThe MIA states that expropriation costs and compensations are to be borne by the government of the RoC and that Cominco can prefinance some or all the costs.

 

A letter has been sent in October 2023 to the Minister of Land Affairs and Public Domain to request the extension of the validity period, followed by a letter dated 21 August 2024 to the State Minister of mining industries and geology reminding of this (as requested).

 

A letter dated 30 August 2024 has been sent to the State Minister of mining industries and geology to request that the State starts the compensation on an initial footprint of 123 ha covering the plant site, the base camp, the construction laydown area and the village of PK Mbili that will be relocated.

 

Mineral resources

 

The Hinda resource is defined below, on a total (gross) and net attributable basis. No additional drilling was conducted in the period to 31 March 2024.

 

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

Class	Quantity (Mt)	Grade (%P2O5)	Grade (%Al2O3)	Grade (%MgO)	Grade (%Fe2O3)	Grade (%CaO)	Grade (%SiO2)	Contained P2O5 (Mt)
Gross
Measured	200.5	11.6	3.7	3.8	1.4	21.8	42.7	23.3
Indicated	380.9	9.8	5.0	3.3	1.8	17.6	48.5	37.3
Inferred	94.4	7.5	4.8	3.6	1.7	15.8	52.2	7.1
Total	675.8	10.0	4.6	3.5	1.7	18.6	47.3	67.7
Net Attributable (90% attributable to the Company)
Measured	180.5	11.6	3.7	3.8	1.4	21.8	42.7	20.9
Indicated	342.8	9.8	5.0	3.3	1.8	17.6	48.5	33.6
Inferred	85.0	7.5	4.8	3.6	1.7	15.8	52.2	6.4
Total	608.3	10.0	4.6	3.5	1.7	18.6	47.3	60.9

 

Safety, health and environment

 

No environmental or safety incidents were reported during the period.

 

Sustainability

 

In line with the MIA and its commitments, Cominco S.A. continued its interactions with the local communities associated with the Hinda project. On-going projects include the usage of project site manpower, the funding of teachers at local schools, educational support for vulnerable children, specific projects for woman, water boreholes and food security projects through the establishment of orchards, vegetable gardens and small-scale agriculture projects.

 

Post reporting period events

 

Prior to commencing Phase 1, a reduced sized test project is currently being assessed to propose a fit-for-purpose low capex project to prove the concept of producing phosphate concentrate in the Congo and exporting it. The project will focus on the mining and processing the section of the resource which does not require flotation.

 

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 profitability whereafter the development of Hinda will be prioritised.

 

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 further increase the ramp-up of operations to achieve steady state while optimising process recoveries and mining costs.

 

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 and the first trial sales in January 2023. 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 and moving towards steady state operations.

 

Financial review for the period ended 31 March 2024

 

Summary of key financial indicators for the period:

 

·      Impairment reversal in the value of mine property, plant and equipment and inventory at Kropz Elandsfontein of US$ 19 million;

·      Cash and cash equivalents of US$ 1 million (2022: US$ 2 million);

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

·      Trade and other payables of US$ 10 million (2022: US$ 7 million); and

·      Property, plant, equipment and development and exploration assets, after the impairment reversal above, of US$ 129 million (2022: US$ 111 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. As the Company entered the new financial period it started with the first trial sales being recorded from the trial production phase. The key performance indicators for the Company will be achieving steady state production and the 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.

 

Access to financing

 

The ramp up at Elandsfontein, the capital expenditure plans of the Group and the further development and exploration of mineral properties in which the Group holds interests or which the Group may acquire, may depend upon the Group's ability to obtain additional financing through joint ventures, debt financing, equity financing or other means. The Group is in process of Restructuring and Fundraising in September 2024, as described in Note 34. However, no assurance can be given that the Group will be successful in obtaining any additional financing that may be required as and when needed on acceptable terms or at all, which could prevent the Group from further development and exploration or additional acquisitions.

 

Failure to obtain additional financing on a commercial and timely basis may cause the Group to postpone its capital expenditure plans, forfeit its rights in properties or reduce or terminate operations. Reduced liquidity or difficulty in obtaining future financing could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

 

The Group's Projects may require greater investment than currently expected or suffer delays or interruptions, which could cause cost overruns. Any such delay, interruption or cost overruns in implementing the Group's planned capital investments could result in the Group failing to complete the Projects and a reduction in future production volumes, which could have a material adverse effect on the Group's business, financial condition, results of operations and prospects. In addition, the Projects may not prove to be commercially viable upon completion.

