CDL Cloudbreak Discovery Plc

31 March 2023

Cloudbreak Discovery Plc
("Cloudbreak" or the "Company")

Interim Results for the Period Ended 31 December 2022
 

Cloudbreak Discovery Plc (LSE: CDL), a leading London listed royalty company and natural resources project generator, is pleased to announce its Interim Results for the six months ended 31 December 2022 ("H2 2022" or the "Period").
 

Period Highlights

Company Updates

• Raised £585,625 to support the development of Cloudbreak's existing portfolio and the acquisition of suitable additions including lithium assets and bauxite projects globally.
• Andrew Male moved from a Non-Executive Director to take up an Executive Director position effective from 31 October 2022.
• Implementation of a restructuring plan to refocus the Company into energy royalty acquisitions, whilst its mineral activities are transferred to a wholly owned subsidiary named Cloudbreak Exploration Inc. ("Cloudbreak Exploration").
• Repositioned the expertise of the business, with Rory Kutluoglu taking up the role of Chief Executive Officer of Cloudbreak Exploration, and Cam Bartsch being appointed as Vice President of Exploration.

Projects

• Entered into an agreement with Legado Oil & Gas Limited (“Legado”), providing USD $1.5 million in development capital for the Butte Strawn Energy Project (“Butte Strawn”), which is deployed as a convertible debenture and, at Cloudbreak's discretion, can be converted into a six per cent Overriding Royalty Interest (“ORI”).
• Received the first royalty payment from the Masten Unit Energy Project (“Masten Unit”), after entering into an agreement with G2 Energy Corp. in May 2022.
• Completed a surface programme at Foggy Mountain, confirming three of the four historic mineral occurrences, and an airborne magnetic survey on Northern Treasure, identifying several prominent structures.
• Cloudbreak subsidiary, Kudu Resources Limited ("Kudu"), has been proactively working towards the acquisition of the Somalu Bauxite exploration license in Guinea.

Kyler Hardy, CEO and President of Cloudbreak Discovery, commented,  “It has been a transformational period for the Company. November’s Corporate Update saw the announcement of an exciting restructuring plan that will separate out the energy and mineral facets of the Company into distinct areas that Cloudbreak can direct its capital and expertise into.

“The continuing prosperity of our energy royalty projects in Texas – grounded in a robust and favourable natural resources outlook – will enable Cloudbreak to broaden its scope to international interests, establishing a more diverse asset base that can further drive shareholder value.”

For additional information please contact:

CHAIRMAN’S STATEMENT

Company Updates

I am pleased to provide Cloudbreak shareholders with an update on the Company’s developments in the six months ended 31 December 2022.

The Period has been underpinned by a Corporate Update which saw the implementation of a restructuring plan designed to refocus the business, enhance shareholder value, and shorten execution timelines. Cloudbreak Discovery Plc is now centred on energy royalty acquisitions in the United States and acquisitions of minority interests in international energy projects, whilst the mineral exploration segment of the business will be operated through the Company’s wholly owned subsidiary, Cloudbreak Exploration Inc.

Mirroring the strategic realignment of the business, Rory Kutluoglu was appointed as Chief Executive Officer of Cloudbreak Exploration, and Cam Bartsch as Vice President of Exploration.

Cloudbreak held a successful presentation and investor Q&A to outline the details of the restructuring and highlight the reasoning behind the decision. The Company welcomed the opportunity to further enhance its transparency and communication with shareholders.

Projects

Cloudbreak has advanced its energy royalty portfolio in this Period, demonstrating the continued transferability of its project generator model to the natural resource sector.

The Company entered into an agreement with Legado Oil & Gas Limited (formerly Iron Forge Holding (III) Limited) whereby Cloudbreak will provide Legado with USD $1.5 million in development capital for the Butte Strawn Energy Project, located in Irion County, Texas. The capital is being deployed as a convertible debenture which, at Cloudbreak's discretion, can be converted into a six per cent Overriding Royalty Interest.

