COMPANY CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

				2021		2020
	Notes			US$		US$
Net cash (used in)/provided by operating activities	28			(364,719)		83,999
Cash and cash equivalents at beginning of year				569,732		565,166
Foreign exchange difference				(5,035)		(79,433)
Cash and cash equivalents at end of year				199,978		569,732

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

 

1.         Accounting policies

 

The principal accounting policies are summarised below. Except as elsewhere disclosed, the accounting policies have all been applied consistently throughout the period covered by these financial statements.

 

Basis of preparation

The financial information has been prepared on a historical cost basis, except for derivative financial instruments, which are measured at fair value, and in accordance with UK-adopted international accounting standards.

 

For the Group and its subsidiaries US Dollars is both the functional and presentational currency. Although the Company's functional currency is pounds sterling, it uses US Dollars as its presentational currency, to better reflect the underlying performance of that entity.

 

Restatement of effects of foreign exchange movements

The prior period consolidated statement of profit and loss, consolidated financial position, consolidated statement of changes in equity and related notes have been restated to correct past treatment of foreign exchange movements in inter-group loans.

 

A review of the prior year treatment of the effect of foreign currency movements upon inter-group loans determined that the Group had been inconsistent in the application of its judgements as to whether inter-group loans were to be treated as 'monetary assets' or a 'net investment in subsidiaries'. In addition inconsistencies were noted in the foreign exchange rates applied throughout the consolidation process.

 

As a result, it was determined that the prior period allocation of foreign exchange movements on inter-group loans between the profit and loss and translation reserve required recasting as shown below.

 

Consolidated statement of comprehensive income

	As previously stated	Restatement adjustment	Restated balance
	US$	US$	US$
Impairment loss	(1,292,814)	(1,035,600)	(2,328,414)
Net finance and other costs	(19,403,985)	700,973	(18,703,012)
Profit for the year	9,768,046	(334,627)	9,413,670
Other comprehensive income
Exchange differences on translating foreign operations	2,947,074	334,627	3,281,701
Total comprehensive profit for the period attributable to equity holders of the parent	12,666,716	-	12,666,716
Earnings per share - Basic cents per share	0.47		0.45
- Diluted cents per share	0.46		0.43

 

Impact on statement of financial position

		Translation reserve	Profit and loss account
		US$	US$
Balance as originally stated at 1 January 2020		14,744,085	(248,813,884)
Restatement adjustment		(2,565,381)	2,565,381
Balance as restated at 1 January 2020		12,178,704	(246,248,503)
Movements as originally stated		2,947,074	9,748,297
Restatement adjustment		334,627	(334,627)
Balance as restated at 31 December 2020		15,460,405	(236,834,833)

 

Going concern

The consolidated financial statements of the Group have been prepared on a going concern basis, which contemplates the continuity of business activities and the realisation of assets and the settlement of liabilities in the normal course of business.

 

To date the Group has managed to limit the negative impact of COVID-19 on its operations despite recording approximately 300 on-site positive cases of COVID-19 during FY2021. The main impacts to have arisen during 2021 from the COVID-19 crises were maintaining on-site rosters while affected personnel were isolating and the difficulty in moving personnel in/out of the Philippines. Although the pandemic continues, COVID-19 related pressures are being well managed. Indeed the Group's ability to keep the project in a positive cash flow position since the commencement of the pandemic gives reason to believe the impact of COVID-19 will not affect the future going concern status of the Group.

 

Indeed, operational performance during 2021 consolidated on the production improvements that first became evident during 2019 and, notwithstanding COVID-19 impacts, produced a consolidated operating profit of US$29.4 million. Since year end normal operations have continued and positive free cash flows are expected to continue.

 

Although the Group's current liabilities continue to exceed its current assets, primarily due to the estimated external borrowings the Group expects to repay within the next 12 months, there is no obligation to adhere to a set loan principal or interest repayment schedule. The Group's October 2020 debt restructure removed any set principal or interest repayment schedule. Excess free cashflow is only required to be paid to lenders on a minimum quarterly basis when net working capital is in excess of US$5million. In addition, the Group is not in default if it is unable to make a lender quarterly repayment.

 

As a result of this debt restructure, and the ongoing existence of a US$5million positive net working capital balance, together with the sustained positive cash flows currently being produced (and expected to be produced in the future) by the Runruno Project, the Directors believe there is no material uncertainty over the Group's going concern.

 

The Board believes that the Runruno Project will continue to operate successfully and produce positive cash flows ensuring the continuing viability of the Group, and the Company, and their ability to operate as a going concern, meeting their commitments as and when they fall due.

 

As a result the Board considers it appropriate that the financial statements should be prepared on a going concern basis.

 

Changes in accounting policies and disclosures

The accounting policies and disclosures applied in the preparation of these financial statements are consistent with the accounting policies and disclosures applied in the preparation of the prior period financial statements.

 

New standards and interpretations

The financial statements have been drawn up on the basis of accounting standards, interpretations and amendments effective from the beginning of the accounting period on 1 January 2021.  The new standards, interpretations and amendments effective from 1 January 2021 had no significant impact on the Group.