 

The Group's ability to obtain future financing will depend in part on its ability to achieve positive cash flows from its current operations within time and budget, an extended commissioning ramp-up period will have an adverse impact on the business and financial performance of the Group. Refer to note 2a to the Group financial statements which explains that the Group is reliant on revenue from production ramp up and whilst have almost successfully completed a Restructuring and Fundraising it may still require additional financing, and a material uncertainty exists may that cast significant doubt on the Group's ability as a going concern.

 

Dependence on maintenance of good relationship with regulatory and governmental departments

 

The Group relies on the maintenance of good relationships with regulatory and governmental departments in South Africa and the RoC. Failure to maintain these relationships may adversely impact the Group's performance. Continual engagements with regulatory and governmental departments are maintained and compliancy is upheld and monitored by the group.

 

Ramp-up of Elandsfontein

 

The Elandsfontein project may require further funding to achieve steady state operations. 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. Management is intently focused on addressing any challenges and adjustments that might be required.

 

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. There are alternatives to the Port of Saldanha that have been identified, however at increased operating cost.

 

Operational targets

 

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.

 

Excessive overburden stripping, non-economical mining of ore, ore losses and the dilution of feed grade to the processing facility could all have an adverse impact on the processing operations. Furthermore, 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, electrical 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. Furthermore, any interruption or disruption in the supply chain of key production chemicals sourced from international suppliers could materially adversely affect the production output from the mine.

 

New entrant risk

 

Kropz Elandsfontein is 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 and mineral processing 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. This is being addressed by increased drainage and has yielded good results.

 

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.

 

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 and RoC. 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 Non-Governmental Organisations ("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 necessity 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.

