KRPZ Kropz Plc

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2024

		Six months ended 30 September	Six months ended 30 September
		2024 Unaudited US$'000	2023 Unaudited US$'000
Cash flows from operating activities
Loss before taxation		(22,049)	(629)
Adjustments for:
Depreciation of property, plant and equipment		395	28
Share-based payment		12	20
Interest income		(129)	(89)
Interest expense		11,996	6,759
Fair value gain / (loss) from derivative liability		2,597	(12,063)
Debt Modification Present value adjustment		(105)	(103)
Foreign currency exchange differences		(2,895)	2,655
Fair value loss / (gain) on game animals		32	(24)
Operating cash flows before working capital changes		(10,146)	(3,446)
Decrease / (increase) in trade and other receivables		4,418	(3,799)
Increase in inventories		(2,179)	(3,091)
Increase in payables		3,493	3,658
Net cash flows used in operating activities		(4,414)	(6,678)
Cash flows used in investing activities
Purchase of property, plant and equipment		(1,532)	(937)
Exploration and evaluation expenditure		(89)	(192)
Other financial assets		(56)	(10)
Interest received		129	89
Net cash flows used in investing activities		(1,548)	(1,050)
Cash flows from financing activities
Finance cost paid		(366)	(1,230)
Shareholder loan received		13,690	17,420
Repayment of other financial liabilities		(7,564)	(7,495)
Net cash flows from financing activities		5,760	8,695
Net (decrease) / increase in cash and cash equivalents		(202)	967
Cash and cash equivalents at beginning of the period		968	3,264
Foreign currency exchange gains / (losses) on cash		264	(430)
Cash and cash equivalents at end of the period		1,030	3,801

 

The accompanying notes form part of the Condensed Consolidated Financial Statements.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2024

 

1.       General information

 

Kropz and its subsidiaries (together "the Group") is an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa, Elandsfontein, and a phosphate project in the RoC, Hinda. The principal activity of the Company is that of a holding company for the Group, as well as performing all administrative, corporate finance, strategic and governance functions of the Group.

 

The Company was incorporated on 10 January 2018 and is a public limited company, with its ordinary shares admitted to the AIM Market of the London Stock Exchange on 30 November 2018 trading under the symbol, "KRPZ". The Company is domiciled in England and incorporated and registered in England and Wales. The address of its registered office is 35 Verulam Road, Hitchin, SG5 1QE. The registered number of the Company is 11143400.

 

2.       Basis of preparation

 

These interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and the AIM rules and in accordance with the accounting policies of the consolidated financial statements for the period ended 31 March 2024. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2024 annual report. The statutory financial statements for the period ended 31 March 2024 were prepared in accordance with UK adopted international accounting standards and the Companies Act 2006 applicable to companies reporting under the International Financial Reporting Standards ("IFRS").

 

The interim consolidated financial statements have been prepared under the historical cost convention unless otherwise stated in the accounting policies. They are presented in United States Dollars, the presentation currency of the Group and figures have been rounded to the nearest thousand.

 

The interim financial information is unaudited and does not constitute statutory accounts as defined in the Companies Act 2006.

 

The interim financial information was approved and authorised for issue by the Board of Directors on 18 December 2024.

 

3.       Going concern

 

During the six month interim period ended 30 September 2024, the Group incurred a loss of US$ 21 million (15 months ended 31 March 2024: profit of US$ 0.3 million) and experienced net cash outflows from operating activities. Cash and cash equivalents totalled US$ 1.0 million as at 30 September 2024 (31 March 2024: US$ 1.0 million).

 

Elandsfontein is currently the Group's only operating asset and source of revenue. As Elandsfontein is still busy ramping up its operations and has yet to achieve break-even production levels, an operating loss is also expected for the full financial year ending 31 March 2025. Although the Elandsfontein production levels are expected to increase over the next 12 months, there remains a risk that these improvements could be delayed or not result in sufficient increases in production levels to achieve break even. As such, the Group may consequently be dependent on future fundraisings to meet any production costs, overheads, future development and exploration requirements that cannot be met from existing cash resources and sales revenue.

 

The Group announced on 3 September 2024, a restructuring of its debt obligations ("Restructuring") and a fundraising. As a result of the Restructuring, Kropz Elandsfontein (Pty) Ltd and Elandsfontein Land Holdings (Pty) Ltd (the "Elandsfontein Subsidiaries") have extinguished their debt obligations to ARC through a combination of new issuances of equity and convertible debt instruments. Kropz has a convertible debt of £88.9 million (including accumulated interest) outstanding with ARC, being the aggregate of a new Convertible Loan Notes ("CLN") issued as part of the restructuring and existing equity facilities (the "Existing Equity Facilities"). Additionally, post the period end Kropz has completed a capital raise of £8.9 million from ARC and other shareholders before expenses through the issue of new ordinary shares at an issue price of 1.387 pence per new ordinary share in the capital of the Company (the "Fundraising"). The issue price represents a discount of approximately 5 per cent. to the 30-day volume weighted average share price per existing ordinary share to 23 August 2024. In aggregate 643,873,018 new ordinary shares have been allotted and issued pursuant to the Fundraising. Both the Restructuring and Fundraising were concluded after the reporting date.