 

There are a number of international accounting standards, amendments to standards, and interpretations which have been issued that are effective in future accounting periods and which have not been adopted early. None of these standards, amendments to standards or interpretations are expected to have a significant effect on the Group.

 

Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and its subsidiary undertakings for the year ended 31 December 2021. A subsidiary is an entity controlled, directly or indirectly, by the Group. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

The financial statements of the subsidiary companies have been included in the Group's financial statements from the date of acquisition when control was passed to the Group using the acquisition method of accounting. The Group financial statements include the results of the Company and its subsidiaries as if they were a single reporting entity. On consolidation, intra-Group transactions and balances are eliminated.

 

Foreign currency

Transactions in currencies different to the company's functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Exchange gains and losses on the settlement of monetary items are recognised in the statement of total comprehensive income.

 

On consolidation, the assets and liabilities are translated to US Dollars at the rates prevailing at the balance sheet date. Income and expenses are translated at the average exchange rates for the period. Exchange differences are recognised within other comprehensive income in the consolidated statement of total comprehensive income.

 

Taxation and deferred tax

Current tax is based on the taxable profit for the period. Taxable profit differs from net profit as reported in the statement of total comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been substantively enacted by the balance sheet date.

 

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised only to the extent it is probable that future taxable profits will be available against which deductible temporary differences can be utilised.

 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited, as applicable, as a taxation debit/credit to the statement of total comprehensive income, except when it relates to items charged or credited directly to other comprehensive income in which case, the deferred tax is recognised in the other comprehensive income section within the statement of total comprehensive income.

 

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority, on either the same taxable Group Company or different Group entities, which intend to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. 

 

Share based payments

The Company may enter into equity-settled share-based transactions with its Directors, employees of its subsidiaries, its contractors or its lenders in which the counterparty provides services/goods to the Company in exchange for remuneration in the form of certain equity instruments of the Company. The equity instruments can comprise of shares, warrants and share options.

 

The services/goods received by the Company in these share-based transactions are measured by reference to the fair value of the equity instruments at the date of grant and are recognised as an expense in the statement of total comprehensive income with a corresponding increase other reserves in equity.

 

Inventories

Inventories of finished goods (bullion), gold in circuit and stockpiles of processed ore are brought to account and stated at the lower of costs and estimated net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated based on normal operating capacity.  Costs are assigned to ore stockpiles and gold in circuit items of inventory based on weighted average costs.  Net realisable value is the estimated selling price in the ordinary course of business (excluding derivatives) less the estimated costs of completion and the estimated costs necessary to make the sale.

 

Consumables have been valued at cost less an appropriate provision for obsolescence.  Cost is determined on a first-in-first-out basis.

 

Intangible assets

Exploration costs

Costs relating to the exploration of precious and base metal properties are capitalised as intangible assets in the balance sheet once the Group has obtained the legal right to explore an area.

 

Capitalised exploration costs are reclassified to tangible assets once technical feasibility and commercial viability of extracting a mineral resource are demonstrable. The capitalised exploration costs are tested for impairment annually.

 

Where exploration costs have been incurred and capitalised for a specific tenement and the commercial and technical requirements to demonstrate positive economic returns using approved mining techniques has not been established, the Company recognises these costs as an intangible asset and tests these costs annually for impairment. These costs are considered fully impaired unless the results of exploration indicate the presence of mineral resources that have the potential to be defined as an inferred resource in accordance with industry standards.

 

Other intangible assets

Intangible assets acquired separately are initially recognised at cost. Intangible assets acquired as part of a business combination are measured at their fair value at the date of acquisition. Subsequently, intangible assets are carried at cost less any accumulated amortisation and impairment losses. Amortisation charges are recognised in cost of sales. Computer software is amortised over its expected useful life of 3 years using the straight-line method. Licences acquired to support mining operations will be amortised over the expected useful life of the mining operation (or the term of the licence if shorter) when development is complete and mining commences. Intangible assets are tested annually for impairment.

 

Property, plant and equipment

Property, plant and equipment are initially recognised at cost plus directly attributable expenses and are subsequently carried at cost less accumulated depreciation and impairment losses. Property, plant and equipment are depreciated over their expected useful lives, using the straight-line method.

 

The classes of depreciable assets, their expected useful lives and their depreciation methods are:

 

Buildings & leasehold improvements           10 years                  Straight-line                        

Drilling equipment                                             5 years                  Straight-line

Motor vehicles                                                    3-5 years              Straight-line

Fixtures, fittings and equipment                    3 years                  Straight-line

Process plant                                                       applying the units of production over the useful life of the mine.

Residual Storage Impoundment                     applying the units of production over the useful life of the mine.

Mining properties                                              applying the units of production over the useful life of the mine.

 

Mining properties costs have arisen entirely because of a reclassification of the intangible assets deferred exploration costs, advances to surface occupants, and mining licenses. As of 20 October 2011, the extraction of gold from the Runruno site was assessed as being both technically feasible and commercially viable. Further costs since this date have been capitalised directly to mining properties.

 

Construction in progress tangible assets have been incurred after 1 December 2011, the date the board of Directors announced that the Group had moved into the capital construction phase of its development. The costs were substantially incurred throughout 2012 to 2017.

