TIDMFAR
RNS Number : 5498X
Ferro-Alloy Resources Limited
30 April 2019
Ferro-Alloy Resources Limited / Index: LSE / Epic: FAR / Sector:
Natural Resources
30 April 2019
Ferro-Alloy Resources Limited
("Ferro-Alloy" or the "Company" or the "Group")
Final Results for the year ended 31 December 2018
Ferro-Alloy Resources Limited, the vanadium mining and mineral
production and processing company with operations based in Southern
Kazakhstan is pleased to announce its final results for the period
ended 31 December 2018.
Overview
-- Established vanadium producer focused on expanding and
developing the Balasausqandiq Vanadium Project ("Balasausqandiq" or
the "Balasausqandiq Deposit")
-- Operations located at the Balasausqandiq site with two main business activities:
o the Balasausqandiq Vanadium Project (the "Project"), with a
Net Present Value ("NPV") of US$2 billion (10% discount at a
long-term vanadium pentoxide price of $7.50/lb) and a reserve of
over 70 million tonnes estimated on the locally required basis, of
which ore-body number one (of five) has estimated reserves on a
JORC basis of 23 million tonnes; and
o an existing profitable vanadium concentrate processing
operation adapted from the former pilot plant (the "Existing
Operation")
-- A comprehensive staged development plan has been devised
benefiting both the Project and Existing Operation. The staged
development plan enables the latter phases to be substantially paid
for from earnings, with only very small shareholder dilution
-- Unusual sedimentary deposit allows for 60% lower capital and
processing costs than typical primary vanadium producers and
projects
-- Surge in global demand for vanadium driven by:
o Raised standards for construction and health and safety
effectively requiring steel producers to utilise vanadium as a
strengthening alloy;
o the emerging use of vanadium in clean energy storage in the
form of vanadium redox flow batteries ("VFB")
-- Production of vanadium pentoxide in 2018 increased 279% to
125 tonnes (2017: 33 tonnes), with production from Q2 2018 onwards
averaging 12 tonnes per month
-- Increase in revenue to US$ 4.2 million (2017: US$ 1.1 million
with vanadium pentoxide prices fluctuating in the period but
averaging just over US$18/lb
-- Net profit before tax increased to US$ 2.96 million (2017: loss US$ 1.1 million)
-- Production in January and February of 2019 continued at a
rate of around 12 tonnes per month, similar to that of production
in the previous three quarters of 2018. A shutdown in March to
install new equipment reduced production slightly and production
for the quarter was 31 tonnes
-- Post period end, successfully commenced trading on the London
Stock Exchange Main Market having raised GBP5.2 million (before
expenses) from institutional shareholders
Nick Bridgen, CEO, commented "These financial results
demonstrate the significant progress achieved at Balasausqandiq in
the period. We successfully increased production and subsequently
significantly increased our revenue and profit. This strong
financial performance, paired with our recent successful fundraise
of GBP5.2 million, means that we are well funded to implement our
ambitious development plan intended to increase production from the
existing operation whilst advancing the Project towards
production.
"The Balasausqandiq Project is a truly extraordinary project
with unparalleled potential. Due to its unique geology, the Project
could be one of the world's largest and lowest cost producing
vanadium mines with industry leading profit margins, meaning that
it is extremely profitable even when using a significant discount
to the current vanadium price. With our existing operation combined
with a defined development plan for the Project, Ferro Alloy offers
a fantastic opportunity to gain exposure to the vanadium market
where demand continues to grow, particularly with the increasing
usage of vanadium batteries in clean energy storage."
For further information visit www.ferro-alloy.com or
contact:
Ferro-Alloy Resources Nick Bridgen (CEO) info@ferro-alloy.com
Limited
Shard Capital Partners
(Corporate Adviser
& Broker) Wang Chong +44 207 186 9948
St Brides Partners
Limited
(Financial PR & IR Catherine Leftley/Gaby
Adviser) Jenner +44 207 236 1177
About Ferro-Alloy Resources Limited
The Company's operations are all located at the Balasausqandiq
Deposit in Kyzylordinskaya Oblast in the South of Kazakhstan.
Currently the Company has two main business activities:
(a) the high grade Balasausqandiq Vanadium Project; and
(b) an existing vanadium concentrate processing operation
Balasausqandiq is a very large deposit, situated in
Kyzylordinskaya Oblast in Southern Kazakhstan. The ore contains
vanadium as the principal product, together with by-products of
carbon, molybdenum, uranium, rare earth metals, potassium, and
aluminium.
A reserve on the JORC 2012 basis has been estimated only for the
first ore-body which amounts to 23 million tonnes, not including
the small amounts of near-surface oxidised material which is in the
Inferred resource category. The Reserves of all five of the
currently explored ore-bodies are estimated to be over 70m tonnes
on the locally required basis of reserve estimation but this does
not include the full depth of ore-bodies 2-5. A resource of over
100m tonnes is expected once exploration of these further ore
bodies is complete.
