THOR EXPLORATIONS LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

In United States dollars, except where noted (unaudited)

 

1.   CORPORATE INFORMATION

Thor Explorations Ltd. Is a West African focused gold producer and explorer, dually listed on the TSX-V (THX.V) and AIM Market of the London Stock Exchange (THX.L).

 

The Company was formed in 1968 and is organised under the BCBCA with its registered office at 550 Burrard St, Suite 2900 Vancouver, BC, CA, V6C 0A3. The Company evolved into its current form in August 2011 following a reverse takeover and completed the transformational acquisition of its flagship Segilola Gold Project in Nigeria in August 2016.

 

 

 

2.   BASIS OF PREPARATION

 

a)   Statement of compliance

 

These unaudited condensed consolidated interim financial statements, including comparatives, have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.

 

b)   Basis of measurement

 

These unaudited condensed consolidated interim financial statements have been prepared on a historical cost basis and are presented in United States dollars, unless otherwise indicated.

 

The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies. A precise determination of many assets and liabilities is dependent upon future events, the preparation of consolidated financial statements for a period involves the use of estimates, which have been made using careful judgment.  Actual results may differ from these estimates.  The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the unaudited condensed financial statements are discussed in Note 4.

 

c)   Nature of operations and going concern

 

As at March 31, 2022, the Company had cash of $6,276,376, restricted cash of $nil and inventory of 6,626 ounces of gold to be sold. During Q1 2022 and post period end, the Company has continued production from its Segilola Gold Mine with 21,343 ounces of gold produced, and 16,658 ounces of gold sold to the end of Q1 2022.

 

The Board has reviewed the Group's cash flow forecasts for the twelve-month period from the date of this report including forecast production of 80,000 - 100,000 ounces of gold for 2022. The Board is satisfied that the Group will generate sufficient financial resources from its operational cash flow to meet commitments for at least the next twelve months.

 

The Board has considered the operational disruption that could be caused by factors such as interruptions to production at commercial levels, illness amongst workforce caused by global and regional pandemics, and potential disruptions to supply chains. The forecast cashflows are based on a gold price of US$1,836/oz and the all-in sustaining cost at Segilola of US$850 - $US950/oz during the period under review (Refer to section 3 of the Q1 2022, MD&A).

 

The final EPC invoices are recorded as due and payable and constitute a material amount of the net working capital deficit. The EPC Contractor has confirmed that it will support the Company by extending the payment period of the final EPC invoices and has acknowledged that the Company will make payment of the final EPC invoices from available cashflow.

 

As at March 31, 2022, the Group had a net working capital deficit of $38,511,529  which includes its Senior Secured Facility, Deferred Payment Facility (refer to note 12), Mining Contractor invoices which become due three months after being invoiced, final EPC invoices which became due post EPC handover, which occurred on January 31, 2022 and a Deferred Income component, less related inventory, which was earned in April 2022 (See note 18 for details). The working capital calculation excludes $12,889,957 of gold stream liabilities, and $5,379,033 in third party royalties included in current accounts payable, that are contingent upon gold sales forecast of 80,000-100,000 ounces for the year ending December 31, 2022.

 

In Q1, 2022, the Company cancelled $1.35m of its Senior Facility it did not draw down. The Company  made its first scheduled debt repayment on March 31, 2022, to the Africa Finance Corporation of $2.53m consisting of principal and interest in accordance with the terms of its Senior Secured Facility.

 

Having reviewed the cash flow forecast, the Board has a reasonable expectation that continued production at expected levels from its Segilola Gold Mine will provide sufficient cash generation to enable the Group to service future debt repayment obligations.

 

 

 

3.   SIGNIFICANT ACCOUNTING POLICIES

 

The accounting policies described below have been applied consistently to all periods presented in these unaudited condensed consolidated interim financial statements unless otherwise stated.

 

a)   Consolidation principles

 

Assets, liabilities, revenues and expenses of the subsidiaries are recognized in accordance with the Company's accounting policies. Intercompany transactions and balances are eliminated upon consolidation.

 

b)   Details of the group

 

In addition to the Company, these unaudited condensed consolidated interim financial statements include all subsidiaries of the Company. Subsidiaries are all corporations over which the Company has power over the Subsidiary and it is exposed to variable returns from the Subsidiary and it has the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The audited consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity, with Subsidiaries being fully consolidated from the date on which control is acquired by the Company. They are de-consolidated from the date that control by the Company ceases.

 

The subsidiaries of the Company are as follows:

Company	Location	Incorporated	Interest
Thor Investments (BVI) Ltd. ("Thor BVI")	British Virgin Islands	June 30, 2011	100%
African Star Resources Incorporated ("African Star")	British Virgin Islands	March 31, 2011	100%
Segilola Resources Incorporated ("SR BVI")	British Virgin Islands	March 10, 2020	100%
Thor Gold Ventures Ltd ("THX GV")	United Kingdom	February 11, 2022	100%
African Star Resources SARL ("African Star SARL")	Senegal	July 14, 2011	100%
Argento Exploration BF SARL ("Argento BF SARL")	Burkina Faso	September 15, 2010	100%
AFC Constelor Panafrican Resources SARL ("AFC Constelor SARL")	Burkina Faso	December 9, 2011	100%
Segilola Resources Operating Limited ("SROL")	Nigeria	August 18, 2016	100%
Segilola Gold Limited  ("SGL")	Nigeria	August 18, 2016	100%

 

The change to ownership interest from the previous year was the incorporation of Thor Gold Ventures Ltd in February 2022.

 

c)   Foreign currency translation

 

Functional and presentation currency

The Company's presentation currency is the United States dollar ("$"). The functional currency for the Company, being the currency of the primary economic environment in which the Company operates. The individual financial statements of each of the Company's wholly owned subsidiaries are prepared in the currency of the primary economic environment in which it operates (its functional currency).