 

Construction in progress costs are allocated to a property, plant and equipment tangible asset category, once the relevant asset has been assessed as being available for use as intended by management. The costs will be treated as being reclassified and will be depreciated according to the adopted method of the appropriate asset category.

 

The right-of-use assets are recognised for all leases, except for low value assets and/or short duration leases. These assets are measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date. The Group will depreciate the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

 

Investments

Investments in subsidiaries are recognised at cost less any impairment losses in the Company accounts.

 

Equity accounting is applied to investments in associates on a Group basis. Investments in associates are recognised at the cost of investment as adjusted for post-acquisition changes in the Group's share of net assets of the associate. Losses of an associate in excess of the Group's interest in that associate are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

 

Provision for mine rehabilitation and decommissioning

Provision is made for close down, restoration and environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) at the end of the reporting period when the related environmental disturbance occurs, based on the estimated future costs using information available at the end of the reporting period. The provision is discounted using a current market-based pre-tax discount rate and the unwinding of the discount is classified as net finance and other costs in the statement of total comprehensive income.  At the time of establishing the provision, a corresponding asset is capitalised and depreciated over future production from the operations to which it relates.

 

The provision is reviewed on an annual basis for changes to obligations or legislation or discount rates that affect change in cost estimates or life of operations.  The cost of the related asset is adjusted for changes in the provision resulting from changes in the estimated cash flows or discount rate, and the adjusted cost of the asset is depreciated prospectively.

 

Where rehabilitation is conducted systematically over the life of the operation, rather than at the time of closure, provision is made for the estimated outstanding continuous rehabilitation work at each end of the reporting period and the cost is charged to the statement of total comprehensive income.

 

Revenue recognition

Gold sales

The Group is principally engaged in the business of producing gold. Revenue is recognised when the Group transfers control of its gold to a customer at the amount at which payment is expected.  Sales revenue represents the gross proceeds receivable from the customer.

 

For gold sales, the enforceable contract is each purchase order, which is an individual, short-term contract, while the performance obligation is the delivery of the metals.

 

Recognition of sales revenue for the gold is based on determined metal in concentrate and the London Bullion Market Association (LBMA) quoted prices, net of smelting and related charges. 

 

Revenue is recognized when control passes to the customer, which occurs at a point in time when the metal concentrate is credited to the buyer's account and provisionally paid by the buyer.  Under the terms of offtake agreements with the customer, the Company issues a provisional invoice for the entire volume of concentrate loaded to the customer's vessel. Final invoice is made thereafter upon customer's outturn of concentrates delivered and submission of their final assay report.  Adjustment is accordingly made against the final invoice with respect to provisional collections received by the Company within two days to determine amounts still owing from/to customers.

 

As the enforceable contract for the arrangements is the purchase order, the transaction price is determined at the date of each sale (i.e., for each separate contract) and, therefore, there is minimal future variability within scope of IFRS 15 and no further remaining performance obligations under those contracts.

 

Revenue from the sale of by-products such as silver is accounted for as a credit to the cost of sales.

 

Financial instruments

Financial Assets

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income and fair value through profit or loss.

 

Financial assets at amortized cost (debt instruments)

The Company measures financial assets at amortized cost if both of the following conditions are met:

·      The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

·      The contractual terms of the financial asset give rise on specified dates to cash flows that are solely for payments of principal and interest on the principal amount outstanding.

 

Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment.  Gains and losses are recognized in the statement of comprehensive income when the asset is derecognized, modified or impaired.

 

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as economic, as appropriate.

 

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and other financial liabilities, net of directly attributable transaction costs. The Company's financial liabilities include payables, loans and borrowings and derivative forward contracts.

 

Subsequent measurement

Payables

This category pertains to financial liabilities that are not held for trading or not designated as at fair value through profit or loss upon the inception of the liability. These include liabilities arising from operations (e.g., accounts payable and accrued liabilities). 

 

Payables are recognised initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the EIR method of amortization (or accretion) for any related premium, discount and any directly attributable transaction cost.

 

As at December 31, 2021 and 2020, the Company's payables include trade and other payables.

 

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the profit or loss when the liabilities are derecognized as well as through the EIR amortization process.

 

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statements of total comprehensive income.

 

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.  When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability.  The difference in the respective carrying amounts is recognized in the statements of total comprehensive income.

 

Derivative assets and liabilities

Derivative financial instruments (e.g. commodity derivatives such as forwards and options to economically hedge exposure to fluctuations in gold prices and foreign exchange rates) are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

 

Derivatives are accounted for at fair value through profit or loss, where any gains or losses arising from changes in fair value on derivatives are taken directly to profit or loss for the year. As at 31 December 2021, the derivative instruments held by the Group were gold price put/call option contracts and USD:PHP exchange rate forward contracts.

 

Both the Group and the Company have recognised derivative assets and liabilities arising from the forward put/call option contracts for gold sales and exchange rate forward contracts as at 31 December 2021.

 

Compound financial instruments

Compound financial instruments comprise both liability and equity components. At issue date, the fair value of the liability component is estimated by discounting its future cash flows at an interest rate that would have been payable on a similar debt instrument without any equity conversion option. The liability component is accounted for as a financial liability. The difference between the net issue proceeds and the liability component is the equity component, and is accounted for as equity.