The Company has completed a local feasibility study to develop
the mine and build processing facilities in two Phases. Phase 1 is
planned to treat 1 million tonnes per year of ore to produce 5,600
tonnes per year of vanadium pentoxide, and Phase 2 will increase
the ore treated to 4 million tonnes per year, producing 22,400
tonnes per year of vanadium pentoxide.
In addition, there is an existing concentrate processing
operation at the site of the Balasausqandiq Deposit. The production
facilities were originally created from a 15,000 tonnes per year
pilot plant which was then adapted to treat low-grade concentrates
and is now in the process of being expanded and further adapted to
treat a wider variety of raw-materials.
The Company has already completed the first steps of a
development plan which is expected to result in annualised
production capacity of the existing plant increasing gradually to
around 1,500 tonnes of contained vanadium pentoxide. The
development plan includes upgrades to infrastructure, an extension
to the existing factory and the installation of equipment to
increase the throughput and to add the facilities to convert AMV
into vanadium pentoxide.
The strategy of the Company is to develop both the Existing
Operation and the Project in parallel. Although they are located on
the same site and use some of the same infrastructure, they are
separate operations.
CEO's report on operations for the year to 31 December 2018 and
2019 to date
Introduction
In the past year, Ferro-Alloy has made significant progress in
expanding its Existing Operations and developing the Project. I am
pleased to report our maiden final results following the
commencement of trading on the Main Market of the London Stock
Exchange on 28 March 2019, alongside the Kazakhstan Stock Exchange
listing. As part of the London listing, we raised GBP5.2 million
which will be used to further develop and expand production from
the existing operation to around 1,500 tonnes per annum, as well as
preliminary work on the main project to produce 22,500 tonnes per
year from the Balasausqandiq mine.
Production
By the beginning of 2018 the basic adaptation of the former
pilot plant to treat low-grade purchased concentrates had been
completed and the required operating regimes had been worked out. I
am pleased to report that operations largely carried on without
major interruption throughout 2018 and production increased over
the period, amounting to 125 tonnes of vanadium pentoxide for the
year (2017: 33 tonnes) contained in ammonium metavanadate ("AMV"),
resulting in a significant increase in revenue to US$ 4.22m (2017:
US$1.13m) and profitability of US$2.96m (2017: loss US$1.08m).
Production increased to around 12 tonnes per month by the end of
the second quarter and shipments to customers in 2018 totalled 130
tonnes compared with 52 tonnes in 2017.
The plant operated for 80% of available time during the year but
averaged around 85% for the second half. Down-time was used to make
improvements to the plant and install new equipment.
As indicated at the time of the listing in London, operations
have been historically interrupted by short term power outages and
power instability. Permission has been granted to connect to an
existing high-power line and the expansion plans discussed below
include the cost of connection to the existing adjacent high
voltage line which are expected to resolve any issues and result in
a much lower cost of power.
Vanadium prices
The price of vanadium pentoxide started the year at around
US$9.75/lb and by 31 December 2018 was US$15.50/lb, having reached
a high of over US$28/lb in November and averaging just over
US$18/lb in the year. The Company's only product during the year
was AMV, a precursor product from which vanadium pentoxide is made
by heating in a dissociation oven. AMV is sold on the basis of the
content of vanadium pentoxide, less a discount to standard vanadium
pentoxide.
Within the vanadium market there are favourable supply/demand
dynamics that are anticipated to impact upon pricing in the long
term. Heightened standards of construction in emerging economies,
particularly in China, have resulted in greater quantities of
vanadium being used in the production of steel due to its
strengthening and fire resistant qualities. A key potential future
market for vanadium is clean energy storage in the form of vanadium
redox flow batteries, essential technology for the long-term
storage of renewable power.
Since the start of 2019, the price of vanadium pentoxide has
been declining, trading at around US$9/lb as at 30 April 2019,
although this remains above the long term average.
As is the norm in the industry, revenue, and the corresponding
trade receivable, are recognised at the time of transfer of control
to the customer, but the final pricing determination is based on
assay and prices around the time of arrival of the goods at the
port of destination. Therefore, shipments from the fourth quarter
of 2018, for which revenue has been recognised at the year end
price, may be subject to a downward price adjustment on
delivery.
Earnings and cash flow
The Group generated revenues of US$4.2m for the period compared
to US$1.1m in 2017, reflecting the increased production and sales
volumes and average pricing detailed above. Cost of sales increased
to US$1.7m from US$1.1m in 2017 primarily reflecting the increased
volumes with gross margins increased to 60% from 4%.
Administrative expenses of US$1.3m (2017: US$0.9m) principally
comprised employee costs, listing costs, audit and professional
services and increased due to a general raising of such activities
in preparation for listing on the London Stock Exchange.
The Group's intangible assets, exploration and evaluation assets
and property, plant and equipment relating to the Balasausqandiq
vanadium deposit and processing operations were impaired in prior
periods due to the vanadium pricing environment at that time and
uncertainties regarding future plans for the assets. The Group
reassessed the recoverable value of these assets at 31 December
2018 in the light of the performance of the processing operation,
the improved pricing environment and outlook and the plans for the
assets as set out in the Prospectus issued on Admission to the
London Stock Exchange, together with the underlying independent
Competent Person's Report. As a result of the reassessment, the
Board concluded that it was appropriate to reverse the previous
impairments, net of depreciation and amortisation that would have
arisen since the date of impairment, resulting in a net reversal of
US$1.775m.