Legado has defined a detailed programme consisting of workovers of existing wells, new drilling, and enhanced oil recovery techniques to rapidly grow both oil and natural gas production at Butte Strawn. The agreement offers Cloudbreak a six per cent ORI on any project acquired within a two-mile radius of the Butte Strawn lease boundary, and gives the Company the right of first refusal to finance additional acquisitions within five miles of the boundary – within which it can apply its existing six per cent ORI.

Cloudbreak continues to work with G2 Energy Corp. on the Masten Unit Energy Project, located in the giant, billion-barrel Levelland Field in Cochran County, Texas. In October 2022, the Company announced that it had received its first royalty payments from the Masten Unit which provided an initial insight into the benefits of our business model. Cloudbreak can utilise this model to advance the pursuit of minority interests in international energy projects; its two interests onshore and offshore Namibia provide access to a prolific new oil and gas jurisdiction that is central to recent industry activity.

Through the progression of our energy acquisitions, we see an opportunity to create significant shareholder value, growing Cloudbreak's cashflow through structured deals.

On the mining side of the business, Cloudbreak Exploration is developing its numerous mineral projects, having completed a surface programme at Foggy Mountain, confirming three of the four historic mineral occurrences, and an airborne magnetic survey on Northern Treasure, identifying several prominent structures. It anticipates further successes with its growing portfolio.

Outlook

Despite a turbulent macroeconomic climate, the outlook for the natural resources sector continues to be robust, providing an encouraging backdrop to Cloudbreak’s operations. The Company forecasts that the upcoming year will see the energy royalty side of the business come to the fore, delivering value and cashflow for our shareholders. The global demand for new oil and gas sources – oil providing a secure energy source, and gas serving as a transition fuel – places emphasis on the value of Cloudbreak’s realigned operational focus. As the Company furthers the scope of its energy royalty acquisitions, it can readily position itself as an attractive prospect to investors.

We look forward to receiving further royalty payments from our current projects and entering into new agreements with auspicious oil and gas plays, drawing on the expertise of our team to deliver for the Company’s valued shareholders.
 

Kyler Hardy
Chairman and Chief Executive Officer
30 March 2023

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

1.    General information

The Company is a public limited company incorporated and domiciled in England (registered number: 06275976), which is listed on the London Stock Exchange. The registered office of the Company is Suite 10011, 15 Ingestre Place, London, England, W1F 0DU.

2.    Basis of preparation of Financial Statements

The condensed interim financial statements have been prepared in accordance with IAS 34 “Interim Financial Statements” as adopted by the United Kingdom and the Disclosure and Transparency Rules of the UK Financial Conduct Authority. The condensed interim financial statements should be read in conjunction with the annual financial statements for the period ended 30 June 2022, which have been prepared in accordance with UK-adopted international accounting standards.

The interim financial information set out above does not constitute statutory accounts within the meaning of the Companies Act 2006. It has been prepared on a going concern basis in accordance with the recognition and measurement criteria of UK-adopted International Accounting Standards.

Statutory financial statements for the period ended 30 June 2022 were approved by the Board of Directors on 28 October 2022 and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified. The condensed interim financial statements are unaudited and have been reviewed by the Company’s auditor. 

Going concern

The Directors, having made appropriate enquiries, consider that adequate resources exist for the Company to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the condensed interim financial statements for the period ended 31 December 2022.

Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Company’s medium term performance and the factors that mitigate those risks have not substantially changed from those set out in the Company’s 2022 Annual Report and Financial Statements, a copy of which is available on the Company’s website: www.cloudbreakdiscovery.com. The key financial risks are liquidity risk, credit risk, interest rate risk and unlisted investments.

Critical accounting estimates

The preparation of condensed interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in Note 4 of the Company’s 2022 Annual Report and Financial Statements. The nature and amounts of such estimates have not changed significantly during the interim period.