 

Any transaction costs associated with the issue of a compound financial instrument are allocated in proportion to the equity and liability components.

 

The interest expense on the liability component is calculated by applying the effective interest rate for the liability component of the instrument. The difference between the interest expense and the interest payments made are included in the carrying amount of the liability.

 

2.         Critical accounting judgements and key sources of estimation uncertainty

 

The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates, assumptions and judgements that affect the application of policies, and reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date.

 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from reported amounts in the financial statements.

 

The key sources of estimation uncertainty and judgements which have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities are:

 

Judgements

Impairment and impairment reversals of assets

The Group assesses at each reporting date whether there are any indicators that its assets and cash generating units (CGUs) may be impaired or require previous impairment provisions to be reversed. Operating and economic assumptions which could affect the valuation of assets using discounted cash flow models are regularly reviewed and updated as part of the Group's monitoring of operational and financial performance and forecasting processes. Judgement is required in determining the level at which these assessments are made, be that at the asset or cash generating unit level. Further judgment of whether operating and economic changes are significant and impact the performance potential of an asset or CGU is required. These judgements determine whether there is an indication of impairment or an impairment reversal required. Assets that have previously been impaired must be assessed for indicators of both further impairment and impairment reversal. Such assets are recorded in the consolidated balance sheet at their recoverable amount at the date of the last impairment assessment (less annual depreciation/amortisation); therefore a change in operational plans, assumptions or economic conditions could result in further impairment or an impairment reversal if an indicator is identified.

 

Treatment of foreign currency movement on inter-company debt

The Group accounting policy in relation to foreign currency is consistent with, and governed by, the International Accounting Standard IAS21 - The Effects of Changes in Foreign Exchange Rates.

 

This standard considers treatment of currency movements on inter-group loans and whether inter-group loans are to be classified as a 'monetary asset' (with currency movements treated within profit and loss), or as a part of the Company's net investment in subsidiaries (with currency movements taken directly to the foreign translation reserve). Under the standard, an inter-group loan for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance a part of the entity's net investment in subsidiaries.

 

The Group parent company has made significant advances to its subsidiaries over an extended number of years; which for many years there was no current/planned settlement expectation. These advances are currently at call interest free loans. These balances have historically been treated as investment in foreign operations (up to an including within the current period), however, expectations over the repayment of portions of the loans has changed (refer note 8(b)) and as such where loan repayments are to be expected in the short term these portions will be moved out of the Net investment in foreign operations allocation for the purposes of consolidation accounting.

 

Judgement is therefore required to determine whether the inter-company loans are treated as monetary assets, with currency movements taken to profit and loss, or whether they are treated as a portion of the Company's net investment in subsidiaries, with currency movements taken directly to foreign translation reserve. This judgement may change in from period to period for some, or all, of the inter-company loan amounts.

 

Estimates

Current v Non-current borrowings

Under the Group's restructured debt arrangements there is no fixed schedule of interest and principal repayments. Rather the Group's repayment obligation is now limited to making a minimum quarterly repayment of that amount which equals the available net working capital (NWC) over and above a US$5 million NWC buffer. If at the end of any quarter the NWC is less than US$5 million there is no debt repayment obligation and there is no resultant event of default if no repayment is made.

 

As a result the amount of debt principal that will be repaid within 12 months from balance sheet date is not known with certainty. Thus the amount of debt principal that is classified as either a current liability (payable within 12 months), or a non-current liability (payable after 12 months) needs to be estimated.

 

In order to estimate the amount of debt principal that will be repaid within the next 12 months the Group has taken into consideration the following:

 

·     The level of debt repayments made during 2021; and

·     Forecast minimum debt repayment obligations based upon predicted cash flows for the 2022 year after taking into consideration:

Ø Current gold prices and industry consensus forecast gold prices for the remainder of 2022;

Ø Current and forecast levels of gold recovery and gold production; and

Ø Current and forecast operational and CAPEX costs (AISC).

 

The outcome of these considerations was to estimate that US$36 million in principal and interest payments will be made in FY2022 (2021: US39.7 million); of which it is estimated that US$24.57 million of Group debt principal owing as at 31 December 2021 is to be settled (US$nil of Company debt principal owing as at 31 December 2021). Thus it was estimated that US24.57 million of Group debt principal and no Company debt principal is considered a current liability.

 

Impairment and impairment reversals of assets

An annual review is made of the carrying amount of an asset which may not be recoverable, or has previously been subject to an impairment charge. An asset's carrying value is written down, or conversely written up, to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use). To determine value in use the Group reviews future operations using the latest life of mine (LOM) model detailing future cash flows that the Runruno operation is expected to produce. The key assumptions for these value-in-use calculations are those regarding risk discount rates, the price of gold, gold recovery levels, plant availability levels, changes in the resource statements and forecast changes in operational and CAPEX costs, the availability of economic funding and the ability to renew its mining permit(s).

 

The net present value of these expected future cash flows is used to determine if an impairment, or impairment reversal, is required.