 

Operational cash flows

 

No additional impairment or reversal of impairment was recognised as at 30 September 2024 following the impairment reversal of US$ 19 million recognised  at 31 March 2024 in relation to the Elandsfontein mine. The recoverable amount was based on the latest life of mine (LOM) plans following the updated mineral resource estimate ('MRE") as announced on 20 June 2024. The recoverable amount of the Elandsfontein mine was estimated based on discounted cash flows expected to be generated from the continued use of the cash generating unit (CGU) using market-based commodity prices and exchange rate assumptions, estimated quantities of recoverable minerals, production levels, operating costs, capital requirements and its eventual disposal based on the CGU's latest LOM plans. These calculations include a number of estimates which if the actual outcome were different could have a significant impact on the impairment assessment, financial outcome of the Elandsfontein mine operations and the Group's funding needs.

 

The going concern assessment was performed using the Group's 18-month cash flow forecast. The Group's going concern and forecast cash flows are largely driven by Elandsfontein, as the Group's only operating asset. Elandsfontein's forecast cashflows are based on its latest mine plan, per the updated MRE as announced on 20 June 2024.

 

Elandsfontein's forecast cashflows were estimated using market-based commodity prices, exchange rate assumptions, estimated quantities of recoverable minerals, production levels, operating costs and capital requirements over an 18-month period. The going concern assessment only considered Elandsfontein's resources defined as "measured" and "indicated" per the updated MRE. The resource classified as "inferred" was not considered part of the mine plan for purposes of the going concern assessment. However, it is expected that as mining and drilling activities progress, progressively more of the total resource will be reclassified from inferred to measured and indicated. In the updated MRE, the measured and indicated portions increased by 72% based on updated drilling and statistical estimation.

 

The 18-month forecast follows the fundraising as described in Note 20.

 

The critical estimates in the LOM plan and forecast cashflows expected to be generated can be summarised as follows:

·      Phosphate rock prices and grade;

·      Phosphate recoveries;

·      Operating costs;

·      Foreign exchange rates; and

·      Discount rates.

 

The going concern assessment and forecast cashflows are highly sensitive to these estimates.

 

Phosphate rock prices and grade: Forecast phosphate rock prices are based on management's estimates of quality of production and selling price and are derived from forward price curves and long-term views of global supply and demand in a changing environment, particularly with respect to climate risk, building on past experience of the industry and consistent with external sources.

 

In total Elandsfontein managed to achieve trial production sales totalling US$14.1 million during the interim period (fifteen months ended 31 March 2024: US 40 million). Since 30 September 2024 and the date of the financial statements, an additional US$ 8.6 million sales have been recognised.

 

Kropz is and remains a new entrant to the phosphate market and has to date sold its shipments at a discount to prevailing market prices. The discount was taken into account in the going concern testing models. The discount is, however, expected to unwind as Elandsfontein builds its reputation, establishes itself in the global market and improves its production quality and stability. As modifications are planned and efficiency improvements are implemented at Elandsfontein, Elandsfontein should see a gradual improvement in both grade and quality, some of which have already materialised.

 

Phosphate recoveries: Estimated production volumes are based on detailed LOM plans of the measured and indicated resource as defined in the MRE and take into account development plans for the mine agreed upon by management as part of the long-term planning process. Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the development of the infrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted.

 

Estimated production volumes are subject to significant uncertainty given the ongoing ramp-up. The production ramp-up has been delayed largely by the need to re-engineer parts of the fine flotation circuit proposed by the vendor. Mining and processing have also been affected by early unpredicted ore variability and lack of operator experience. The Company is in the process of analysing the hard bank and pink ore material to identify the appropriate method of mining and processing to improve production yield. Production throughput is also being limited by the nature of slimes material and, the Company has invested in new equipment to seek to overcome this and aims to increase production throughput.

 

Reserves and resources: The LOM plan includes only the measured and indicated resources as defined in the MRE which represents only around 8 years of forecast production. There was a significant increase in the measured and indicated resources in the MRE issued in March 2024 (an increase of 72%) compared to the MRE issued in December 2022. The Directors believe that the inferred resources in the MRE are capable of being accessed giving a mine life of around 12 years, but this has not been taken into account in the discounted cashflows.