Who are the key stakeholder groups	Why is it important to engage this group of stakeholders	How did Kropz engage with the stakeholder group	What resulted from the engagement
Equity investors and equity partners   All substantial shareholders that own more than 3% of the Company's shares are listed on page 37 of the Directors' Report.   The Company owns 74% of Kropz Elandsfontein, the owner of the Elandsfontein project in South Africa. 26% is owned by ARC.   The Company owns 70% of Elandsfontein Land Holdings (Pty) Ltd ("ELH"), the owner of the Elandsfontein mining property in South Africa. 30% is owned by ARC.   Kropz Elandsfontein may require further funding to complete the ramp up at Elandsfontein. Cominco Resources requires further funding to develop Hinda.   As such, existing equity investors and potential investment partners are important stakeholders.	Access to capital is of vital importance to the long-term success of the business to enable the development of Hinda. Equity partner involvement is vital to the success of the development of these projects, without which the Company cannot create value for its shareholders by producing phosphate rock concentrate and therefore a return on the investment.   Through selected engagement activities, the Company strives to obtain investor buy-in into its strategic objectives detailed on page 13 and the execution thereof.   The Company seeks to promote an investor base that is interested in a long-term holding in the Company and will support the Company in achieving its strategic objectives.   During the course of the period ended 31 March 2024, the percentage of shares held in public hands remained the same and the overall daily volume of shares traded decreased.	The key mechanisms of engagement included:   Substantial shareholders ·  Both ARC and Kropz International have appointed Directors to the Board of Kropz; and ·  The other existing substantial shareholders have regular meetings and interactions with the Chairman and/or CEO.   Investment and equity partners ·  ARC have representatives on the Kropz Elandsfontein and ELH Boards of Directors in terms of the respective shareholder's agreements; and ·  Regular Board meetings are held.   Prospective and existing investors ·  The AGM and Annual and Interim Reports; ·  Investor roadshows and presentations; ·  One on one investor meetings with the Chairman and/or CEO; ·  Access to the Company's broker and advisers; ·  Regular news and project updates; and ·  Social media accounts e.g. X @Kropzplc; ·  Site visits for potential cornerstone investors.	The Company engaged with investors on topics of strategy, governance, project updates and performance.   Please see "Dialogue with shareholders" section of the Directors' report on page 37.   The CEO presented at a number of investor roadshows, conferences and one on one meetings.   In terms of the ZAR 927 Million Equity Facilities, ARC will potentially be able to acquire a total further 8.3% interest in the Company, eventually taking its 83.2% interest at March 2024, to 91.5%.     At the Company's AGM held on 30 June 2023 all resolutions were duly passed.     At the Company's general meeting held on 1 September 2023 all resolutions were duly passed with 100% of the votes cast in favour of resolutions proposed.
Funding providers Kropz Elandsfontein has a US$30 million, fully utilised, debt facility with BNP that commenced in September 2016.	Access to funding is of vital importance to the long-term success of the business to be able to complete the Elandsfontein project. The debt facility was utilised in the construction of Elandsfontein.   Various contractual conditions of the debt finance require regular updates on ongoing progress.   Ongoing support from potential new debt providers is required to achieve the construction of Hinda.	·   One on one meetings with the CEO and/or COO; ·   Regular reporting on project progress; ·   Ad hoc discussions with management, as required; and ·   Tripartite discussions between Kropz Elandsfontein, ARC and management to ensure there are no compliance matters outstanding in relation to the facility.	In May 2020, the amended facility agreement was signed between Kropz Elandsfontein and BNP, thereby moving the first principal debt repayment to 31 December 2022. All payments have been made with the last repayment of $3,750,000 due on 30 September 2024
Employees The Company has 15 South African, 2 UK and 5 RoC employees, including its Directors.   Two of the Directors are UK residents, 1 Monegasque, 1 American and 2 are South African resident Directors.   The CEO during the period under review was South Africa-based.	The majority of its employees going forward will be based in South Africa and the Directors consider workforce issues holistically for the Group as a whole.   The Company's long-term success is predicated on the commitment of its workforce to its vision and the demonstration of its values on a daily basis.   The Board have identified that reliance on key personnel is a known risk.	General employees ·   The Company maintains an open line of communication between its employees, senior management and the Board. •   The CEO reports regularly to the Board; ·   Key members of the executive team are invited to some of the audit and risk committee meetings; ·   There is a formalised employee induction into the Company's corporate governance policies and procedures; and ·   There is an HR function in the UK.   South African employees ·   There is an HR function in South Africa; ·   Senior management regularly visit the operations in South Africa and engage with its employees through one on one and staff meetings, employee events, project updates, etc; and ·   Staff safety committees continue to operate.   Congo employees ·   Senior management regularly visit the operations in RoC and engage with its employees through one on one and staff meetings, employee events, project updates, etc.	Employees The Board met with management to discuss the long-term remuneration strategy.   Advisors were appointed to do the independent party review to examine non-executive Director and executive team remuneration in 2018 at the time of the AIM IPO.   Board reporting has been optimised to include sections on engagement with employees.   South African and Congo employees The team were trained in aspects of corporate policies and procedures to engender positive corporate culture aligned with the Company code of conduct.   Meetings were held with staff to provide project updates and ongoing business objectives.
Governmental bodies The Company is impacted by national, regional and local governmental organisations in South Africa and the RoC.	Regular engagement with organs of state at national, regional and local levels is required to keep stakeholders informed and supportive of project developments.	The Company provides general corporate presentations regarding the Elandsfontein project development as part of ongoing stakeholder engagement with the South African government, Western Cape provincial government and local municipal government. The Company maintained its good relations with the respective government bodies and frequently communicated progress.   The Company engages with the relevant departments of the RoC government in order to progress the development of Hinda.	Meetings have been held with various representatives of the national, regional and local government bodies, to discuss ongoing compliance and other regulatory matters relating to mining.   The Company has received its South African requisite environmental and land use permits.    In addition, the Company has received the required permits to develop Hinda, subject to securing funding for these activities.
Community The local communities adjacent to Elandsfontein in South Africa and Hinda in the RoC.	The Company engages with the local community to obtain acceptance for future development plans.   Community engagement will inform better understanding and decision making.   The local community in Hopefield and the greater Saldanha Bay municipal area provides employees for Elandsfontein and its contractors for operations. Similarly, the communities surrounding Hinda will provide employees to the project and contractors during construction and operation.   The Company will have a social and economic impact on the local communities. The Company is committed to ensuring sustainable growth, minimising adverse impacts. The Company will engage these stakeholders as is appropriate.	·   The Company has community liaison officers in South Africa and RoC; ·   The Company has identified all key stakeholders within the local community in the reporting period; ·   Elandsfontein management has open dialogue with the local government and community leaders regarding the project development; ·   Similarly, Hinda management are actively engaging with local government and communities directly impacted by the Hinda project; and ·   The Company has existing Corporate Social Responsibility policies and management structure at corporate level. The Company will expand on these policies and structures at a local project level as the Company moves into production.	The Company has ongoing engagements with the local community as part of its sustainability initiatives.   Stakeholder identification has enabled the Company to ensure that representatives of all stakeholder groups may participate in the community engagement programme.
Suppliers During the Elandsfontein operations phase, the Company has be using key suppliers under commercial contracts for the operations of mine, plant, road and port logistic operators and laboratory service providers, all of whom are reputable and established service providers.   The Company also relies on a number of supply and maintenance contracts to ensure ongoing operations. At a community level, the Company has also partnered with a number of SMME companies.	Kropz's contractors and suppliers are fundamental to ensuring that the Company can meet the ramp-up and steady state operating objectives.   Using quality suppliers ensures that as a business, the high performance targets can be met.	· Management continues to work closely with appointed contractors, consultants and suppliers to manage and optimise deliverables; and · One on one meetings between management and suppliers; · Vendor site visits and facility audits to ensure supplier is able to meet requirements; and · Contact with procurement department and accounts payable.	See page 10 of the strategic report for an update on the potential transport and logistics uncertainties facing the Group.   Smaller local vendors were engaged at a broader level to better align with company objectives.