 

Exchange rates published by Oanda were used to translate the Thor BVI, African Star, SR BVI, African Star SARL, Argento BF SARL, AFC Constelor SARL, SROL and SGL's financial statements into the United States dollar in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates. This standard requires, on consolidation, that assets and liabilities be translated using the exchange rate at period end, and income, expenses and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions (i.e., the average rate for the period). The foreign exchange differences on translation of subsidiaries Thor BVI, African Star, SR BVI, African Star SARL, Argento BF SARL, AFC Constelor SARL, SROL and SGL are recognized in other comprehensive income (loss). Exchange differences arising on the net investment in subsidiaries are recognised in other comprehensive income.

 

Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit and loss. Fluctuations in the value of the local currencies of our subsidiaries, with most notably the US Dollar will result in foreign exchange gains and losses as assets and liabilities denominated in US Dollar are revalued in the Subsidiary's local currency at reporting dates.

 

 

d)   Financial instruments

 

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

 

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

 

The effective interest method is a method of calculating the amortised cost of a financial asset/liability and of allocating interest income/expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts/payments through the expected life of the financial asset/liability or, where appropriate, a shorter period. Costs directly relating to financing facilities are initially recognised against the loan balance, and subsequently released to the income statement over the term of the facility.

 

Derecognition of financial assets and liabilities

 

Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

-     the rights to receive cash flows from the asset have expired;

-     the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass through' arrangement; or

-     the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.

 

Financial liabilities

A financial liability is derecognised 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 a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

 

Financial Assets

 

Under IFRS 9, the Group classifies its financial assets into the following categories: those to be held at amortised cost, and those to be measured subsequently at fair value through profit and loss.

 

Classification depends on the business model for managing the financial assets and the contractual terms of the cash flows. Management determines the classification of financial assets at initial recognition. The Group's business model is primarily that of "hold to collect" (where assets are held in order to collect contractual cash flows).

 

Amortised cost: these assets arise principally from the provision of goods and services to customers, but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

 

Amounts receivables are measured at amortised cost using the effective interest rate method, less impairment.

 

Cash and cash equivalents

 

Cash and cash equivalents represent cash balances held at bank and on demand deposits. Cash and cash equivalents are measured at amortised cost.

 

Restricted cash represented cash balances held in bank accounts that are ring fenced to be applied to the construction costs at the Company's Segilola Gold Mine in Nigeria.

 

The Group does not hold any financial assets that meet conditions for subsequent recognition at fair value through other comprehensive income.

 

As at March 31, 2022, the Company had $nil that is accounted for separately from cash and cash equivalents (December 31, 2021 $3.5 million). It is classified as restricted cash as the funds are not freely available for the Company's use. Refer to Note 6.

 

Impairment of Financial Assets

 

The Group recognizes a loss allowance for expected credit losses ("ECL") on financial assets that are measured at amortised cost which comprise mainly of receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. Impairment provisions for other receivables are recognised based on a forward-looking expected credit loss model.  The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset.  For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised.  For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised.  For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

 

Financial Liabilities

 

The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics.

 

Financial liabilities are initially recorded on trade date, being the date on which the Group becomes party to the contractual requirements of the financial liability. Unless otherwise indicated the carrying amounts of the Group's financial liabilities approximate to their fair values.

 

The Group's financial liabilities consist of financial liabilities measured at amortised cost. These comprise

Loans and borrowings, short term advances pursuant to outstanding settlement of currency exchange swaps undertaken in the normal course of operations, accounts payable, accrued liabilities and deferred payment. Loans and borrowings are initially recognised at fair value, net of transaction costs incurred. They are subsequently stated at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value recognised in the statement of comprehensive loss over the period of the loans and borrowings using the effective interest rate method. If estimates of future payments are revised, the carrying amount of the financial liability is adjusted to reflect actual and revised estimated cash flows.

 

Where financial liabilities are settled through the issue of shares, the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued, is recognised in profit or loss.

 

Fair Value measurement hierarchy

 

IFRS 13 "Fair Value Measurement" requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the input used in making the fair value measurement.

The fair value hierarchy has the following levels:

·      Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

·      Input other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived prices (level 2); and,

·      Inputs for the asset or liability that are not based on observable market data (unobservable input) (level 3).

 

The level in the fair value hierarchy within which the financial asset or financial liability is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the three levels.

 

Gold Stream arrangement

 

On April 29, 2020, the Company announced the completion of financing requirements for the development of the Segilola Gold Project in Nigeria. The financing included a $21 million gold stream prepayment pursuant to a Gold Stream Arrangement ("GSA") entered in to with the Africa Finance Corporation ("AFC"). 

 

Under the terms of the GSA an advance payment of $21 million was received. Upon the commencement of production at Segilola the AFC will have the right to receive 10.27% of gold produced from the Group's ML41 mining license. Once the initial liability has been repaid in full any further gold production will be delivered under the terms of the GSA up to the money multiple limit of 2.25 times the initial advance. The total maximum amount payable to the AFC under this agreement is $47.25m including the repayment of the initial US$21 million advance. The advanced payment has been recorded as a contract liability based on the facts and terms of the arrangement and own use exemptions considerations. 

 

The maximum $26.25 million payable after the initial $21 million has been settled has been identified as a significant financing component. The deemed interest rate is calculated at inception, using the production plan and gold price estimates and released over the term of the arrangement as interest expense in the income statement upon commencement of production. The deemed interest rate is recalculated at each reporting period and restated based on changes to the expected production profile and gold price estimates.

 

Revenue from the streaming arrangement was recognised under IFRS 15 when the customer obtained control of the gold and the Group satisfied its performance obligations. The revenue recognised reduced the contract liability balance.

 

In December 2021, the Group entered into a cash settlement agreement with the AFC where the gold sold to the AFC is settled in a net-cash sum payable to the AFC instead of delivery of bullion for repayment of the gold stream arrangement. This agreement triggered a modification to the contract liability, resulting in the liability to be accounted for in accordance with IFRS 9 whereby the liability is classified as a financial liability measured at fair value through profit or loss.

 

Capitalisation of borrowing costs

 

Interest on borrowings directly relating to the financing of qualifying capital projects under construction is

added to the capitalised cost of those projects during the construction phase, until such time as the assets

are substantially ready for their intended use or sale which, in the case of mining properties, is when they

are capable of commercial production. Where funds have been borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period.