2.1.           Accounting policies

The same accounting policies, presentation and methods of computation are followed in the interim consolidated financial information as were applied in the Group's latest annual audited financial statements except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 July 2022, and will be adopted in the 2023 annual financial statements. 

Changes in accounting policy and disclosures

i)             New standards and amendments adopted by the Group

The International Accounting Standards Board (IASB) issued various amendments and revisions to IFRS and IFRIC interpretations. The amendments and revisions were applicable for the period ended 31 December 2022 but did not result in any material changes to the financial statements of the Group or Company.

ii)            New standards, amendments and interpretations in issue but not yet effective or not early adopted

Standards, amendments and interpretations that are not yet effective and have not been early adopted are as follows:

The Group is evaluating the impact of the new and amended standards above which are not expected to have a material impact on the Group’s results or shareholders’ funds.

3.    Dividends

No dividend has been declared or paid by the Company during the six months ended 31 December 2022 (2021: £nil).

4.    Intangible assets

As at December 31, 2022, the Group’s exploration and evaluation assets are as follows:

As at December 31, 2022, the Group’s reconciliation of exploration and evaluation assets are as follows:

South Timmins Property, Canada

During the year ended June 30, 2021, the Group paid $27,540 CAD (£16,080) in asset staking costs to acquire twelve mineral titles in Ontario, Canada known as the South Timmins property.

On 23 September 2021, the Group entered into an option agreement with 1315956 BC Ltd, under which 1315956 BC Ltd may acquire up to a 100% interest in the Group’s South Timmins property subject to a 1% net smelter return (“NSR”) to the Group. In order for 1315956 BC Ltd to fully exercise the option on the South Timmins Property, they must pay the Group an aggregate of $495,000 CAD, issue 2,250,000 common shares of 1315956 BC Ltd and incur exploration expenses of $1,515,000 with a minimum of $265,000 CAD in the first year. The Group has received cash payments of $270,000 CAD (£157,579) and 500,000 shares in relation to the option payments due under the agreement.

Silver Switchback Property, Canada

On May 8, 2020, the Group entered into an option agreement to purchase 100% of the rights to the Silver Switchback Property located in British Columbia, Canada. To earn a 100% interest, the Group must make aggregate cash payments of $75,000 CAD ($15,000 CAD paid - £8,850), issue 1,850,000 shares (250,000 shares issued at a value of $40,000 CAD - £23,356) in the Group and incur work commitments on the property of $475,000 CAD over three years. The property is subject to a 2% NSR which the Group may re-purchase 1.5% for $1,250,000 CAD.

On August 27, 2020, the Group entered into an option agreement with Norseman, under which Norseman may acquire up to a 100% interest in the Group’s Silver Switchback Property subject to a 1% NSR to the Group. In order for Norseman to fully exercise the option on the Silver Switchback Property, they must pay the Group $30,000 CAD (received), issue 750,000 common shares  and assume certain obligations due to the original vendor over three years. Norseman will have the right to repurchase one-half (0.5%) of the NSR from the Group for $500,000 CAD. The Group has received cash payments of $30,000 CAD and 750,000 Norseman shares in relation to the option payments due under the agreement.

Silver Vista, Canada

On May 8, 2020, the Group entered into an option agreement to purchase 100% of the rights to the Silver Vista Property located in British Columbia, Canada. To earn a 100% interest, the Group will need to make aggregate cash payments of $65,000 CAD ($20,000 CAD paid - £11,678), issue 1,375,000 shares (370,000 shares issued at a value of $75,000 CAD - £43,793) in the Group and incur work commitments on the property of $275,000 CAD, over three years. The property is subject to a 2% NSR which the Group may acquire one-half (1%) for $1,000,000 CAD.

During the year ended June 30, 2021, the Group made a payment of $80,000 CAD (£46,713) to a prior optionor to fulfil prior option agreement obligation.