Net finance costs decreased to US$0.036m (2017: US$0.084m) as a
result of the elimination of interest costs after the repayment of
loans in 2017.
The Group made a net profit before tax of US$2.96m (2017: loss
of US$1.1m).
The Group made a net profit of US$2.96m in the year after
providing for costs associated with the Company's reorganisation
and preparations for listing on the London Stock Exchange (LSE) of
US$0.164m and the reversals of impairments of US$1.775m.
Net cash from operating activities totalled US$1.1m (2017:
US$1.0m outflow) principally reflecting the increase in production
volumes and selling prices, net of increased working capital
associated with increased inventories and receivables at the year
end.
Net cash outflows from investing activities included US$0.9m
(2017:US$0.183m) of capital expenditure associated with expanding
the processing operation.
Net cash inflows from financing activities comprised
subscriptions for shares amounting to US$416,738 (before costs),
yielding US$410,488 net of costs.
The Group had cash of US$892,000 at 31 December 2018 (2017:
US$267,000). On 28 March 2019 the Company received gross proceeds
from its public offers of US$6.8m, US$6.3m net of issue costs.
Key performance indicators
The Group is in a period of development and its current
operations, the processing of bought-in secondary
vanadium-containing materials for extraction of vanadium, are
relatively small in comparison with the main objectives of the
Group - to develop the Balasausqandiq mine and processing facility.
Moreover, the current operations are themselves undergoing a
significant expansion which means that operations are not in a
steady state capable of inter-period comparisons. The directors are
therefore of the opinion that Key performance Indicators may be
misleading if not considered in the context of the development of
the operation as a whole for which the information for shareholders
is better given in a descriptive manner than in tabular form.
Furthermore, the existing processing business of the company is
complex and the business model has been developed to allow maximum
flexibility in the type of raw-materials treated so that market
variations in raw material prices can be moderated by the ability
to select raw materials which may be more profitable to treat
notwithstanding they may involve a lower level of production.
Nevertheless, the directors consider that the main indicator of
performance, although subject to interpretation as described above,
is the level of production. This has been dealt with in the section
"Production" above.
Environmental matters are of paramount importance to the Group.
Up to this date most of the residues from the main raw-material
treated have been used for the construction of evaporation ponds
and there are opportunities for the sale of future residues. No
significant mining operations have yet been carried on. The Group
aims to ensure that all residues are sold or safely and responsibly
contained and that plans are developed in good time to ensure the
highest standards for site rehabilitation at the sites of future
mining.
Balance sheet review
Total non-current assets increased to US$2.773m from US$0.224m
principally due to the reversal of impairment and the capital
expenditure noted above, together with an increase in VAT
receivable and prepayments.
Current assets increased by US$1.025m to US$1.95m principally
reflecting additional inventories due to higher levels of raw
materials and finished goods on site at the year end and increased
cash. Current liabilities increased to US$1.193m from US$0.608m
primarily reflecting increased salaries payable.
The reduction in long term provisions of US$92,000 in the year
reflected changes in estimates of site restoration costs and
foreign translation effects on such estimates.
As a result of the devaluation in the Kazakh tenge by 14% during
2018 an unrealised foreign currency exchange retranslation movement
was recorded in respect of the retranslation of the equity of the
Group's Kazakh subsidiary and long term intercompany loans, into US
dollars.
Development plan
Throughout 2018 the Company has been working towards a major
expansion of the existing processing operation and the addition of
equipment to convert AMV to vanadium pentoxide. Production of
around 1,500 tonnes per year of production of vanadium pentoxide is
targeted. Whilst all the essential technology is now already in
operation, expansion to this level will require all aspects of the
plant and infrastructure to be upgraded at an anticipated total
cost of some US$10.3m. A re-estimation of the remaining amount to
be spent after certain items have been completed, some carried out
in-house and some more recent quotations and estimations amounts to
US$7m. Production is expected to continue during the upgrade with
only minor stoppages, with production increasing incrementally over
2019 and early 2020. Part of the cost will therefore be covered by
earnings during the construction period in addition to the US$6.3m
(net) raised during the recent LSE listing.
In April 2018 a new roaster was commissioned, together with a
separate leaching and precipitation circuit for the treatment of
higher grade purchased secondary materials. Although further
testing of a wide variety of materials will continue in parallel
with operations, production from this separate line was started at
a small scale in July 2018. Additional equipment is being installed
to build up this production to a significant scale.
Permission to connect to the adjacent high voltage power-line
has been obtained, the engineering design work for the connection
is complete, and contracts are being finalised.
Production during the first quarter of 2019 has continued at the
rate of around 12 tonnes per month, similar to the production in
the three previous quarters of 2018, although a shutdown in March
to install new equipment reduced production slightly and production
for the quarter was 31 tonnes.
Work on the expansion plan gained momentum in 2019, financed by
operating earnings and the raising of additional finance at the LSE
listing.