           

All other borrowing costs are recognised in the income statement in the period in which they are incurred.

 

e)   Property, plant and equipment

 

Recognition and Measurement

On initial recognition, property, plant and equipment is valued at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company, including appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions. Property, plant and equipment is subsequently measured at cost less accumulated depreciation, less any accumulated impairment losses, with the exception of land which is not depreciated.

 

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

 

Subsequent Costs

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

 

 

Gains and Losses

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount and are recognized net within other income in profit or loss.

 

 

Depreciation

Depreciation on property plant & equipment is recognised in profit or loss except where depreciation is directly attributable to mineral properties owned by the Group that are classified as either Exploration & Evaluation or Assets Under Construction ("AUC"). Depreciation in this instance is capitalised to the value of the mineral property asset (refer to Note 15).  Upon commencement of commercial production, the value of AUC will be reclassified as Mining and Plant assets (together "Mining Property") within Property, Plant & Equipment. Mining Property will be depreciated using the unit of production method based on proven and probable reserves. Units of production are significantly affected by resources, exploration potential and production estimates together with economic factors, commodity prices, foreign currency, exchange rates, estimates of costs to produce reserves and future capital expenditure. Refer to Note 3f for further analysis of classification of AUC for the year to December 31, 2021.

 

Depreciation of Mining and Other Equipment is provided on a straight-line basis over the estimated useful life of the assets as follows:

 

Description within Mining and Other Equipment	Rate
Motor vehicles	20-33%
Plant and machinery	20-25%
Office furniture	20-33%

 

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

 

 

f)    Assets under construction

 

Assets under construction comprise development projects and assets in the course of construction at both the mine development and production phases.

 

Development projects comprise interests in mining projects where the ore body is considered commercially recoverable, and the development activities are ongoing. Expenditure incurred on a development project is recorded at cost, less applicable accumulated impairment losses. Interest on borrowings, incurred for the purpose of the establishment of mining assets, is capitalised during the construction phase.

 

The cost of an asset in the course of construction comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use, at which point it is transferred from assets under construction to other relevant categories and depreciation commences. Assets under construction are not depreciated.

 

Upon commercial production being achieved on January 1, 2022, assets under construction were re-categorized as Mining Property. 

 

g)   Exploration and evaluation expenditures

 

Acquisition costs

The fair value of all consideration paid to acquire an unproven mineral interest is capitalized, including amounts due under option agreements. Consideration may include cash, loans or other financial liabilities, and equity instruments including common shares and share purchase warrants.

 

Exploration and evaluation expenditures

All costs incurred prior to legal title are expensed in the consolidated statement of comprehensive loss in the year in which they are incurred. Once the legal right to explore a property has been acquired, costs directly related to exploration and evaluation expenditures are recognized and capitalized, in addition to the acquisition costs.  These direct expenditures include such costs as materials used, surveying costs, drilling costs, payments made to contractors and depreciation on plant and equipment during the exploration phase. Costs not directly attributable to exploration and evaluation activities, including general administrative overhead costs, are expensed in the year in which they occur.

 

When a project is deemed to no longer have commercially viable prospects to the Company, exploration and evaluation assets in respect of that project are deemed to be impaired. As a result, those exploration and evaluation assets, in excess of estimated realisable value, are written off to the statement of comprehensive loss.

 

At such time as commercial feasibility is established, project finance has been raised, appropriate permits are in place and a development decision is reached, the costs associated with that property will be transferred to and re-categorised as Assets under construction.

Farm-in agreements

As is common practice in the mineral exploration industry, the Company may acquire or dispose of all, or a portion of, an exploration and evaluation asset under a farm-in agreement. Farm-in agreements typically call for the payment of cash, issue of shares and/or incurrence of exploration and evaluation costs over a period of time, often several years, entirely at the discretion of the party farming-in. The Company recognizes amounts payable under a farm-in agreement when the amount is due and when the Company has no contractual rights to avoid making the payment. The Company recognizes amounts receivable under a farm-in agreement only when the party farming-in has irrevocably committed to the transfer of economic resources to the Company, which often occurs only when the amount is received. Amounts received under farm-in agreements reduce the capitalized costs of the optioned unproven mineral interest to nil and are then recognized as income.

 

h)   Impairment of non-current assets

 

Impairment tests for non-current assets are performed when there is an indication of impairment. At each reporting date, an assessment is made to determine whether there are any indications of impairment. Prior to carrying out impairment reviews, the significant cash generating units are assessed to determine whether they should be reviewed under the requirements of IAS 36 - Impairment of Assets for property plant and equipment, or IFRS 6 - Exploration for and Evaluation of Mineral Resources.

 

 

Impairment reviews performed under IAS 36 are carried out on a periodic basis to ensure that the value recognised on the Statement of Financial Position is not greater than the recoverable amount. Recoverable amount is defined as the higher of an asset's fair value less costs of disposal, and its value in use.

 

Impairment reviews performed under IFRS 6 are carried out on a project-by-project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise; typically, when one of the following circumstances applies:

(i)   sufficient data exists that render the resource uneconomic and unlikely to be developed

(ii)   title to the asset is compromised

(iii)  budgeted or planned expenditure is not expected in the foreseeable future

(iv)  insufficient discovery of commercially viable resources leading to the discontinuation of activities

 

If any indication of impairment exists, an estimate of the non-current asset's recoverable amount is calculated. The recoverable amount is determined as the higher of fair value less direct costs to sell and the asset's value in use. If the carrying value of a non-current asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the statement of comprehensive loss so as to reduce the carrying amount of the non-current asset to its recoverable amount.

 

 

i)    Income taxes

 

Income tax expense is comprised of current and deferred income taxes. Current and deferred income taxes are recognized in profit and loss, except for income taxes relating to items recognized directly in equity or other comprehensive income.

 

Current income tax, if any, is the expected amount payable or receivable on the taxable income or loss for the year, calculated in accordance with applicable taxation laws and regulations, using income tax rates enacted or substantively enacted at the end of the reporting period, and any adjustments to amounts payable or receivable relating to previous years.