 

Exchange rates: Foreign exchange rates are estimated with reference to external market forecasts. The assumed long-term US dollar/ZAR exchange rate are based on a consensus for the period to year 2028. Future years' exchange rates were estimated using the prevailing inflation and interest rate differential between USD and ZAR.

 

Operating cost: Operating costs are estimated with reference to contractual and actual current costs adjusted for inflation. Key operating cost estimates are mine and plant operating costs and transportation and port costs. The forecast mine and plant costs were based on the contracted rates with the current mine and plant operators. Production cost per tonne currently is higher than sales per tonne as full production has not been reached to date, leading to a gross loss per tonne. The forecast assumes that as production volumes increase the average cost per tonne of phosphate will decrease with economies of scale and further efficiency gains.

 

Mine and plant operating costs: The forecast mine and plant costs were based on the contracted rates with the current mine and plant operators.

 

Port costs: The Group has a draft port access agreement with Transnet for Saldanha port but this has not yet been signed. The Group has paid guest port charges (the higher rates were used in the forecast) for Saldanha for the shipments in 2023 and 2024 to date.

 

Discount rates: A discount rate of 13.98% was applied to the discounted cash flows used in the LOM plan. This discount rate is derived from the Group's post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group's investors. The cost of debt is based on the interest-bearing borrowings the Group is obliged to service and the expected cost of any incremental debt.

 

There is a risk that revenue remains subdued and below operating costs and as a result the expected improvement in operating margin included in the discounted cashflows, may not materialise. In such a scenario the recoverable amount from the Elandsfontein mine will be lower than the discounted cashflows and subsequently impact the impairment assessment conclusion.

 

Funding

The Group is dependent on future fundraisings to meet production costs, overheads, future development and exploration requirements which cannot be met from existing cash resources and sales revenue alone.

 

The ARC Fund, on various occasions in the past, provided funding to support the Group's operations. During the 21 month period to 30 September 2024 financial period end, Kropz, Kropz Elandsfontein and ARC Fund agreed to further funding totalling ZAR 960 million (approximately US$ 52.2 million) bridge loan facilities ("Loan") to meet immediate cash requirements at Kropz Elandsfontein. The bridge loans have been fully settled as part of the Restructuring and Fundraising transaction as described more fully in Note 20.

 

The BNP debt facility has been fully settled following the interim period 30 September 2024.

 

Management has successfully raised money in the past from its supportive major shareholder, but there is no guarantee that any additional funds that might be required will be available if needed in the future.

 

Going concern basis

Based on the Group's current available reserves, recent operational performance, forecast production and sales coupled with Management's track record to successfully raise additional funds as and when required, to meet its working capital and capital expenditure requirements, the Board have concluded that they have a reasonable expectation that the Group will continue in operational existence for the foreseeable future and at least for a period of 18 months from the date of approval of these interim financial statements.

 

For these reasons, the interim financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business.

 

As there can be no guarantee that any additional funding that might be required can be raised in the necessary timeframe, a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

 

The interim financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.

 

4.      Significant accounting policies

 

The Company has applied the same accounting policies, presentation, methods of computation, significant judgements and the key sources of estimation uncertainties in its interim consolidated financial statements as in its audited financial statements for the fifteen months ended 31 March 2024, except for the following amendments. However, none of the recent amendments to IFRS are expected to materially impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

 

The following new standards and amendments are effective for the period beginning on or after 1 January 2024:

 

·      Supplier Finance Arrangements (Amendments to IAS 7 & IFRS 7);

·      Lease Liability in a Sale and Leaseback (Amendments to IFRS 16);

·      Classification of Liabilities as Current or Non-Current (Amendments to IAS 1); and

·      Non-current Liabilities with Covenants (Amendments to IAS 1).

 

 

5.       Production start date

 

The Group assesses the stage of each mine under development/construction to determine when a mine moves into the production phase, this being when the mine is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of the mine development. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. At this point, all related amounts are reclassified from "trial production" to "steady state production".

 

Some of the criteria used to identify the production start date include, but are not limited to:

•     The percentage grade (phosphate concentrate) and volume of ore being mined is sufficiently economic and consistent with the plant design specifications;

•     Ability to produce phosphate in saleable form (within specifications); and

•     Ability to sustain ongoing production of phosphate.

 

When the mine moves into the steady state production, the capitalisation of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for the costs that qualify for capitalisation relating to mining asset additions or improvements, or mineable reserve development. It is also at this point that depreciation/amortisation commences. Refer to Note 7.