Temporary accommodation for 24 construction workers has been
installed, a 25 tonne mobile crane and vehicles to transport site
workers have been procured to enable construction to progress. In
recent months the detailed design of the 990 square metre extension
of the plant building and electrometallurgical and
recrystallisation equipment have been completed. The contracts for
construction, supply of steelwork, sandwich panels and manufacture
of equipment have all been signed and construction work has
started.
Various items of equipment have already started arriving on
site, including a rotating pre-roasting oven, six new 16 cubic
metre leach tanks for the acid leaching of the low-grade wastes,
and a further receiving tank for roasted material from the main
roaster has been installed. A larger capacity generator has been
acquired to ensure more stable production pending connection to the
high voltage line and continuing as back-up thereafter.
Balasausqandiq
In parallel with existing operations discussed above, and using
the resulting cash flows, the Company plans to continue development
of the Balasausqandiq vanadium deposit. The feasibility study
indicates that capital costs of some US$ 100 million will be
required as a first stage of development to mine and treat one
million tonnes per year of ore, producing some 5,600 tonnes per
year, measured on the basis of the vanadium pentoxide content, plus
by-products which are likely to amount to around a third of
revenue. A subsequent expansion is planned which will increase
vanadium pentoxide production to 22,400 tonnes per year plus
by-products.
Although the Balasausqandiq mine and processing plant will be
separate and independent from the Existing Operation, they will
operate from the same site and much of the work on the current
development plan, in particular, the improved power, railway
sidings, accommodation and offices, will benefit both
operations.
During the first half of 2018 the plan to mine and process one
million tonnes per year of ore up to the year 2043 was approved by
the Central Commission for the Exploration and Development of
Mineral Deposits of the Ministry of Natural Resources of the
Republic of Kazakhstan and in December 2018 the changes were
reflected in an addendum to the Company's subsoil-use agreement,
giving a revised exploitation period to 2043. It is expected that
once the first phase of operations have begun, the Company will
apply to increase the mining rate to four million tonnes per year.
The next steps are to complete testing of certain improvements
which were not trialled in the pilot plant study and then to
progress to detailed engineering.
Corporate
In July 2018 the Company's shareholders voted by ordinary
resolution to subdivide each share into 200 new shares of no par
value so that the listed shares would be of a value within the
normal range for companies listing on the London Stock Exchange. On
28 March 2019 the Company was admitted to listing on the London
Stock Exchange, raising GBP5.2m gross, equivalent to US$6.8m, or
US$6.3m net of issue costs.
Description of principal risks, uncertainties and how they are
managed
(a) Current processing operations:
Current processing operations make up a small part of the
Group's expected future value but provide useful cash flows in the
near term. The principal risk of this operation is the price of its
product, vanadium. The price of vanadium pentoxide is volatile and
has risen from historic lows at the beginning of 2016 to a
near-record high of some US$28/lb near the end of 2018. Currently,
the price of vanadium pentoxide is at c. US$9/lb which is still
higher than the ten-year average to date. Most forecasters
anticipate that vanadium will remain in deficit in the short to
medium term but uncertainty, particularly over the world economy
and Chinese enforcement of its new construction-steel standards,
makes forecasting difficult. The Company acquires raw-materials at
a cost that is related to the price of vanadium so there is a
natural hedge, but there is a risk of changes in vanadium prices
between acquisition of the raw materials and sale of the product
which cannot be avoided.
The processing operation is also dependent on the continuing
availability of raw materials which are subject to competition from
other processors. The Company is mitigating this risk by
positioning itself to treat a wide variety of potential
raw-materials and maintaining low treatment costs.
The level of profitability of the current processing operation
is also dependent on production levels. The currently achieved
level is some 12 tonnes per month (vanadium pentoxide content).
This level of production could be impacted by unanticipated
production difficulties, power outages and raw-material delivery
limitations. The Company aims to keep a stockpile of raw-materials
and has recently installed a larger capacity generator to maintain
production during outages. The Company is currently carrying out an
expansion project which will lower the average cost of production
and as part of this project, will be connecting to a larger
capacity and more reliable power supply as described above.
(b) Balasausquandiq project:
The Balasausqandiq project is a much larger contributor to the
Group's value and is primarily dependent on long term vanadium
prices. The Company's long-term assumption is US$7.50/lb of
vanadium pentoxide, but the forecast very low cost of production
means that the Group would remain profitable at very much lower
price levels. The project is also dependent on raising finance to
meet capital costs anticipated to amount to some US$100m but this
cost is a fraction of costs typical of other vanadium projects and
the production costs are similarly lower, so the financial returns
on such investment are extremely high.
Acknowledgements
I wish to take this opportunity to thank the Board and
management team, in addition to our advisors in the period, for the
work in preparation of the listing on the London Stock Exchange.
Thanks also to our staff on site that have overseen operations
resulting in record production, as well as highly innovative
process design work for the existing operation. Finally, I would
like to thank our shareholders for their support and I look forward
to updating them with our progress as we continue to capitalise on
Balasausqandiq's outstanding potential.