 

Deferred income taxes are provided using the liability method based on temporary differences arising between the income tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using income tax rates and income tax laws and regulations that have been enacted or substantively enacted at the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

 

Deferred income tax assets are recognized to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced.

 

The following temporary differences do not result in deferred tax assets or liabilities:

 

·      the initial recognition of assets or liabilities, not arising in a business combination, that do not affect accounting or taxable profit

·      goodwill

·      investments in subsidiaries, associates and jointly controlled entities where the timing of reversal of the temporary differences can be controlled and reversal in the foreseeable future is not probable.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

 

j)    Revenue recognition

 

The Group enters in to forward sales contracts for the sale of gold at a pre-determined and agreed price with an agent who remits the cash proceeds to the Group.

 

The Group recognises the sale upon delivery at which point control of the product has been transferred to the Customer Transfer of control generally takes place when refined gold is credited to the metals account at the refinery of the Customer who has sold the gold via forward sale. Revenue is measured based on the consideration to which the Group expects to be entitled under the terms of the Agreements with the Customer.

 

k)   Royalties

 

The Group has royalty payment obligations from production from its Segilola Gold Mine in Nigeria. A royalty is payable to the Nigerian government at a rate of 5,400 Nigerian Naira per ounce produced. The royalty is paid before the Dore is exported from Nigeria for refining. Royalties paid to the Nigerian government are recognised as cost of sales in the Consolidated Statement of Comprehensive Loss at the point that the royalty payments are made.

 

The Group also has royalty obligations to three former owners of the Segilola Gold Project at rates of between 0.375% to 1.5% on the value of sales. Total royalties to the former owners ("third party royalties") are capped at $7.5 million. Royalties are calculated using the outturn date as reference point, whereby the number of ounces outturned are multiplied using the London Bullion Market Association ("LBMA") p.m. rate on the outturn date to establish a deemed sales value. The applicable royalty rate for each former owner is applied to the deemed sales value to determine the royalty payable.

 

Third party royalties have been assessed to be contingent consideration in the acquisition of the Segilola Gold Mine under IAS 3. In accordance with the Group's accounting policy the contingent consideration has been recognised as a financial liability at the point there was considered to be certainty over the payment arising (commencement of production). The royalties have been discounted using a rate of 4.7% and the discounted value of the third parties' royalties has been included in the value of Assets Under Construction and recognised as a financial liability in the Consolidated Statement of Financial Position. The discount will be unwound over the estimated time it will take to pay the entire $7.5 million obligation. The value of the royalties will be depreciated over the estimated life of the mine, and royalty payments will be applied in discharge of the financial liability. The financial liability was initially measured at fair value with subsequent fair value re-measurement to be recorded in the Consolidated Statement of Comprehensive Loss.

 

l)    Inventory

 

Stores and consumables are stated at the lower of cost and net realizable value. The cost of stores and consumables includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

 

Gold ore stockpiles are valued at the lower of weighted average cost and net realizable value. Cost includes direct materials, direct labour costs and production overheads.

 

Gold bullion and gold in process are stated at the lower of weighted average cost and net realizable value. Cost includes direct materials, direct labour costs and production overheads.

 

m)  Basic and diluted income or loss per share

 

Basic loss per share is computed by dividing the loss for the year by the weighted average number of commons shares outstanding during the year. Diluted income per share reflects the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. Fully diluted amounts are not presented when the effect of the computations are anti-dilutive due to the losses incurred. Accordingly, there is no difference in the amounts for the basic and diluted loss per share.

 

n)   Comprehensive income (loss)  

 

Comprehensive income (loss) is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income (loss) that are excluded from net earnings (loss). The main element of comprehensive income (loss) is the foreign exchange effect of translating the financial statements of the subsidiaries from local functional currencies into Canadian dollars upon consolidation. Movements in the exchange rates of the US Dollar, Pound Sterling, Nigerian Naira and West African Franc to the Canadian dollar will affect the size of the comprehensive income (loss).

 

o)   Share-based payments

 

Where options are awarded for services the fair value, at the grant date, of equity-settled share awards is either charged to income or loss, or capitalized to assets under construction where the underlying personnel cost is also capitalized, over the period for which the benefits of employees and others providing similar services are expected to be received.  The corresponding accrued entitlement is recorded in the Options reserve.  The amount recognized as an expense is adjusted to reflect the number of share options expected to vest. Where warrants are awarded in connection with the issue of common shares the fair value, at the grant date, is transferred from common shares with the corresponding accrued entitlement recorded in the share purchase warrants reserve. The fair value of options and warrants awards is calculated using the Black-Scholes option pricing model which considers the following factors:

 

·      Exercise price	·      Current market price of the underlying shares
·      Expected life of the award	·      Risk-free interest rate
Expected volatility

 

 

When equity instruments are modified, if the modification increases the fair value of the award, the additional cost must be recognised over the period from the modification date until the vesting date of the modified award.

 

p)   Decommissioning, site rehabilitation and environmental costs

 

The Group is required to restore mine and processing sites at the end of their producing lives to a condition acceptable to the relevant authorities and consistent with the Group's environmental policies. The net present value of estimated future rehabilitation costs is provided for in the financial statements and capitalised within property, plant and equipment on initial recognition. The capitalised cost is amortised on a unit of production basis. Unwinding of the discount is recognised as finance cost in the statement of comprehensive income as it occurs. Changes in estimates are dealt with on a prospective basis as they arise. The costs of on-going programmes to prevent and control pollution and to rehabilitate the environment are charged to profit or loss as incurred.

 

q)   Leases

 

The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of time in exchange for consideration. Leases are those contracts that satisfy the following criteria:

·      There is an identified asset;

·      The Group obtains substantially all the economic benefits from use of the asset; and,

·      The Group has the right to direct use of the asset.

 

The Group considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease. In determining whether the Group obtains substantially all the economic benefits from use of the asset, the Group considers only the economic benefits that arise from use of the asset. In determining whether the Group has the right to direct use of the asset, the Group considers whether it directs how and for what purpose the asset is used throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Group applies other applicable IFRSs rather than IFRS 16.