On September 21, 2020, the Group entered into an option agreement with Norseman, under which Norseman may acquire up to a 100% interest in the Group’s Silver Vista Property subject to a 1% NSR payable to the Group. In order for Norseman to fully exercise the option on the Silver Vista Property, they must pay the Group $50,000 CAD (received - £29,500), and issue 2,000,000 common shares (received and valued at $40,000 CAD - £23,600). Norseman will have the right to repurchase one-half (0.5%) of the NSR for $500,000 CAD.

Rupert, Canada

On September 11, 2018, the Group entered into an asset purchase agreement with a company controlled by a director of the Group and two unrelated persons to purchase the Rupert Property, located in British Columbia, Canada. As consideration for the property, the Group issued 2,000,000 common shares valued at $100,000 CAD (£59,000) and granted a 2% NSR. At any time, 1% of the NSR can be purchased by the Group for $1,500,000 CAD. Of the common shares issued to acquire the property, 1,000,000 were issued to a company that was controlled by a director of the Group. The Group also agreed to incur aggregate expenditures on the property of $800,000 ($100,000 CAD - £59,000 incurred).

On December 11, 2020, the Group sold the Rupert Property to Buscando Resources Corp. (“Buscando”), a company with a director in common. Payments to be received by the Group are as follows:

• $150,000 CAD in total cash payments with $25,000 CAD (£14,750) on closing (received), $50,000 CAD on or before 12 months after Buscando is listed on a public exchange, $75,000 CAD on or before 24 months after Buscando is listed on a public exchange;
• 3,750,000 shares in total issued to the Group with 1,000,000 shares issued on closing (received and valued at $50,000 CAD - £29,500, 1,250,000 on or before 12 months after Buscando is listed on a public exchange, 1,500,000 on or before 24 months after Buscando is listed on a public exchange; and
• $200,000 expenditures incurred on the property with $100,000 CAD on or before 12 months after Buscando is listed on a public exchange, $100,000 CAD on or before 24 months after Buscando is listed on a public exchange.

As a result of the sale to Buscando, the original vendors waived the exploration commitments required by the Group under the September 11, 2018, agreement.

Atlin West, Canada

On August 9 2021, the Group entered into an option agreement with 1315843 BC Ltd to purchase 100% of the rights to the Atlin West Project located in British Columbia, Canada. To earn a 100% interest, 1315843 BC Ltd make aggregate cash payments of $700,000 CAD, issue 8,000,000 shares in 1315843 BC Ltd and make payments of $325,000 over a three-year period to Cloudbreak. Upon completion of the work Cloudbreak will transfer 100% interest. Cloudbreak will retain a net 2% NSR. The Group has received cash payments of $100,000 CAD and 3,000,000 shares in relation to the option payments due under the agreement.

Yak, Canada

On October 13 2021, the Group entered into an option agreement with Moonbound Mining Ltd (‘Moonbound’). In respect of the Yak Project located in British Columbia, Canada. Moonbound will issue Cloudbreak 2,700,000 common shares and make aggregate cash payments of $145,000 CAD over a three-year period. Additionally, Moonbound will commit to spending up to $700,000 CAD in exploration expenditure on the property and enter into a public transaction within six months of the agreement. Upon completion of the obligations, Cloudbreak will transfer 100% interest and retain a net 2% NSR. The Group received cash payments of $35,000 CAD and 700,000 shares in relation to the option payments due under the agreement.

Klondike, United States

On July 15 2021, the Group entered into the Klondike project based in Colorado, United States, with Alianza Minerals Ltd.

On December 7 2021, Cloudbreak and Alianza Minerals entered into an option agreement with Allied Copper Corp for the advancement of the Klondike project. Allied Copper will issue Cloudbreak and Allied 7,000,000 common shares and make a total of $400,000 CAD in cash payments over a three-year period. Upon completion of the obligations, the alliance will transfer 100% interest in the Klondike project to Allied Copper. Allied Copper will also issue 3,000,000 warrants exercisable for a 36-month term. The Group has received cash payments of $200,000 CAD and 2,000,000 shares in relation to the option payments due under the agreement.