 

6.      Segmental information

 

Operating segments

The Board of Directors consider that the Group has one operating segment, being that of phosphate mining and exploration. Accordingly, all revenues, operating results, assets and liabilities are allocated to this activity.

 

Geographical segments

The Group operates in two principal geographical areas - South Africa and the RoC.

 

The Group's revenues and non-current assets by location of assets are detailed below.

 

Six months to 30 September 2024		Revenues US$'000	Non-Current Assets US$'000
South Africa		14,130	96,649
Republic of Congo		-	44,979
		14,130	141,628

 

Fifteen months to 31 March 2024		Revenues US$'000	Non-Current Assets US$'000
South Africa		40,087	87,685
Republic of Congo		-	43,380
		40,087	131,065

 

7.      Tangible assets - Property, plant, equipment and mine development

 

	30 Sep 2024	30 Sep 2024	30 Sep 2024	31 Mar 2024	31 Mar 2024	31 Mar 20224
	Cost	Accumulated depreciation and impairment	Carrying value	Cost	Accumulated depreciation and impairment	Carrying value
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Buildings and infrastructure
Land	1,404	(615)	789	1,278	(615)	663
Buildings	10,312	(4,429)	5,883	9,379	(3,949)	5,430
Capitalised road costs	7,530	(5,673)	1,857	6,853	(4,906)	1,947
Capitalised electrical sub-station costs	3,267	(2,419)	848	2,973	(2,090)	883
Machinery, plant and equipment
Critical spare parts	2,065	(847)	1,218	1,824	(755)	1,069
Plant and machinery	96,329	(40,602)	55,727	86,837	(36,243)	50,594
Water treatment plant	3,781	(1,369)	2,412	2,941	(1,222)	1,719
Furniture and fittings	56	(46)	10	51	(40)	11
Geological equipment	78	(61)	17	71	(52)	19
Office equipment	136	(131)	5	130	(125)	5
Other fixed assets	1	(1)	-	1	(1)	-
Motor vehicles	266	(124)	142	252	(93)	159
Computer equipment	149	(137)	12	138	(121)	17
Mine development	19,555	(8,039)	11,516	17,762	(7,148)	10,614
Stripping activity costs	22,589	(9,522)	13,067	20,536	(8,492)	12,044
Game animals	227	-	227	237	-	237
Total	167,745	(74,015)	93,730	151,263	(65,852)	85,411

 

Reconciliation of property, plant, equipment and mine development - Period ended 30 September 2024

	Opening Balance US$'000	Additions US$'000	Fair value gain US$'000	Deprecia-tion charge US$'000	Foreign exchange loss US$'000	Closing balance US$'000
Buildings and infrastructure
Land	663	-	-	-	126	789
Buildings	5,430	10	-	(16)	459	5,883
Capitalised road costs	1,947	-	-	(236)	146	1,857
Capitalised electrical sub-station costs	883	-	-	(102)	66	847
Machinery, plant and equipment
Critical spare parts	1,069	57	-	-	92	1,218
Plant and machinery	50,594	883	-	(5)	4,256	55,728
Water treatment plant	1,719	517	-	-	175	2,411
Furniture and fittings	11	-	-	(1)	1	11
Geological equipment	19	-	-	(4)	2	17
Office equipment	5	1	-	(1)	-	5
Other fixed assets	-	-	-	-	-	-
Motor vehicles	159	-	-	(22)	6	143
Computer equipment	17	2	-	(8)	-	11
Mine development	10,614	38	-	-	864	11,516
Stripping activity costs	12,044	26	-	-	998	13,068
Game animals	237	-	(32)	-	21	226
Total	85,411	1,534	(32)	(395)	7,212	93,730

 

Reconciliation of property, plant, equipment and mine development - Year ended 31 March 2024

 

	Opening Balance US$'000	Additions US$'000	Disposals US$'000	Fair value gain/ (loss) US$'000	Impair- ment US$'000	Depreciation charge US$'000	Foreign exchange loss US$'000	Closing balance US$'000
Buildings and infrastructure
Land	623	-		-	337	-	(297)	663
Buildings	4,243	516		(1)	1,109	(37)	(400)	5,430
Capitalised road costs	1,891	-	-	-	800	(582)	(162)	1,947
Capitalised electrical sub-station costs	852	-	-	-	356	(252)	(73)	883
Machinery, plant and equipment
Critical spare parts	784	218	-	-	138	-	(71)	1,069
Plant and machinery	41,575	1,186	-	(42)	11,768	(202)	(3,691)	50,594
Water treatment plant	1,025	853	-	-	(60)	-	(99)	1,719
Furniture and fittings	15	-	-	-	-	(4)	-	11
Geological equipment	31	-	-	-	-	(9)	(3)	19
Office equipment	2	129	-	(27)	-	(99)	-	5
Other fixed assets	-	-	-	-	-	-	-	-
Motor vehicles	-	127	-	56	-	(24)	-	159
Computer equipment	34	70	(2)	-	-	(81)	(4)	17
Mine development	7,936	1,812	-	-	1,570	-	(704)	10,614
Stripping activity costs	9,772	474	-	-	2,665	-	(867)	12,044
Game animals	182	-	-	74	-	-	(19)	237
Total	68,965	5,385	(2)	60	18,683	(1,290)	(6,390)	85,411