 

All leases are accounted for by recognizing a right-of-use asset and a lease liability except for:

·      Leases of low value assets; and

·      Leases with a duration of 12 months or less.

 

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

 

On initial recognition, the carrying value of the lease liability also includes:

·      Amounts expected to be payable under any residual value guarantee;

·      The exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option; and,

·      Any penalties payable for terminating the lease, if the term of the lease has been estimated based on termination option being exercised.

 

Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

·      Lease payments made at or before commencement of the lease;

·      Initial direct costs incurred; and,

·      The amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.

 

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease.

 

When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

 

r)    Interest income

 

Interest income is recognized as earned, provided that collection is assessed as being reasonably assured.

 

s)   Provisions

 

Provisions are recognised when the Group has a present obligation, legal or constructive, resulting from past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation.

 

t)    Contingent liabilities

 

Contingent liabilities are possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the Group.

 

Contingent liabilities also include obligations that are not recognised because their amount cannot be measured reliably or because settlement is not probable. Contingent liabilities do not include provisions for which it is certain that the Group has a present obligation that is more likely than not to lead to an outflow of cash or other economic resources, even though the amount or timing is uncertain.

Unless the possibility of an outflow of economic resources is remote, a contingent liability is disclosed in the notes to the financial statements.

 

u)   Application of new and revised International Financial Reporting Standards

 

There were no new standards or interpretations effective for the first time for periods beginning on or after January 1, 2022, that had a significant effect on the Group's financial statements.

 

 

v)   Future accounting pronouncements

 

There are no standards issued by IASB, but not yet effective, that are expected to have a material impact

of the group.

 

4.   CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

 

The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

 

The effect of a change in an accounting estimate is recognized prospectively by including it in net and/or comprehensive loss in the year of the change, if the change affects that year only, or in the year of the change and future years, if the change affects both.

 

a)   Critical accounting estimates

 

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the financial position reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, relate to, but are not limited to, the following:

 

(i)   Accounting treatment of Gold Stream Liability

Determining the appropriate accounting treatment for the Gold Stream Liability is not an accounting policy choice, rather it is an assessment of the specific facts and circumstances and requires judgement. The Company has reviewed the terms of the Gold Sale Agreement and determined that it constitutes a commodity arrangement as it is an arrangement to deliver an amount of the commodity from the Group's own Segilola Gold Project operation and does not constitute a contract liability under IFRS 15.

In 2021 the arrangement was modified to allow the Group to settle the Gold Stream Liability in cash which led to the arrangement being reclassified as a financial liability.

The principal accounting estimates in calculating the value of the Gold Stream Liability are production plan, gold price, the implied interest rate and future repayment profile. The buy-out option contained in the Gold Sale Agreement has been estimated at nil.

 

In calculating the deemed interest rate for interest expense that will be released over the term of the Agreement, estimates of both the production plan and gold price will be the key variables. The deemed interest rate is calculated at each reporting period and restated based on changes to the expected production profile and gold price estimates, which will result in a revision to estimated future payments. Any change in future payments will result in a revision of the deemed interest rate.

 

The period-end Gold Stream obligation uses forward curve information based on the period-end gold spot price, which was US$1,875 /oz at March 31, 2022. A 1% change in gold production estimates would result in an impact of less than $0.05 million on the Gold Stream liability.

 

(ii)   Restoration, site rehabilitation and environmental costs

The Group's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The Group recognises management's best estimate of the rehabilitation costs in the period in which they are incurred. This estimate includes judgements from management in respect of which costs are expected to be incurred in the future, the timing of these costs and their present value. Actual costs incurred in future periods could differ materially from the estimates. Additionally, future changes to environmental laws and regulations, life of mine estimates and discount rates could affect the carrying amount of this provision. Such changes could similarly impact the useful lives of assets depreciated on a straight-line-basis, where those lives are limited to the life of mine. A 1% change in the discount rate on the Group's rehabilitation estimates would result in an impact of $0.385 million (2020: $0.04 million) on the provision for environmental and site restoration. The value of the year- end restoration provision is disclosed within note 14.

(iii)  Inventories

Expenditures incurred, and depreciation and amortisation of assets used in mining and processing activities are deferred and accumulated as the cost of ore in stockpiles, ore in mill, and finished gold dore inventories. These deferred amounts are carried at the lower of average cost or net realizable value.  

 

Their measurement involves the use of estimation to determine the tonnage, the attainable gold recovery, and the remaining costs of completion to bring inventory to its saleable form. Changes in these estimates can result in a change in mine operating costs of future periods and carrying amounts of inventories.

 

In determining the net realizable value of ore in stockpiles, ore in mill, and gold dore the Company estimates future metal selling prices, production forecasts, realized grades and recoveries, and timing of processing to convert the inventories into saleable form. Reductions in metal price forecasts, increases in estimated future production costs, reductions in the number of recoverable ounces, and a delay in timing of processing can result in a write down of the carrying amounts of the Company's ore in stockpiles, ore in mill and gold dore inventories.

 

 

b)   Critical accounting judgments

 

Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the financial statements within the next financial year are discussed below:

 

 

(i)  Impairment of exploration and evaluation assets

In accordance with IFRS 6 Exploration for and Evaluation of Mineral Resources, management is required to assess impairment in respect of the intangible exploration and evaluation assets. In making the assessment, management is required to make judgments on the status of each project and the future plans towards finding commercial reserves. The nature of exploration and evaluation activity is such that only a proportion of projects are ultimately successful and some assets are likely to become impaired in future periods.

 

Management has determined that it is appropriate to impair fully the value of the Central Houndé Project in Burkina Faso following the unsuccessful attempt by Barrick Gold to dispose of its 51% interest in the license. An impairment charge of $121,909 has been charged to the Consolidated Statement of Comprehensive Loss. There were no impairment indicators present in respect of any of the other exploration and evaluation assets and as such, no additional impairment test was performed.