On 2^nd February 2023, the option agreement was terminated by Allied Copper.

Stateline, United States

On February 9 2022, Cloudbreak and Alianza Minerals entered into an option agreement with Allied Copper Corp in respect of the Stateline Project in Colorado, United States. Allied Copper will issue the alliance 4,250,000 common shares over a three-year period and make aggregate cash payments of $315,000 CAD ($40,000 CAD paid) with a further $50,000 CAD due on closing. Additionally, Allied will commit to spending up to £3,750,000 CAD in exploration expenditure on the property over three years. The alliance will retain a net 2% NSR, not subject to a buy down provision.

On August 9 2022, Cloudbreak and Alianza Minerals agreed to amend the terms of the Stateline option agreement with Allied Copper Corp entered into on 9 February 2022. Under the modified terms, Allied will be able to delay the issuance of shares and warrants whilst keeping the agreement in good standing.  Outstanding Allied shares will become payable to Alianza and Cloudbreak is either party reduces its equity holding through sale or other type of divesture, or if additional shares are issued in Allied which would dilute either party’s holdings. Up to 30 June 2022, the Group has received cash payments of $65,000 CAD and 250,000 shares in relation to the option payments due under the agreement.

Up to the period ending 31 December 2022, the Group has received cash payments of $25,000 CAD (£15,301) and 250,000 shares in relation to the option payments due under the agreement.

Icefall, Canada

On March 3 2022, the Group entered into an option agreement with 1311516 BC Ltd in respect of the Icefall Project in British Colombia, Canada. 1311516 BC Ltd will issue 2,000,000 common shares to Cloudbreak’s subsidiary Cloudbreak (Canada) Ltd and make an aggregate of $120,000 CAD in cash payments to the Group. Additionally, 1311516 will commit to spending up to £700,000 CAD in exploration expenditure on the property over three years. This will need to be done to earn an interest of 75% in the project. Upon completion of the terms Cloudbreak and 1311516 BC Ltd will enter a joint venture in which each party will be responsible for its pro-rata share of expenditures on the project. Up to 30 June 2022, the Group has received cash payments of $25,000 CAD and 2,000,000 shares in relation to the option payments due under the agreement.

As at December 31 2022, there is still an outstanding cash payment owed to the Group of $25,000 CAD (£15,301) in relation to the option payments due under the agreement.

Rizz, Canada

On February 25 2022, the Group entered into an option agreement with 1311516 BC Ltd in respect of the Rizz Project in British Colombia, Canada. 1311516 BC Ltd will issue 3,000,000 common shares to Cloudbreak and make an aggregate of $120,000 CAD in cash payments to the Group. Additionally, 1311516 will commit to spending up to $750,000 CAD in exploration expenditure on the property over three years. This will need to be done to earn an interest of 75% in the project.  Upon completion of the terms, Cloudbreak and 1311516 BC Ltd will enter a joint venture in which each party will be responsible for its pro-rata share of expenditures on the project. Up to 30 June 2022, the Group received cash payments of $25,000 CAD and 3,000,000 shares in relation to the option payments due under the agreement.

As at December 31 2022, there is still an outstanding cash payment owed to the Group of $25,000 CAD (£15,301) in relation to the option payments due under the agreement.

Northern Treasure, Canada

During 2022, the Group staked the Northern Treasure property for $50,645 CAD which is located in Northern British Columbia. The Company continues to actively explore this property and look for a partner to develop the property further.

On 28 October 2022, Cloudbreak announced that Precision GeoSurveys has completed a high resolution helicopter-borne magnetic survey over the Northern Treasure Project in British Columbia.