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 period ending 31 March 2024

 

Convertible loan facility for ZAR 550 million from ARC, entered into on 14 November 2022

 

A third drawdown of ZAR 60 million (approximately US$ 3.5 million) of the ZAR 550 Million Equity Facility was made on 25 January 2023, a fourth drawdown of ZAR 40 million (approximately US$ 2.2 million) on 27 February 2023 and the final draw down of ZAR 7.5 million was made 8 December 2023.

 

Bridge loan facilities of ZAR 285 million entered into on 14 March 2023

 

As announced on 14 March 2023, Kropz Elandsfontein and ARC Fund agreed to a further ZAR 285 million (approximately US$ 15.5 million) of bridge loan facility ("Loan 1") to meet immediate cash requirements at Kropz Elandsfontein.

 

Loan 1 is unsecured, repayable on demand, with no fixed repayment terms and is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable on Loan 1 at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly.

 

The first draw down on the Loan for an amount of ZAR 25 million was made on 14 March 2023, a second draw down on the Loan for an amount of ZAR 90 million was made on 28 March 2023, a third drawdown was made for an amount of ZAR 30 million on 25 April 2023, a fourth draw down on the Loan for an amount of ZAR 80 million was made on 23 June 2023 and the final draw down of ZAR 60 million was made 18 August 2023.

 

Bridge loan facilities of ZAR 250 million entered into on 14 September 2023

 

As announced on 14 September 2023, Kropz Elandsfontein and ARC Fund ("ARC") agreed to a further ZAR 250 million (approximately US$ 13.2 million) of bridge loan facility ("Loan 2") to meet immediate cash requirements at Kropz Elandsfontein. The loan is unsecured, repayable on demand, with no fixed repayment terms and is repayable by Kropz Elandsfontein on no less than two business days' notice. Interest is payable at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly. In the event that any amounts are outstanding under the loan, together with interest thereon, are not repaid within 6 months from the first utilisation date, the interest rate will be increased by an additional 2%.

 

The first draw down of the Loan for an amount of ZAR 155 million was made on 18 September 2023, a second draw down on the Loan for an amount of ZAR 75 million was made on 20 October 2023 and the final draw down of ZAR 20 million was made on 8 December 2023.

 

Bridge loan facilities of ZAR 115 million entered into on 15 December 2023

 

As announced on 15 December 2023, Kropz Elandsfontein and ARC Fund ("ARC") agreed to a ZAR 115 million (approximately US$ 6 million) of bridge loan facility ("Loan 3") to meet immediate cash requirements at Kropz Elandsfontein. 

 

The Loan is unsecured. Interest is payable on the Loan at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly. In the event that any amounts outstanding under the Loan, together with interest thereon, is not repaid within 6 months from the first utilisation date, the interest rate will be increased by an additional 2%.

 

The first draw down of the Loan for an amount of ZAR 62.5 million was made on 15 December 2023 and the final draw down on the Loan for an amount of ZAR 52.5 million was made on 17 January 2024.

 

Bridge loan facilities of ZAR 170 million entered into on 27 March 2024

 

As announced on 27 March 2024, Kropz Elandsfontein and ARC Fund ("ARC") agreed to a ZAR 170 million (approximately US$ 9 million) of bridge loan facility (the "Loan 4") to meet immediate cash requirements at Kropz Elandsfontein. 

 

The Loan is unsecured. Interest is payable on the Loan at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly. In the event that any amounts outstanding under the Loan, together with interest thereon, is not repaid within 6 months from the first utilisation date, the interest rate will be increased by an additional 2%.

 

The first draw down of the Loan for an amount of ZAR 60 million was made on 28 March 2024, a second draw down on the Loan for an amount of ZAR 73 million was made on 2 April 2024 and the final draw down of ZAR 37 million was made 22 April 2024.