 

(ii) Impairment of property, plant and equipment

The Company has determined that there were no impairment indicators present in respect of the Segilola Gold Mine in accordance with IAS 36 and determined that no impairment was required to be recognised.

 

(iii) Functional currency

 

An analysis of functional currency under IAS 21 was undertaken on Segilola Resources Operations Limited ("SROL") in order to determine if significant changes to operational activities provide indicators that the functional currency for IFRS purposes should be reviewed and changed. Under IAS 21 an entity's functional currency reflects the underlying transactions, events and conditions that are relevant to it. Accordingly, once determined, the functional currency is not changed unless there is a change in those underlying transactions, events and conditions.

 

The principal focus of the analysis was on the continuing applicability of the Nigerian Naira ("NGN") as the functional and reporting currency for SROL. Potential indicators of a change in functional currency for SROL were the commencement of the Mining Contract at Segilola and commencement of gold sales from Segilola, both denominated in US Dollars. The financial impact of a change in functional currency of SROL to US Dollars was assessed at each of the dates where potential indicators of a change in functional currency could be considered to have been determined and it was concluded that a change in functional currency to US Dollars would best reflect the underlying transactions, events and conditions that are most relevant to the Company's operations.

 

(iv)        Commercial production

 

The Group achieved first gold sales from its Segilola Gold Mine ("Segilola") in Osun state, Nigeria in December 2021, with first production from the Mill occurring in October 2021. During Q4 2021 production from the Mill was intermittent and below operating capacity per its mine plan, while overall recovery was approximately 13% below capacity. The Group's focus during Q4 2021, was the ramp-up of production to mine plan level which was not achieved on a consistent basis prior to year-end. After careful consideration Management has determined that mining operations to December 31, 2021, were not at sustainable commercial levels and that the correct classification of Segilola was Assets under construction. Production and recovery rates reached levels closer to mine plan in January 2022, and as such Management has determined that commercial production was achieved from January 2022.

 

 

 

5.   ADMINISTRATIVE EXPENSES

 

	Note		Three Months Ended March 31,
			2022		2021
Audit and legal		$	47,173	$	96,359
Bank charges			29,974		12,969
Consulting fees			324,354		68,525
Directors' fees	21		90,328		87,822
Equipment hire			51,582		388,148
Investor relations and transfer agent			111,226		49,549
Listing and filing fees			5,556		3,194
Office and miscellaneous			364,203		59,592
Salaries and benefits			325,986		317,729
Travel			166,554		23,056
		$	1,516,936	$	1,106,943

 

5a. AMORTISATION AND DEPRECIATION
Amortisation and depreciation - owned assets	15		5,004,617		6,167
Amortisation and depreciation - right-of-use assets	10		1,158,255		11,334
		$	6,162,872	$	17,501

 

 

5b. OTHER EXPENSES

Mining property costs			366,465		-
Near mine exploration			307,147		-
		$	673,612	$	-

 

 

6.   RESTRICTED CASH

 

		March 31, 2022		December 31, 2021
Restricted cash	$	-	$	3,495,992

 

On December 1, 2020, the Company announced that its subsidiary Segilola Resources Operating Limited ("SROL") had completed the financial closing of a $54 million project finance senior debt facility ("the Facility") from the Africa Finance Corporation for the construction of the Segilola Gold Project in Nigeria. The Facility can be drawn down at the Group's request in minimum disbursements of $5 million. As at March 31, 2022, SROL has received total disbursements of $52.6 million, with $nil drawn down during the period under review, and the remaining $1.35m of the facility was cancelled by the Company. Total disbursements received represent 97% of the facility. Under the terms of the facility, the Company was required to place a total of US$3.5 million into a cost overrun bank account that can only be used for expenditure on the development of the Segilola Gold Project in the event of construction costs exceeding budget.  Upon receipt of the Certificate of Completion on January 31, 2022, the cash ceased to be treated as restricted.

 

7.   INVENTORY

 

			March 31, 2022		December 31, 2021
Plant spares and consumables		$	1,513,438	$	1,337,792
Gold ore in stockpile			4,203,827		8,663,728
Gold in CIL		2,581,292		1,614,267
Gold Dore			8,236,386		6,530,771
		$	16,534,943	$	18,146,558

 

There were no write downs to reduce the carrying value of inventories to net realizable value during the period ended March 31, 2022.

 

 

8.   AMOUNTS RECEIVABLE

 

		March 31, 2022		December 31, 2021
Accounts receivable	$	1,426	$	20,495
GST		5,089		3,715
Other receivables		185,361		213,441
	$	191,876	$	237,651

 

The value of receivables recorded on the balance sheet is approximate to their recoverable value and there are no expected material credit losses.

 

 

 

9.   PREPAID EXPENSES, ADVANCES AND DEPOSITS

 

		March 31, 2022		December 31, 2021
Current:
Insurance	$	69,570	$	53,985
Gold Stream liability arrangement fees		30,252		38,829
Other deposits		550,010		235,408
Other prepayments		268,387		258,643
	$	918,219		586,865
Non-current:
Gold Stream liability arrangement fees	$	85,136	$	87,310
Other prepayments		18,654		18,373
	$	103,790	$	105,683

 

 

10.  LEASES

 

The Group accounts for leases in accordance with IFRS 16. The definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2019.The Group has elected not to recognise right-of-use assets and lease liabilities for leases which have low value, or short-term leases with a duration of 12 months or less. The payments associated with such leases are charged directly to the income statement on a straight-line basis over the lease term. $357,463 (2021 year: $2,349,509) has been expensed in the period. In addition, the Group will no longer recognise provisions for operating leases that it assesses to be onerous. Instead, the Group will include the payments due under the lease in its lease liability.

 

The key impacts on the Statement of Comprehensive Loss and the Statement of Financial Position for the period ended March 31, 2022, were as follows:

 

 

 

			Right of use asset		Lease liability		Income statement
Carrying value December 31, 2021		$	20,843,612	$	(18,274,374)	$	-
Depreciation			(1,159,682)		-		(1,159,682)
Interest			-		(360,247)		(360,247)
Lease payments			-		1,213,678		-
Foreign exchange movement			23,985		(21,201)		2,784
Carrying value at March 31, 2022		$	19,707,915	$	(17,442,144)	$	(1,519,929)

 

Total depreciation charged to the Statement of Comprehensive Loss for the period under IFRS 16 was $1,159,682.