 

Kropz Elandsfontein has a fully drawn down project financing facility with BNP Paribas for US$ 30 million, outstanding balance as at 30 September: $3 750 000 (see Note 10). BNP has an extensive security package over all the assets of Kropz Elandsfontein and Elandsfontein Land Holdings (Pty) Ltd ("Elandsfontein Land Holdings") as well as the share investments in those respective companies owned by Kropz SA (Pty) Ltd ("Kropz SA"). The facility was fully repaid after 30 September 2024.

 

8.      Intangible assets - exploration and evaluation costs

 

	30 September 2024 US$'000	31 March 2024 US$'000
Capitalised exploration costs
Cost	44,790	43,172
Amortisation	-	-
Carrying value	44,790	43,172

 

 

Reconciliation of exploration assets

	Opening Balance US$'000	Additions US$'000	Disposals US$'000	Foreign exchange Gain US$'000	Closing balance US$'000
Period ended 30 September 2024
Capitalised exploration costs	43,172	98	-	1,520	44,790

 

Reconciliation of exploration assets

	Opening Balance US$'000	Additions US$'000	Disposals US$'000	Foreign exchange loss US$'000	Closing balance US$'000
Period ended 31 March 2024
Capitalised exploration costs	42,415	393	-	364	43,172

 

The costs of mineral resources acquired and associated exploration and evaluation costs are not subject to amortisation until they are included in the life-of-the-mine plan and production has commenced.

 

Where assets are dedicated to a mine, the useful lives are subject to the lesser of the asset category's useful life and the life of the mine, unless those assets are readily transferable to another productive mine. In accordance with the requirements of IFRS 6, the Board of Directors assessed whether there were any indicators of impairment. No indicators were identified.

 

9.      Shareholder loans and derivative liability

 

	30 September 2024 US$'000	31 March 2024 US$'000
Shareholder loans - ARC Fund	19,623	18,826
Demand Loan facility - ARC Fund	65,913	41,745
Convertible debt - ARC Fund	35,896	27,387
Derivative liability	9,582	6,476
	131,014	94,434

 

Maturity
Non-current	-	-
Current	131,014	94,434
Total	131,014	94,434

 

Shareholder loans - ARC Fund

The loans are: (i) US$ denominated, but any repayments will be made in ZAR at the then prevailing ZAR/US$ exchange rate; (ii) carry interest at monthly LIBOR plus 3%; and (iii) are repayable by no later than 1 January 2035 (or such earlier date as agreed between the parties to the shareholder agreements). The Shareholder loans were fully settled as part of the Restructuring transaction (Note 20).

 

Demand Loan facility - ARC Fund

The loans are unsecured, repayable on demand, and interest accruing at SA prime overdraft rate plus 6%, if not repaid within 6 months from first utilisation date rate increases by 2%. The Demand Loan facility was fully settled as part of the Restructuring transaction (Note 20).

 

Convertible debt - ARC Fund

On 20 October 2021, the Company entered into a new convertible equity facility of up to ZAR 200 million ("ZAR 200 Million Equity Facility") with ARC, the Company's major shareholder. Interest is payable at 14% nominal, compounded monthly. At any time during the term of the ZAR 200 Million Equity Facility, repayment of the ZAR 200 Million Equity Facility capital amount will, at the election of ARC, either be in the form of the conversion into ordinary shares of 0.1 pence each ("Ordinary Shares") in the Company and issued to ARC, at a conversion price of 4.5058 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21 September 2021, and at fixed exchange rate of GBP 1 = ZAR 20.24 ("Conversion"), or payable in cash by the Company at the end of the term of the ZAR 200 Million Equity Facility which is 27 October 2026.  The ZAR 200 Million Equity Facility is fully drawn at the date of this report.

 

As announced on 11 May 2022, the Company entered into a new conditional convertible equity facility of up to ZAR 177 million ("ZAR 177 Million Equity Facility") with ARC.  Interest is payable at 14% nominal, compounded monthly. At any time during the term of the ZAR 177 Million Equity Facility, repayment of the ZAR 177 Million Equity Facility capital amount will, at the election of ARC, either be in the form of the conversion into Ordinary Shares in the Company and issued to ARC, at a conversion price of 9.256 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 4 May 2022, and at fixed exchange rate of ZAR 1 = GBP 0.0504 ("Conversion"), or payable in cash by the Company at the end of the term of the ZAR 177 Million Equity Facility which is 2 June 2027.  The ZAR 177 Million Equity Facility is fully drawn at the date of this report.