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
for the year ended 31 December 2018
2018 2017
$000 $000
------- ------------------------
Revenue 4,220 1,132
Cost of sales (1,688) (1,084)
------- ------------------------
Gross profit 2,532 48
Impairment reversal/(charge) 1,775 (124)
Other income 10 52
Administrative expenses (1,271) (908)
Distribution expenses (11) (64)
Other expenses (35) -
------- ------------------------
Profit (loss) from operating
activities 3,000 (996)
------- ------------------------
Net finance income/(costs) (36) (84)
------- ------------------------
Profit (loss) before income
tax 2,964 (1,080)
======= ========================
Income tax (1) -
Profit (loss) for the period 2,963 (1,080)
Other comprehensive income
(loss)
Items that will never be reclassified
to profit or loss
Exchange differences arising
on translation of foreign
operations (293) 2
------- ------------------------
Total comprehensive income
(loss) for the period 2,670 (1,078)
======= ========================
Earnings/(loss) per share
(basic and diluted), US$ 0.009 (0.004)
------- ------------------------
Consolidated Statement of Financial Position as at 31 December
2018
31 December 31 December
2018 2017
$000 $000
------------------------- -----------
ASSETS
Non-current assets
Property, plant and equipment 2,203 79
Exploration and evaluation
assets 59 -
Intangible assets 25 2
Long-term VAT receivable 237 91
Prepayments 249 52
Total non-current assets 2,773 224
------------------------- -----------
Current assets
Inventories 929 596
Trade and other receivables 38 47
Prepayments 91 15
Cash and cash equivalents 892 267
Total current assets 1,950 925
------------------------- -----------
Total assets 4,723 1,149
========================= ===========
EQUITY AND LIABILITIES
Equity
Share capital 27,330 15
Share premium - 26,904
Additional paid-in capital 380 380
Foreign currency translation
reserve (2,965) (2,672)
Accumulated losses (21,275) (24,238)
------------------------- -----------
Total equity 3,470 389
------------------------- -----------
Non-current liabilities
Provisions 60 152
Total non-current liabilities 60 152
------------------------- -----------
Current liabilities
Trade and other payables 929 608
Contract liability 264 -
------------------------- -----------
Total current liabilities 1,193 608
------------------------- -----------
Total liabilities 1,253 760
------------------------- -----------
Total equity and liabilities 4,723 1,149
========================= ===========
Consolidated Statement of Changes in Equity for the year ended
31 December 2018
Additional Foreign currency
Share Share paid in capital translation Accumulated
capital premium $000 reserve losses Total
$000 $000 $000 $000 $000
-------- ---------- ---------------- ---------------- ------------------ -------
Balance at 1 January
2017 15 25,030 - (2,674) (23,158) (787)
Loss for the year - - - - (1,080) (1,080)
Other comprehensive
income
Exchange differences
arising on
translation
of foreign
operations - - - 2 - 2
-------- ---------- ---------------- ---------------- ------------------ -------
Total comprehensive
income (loss)
for the year - - - 2 (1,080) (1,078)
-------- ---------- ---------------- ---------------- ------------------ -------
Transactions with
owners, recorded
directly in equity
Shares issued (net of
costs U$142,000) - 1,874 - - - 1,874
Other transactions
recognized directly
in equity - - 380 - - 380
-------- ---------- ---------------- ---------------- ------------------ -------
Balance at 31
December 2017 15 26,904 380 (2,672) (24,238) 389
======== ========== ================ ================ ================== =======
Balance at 1 January
2018 15 26,904 380 (2,672) (24,238) 389
Profit for the year - - - - 2,963 2,963
Other comprehensive
expense
Exchange differences
arising on
translation
of foreign
operations - - - (293) - (293)
-------- ---------- ---------------- ---------------- ------------------ -------
Total comprehensive
income (loss)
for the year - - - (293) 2,963 2,670
-------- ---------- ---------------- ---------------- ------------------ -------
Transactions with
owners, recorded
directly in equity
Shares issued (net of
costs U$6,000) 245 166 - - - 411
Reorganisation of
share capital to
nil par value 27,070 (27,070) - - - -
-------- ---------- ---------------- ---------------- ------------------ -------
Balance at 31
December 2018 27,330 - 380 (2,965) (21,275) 3,470
======== ========== ================ ================ ================== =======
Consolidated Statement of Cash Flows for the year ended 31
December 2018
2018 2017
$000 $000
------- -------
Cash flows from operating
activities
Income (loss) for the year 2,963 (1,080)
Adjustments for:
Depreciation and amortisation 46 27
(Reversal of impairment)
/ impairment of property,
plant and equipment and intangible
assets (1,613) 119
(Reversal of impairment)
/ impairment of exploration
and evaluation assets (162) 5
Impairment of VAT receivables - 4
Write-down of inventories
to net realisable value and
obsolescence 11 39
Expenses on credit loss provisions
and impairment of prepayments 21 45
Income tax 1 -
Net finance costs / (income) 36 84
Cash from operating activities
before changes in working
capital 1,303 (757)
Change in inventories (451) (44)
Change in trade and other
receivables (241) (43)
Change in prepayments (87) (47)
Change in trade and other
payables 320 (144)
Change in contract liability 264 -
------- -------
Net cash from operating activities 1,108 (1,035)
------- -------
Cash flows from investing
activities
Acquisition of property,
plant and equipment (886) (182)
Acquisition of intangible
assets (2) (1)
Net cash used in investing
activities (888) (183)
------- -------
Cash flows from financing
activities
Proceeds from issue of share
capital 417 1,889
Transaction costs on shares
subscription (6) (142)
Proceeds from borrowings - 20
Repayment of loans and borrowings - (368)
Net cash from financing activities 411 1,399
------- -------
Net increase in cash and
cash equivalents 631 181
Cash and cash equivalents
at the beginning of year 267 72
------- -------
Effect of movements in exchange
rates on cash and cash equivalents (6) 14
------- -------
Cash and cash equivalents
at the end of year 892 267
======= =======
Notes to the consolidated financial statements for the year
ended 31 December 2018
The financial information for the year ended 31 December 2018
and 31 December 2017 set out in this announcement does not
constitute the Company's statutory financial statements for the
year ended 31 December 2018 but is extracted from the audited
financial statements for those years. The 31 December 2017 accounts
have been delivered to the Registrar of Companies. The statutory
financial statements for 2018 will be delivered to the Registrar of
Companies in due course. The auditors have reported on the
financial statements for the year ended 31 December 2018 and their
report was unqualified.