 

The key impacts on the Statement of Comprehensive Loss and the Statement of Financial Position for the year ended December 31, 2021, were as follows:

 

 

				Right-of- use asset		Lease liability		Income statement
Carrying value December 31, 2020			$	69,066	$	(30,648)	$	-
New leases entered in to during the year				22,612,362		(19,668,810)		-
Depreciation				(2,355,674)		-		(41,106)
Interest				-		(782,088)		(563)
Lease payments				-		2,800,407		-
Foreign exchange movement				517,858		(593,235)		(75,743)
Carrying value at December 31, 2021			$	20,843,612	$	(18,274,374)	$	(117,412)

 

 

 

11.  GOLD STREAM LIABILITY

 

Gold stream liability

		March 31, 2022 Total		December 31, 2021 Total
Balance at Beginning of period	$	30,262,279	$	24,708,573
Interest at the effective interest rate		1,733,984		6,562,830
Repayments		(1,806,690)		(443,915)
Foreign exchange movement		(439,092)		(565,209)
Balance at End of period	$	29,750,481	$	30,262,279
Current liability		12,889,957		12,837,633
Non-current liability		16,860,524		17,424,646

 

On April 29, 2020, the Company announced the closing of project financing for its flagship Segilola Gold Project ("Segilola") in Osun State, Nigeria. The financing included a $21 million gold stream upfront deposit ("the Prepayment") over future gold production at Segilola under the terms of a Gold Purchase and Sale Agreement ("GSA") entered in to between the Company's wholly owned subsidiary SROL and the AFC. The Prepayment is secured over the shares in SROL as well as over SROL's assets and is not subject to interest. The initial term of the GSA is for ten years with an automatic extension of a further ten years. The AFC will receive 10.27% of gold production from the Segilola ML41 mining license until the $21 million Prepayment has been repaid in full. Thereafter the AFC will continue to receive 10.27% of gold production from material mined within the ML41 mining license until a further $26.25 million is received, representing a total money multiple of 2.25 times the value of the Prepayment, at which point the GSA will terminate. The AFC are not entitled to receive an allocation of gold production from material mined from any of the Group's other gold tenements under the terms of the GSA.

 

The $26.25 million represented interest on the Prepayment. A calculation of the implied interest rate was made as at drawdown date with interest being apportioned over the expected life of the Stream Facility. The principal input variables used in calculating the implied interest rate and repayment profile were production profile and gold price. The future gold price estimates were based on market forecast reports for the years 2021 to 2025 and, the production profile was based on the latest life of mine plan model. The liability was to be re-estimated on a periodic basis to include changes to the production profile, any extension to the life of mine plan and movement in the gold price. Upon commencement of production, any change to the implied interest rate would be expensed through the Consolidated Statement of Loss.

 

Interest expense of $1,733,984 was recognised for the three months ended March 31, 2022 and has been expensed to the Consolidated Statement of Loss. Prior to the commencement of commercial production on January 1, 2022, interest was capitalized and included in the value of the Segilola Gold Mine (Refer to Note 15). A cumulative total of $5,255,181 has been capitalized and included in the value of the Segilola Gold Mine.

 

In December 2021, the Group entered into a cash settlement agreement with the AFC where the gold sold to the AFC is settled in a net-cash sum payable to the AFC instead of delivery of bullion in repayment of the gold stream arrangement. Refer to note 3d for further information on the accounting treatment of the gold stream liability.

 

 

The following table represents the Group's loans and borrowings measured and recognised at fair value.

 

		Level 1	Level 2	Level 3	Total
Financial liability at fair value through profit or loss	$	-	29,750,481	-	29,750,481

 

The liabilities included in the above table are carried at fair value through profit and loss.

 

 

 

12.  LOANS AND BORROWINGS

 

		March 31, 2022		December 31, 2021
Current liabilities:
Loans payable to the Africa Finance Corporation less than 1 year	$	23,430,955	$	24,192,518
Deferred element of EPC contract		3,256,913		3,122,990
Short term advances		1,753,480		668,570
	$	28,441,348		27,984,078
Non-current liabilities:
Loans payable to the Africa Finance Corporation more than 1 year	$	22,661,907	$	22,667,448
Deferred element of EPC contract		3,071,291		3,087,077
	$	25,733,198	$	25,754,525

 

Loans from the Africa Finance Corporation

 

		March 31, 2022 Total		December 31, 2021 Total
Balance at Beginning of period	$	46,859,966	$		14,267,114
Drawdown		-			31,153,833
Repayments		(1,316,346)			-
Arrangement fees		-			(508,856)
Unwinding of interest in the year		436,065			1,714,041
Foreign exchange movement		113,178			233,834
Balance at End of period	$	46,092,862	$		46,859,966
Current liability		23,430,955			24,192,518
Non-current liability		22,661,907			22,667,448

 

On December 1, 2020, the Company announced that its subsidiary Segilola Resources Operating Limited ("SROL") had completed the financial closing of a $54 million project finance senior debt facility ("the Facility") from the Africa Finance Corporation ("AFC") for the construction of the Segilola Gold Project in Nigeria. The Facility can be drawn down at the Group's request in minimum disbursements of $5 million. As at March 31, 2022, SROL has received total disbursements of $52.6 million, with $nil drawn down and the remaining $1.35m undrawn facility cancelled by the Company during the period under review. Total disbursements received represent 97% of the Facility. The Facility is secured over the share capital of SROL and its assets, with repayments commenced in March 2022 and conclude in March 2025.

 

Repayment of the aggregate Facility will be made in instalments over a 36-month period by repaying an amount on a series of repayment dates, as set out in the Facility Agreement, which reduces the amount of the outstanding aggregate Facility by the amount equal to the relevant percentage of Loans borrowed as at the close of business in London on the date of Financial Close.