 

As announced on 14 November 2022, the Company entered into a new conditional convertible equity facility of up to ZAR 550 million ("ZAR 550 Million Equity Facility") with ARC. Interest is payable at the South African prime overdraft interest rate plus 6%, nominal per annum and compounded monthly. At any time during the term of the ZAR 550 Million Equity Facility, repayment of the ZAR 550 Million Equity Facility capital amount will, at the election of ARC, either be in the form of the conversion into Ordinary Shares in the Company and issued to ARC, at a conversion price of 4.579 pence per Ordinary Share each, representing the 30-day Volume Weighted Average Price ("VWAP") on 21 October 2022 and at fixed exchange rate of ZAR 1 = GBP 0.048824 ("Conversion"), or payable in cash by the Company at the end of the term of the ZAR 550 Million Equity Facility which is 30 November 2027. The ZAR 550 Million Equity Facility is fully drawn at the date of this report.

 

Derivative liability

It was determined that the conversion option embedded in the convertible debt equity facility be accounted for separately as a derivative liability.  Although the amount to be settled is fixed in ZAR, when converted back to Kropz's functional currency will result in a variable amount of cash based on the exchange rate at the date of conversion. The value of the liability component and the derivative conversion component were determined at the date of draw down using a Monte Carlo simulation. The debt host liability was bifurcated based on the determined value of the option.  Subsequently, the embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value recorded in profit and loss (refer to Note 19).

 

Fair value of shareholder loans

The carrying value of the loans approximates their fair value.

 

10.     Other financial liabilities

 

	30 September 2024 US$'000	31 March 2024 US$'000
BNP Paribas ("BNP")	3,750	11,262
Greenheart Foundation	503	460
Total	4,253	11,722

 

BNP

A US$ 30,000,000 facility was made available by BNP Paribas to Kropz Elandsfontein in September 2016.

 

In May 2020, Kropz Elandsfontein and BNP Paribas agreed to amend and restate the term loan facility agreement entered into on or about 13 September 2016 (as amended from time to time). The BNP Paribas facility amendment agreement extends inter alia the final capital repayment date to Q3 2024, with eight equal capital repayments to commence in Q4 2022 and an interest rate of 6.5% plus LIBOR, up to project completion and 4.5% plus LIBOR thereafter.

 

BNP Paribas has an extensive security package over all the assets of Kropz Elandsfontein and Elandsfontein Land Holdings as well as the share investments in those respective companies owned by Kropz SA.

 

The BNP loan is subject to covenant clauses. Kropz Elandsfontein did not reach project completion as stipulated in the agreement to be 31 December 2022 and failed to fund the Debt Service Reserve Account, however BNP Paribas provided, a waiver to 30 September 2024. The outstanding balance is therefore presented as a current liability. The facility was fully repaid post 30 September 2024.

 

Greenheart Foundation

A loan has been made to the Group by Greenheart Foundation which is interest-free and repayable on demand. Louis Loubser, a Director of Kropz plc, is a Director of Greenheart Foundation.

 

Fair value of other financial liabilities

The carrying value of the loans approximate their fair value.

 

11.     Revenue

 

	Six months ended 30 September 2024 US$'000	Six months ended  30 September 2023 US$'000
Sales to region/country
South Africa	27	9
Australia	2,174	1,454
Brazil	1	4,815
New Zealand	4,117	-
South Korea	7,811	11,564
	14,130	17,842
Timing of transfer of Goods
Delivery to port of departure	14,130	17,842
	14,130	17,842

 

All 2024 revenue from phosphate is trial revenue. All 2024 revenue from phosphate is recognised at a point in time when control transfers.

 

12.     Finance income

 

	Six months ended 30 September 2024 US$'000	Six months ended 30 September 2023 US$'000
Interest income	129	89
Total	129	89

 

13.     Finance expense

 

	Six months ended 30 September 2024 US$'000	Six months ended 30 September 2023 US$'000
Shareholder loans	11,434	5,371
Foreign exchange (gains) / losses	(3,429)	2,565
Bank debt	356	1,217
BNP Paribas - Debt modification present value adjustment amortisation	(105)	(103)
BNP Paribas amendment fee amortisation	92	90
Other	114	81
Total	8,462	9,221

 

14.     Fair value (loss) / gain from derivative liability

 

	Six months ended 30 September 2024 US$'000	Six months ended 30 September 2023 US$'000
Fair value (loss) / gain from derivative liability	(2,597)	12,063
Total	(2,597)	12,063

 

The Company has entered into three convertible equity facilities with the ARC Fund. On 20 October 2021, the Company entered into the first a convertible equity facility of up to ZAR 200 million ("ZAR 200 Million Equity Facility"). The second convertible equity facility was entered into on 11 May 2022 of up to ZAR 177 million ("ZAR 177 Million Equity Facility"). On 14 November 2022, the Company entered into its third conditional convertible equity facility of up to ZAR 550 million ("ZAR 550 Million Equity Facility.") (refer to Note 9). 