1 Basis of preparation
Ferro-Alloy Resources Limited (the "Company") is incorporated in
Guernsey and has its registered address at Noble House, Les
Baissieres, St. Peter Port, Guernsey, GY1 2UE. The consolidated
financial statements for the year ended 31 December 2018 comprise
the Company and the following subsidiaries (together referred to as
the "Group"):
Company's
share in charter
Company Location capital Primary activities
------------------- ---------------- ------------------ ----------------------------
Carries out the treasury
Ferro-Alloy British and finance activities
Products Limited Virgin Islands 100% for the Group
Manages processing
Energy Metals activity and performs
Limited UK 100% management service
Vanadium Products Performs services
LLC Kazakhstan 100% for the Group
Production and sale
Firma Balausa of vanadium and associated
LLC Kazakhstan 100% by-products
Balausa Processing Development of processing
Company LLC Kazakhstan 100% facilities
(a) Statement of compliance
While the financial information included in this announcement
has been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
(IFRSs and IFRIC interpretations) issued by the International
Accounting Standards Board and as endorsed for use in the European
Union this announcement does not itself contain sufficient
information to comply with IFRSs. The principal accounting policies
adopted in the preparation of the financial information in this
announcement are set out in the Company's full financial statements
for the year ended 31 December 2018.
(b) Basis of measurement
The consolidated financial statements are prepared on the
historical cost basis except for contract liabilities held at fair
value through profit and loss noted below.
(c) Functional and presentation currency
The national currency of Kazakhstan is the Kazakhstan tenge
("KZT) which is also the functional currency of the Group's
operating subsidiaries. Prior to 1 January 2018 the functional
currency of the Company was also KZT. The functional currency of
the Company was reassessed at 1 January 2018 and it was concluded
that US$ represented a more appropriate functional currency given
the changes in circumstances and conditions within the business
with the cost base increasingly US$ based, intercompany balances
redenominated in US$ and future dividend income to be denominated
in US$ following the re domiciliation to Guernsey and listing on
the Kazakh Stock Exchange.
The revised functional currency has been applied prospectively
from 1 January 2018. All financial information presented in US$ has
been rounded to the nearest thousand US$.
(d) Going concern
The consolidated financial statements are prepared in accordance
with IFRS on a going concern basis.
The Directors have reviewed the Group's cash flow forecasts for
at least 12 months following the reporting date, sensitivities and
mitigating actions. After taking into account available cash
following the IPO and forecast cash flow from operations, the
Directors consider that the Group has adequate resources to
continue its operational existence for the foreseeable future. For
this reason, they continue to adopt the going concern basis in
preparing the financial statements.
2 Use of estimates and judgements
Preparing the financial statements requires management to make
judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and
liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected. Key sources of judgment and estimation uncertainty are as
follows:
Reversal of impairment of exploration and evaluation assets
The Group historically impaired its exploration and evaluation
assets as a result of a lack of clear plans for future exploration
and development and the vanadium price environment at the time. As
at 31 December 2018, management identified triggers for potential
reversal of impairment given the advanced stage of the proposed
listing on the London Stock Exchange and associated plans for
exploration and development of its vanadium deposit, the results of
an independent Competent Person's Report which estimates ore
resources of 24m tonnes and a net present value of US$2 billion for
the project, and the improved pricing environment. This assessment
required judgment. The recoverable value of the project is
considered to exceed the carrying value post impairment reversal
based on the Competent Person's Report. In determining the fair
value less cost to develop of the vanadium deposit significant
estimates include resources and future production, vanadium prices
of US$7.50/lb long term, operating costs, capital development and
discount rates. Given the implied net present value there are no
reasonably possible changes in these estimates that would result in
the recoverable amount being less than the carrying value.
Accordingly, a reversal of impairment was recorded as detailed in
note 4.