 

Interest accrues at LIBOR plus 9% and is payable on a quarterly basis in arrears. The Facility also is subject to a Commitment Fee of 2.5% per annum on the Facility with the Commitment Fee being payable on a quarterly basis in arrears.

 

In conjunction with the granting of the Facility, Thor issued 33,329,480 bonus shares to the AFC. Thor also incurred transaction costs of $4,663,652 in relation to the loan facility. The fair value of the liability was determined at $45,822,943 taking into account the transaction costs and equity component and recognised at amortised cost using an effective rate of interest, with the fair value of the shares issued in April 2020 of $5,666,011 recognised within equity.

 

Interest paid during the year of $3,667,835 has been capitalised to the cost of the Segilola Gold Mine. (Refer to Note 15).

 

The loan from the AFC has financial and non-financial covenants. These covenants were triggered upon the first repayment obligation which took place in March 2022.

 

 

 

Deferred payment facility on EPC contract for the construction of the Segilola Gold Mine

 

The Company is constructing its Segilola Gold Mine through an engineering, procurement, and construction contract ("EPC Contract") signed with Norinco International Cooperation Limited. The EPC Contract has been agreed on a lump sum turnkey basis which provides Thor with a fixed price of $67.5 million for the full delivery of design, engineering, procurement, construction, and commissioning of the proposed 715,000 ton per annum gold ore processing plant.

 

The EPC Contract includes a deferred element ("the Deferred Payment Facility") of 10% of the fixed price. As at March 31, 2022, a total of $6,328,204 (December 31, 2021: $6,217,294) was deferred under the facility. The 10% deferred element is repayable in instalments over a 36-month period by repaying an amount on a series of repayment dates, as set out in the Deferred Payment Facility. Repayments are due to commence in March 2022 and conclude in 2025. Interest on this element of the EPC deferred facility accrues at 8% per annum from the time the Facility taking-over Certificate is issued. 

 

 

		March 31, 2022 Total		December 31, 2021 Total
Deferred payment facility	$	6,328,204	$	6,210,090
Balance period end	$	6,328,204	$	6,210,090

 

 

Short term advances

 

		March 31, 2022 Total		December 31, 2021 Total
Balance at beginning of period	$	668,570	$	-
Drawdowns		1,753,388		678,935
Repayments		(667,488)		-
Foreign exchange movement		(990)		(10,365)
Balance period end	$	1,753,480	$	668,570

 

 

The Company entered into a currency swap agreement with a third party on March 30, 2022. The currency being purchased was received before reporting date. The currency being sold was paid to the third party

'and settled in full after reporting date, on April 1, 2022. The advance did not incur any interest.

 

 

The following table represents the Group's loans and borrowings measured and recognised at fair value.

 

		Level 1	Level 2	Level 3	Total
Short term advances	$	-	-	1,753,480	1,753,480

 

The liabilities included in the above table are carried at amortised cost. Their carrying value are a reasonable approximation of fair value.

 

 

13.  RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

 

March 31, 2022		Gold stream liability	Short term advance	AFC loan	EPC deferred facility	Total
January 1, 2022	$	30,262,279	668,570	46,859,966	6,210,090	84,000,905
Cash flows:
Drawdowns		-	1,753,388	-	-	1,753,388
Repayments		(1,806,690)	(667,488)	(1,316,346)	-	(3,790,524)
Non-cash changes:
Unwinding of interest in the year		1,733,984	-	436,065	110,911	2,280,959
Foreign exchange movements		(439,092)	(990)	113,179	7,203	(319,700)
Offset against EPC payment		-	-	-	-	-
March 31, 2022	$	29,750,481	1,753,480	46,092,863	6,328,204	83,925,028

 

 

December 31, 2021		Gold stream liability	Short term advance	AFC loan	EPC deferred facility	Total
January 1, 2021	$	24,708,573	-	14,267,114	1,934,275	40,909,962
Cash flows:
Drawdowns		-	678,935	31,153,833	-	31,832,768
Repayments		(443,915)	-	-	-	(443,915)
Transaction costs		-		(508,856)	-	(508,856)
Non-cash changes:
Unwinding of interest in the year		6,562,830	-	1,714,041	250,402	8,527,273
Foreign exchange movements		(565,209)	(10,365)	233,834	25,598	(316,142)
Offset against EPC payment		-	-	-	3,999,815	3,999,815
December 31, 2021	$	30,262,279	668,570	46,859,966	6,210,090	84,000,905

 

14.  PROVISIONS

 

March 31, 2022		Fleet demobilisation costs		Restoration costs		Total
Balance at Beginning of period	$	-	$	618,586	$	618,586
Initial recognition of provision		220,274		-		220,274
Increase in provision		-		5,884,660		5,884,660
Foreign exchange movements		-		(63,228)		(63,228)
Balance at period end	$	-	$	6,440,018	$	6,660,292
Current liability		-		-		-
Non-current liability		220,274		6,440,018		6,660,292

 

 

December 31, 2021		Fleet demobilisation costs		Restoration costs		Total
Balance at Beginning of year	$	-	$	486,500	$	486,500
Initial recognition of provision		173,241		-		173,241
Increase in provision		-		4,628,124		4,628,124
Foreign exchange movements		-		(49,689)		(49,689)
Balance at year end	$	173,241	$	5,064,935	$	5,238,176
Current liability		-		-		-
Non-current liability		173,241		5,064,935		5,238,176

 

The restoration costs provision is for the site restoration at Segilola Gold Project in Osun State Nigeria. The fair value of the above provision is measured by unwinding the discount on expected future cash flows using a discount factor that reflects the credit-adjusted risk-free rate of interest. It is expected that the restoration costs will be paid in US dollars, and as such the 2021 US inflation rate of 4.7% and the interest rate of 1.263% on 5-year US bonds were used to calculate the expected future cash flows. The provision represents the net present value of the best estimate of the expenditure required to settle the obligation to rehabilitate environmental disturbances caused by mining operations at mine closure.

 

The fleet demobilization costs provision is the value of the cost to demobilize the mining fleet upon closure of the mine.