 

It was determined that the conversion option embedded in the convertible debt equity facility be accounted for separately as a derivative liability.  Although the amount to be settled is fixed in ZAR, when converted back to Kropz's functional currency will result in a variable amount of cash based on the exchange rate at the date of conversion. The value of the liability component and the derivative conversion component was determined at the date of draw down using a Monte Carlo simulation. The debt host liability was bifurcated based on the determined value of the option.  Subsequently, the embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value recorded in profit and loss (refer to Note 19).

 

 

15.     Taxation

 

Major components of tax charge	Six months ended 30 September 2024 US$'000	Six months ended 30 September 2023 US$'000
Deferred
Originating and reversing temporary differences	-	-
Current tax
UK tax in respect of the prior period	595	-
UK tax in respect of the current period	-	-
Total	595	-

 

The Group had losses for tax purposes of approximately US$ 92.2 million (30 September 2023: US$ 56.3 million) which, subject to agreement with taxation authorities, are available to carry forward against future profits. A net deferred tax asset arising from these losses has not been recognised as steady state production has not been reached and therefore the reversal of any potential deferred tax asset remains uncertain.

 

16.     Earnings per share

 

There are no dilutive amounts in issue. The calculations of basic and diluted earnings per share have been based on the following loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding:

 

	Six months ended 30 September 2024 US$'000	Fifteen months ended 30 September 2023 US$'000
Profit / (Loss) attributable to ordinary shareholders	(17,201)	3,697
Weighted average number of ordinary shares in Kropz plc	925,818,223	926,718,223
Basic and diluted profit / (loss) per share (US cents)	(1.86)	0.40

 

17.     Related party transactions

 

Details of share issues and shareholder and related party loans are explained in Notes 9 and 10. The following transactions were carried out with related parties:

 

Related party balances

Loan accounts - Owed to related parties

 

	30 September 2024 US$'000	31 March 2024 US$'000
Shareholder loans - ARC Fund	19,623	18,826
Demand Loan facility - ARC Fund	65,913	41,745
Convertible debt - ARC Fund	35,896	27,387
Derivative liability	9,582	6,476
Greenheart Foundation	503	460
Total	131,517	94,894

 

Related party balances

Interest accrued to related parties

 

	Six months ended 30 September 2024 US$'000	Six months ended 30 September 2023 US$'000
ARC Fund	11,434	5,371
Total	11,434	5,371

 

18.     Seasonality of the Group's business

 

There are no seasonal factors which materially affect the operations of any company in the Group.

 

19.     Fair value

 

The following table compares the carrying amounts and fair values of the Group's financial assets and financial liabilities as at 30 September 2024.

 

The Group considers that the carrying amount of the following financial assets and financial liabilities are a reasonable approximation of their fair value:

·      Trade receivables;

·      Trade payables;

·      Restricted cash; and

·      Cash and cash equivalents.

 

	As at 30 September 2024			As at 31 March 2024
	Carrying amount US$'000	Fair value US$'000		Carrying amount US$'000	Fair value US$'000
Financial Assets
Other financial assets	1,738	1,738		1,527	1,527
Total	1,738	1,738		1,527	1,527
Financial Liabilities
Shareholder loans	121,432	121,432		87,958	87,958
Derivative liability	9,582	9,582		6,476	6,476
Other financial liabilities	4,253	4,253		11,722	11,722
Total	135,267	135,267		106,156	106,156

This note provides an update on the judgements and estimates made by the Group in determining the fair values of the financial instruments.

 

(i)         Financial instruments Measured at Fair Value

The financial instruments recognised at fair value in the Statement of Financial Position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements.

 

(ii)         Fair value hierarchy

The fair value hierarchy consists of the following levels

•     Quoted prices in active markets for identical assets and liabilities (Level 1);

•     Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

•     Inputs for the asset and liability that are not based on observable market date (unobservable inputs) (Level 3).