Foggy Mountain, Canada

During 2022, the Group staked the Foggy Mountain property which is located in Central British Columbia. The Company continues to actively explore this property and look for a partner to develop the property further.

On 19 October 2022, Cloudbreak announced that that it has completed a reconnaissance surface programme at the Foggy Mountain Project in north central British Columbia, located immediately east of the past producing Kemess Mine. The property was originally staked in April 2022.

5.    Investments held by subsidiaries

Investments held by subsidiaries

Financial assets at fair value through profit or loss are as follows:

As at 31 December, 2022, investments were classified as held for trading and recorded at their fair values based on quoted market prices (if available). Investments that do not have quoted market prices are measured at cost less impairment.

6.    Debentures Receivable

Masten Unit, United States

On 31 May 2022, the Group entered into an agreement with G2 Energy Corp. ('G2') on the Masten Unit Energy Project located in Cochran County Texas, United States. Whereby the Company will provide G2 with a $2,000,000 USD debenture on a two-year term in exchange for a 3.25% Overriding Royalty Interest in the Project. G2 will pay 12% per annum interest to the Company, calculated and paid quarterly in cash or shares at the discretion of the Company. As part of the agreement, The Group received 6,500,000 warrants for G2, however management have deemed that these warrants have no value at this stage as the assets held by G2 are predominantly made up of the early stage exploration assets on which they have received from the Company. The group is in regular communication with G2 and is monitoring the results of its exploration activities that will be undertaken as the result of the funding by the Group to G2.

Butte Strawn, United States

On 16 August 2022, the Company entered into an agreement with Iron Forge Holdings (III) Ltd (IF3). Whereby the company will provide IF3 with a $1,500,000 USD debenture for the Butte Strawn Energy Project located in Irion County, Texas. $500,000 USD was paid on signing and $1,000,000 USD is still payable. IF3 will pay 12.5% per annum interest to the Company, calculated and paid quarterly in cash or shares at the discretion of the Company. The Company received 6,000,000 warrants with a strike price of $0.35 CAD with a three-year term from financial close.

7.    Earnings per share

The calculation of the basic loss per share of £0.01 (2021: £0.72) is based on the loss the loss attributable to equity owners of the group of £2,858,367 (2021: loss of £2,804,575), and on the weighted average number of ordinary shares of 595,501,976 (2021: 390,461,235) in issue during the period.

In accordance with IAS 33, no diluted earnings per share is presented as the effect on the exercise of share options or warrants would be to decrease the loss per share.

8.    Related party transactions

At December 31, 2022, the Group held investments of £962,704 in Royal Helium, Temas Resources, Norseman Silver, Allied Copper, Calidus Resources and Buscando Resources where Kyler Hardy is also a Director (2021: £2,480,503). The holdings of these investments are connected to requirements in the property option agreements whereby the optionees are to make payments in shares. All companies except for Calidus Resources are Level 1 investments and are not directly controlled by Kyler Hardy.

During the six-month period up to December 2022, the Group paid Cronin Services £424,573 for the provision of consulting and management services during the year (2021: 488,484) a company controlled by the CEO, Kyler Hardy. These were in relation to consultancy fees under a management service agreement dated 1 February 2020 and 1 June 2021. The amount outstanding owing to Cronin Services at the period-end was £638,275 (2021: £750,184). 

During the period, the Group paid amounts totalling £60,000 (2021: 24,000) to Westridge Management International Ltd. A company controlled by Andrew Male, a Director of the group. The amount outstanding owing to Westridge Management at the period-end was £30,000.

9.    Events after the reporting date

On 27 January 2023, the Group elected to draw down £46,870 of the £10,000,000 Equity Draw Down Agreement with Crescita Capital LLC entered on the 16 February 2021 for the issue of 4,300,000 new ordinary shares at 1.09 pence.

10.  Approval of interim financial statements

The Condensed interim financial statements were approved by the Board of Directors on 30 March 2023.