 

The year ended 31 December 2021 review of the net present value of expected future cash flows did not result in either an impairment charge or an impairment charge reversal being raised against its mining properties, plant and equipment.

 

Recovery of intercompany receivable accounts

Receivables due from group companies are assessed under the expected credit losses model. In each case, the most appropriate assessment is for the Company to consider the output from the impairment tests and value-in-use calculations carried out in respect of the Group's mining properties, plant and equipment assets.

 

In both the years ended 31 December 2020 and 2021 the Company booked a partial reversal of a 2018 year impairment made against its loans receivable from its subsidiaries. These impairment reversals recognise the improved trading outcomes of operating subsidiaries such that it is estimated that the Company will receive a larger than previously estimated recovery of loans made to subsidiaries.

 

Refer to note 8 for detail on the impairment reversal/charges.

 

Determination of mineral resources and ore reserves

The determination of mineral resources and ore reserves impacts the accounting for asset carrying values, depreciation and amortisation rates, deferred stripping costs and provisions for pensions and for decommissioning and restoration. 

 

There are numerous uncertainties inherent in estimating mineral resources and ore reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available.

 

Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated which may impact asset carrying values, depreciation and amortisation rates, deferred stripping costs and relevant provisions.

 

An updated estimation of mineral resources and ore reserves was calculated and publicised in February 2022. This new statement of mineral resources and ore reserves has been calculated and reported in accordance with the Aus.IMM "Australian Code for reporting of Identified Mineral Resources and Ore Reserves"; and was verified by Xenith Consulting, who are competent persons as identified by the Code.

 

Estimating gold-in-circuit and gold stockpile inventories

Gold-in-circuit is measured by the Company's metallurgists based on the gold grade/recovery across different structures of the process plant. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained concentrates in dry metric tonnes is based on assay data, and the estimated recovery percentage is based on the expected processing outcomes. Stockpile tonnages are verified by periodic surveys. Refer to note 17.

 

Although regular assay data is collected and production recoveries closely monitored these estimates that are valid at the time of estimation may be significantly different to the final gold recovered once processing of the inventories is completed.

 

Recovery of VAT and other duties

Non-current receivables include amounts the Group believe it is entitled to recover from the Philippine government in respect of past paid VAT, stamp duty and import duties. The Company's Philippine operating subsidiary, FCF Minerals Corporation ("FCF"), operates the Runruno mine in accordance with the terms of a Financial and Technical Assistance Agreement ("FTAA") with the Philippine government. Under the terms of the FTAA, FCF is exempt from numerous taxes including corporate income tax, VAT, stamp duty and import duty until July 2022. After July 2022 FCF is obligated to pay the above taxes plus a government 'profit-share tax' such that all government and business taxes equal at least 50% of the net cash surplus (as defined in the FTAA) generated by the Runruno mine.

 

Although the Group has been exempt from paying the above listed taxes since entering into the FTAA, it has nonetheless for operational reasons needed to outlay significant amounts in paying these various taxes. FCF is pursuing reimbursement of these payments through numerous court actions. Notwithstanding the terms of the FTAA, FCF has yet to successfully recover any of these amounts from the Philippine government.

 

In each year from 2018 to 2021 the Group has estimated that an impairment charge should be raised against this non-current receivable. Refer to note 16 for detail on the impairment charges.

 

Provision for environmental rehabilitation and decommissioning costs

The amount recognised as a provision represents management's best estimate of the consideration required to complete the necessary restoration and rehabilitation activity at the end of the LOM. These estimates are inherently uncertain and could materially change over time. There is judgement in the input assumptions used in determining the estimated rehabilitation and decommissioning provision. Inputs used that require estimating include:

 

•       closure costs, which are determined in accordance with regulatory requirements,

•       inflation rate, which has been adjusted for a long-term view,

•       risk-free rate, which is compounded annually and linked to the life-of-mine,

•       the rate at which the progressive back-fill rehabilitation is undertaken,

•       whether the final construction of the RSI facility is completed during normal operations, and

•       life-of-mine and related Mineral Resources and Mineral Reserves.

 

 

 

Provision for Pensions

The Group makes provision for an unfunded, non-contributory defined benefit retirement plan covering substantially all regular employees who have rendered at least six months of continuous service. Benefits are dependent on the years of service and the respective employee's compensation. The valuation of the retirement plan obligation is estimated using the projected unit credit actuarial cost method, and calculated by an independent qualified consulting group. The principal estimates used in determining the defined benefit retirement plan obligations are listed in note 21.

 

 

3.         Revenue

	2021		2020
	US$		US$
Sale of gold doré	129,171,321		120,098,576
Sale of gold concentrate	672,168		2,000,101
	129,843,489		122,098,677

 

All gold doré sales are made to a single refinery customer with 95% of sales proceeds received within 3-5 days of the gold doré having been shipped from the Runruno operation. The Group also sells small amounts of gold concentrate to a second refiner, with 50% of sales proceeds received upon export, with the balance received following further assaying and final processing.