 

	Level 1 US$'000	Level 2 US$'000	Level 3 US$'000	Total US$'000
30 September 2024
Derivative liability	-	-	9,582	9,582
31 March 2024
Derivative liability	-	-	6,476	6,476

 

There were no transfers between levels for recurring fair value measurements during the year. 

 

(iii)        Reconciliation:  Level 3 fair value measurement

 

	Six months ended 30 September 2024 US$'000	Period ended 31 March 2024 US$'000
Derivative liability
Opening balance	(6,476)	(23,037)
Fair value at initial recognition	-	(3,235)
Fair value gain/(loss) recognised in profit and loss	(2,597)	20,601
Foreign exchange	(509)	(805)
Closing balance	(9,582)	(6,476)

 

(iv)        Valuation technique used to determine fair value

Derivative liability:

The fair value is calculated with reference to market rates using industry valuation techniques and appropriate models from a third-party provider. The Monte-Carlo model utilised includes a high level of complexity and the main inputs are share price volatility, risk margin, foreign exchange volatility and UK risk-free rate. A number of factors are considered in determining these inputs, including assessing historical experience but also considering future expectations. The determined fair value of the option is multiplied by the number of shares available for issue pursuant to the ZAR 200 Million Equity Facility, ZAR 177 Million Equity Facility and the ZAR 550 Million Equity Facility (refer to Note 9).

 

Valuation results (as at 30 September 2024)

	Total loan amount	Value per	Number of	Total Value
Facility	(ZAR)	share (p)	Shares	(GBP)
ZAR200m facility	200,000,000	0.57	219,272,938	1,251,396
ZAR177m facility	177,000,000	0.43	96,378,566	413,644
ZAR550m facility	550,000,000	0.94	586,442,455	5,492,005
Total			902,093,959	7,157,045

 

Sensitivity Valuation results (as at 30 September 2024) - Volatility

			Total Value
			(GBP) - 75%
	Base volatility		historical
Facility	assumption		volatility (66%)
ZAR200m facility	87.87%		594,225
ZAR177m facility	87.87%		143,773
ZAR550m facility	87.87%		2,863,434
Total			3,601,432

 

Sensitivity Valuation results (as at 30 September 2024) - Risk Margin

		Total Value	Total Value
	Base risk margin	(GBP) - 7%	(GBP) - 3%
Facility	assumption	risk margin	risk margin
ZAR200m facility	5%	1,253,532	1,249,171
ZAR177m facility	5%	414,597	412,640
ZAR550m facility	5%	5,509,643	5,473,412
Total		7,177,772	7,135,223

 

Sensitivity Valuation results (as at 30 September 2024) - FX volatility

		Total Value	Total Value
		(GBP) - 20%	(GBP) - 10%
Facility	Base FX volatility	FX volatility	FX volatility
ZAR200m facility	13.49%	1,254,799	1,252,089
ZAR177m facility	13.49%	416,200	413,351
ZAR550m facility	13.49%	5,500,030	5,494,207
Total		7,171,029	7,159,647

 

Sensitivity Valuation results (as at 30 September 2024) - UK risk-free rate

		Total Value	Total Value
		(GBP) - UK rf	(GBP) - UK rf
Facility	Base UK risk-free rate	+ 2%	-2%
ZAR200m facility	3.51%	1,290,782	1,212,559
ZAR177m facility	3.54%	430,974	396,767
zAR550m facility	3.58%	5,659,609	5,235,478
Total		7,381,365	6,934,804

 

20.     Events after the reporting period

 

Further shipments and sales of 34,405 tonnes of phosphate concentrate from Kropz Elandsfontein were recorded in October 2024 and 31,305 tonnes in November.

 

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

 

The Group announced on 3 September 2024, a restructuring of its debt obligations ("Restructuring") and a fundraising that was conditional on shareholders' approval and approval by the South African Reserve Bank ("SARB"). As a result of the Restructuring, Kropz Elandsfontein (Pty Ltd and Elandsfontein Land Holdings (Pty) Ltd (the "Elandsfontein Subsidiaries") have extinguished their debt obligations to ARC. Kropz now has convertible debt of £88.9 million (including accumulated interest) outstanding with ARC, being the aggregate of a new Convertible Loan Note ("CLN") and existing equity facilities (the "Existing Equity Facilities"). Additionally, Kropz has completed a fundraising of £8.9 million from ARC and other shareholders before expenses through the issue of new Ordinary Shares an Issue Price of 1.387 pence per new Ordinary Share in the capital of the Company (the "Fundraising"). The Issue Price represents a discount of approximately 5 per cent. to the 30-day volume weighted average share price per existing Ordinary Share to 23 August 2024. In aggregate 643,873,018 new Ordinary Shares have be allotted and issued pursuant to the Fundraising. This was concluded after the reporting date.