Reversal of impairment of PP&E
The Group historically impaired PP&E associated with its
processing operations given uncertainty regarding the future plans
for the plant and the vanadium pricing environment at the time.
As at 31 December 2018, management identified triggers for
potential reversal of impairment given the advanced stage of the
proposed listing on the London Stock Exchange and associated
expansion of the stand-alone processing operation, the results of
an independent Competent Person's Report which estimated a net
present value on a fair value less cost to develop basis of US$73m
for the separate processing operation together with the improved
pricing environment. This assessment required judgment. The
recoverable value of the project is considered to exceed the
carrying value post impairment reversal based on the Competent
Person's Report. In determining the fair value less cost to develop
of the processing operation key estimates included:
-- Production volumes of 12 tonnes per month of vanadium
pentoxide (in AMV) at the beginning of 2019 rising to 125 tonnes
per month by mid-2020.
-- Prices of US$13/lb in 2019, US$10/lb in 2020 and US$7.50/lb
thereafter, reflecting management estimates having consideration of
market commentary and risk factors.
-- Capital development costs of US$10m.
-- Discount rate of 10% post tax in real terms.
Given the implied net present value there are no reasonably
possible changes in these estimates that would result in the
recoverable amount being less than the carrying value. Accordingly,
a reversal of impairment was recorded as detailed in note 4.
Functional currency
Judgment was required in assessing the functional currency of
the company as detailed above. The assessment included assessment
of factors such as the currency of intercompany funding,
expenditure, future dividends and equity.
Fair value of payables classified at fair value less profit and
loss
Under the Group's accounting policy, the consideration
receivable in respect of AMV sales, for which performance
obligations have been satisfied at year end and for which the Group
has received prepayment under the terms of the sale agreements,
remained subject to pricing adjustments with reference to market
prices in the month following arrival at the port of final
destination. The fair value of the consideration is determined and
the remaining receivable is adjusted to reflect fair value, or, if
the final estimated consideration is lower than the amounts
received prior to the year end, a contract liability is recorded.
In the absence of forward market prices for the commodity
management estimated the forward price based on: a) vanadium spot
market prices at 31 December 2018 and applicable deductions for
AMV; b) foreign exchange rates; c) risk free rates and d) carry
costs when material.
As at 31 December 2018 the Group recognised a contract liability
at fair value of US$0.264m and a change in revenue due to fair
value movements of US$0.323m.
Inventories
The Group holds material inventories which are assessed for
impairment at each reporting date. The assessment of net realisable
value requires consideration of future cost to process and sell and
spot market prices at year end less applicable discounts. The
estimates are based on market data and historical trends.
3. Revenue
2018 2017
$000 $000
------ ------
Revenue from sales of vanadium
products 4,540 1,110
Sales of gravel and waste rock 3 15
Other sundry - 7
Total revenue from customers 4,543 1,132
------ ------
Other revenues - change in fair
value of customer contract (323) -
====== ======
4,220 1,132
====== ======
Vanadium products
Under certain sales contracts the single performance obligation
is the delivery of AMV to the designated delivery point at which
point possession, title and risk on the product transfers to the
buyer. The buyer makes an initial provisional payment based on
volumes and quantities assessed by the Company and market spot
prices at the date of shipment. The final payment is received once
the product has reached its final destination with adjustments for
quality / quantity and pricing. The final pricing is based on the
historical average market prices during a quotation period based on
the date the product reaches the port of destination and an
adjusting payment or receipt will be made to the initially received
revenue. Where the final payment for a shipment made prior to the
end of an accounting period has not been determined before the end
of that period, the revenue is recognised based on the spot price
that prevails at the end of the accounting period.
Other revenue related to the change in the fair value of amounts
receivable under the sales contracts between the date of initial
recognition and year end resulting from market prices are recorded
as other revenue.
4. Other income and reversal of impairment
2018 2017
$000 $000
------ --------------------------
Reversal of impairment 1,775 -
Other 10 52
------ --------------------------
1,785 52
====== ==========================
Refer to note 2 for details of the reversal of impairment which
relates to the Group's processing operation of US$1.59m, patents of
US$0.023m and exploration and evaluation assets of US$0.162m. The
reversal of impairment on PP&E is stated net of depreciation of
US$0.84m that would have occurred had the historic impairment
provision not been recorded.