 

4.         Operating profit for the year is stated after charging:

	2021		Restated 2020
	US$		US$
Depreciation of property, plant and equipment (note 12)	19,341,675		16,925,778
Amortisation (note 13)	27,908		56,457
Foreign exchange losses	865,236		1,455,886
Staff costs (note 7)	10,692,885		11,561,960
Auditors remuneration (note 5)	196,523		216,751

 

5.         Auditor's remuneration

	2021		2020
	US$		US$
Fees payable to the Group and Company's auditor for the audit of the Group and Company's accounts	134,573		156,871
Fees payable to the Company's auditor for other  services	6,876		6,432
Fees payable to the Company's auditor for taxation compliance services	55,074		53,448
	196,523		216,751

 

 

 

6.         Segmental analysis

 

Operating segments have been identified based on the Group's internal reporting to the Chief Operating Decision Maker ('CODM') and in particular the components of the Group which are regularly reviewed by the CODM. The operating segments included in internal reports are determined on the basis of their significance to the Group. The CODM has been determined to be the Board of Directors as it is primarily responsible for the allocation of resources to segments and the assessment of performance of the segments. The primary segments have been identified into three geographic areas of the UK, Philippines and Singapore. The CODM uses 'profit/(loss) before tax', 'cash & cash equivalents' and 'total liabilities' as the key measures of the segments' results and these measures reflect the segments' underlying performance for the period under evaluation.

 

The segment results for the year ended 31 December 2021 and 2020 and the reconciliation of the segment measures to the respective statutory items in the consolidated financial information are as follows:

 

 

 

6.            Segmental analysis (continued)

 

Year ended 31 December 2021	UK	Philippines	Singapore	Total
	US$	US$	US$	US$
Segment results
Sales revenue	-	129,843,489	-	129,843,489
Group operating (loss)/profit	(4,742,240)	34,149,063	(16,192)	29,390,631
Other income & charges	-	(1,794,056)	-	(1,794,056)
Finance costs	(12,321,582)	(3,910,614)	-	(16,232,196)
Loss on sale of assets	-	(78,206)	-	(78,206)
Share of profits of associates	-	18,232	-	18,232
(Loss)/profit before tax	(17,063,822)	28,384,419	(16,192)	11,304,405

 

Segment assets
Segment tangibles & intangibles	-	96,011,520	-	96,011,520
Segment receivables & inventories	232,616	28,479,954	3,511	28,716,081
Segment cash	199,978	4,523,224	13,768	4,736,970
Equity-accounted investees	-	182,265	-	182,265
Total segment assets	432,594	129,196,963	17,279	129,646,836
Segment liabilities
Segment loans	(78,856,268)	(23,834,279)	-	(102,690,547)
Segment trade & other payables	(468,222)	(11,797,471)	(12,842)	(12,278,535)
Segment provisions and retirement benefits obligations	-	(4,015,050)	-	(4,015,050)
Segment derivative liabilities	(332,996)	-	-	(332,996)
Segment deferred tax	-	(805,680)	-	(805,680)
Total segment liabilities	(79,657,486)	(40,452,480)	(12,842)	(120,122,808)
Total segment net (liabilities)/assets	(79,224,892)	88,744,483	4,437	9,524,028

 

Segment other information
Amortisation of intangible assets	-	(27,908)	-	(27,908)
Depreciation of property, plant and equipment	-	(19,341,675)	-	(19,341,675)
Additions to property, plant and equipment	-	11,542,751	-	11,542,751

 

Segment net assets are analysed net of intercompany transactions.

 

The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

 

 

6.            Segmental analysis (continued)

 

Restated Year ended 31 December 2020	UK		Philippines		Singapore	Total
	US$		US$		US$	US$
Segment results
Sales revenue		-		122,098,677	-	122,098,677
Group operating (loss)/profit		(4,944,095)		35,407,951	(1,636)	30,462,220
Other income & charges		-		(2,328,414)	-	(2,328,414)
Finance costs		(11,721,801)		(6,981,211)	-	(18,703,012)
Share of profits of associates		-		2,625	-	2,625
(Loss)/profit before tax		(16,665,896)		26,100,951	(1,636)	9,433,419

 

Segment assets
Segment tangibles & intangibles	-	103,211,162		-		103,211,162
Segment receivables & inventories	49,973	31,875,110		3,511		31,928,594
Segment cash	569,732	8,360,611		1,449		8,931,792
Equity-accounted investees	-	164,033		-		164,033
Total segment assets	619,705	143,610,916		4,960		144,235,581
Segment liabilities
Segment loans	(67,596,759)	(59,817,845)		-		(127,414,604)
Segment trade & other payables	(362,682)	(11,175,565)		(6,500)		(11,544,747)
Segment provisions and retirement benefits obligations	-	(5,578,989)		-		(5,578,989)
Segment deferred tax	-	(808,757)		-		(808,757)
Total segment liabilities	(67,959,441)	(77,381,156)		(6,500)		(145,347,097)
Total segment net (liabilities)/assets	(67,339,736)	66,229,760		(1,540)		(1,111,516)

 

Segment other information
Amortisation of intangible assets	-	(56,457)	-	(56,457)
Depreciation of property, plant and equipment	-	(16,925,778)	-	(16,925,778)
Additions to property, plant and equipment	-	13,106,215	-	13,106,215

 

 