 

Post 31 March 2024

 

As announced on 11 July 2024, Kropz Elandsfontein and ARC Fund ("ARC") agreed to a ZAR 140 million (approximately US$ 8 million) bridge loan facility (the "Loan") to meet immediate cash requirements at Kropz Elandsfontein.

 

The first draw down on the Loan for an amount of ZAR 80 million was made on 4 July 2024, a second and final draw down on the Loan for an amount of ZAR 60 million was made on 22 August 2024.

 

As more fully described in Note 34 Material Subsequent Events, the Group is in the process of completing a Fundraising and Restructuring. As a result of the Restructuring, the Elandsfontein Subsidiaries will extinguish their debt obligations to ARC. Kropz will have convertible debt of £88.9 million (including accumulated interest) outstanding with ARC, being the aggregate of the new CLN and the Existing Equity Facilities. Additionally, Kropz is in the process of completing a Fundraising of £8.9 million from ARC and other shareholders before expenses through the issue of new Ordinary shares an Issue Price of 1.387 pence per new Ordinary Share in the capital of the Company. The Issue Price represents a discount of approximately 5 per cent. to the 30-day volume weighted average share price per existing Ordinary Share to 23 August 2024. In aggregate, 643,873,018 new Ordinary Shares will be allotted and issued pursuant to the Fundraising.

 

 

This Strategic Report was approved by the Board of Directors.

 

 

 

 

Louis Loubser

Chief Executive Officer

30 September 2024

 

 

 

 

Consolidated Statement of Financial Position As at 31 March 2024	Notes	31 March 2024 US$'000	31 December 2022 US$'000
Non-current assets Property, plant, equipment and mine development	4	85,411	68,965
Exploration assets	5	43,172	42,415
Other financial assets	7	1,527	860
Inventories	8	955	-
		131,065	112,240
Current assets
Inventories	8	5,775	3,273
Trade and other receivables	9	6,913	1,857
Cash and cash equivalents	10	968	2,120
		13,656	7,250
TOTAL ASSETS		144,721	119,490
Current liabilities
Trade and other payables	17	9,516	7,284
Shareholder loans and derivative	13	94,434	-
Other financial liabilities	15	11,722	26,808
Current taxation	26	650	597
		116,322	34,689
Non-current liabilities
Shareholder loans and derivative	13	-	55,102
Provisions	16	1,375	2,697
		1,375	57,799
TOTAL LIABILITIES		117,697	92,488
NET ASSETS		27,024	27,002

 

	Notes	31 March 2024 US$'000	31 December 2022 US$'000
Shareholders' equity
Share capital	11	1,212	1,212
Share premium	11 / 12	194,063	194,063
Merger reserve	11 / 12	(20,523)	(20,523)
Foreign exchange translation reserve	12	(12,132)	(11,195)
Share-based payment reserve	12	295	271
Accumulated losses		(108,577)	(116,972)
Total equity attributable to the owners of the Company		54,338	46,856
Non-controlling interests	33	(27,314)	(19,854)
		27,024	27,002

 

The notes on pages 74 to 127 form an integral part of these Consolidated Financial Statements. The Financial Statements on pages 61 to 127 were approved and authorised for issue by the Board of Directors and signed on its behalf by:

 

 

 

 

 

Louis Loubser

Chief Executive Officer

30 September 2024

 

 

Consolidated Statement of Comprehensive Income For the period ended 31 March 2024		For the period ended 31 March	For the year ended 31 December
	Notes	2024 US$'000	2022 US$'000
Revenue	19	40,087	-
Cost of sales	20	(47,148)	-
Gross loss		(7,061)
Other income		43	116
Selling and distribution expenses	22	(5,309)	-
Operating expenses	22	(5,336)	(5,808)
Operating loss		(17,663)	(5,692)
Finance income	21	265	136
Finance expense	24	(21,866)	(9,812)
Fair value gain / (loss) from derivative liability	30	20,601	10,807
Impairment reversal /(losses)	25	19,033	(92,661)
Profit/(Loss) before taxation		370	(97,222)
Taxation	26	(27)	(602)
Profit/(Loss) after taxation		343	(97,824)
Profit/(Loss) attributable to:
Owners of the Company		8,866	(66,639)
Non-controlling interests		(8,523)	(31,185)
		343	(97,824)
Profit/(Loss) for the period/year		343	(97,824)
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
·         Exchange differences on translating foreign operations		(345)	(3,246)
Total comprehensive loss		(2)	(101,070)
Attributable to:
Owners of the Company		7,929	(70,027)
Non-controlling interests		(7,931)	(31,043)
		(2)	(101,070)
Loss per share attributable to owners of the Company:
Basic and diluted (US cents)	27	0.96	(7.23)