 

7.            Staff numbers and costs - Group

 

2021   2020 The average number of persons, including Directors, was: Number   Number Administration 20 19 Development & operations 794 700 814   719       2021   2020 Staff costs of the above persons were: US$   US$ Wages and salaries 9,940,820 9,641,894 Social security costs 425,658 356,549 Retirement and pension costs 326,407 1,563,517 10,692,885   11,561,960

 

Directors' emoluments:	2021		Restated 2020
	US$		US$
Directors
D Bowden1	1,377,773		1,320,0002
D Cather1	95,634		-
A Chubb	51,222		-
S Smith3	23,036		-
A Stancliffe3	45,729		30,873
G Walker4	123,980		98,406
J Wrathall	51,223		-
	1,768,597		1,449,279

 

The Directors are considered to be the only members of key management personnel. The Directors' Report - Directors' remuneration section on page 21 includes details of the components of Directors' emoluments and forms part of these financial statements.

 

Relationship Agreements dated 23 October 2020 with MTL Luxembourg Sarl and Runruno Holdings Limited detail the terms of remuneration that each of these companies, and/or the respective Director, receives for the supply of their representative Directors.

 

¹ Includes consulting fees paid to private consulting companies.

² Restated 2020 disclosure to include omitted the year-end accrual of an unpaid bonus of US$360,000.

³ Fees in relation to S Smith and A Stancliffe were paid to their appointee, MTL Luxembourg Sarl.

⁴ Fees in relation to G Walker were paid to his appointee, Runruno Holdings Limited until 25 October 2021, however, as from 25 October 2021, director fees have been paid directly to G Walker.

 

Share options held by Directors:

 

As at 31 December 2021, the following share options were outstanding (2020: none):

 

 

7.            Staff numbers and costs - Group (continued)

 

Date of grant	Exercise price	Expiry date	Number of Options 31 December 2021	Number of Options 31 December 2020
28 October 2021	£0.01*	28 October 2024	19,800,000	-

 

*The exercise price of these options is defined as the nominal value of the Company's ordinary shares. At the forthcoming June 2022 AGM, it is proposed that the Company undertake a capital reorganisation that includes a change in the nominal value of the Company's ordinary shares from £0.01 to £0.0001. Should this proposal be approved the exercise price of these options will change from £0.01 to £0.0001. It is not proposed that the change in nominal share value impacts the number of options on issue or the option expiry date.

 

8.            Other charges and income applied against profit and loss

 

8(a).       Impairment charge and impairment reversal - Group

 

Property, plant and equipment (PPE)

Under IAS 36 - Impairment of Assets, each asset that forms a cash generating unit (CGU) should be tested annually for impairment. The Group considers that the entire Runruno project (encompassing capitalised property, plant and equipment, mining licence costs and deferred exploration expenditure) comprises a single cash generating unit as all stages of the project are interdependent in terms of generating cash flow and do not have the capacity to generate separate and distinct cash flow streams. Accordingly, the annual recoverable value assessment made in accordance with IAS 36 is made on a whole of project basis. 

 

The Group assesses the recoverable amount of the Runruno project CGU based on the value in use of the Runruno operations using cash flow projections over the remaining expected LOM and at appropriate discount rates. Based on assumptions current as at 31 December 2021 the Group reviewed its recent operational performance and its future expectations based on the current planned mining schedule to estimate the recoverable amount the Runruno project could deliver.

 

The recoverable amount estimates were based on the following key assumptions and source information:

·     gold resources to be mined based on current estimated reserves and resources and new remaining LOM mining schedule, adjusted for forecast mine and grade dilution;

·     estimated average gold recoveries forecast to be achieved over the remaining LOM based on average gold recoveries achieved to date;

·     estimated ongoing capital expenditure required for the remaining LOM;

·     estimated operating and administration costs for the remaining LOM including an inflation factor;

·     future gold revenues based upon industry consensus gold price predictions as at December 2021;

·     future gold revenues calculated for the remaining LOM of 6 years; and

·     risk discount rates of 15.5% (2020: 15.5%).

 

For both the years ended December 2020 and 2021 the estimated recoverable value of the Runruno project calculated in accordance with IAS 36 approximated the current book value of the Group's property, plant and equipment (PPE). Accordingly, there has been no requirement to book either an impairment charge or an impairment reversal in relation to the Group's PPE book values for either the year ended December 2020 or 2021.

 

 

8(a).       Impairment charge and impairment reversal - Group (continued)

 

Receivables due

Impairment charges have been raised against trade and other receivables due, both within and after one year, in relation to stamp duties, and VAT on importations and other goods and services. Under the fiscal terms incorporated into the FTAA these taxes and duties are recoverable, however, given the Group continues to have little success in securing appropriate refunds of these taxes it has paid annual impairment charges have been raised. (Refer note 16 - trade and other receivables due after one year; note 19 - trade and other receivables due within one year). In addition an impairment charge has been raised against advances made to associates.

 

The total impairment charges raised against all receivables was US1.5 million (2020: US$1.3 million).

 

8(b).       Impairment charge and impairment reversal - Company

 

Receivables due

To a large extent the Runruno project has been funded by loans from the parent Company and these together with the Company's investment in its subsidiaries and associates is represented by the value of the Runruno project cash generating unit. The 2018 estimate of the value of the Runruno project cash generating unit resulted in these loans and investments being fully written off.

 

Repayment of these loans and recovery of the investments is dependent upon the Runruno project producing sufficient cash surpluses. Subsequent reviews of what the future estimated cash flows that the Runruno project may produce have estimated that the Company's subsidiaries should produce positive cash flows over the remaining life of the project, enabling it to partially repay past parent company advances. Thus the Company estimates the expected parent company loan repayments to be at least the year-end subsidiary net asset balance. From a review of the subsidiaries net assets as at 31 December 2021 it was estimated that at least US$88 million of these parent company advances could be repaid. As a result, the Company has booked an impairment reversal of US$24 million in 2021 (2020: US$23 million) of receivables due from subsidiaries (note 19 - trade and other receivables due within one year).

 

8(c).        Net finance costs and other income

	2021		Restated 2020
	US$		US$
Exchange gain/(loss)	(897,870)		(925,354)
Loan interest and fees	(15,034,790)		(17,033,574)
Warrant amortisation expense	(299,536)		(744,890)
Other bank interest/fees	-		806
Finance costs and other income	(16,232,196)		(18,703,012)

 

 

9.            Taxation

 

The taxation (benefit)/expense comprises the following
	2021		2020
	US$		US$
Current year corporation tax expense	14,812		11,222
Current year deferred tax (benefit)/expense	(3,043)		8,527
Total tax expense for the year	11,769		19,749
The total tax expense for the year can be reconciled to profit for the year as follows:
	2021		Restated 2020
	US$		US$
Profit before tax	11,304,405		9,433,419

 

Tax on profit at UK corporation tax rate of 19% (2020: 19%)	2,147,837		1,792,350
Effects of:
Income not taxable	(1,442,986)		(3,012,203)
Differing tax rates in different jurisdictions	1,558,992		2,182,370
Deferred tax asset not recognised	556,933		1,423,484
Non-taxable and non-allowable items	(2,808,835)		(2,365,825)
Short-term timing differences	(172)		(427)
Total taxation (benefit)/expense for the year	11,769		19,749

 

10.          Deferred tax liability and asset

			Tax Liability			Tax Asset
			2021	2020		2021	2020
			US$	US$		US$	US$
Undepleted asset retirement obligation			583,572	579,457		-	-
Capitalised expenses			131,638	157,964		-	-
Other short term timing differences			90,470	71,336		-	-
			805,680	808,757		-	-

 

The differences between the deferred tax expense through the Consolidated Statement of Total Comprehensive Income and the deferred tax liability on the Consolidated Balance Sheet has occurred from translation differences arising on consolidation. Liabilities are translated using the closing foreign exchange rate prevailing at 31December 2021 whereas the foreign currency composition of the statement of total comprehensive income is translated using the average rate for the whole of the year.

 

Deferred tax asset

For the year ended 31 December 2021 the Group has net unused tax losses of US$92.2 million (2020: US$80.6 million) available for offset against future profits. However, due to the Group's on-going tax loss situation, the current FTAA tax holiday and the profit sharing terms of the FTAA, the deferred asset has not been recognised on the Consolidated Balance Sheet due to uncertainty over its future reversal.            

 

 

 

10.          Deferred tax credit, liability and asset (continued)

 

For the year ended 31 December 2021 the Group has net unused tax losses available for offset against future profits as follows:

	2021		Restated 2020
	US$		US$
UK	59,762,889		48,206,449*
Philippines**	32,406,481		32,406,481**
Group unused tax losses available	92,169,370		80,612,930

 

* The 2020 figure has been restated to match the losses carried forward as per the Company's 2020 corporate income tax return.

** The 2020 figure incorrectly disclosed the income tax benefit of Philippino carried forward tax losses. This figure has been corrected to show actual tax losses available in the Philippines. Further, these income tax losses expire in December 2023 and are available to be offset against future Philippines sourced profits, however, the Group may not benefit from them due to operation of the government profit sharing provisions of the FTAA. Under the terms of the FTAA, FCF is exempt from numerous taxes including corporate income tax until July 2022. After July 2022 FCF is obligated to pay corporate income tax (and other indirect taxes) plus a government 'profit-share tax' such that all government and business taxes equal at least 50% of the net cash surplus (as defined in the FTAA) generated by the Runruno mine.

 

11.          Earnings per share

	2021		Restated 2020
	US$		US$
Earnings
Net profit attributable to equity shareholders for the purpose of basic and diluted earnings per share
	11.292,636		9,413,670
Number of shares
Weighted average number of ordinary shares for the purpose of basic earnings per share
	2,071,334,586		2,071,334,586
Number of dilutive shares under warrant/option	115,983,670		96,285,358
Weighted average number of ordinary shares for the purpose of diluted earnings per share	2,187,318,256		2,167,619,944
Earnings per share
Basic earnings per share	0.55		0.45
Diluted earnings per share	0.52		0.43

 

The earnings per share was calculated on the basis of net profit attributable to equity shareholders divided by the weighted average number of ordinary shares.