5. Property, plant and equipment
Plant and Construction
Land and buildings equipment Vehicles Computers Other in progress Total
$000 $000 $000 $000 $000 $000 $000
------------------ ---------- -------- --------- ----- ------------ -------
Cost
Balance at 1 January
2017 1,844 1,996 351 12 32 107 4,342
Additions 3 18 37 - 11 97 166
Disposals - (4) (26) - - - (30)
Foreign currency
translation
difference 6 5 2 1 (1) (2) 11
------------------ ---------- -------- --------- ----- ------------ -------
Balance at 31 December
2017 1,853 2,015 364 13 42 202 4,489
================== ========== ======== ========= ===== ============ =======
Balance at 1 January
2018 1,853 2,015 364 13 42 202 4,489
Additions 9 131 123 13 47 350 673
Disposals - (27) - - (4) (17) (48)
Foreign currency
translation
difference (251) (283) (61) (3) (10) (61) (669)
------------------ ---------- -------- --------- ----- ------------ -------
Balance at 31 December
2018 1,611 1,836 426 23 75 474 4,445
================== ========== ======== ========= ===== ============ =======
Depreciation
Balance at 1 January
2017 1,844 1,996 295 12 30 107 4,284
Depreciation for the
period - - 25 - 2 - 27
Disposals - (4) (26) - - - (30)
Impairment 3 18 - - - 97 118
Foreign currency
translation
difference 6 5 1 1 - (2) 11
------------------ ---------- -------- --------- ----- ------------ -------
Balance at 31 December
2017 1,853 2,015 295 13 32 202 4,410
================== ========== ======== ========= ===== ============ =======
Balance at 1 January
2018 1,853 2,015 295 13 32 202 4,410
Depreciation for the
period - 10 29 1 5 - 45
Disposals - (27) - - - - (27)
Reversal of impairment (1,022) (393) - - - (175) (1,590)
Foreign currency
translation
difference (250) (270) (42) (2) (5) (27) (596)
------------------ ---------- -------- --------- ----- ------------ -------
Balance at 31 December
2018 581 1,335 282 12 32 - 2,242
================== ========== ======== ========= ===== ============ =======
Carrying amounts
At 1 January 2017 - - 56 - 2 - 58
================== ========== ======== ========= ===== ============ =======
At 31 December 2017 - - 69 - 10 - 79
================== ========== ======== ========= ===== ============ =======
At 31 December 2018 1,030 501 144 11 43 474 2,203
================== ========== ======== ========= ===== ============ =======
During 2018 depreciation expense of US$ 24 thousand (2017: US$
15 thousand) has been charged to cost of sales, US$ 15 thousand
(2017: US$ 6 thousand) - to administrative expenses, and US$ 6
thousand has been charged to cost of finished goods that were not
sold at the year-end (2017: US$ 6 thousand). Construction in
progress relates to upgrades to the processing plant associated
with the expansion of the facility. Additions include change in
estimates in decommissioning cost.
6. Exploration and evaluation assets
The Group's exploration and evaluation assets relate to
Balasausqandiq deposit. During the year ended 31 December 2018 the
Group did not capitalise any exploration and evaluation assets (in
2017: US$Nil). As at 31 December 2018 the carrying value of
exploration and evaluation assets was US$0.059m (2017: US$Nil) with
the movement representing the reversal of impairment of US$0.162m
detailed in note 2 less a reduction in the asset due to a change in
estimate of decommissioning costs.
7. Equity
(a) Share capital and share premium
Number of shares unless otherwise stated Ordinary shares
31 December 31 December
2018 2017
----------- -----------
Par value - 0.01 US$
Outstanding at beginning of
year 1,523,732 1,503,796
Shares issued prior to share
split 1,493 19,936
Share reorganisation (split) 305,045,000 -
Shares issued post share split 426,087 -
-----------
Outstanding at end of year 305,471,087 1,523,732
=========== ===========
Shares issued per the Consolidated Statement of Changes in
Equity in 2017 exceeds the proceeds from issue of share capital in
the Consolidated Statement of Cash Flows due to shares issued to
settle liabilities.
Ordinary shares
All shares rank equally. The holders of ordinary shares are
entitled to receive dividends as declared from time to time and are
entitled to one vote per share at meetings of the Company.
In July the Company's shareholders voted by ordinary resolution
to subdivide each share into 200 new shares of no par value so that
the listed shares will be of a value within the normal range for
listing companies. As a result the share premium was transferred to
share capital in 2018.
(b) Dividends
No dividends were declared for the year ended 31 December
2018.
(c) Earnings (loss) per share (basic and diluted)
The calculation of basic and diluted earnings / (loss) per share
has been based on the following profit (loss) attributable to
ordinary shareholders and weighted-average number of ordinary
shares outstanding.
(i) Profit (loss) attributable to ordinary shareholders (basic and diluted)
2018 2017
$000 $000
------ -------
Profit (loss) for the year, attributable
to owners of the Company 2,963 (1,080)
------ -------
Profit (loss) attributable to ordinary
shareholders 2,963 (1,080)
====== =======
(ii) Weighted-average number of ordinary shares (basic and diluted)
Shares 2018 2017 Restated
----------- -------------
Issued ordinary shares at 1 January
(after subdivision) 304,746,400 300,759,200
Effect of shares issued (weighted) 366,750 1,397,800
Weighted-average number of ordinary
shares at
31 December 305,113,150 302,157,000
=========== =============
Earnings (loss) per share of common
stock attributable to the Company
(basic and diluted) 0.009 (0.004)
----------- -------------
The 2017 comparative has been revised to reflect the share split
as if it had occurred on 1 January 2017 for comparability purposes.
There are no dilutive or potentially dilutive instruments.
8. Share-based payments
At 31 December 2018, the Group had an arrangement whereby the
Company's non-executive directors ("NEDs") and a part-time employee
were remunerated for their services by the issue of the number of
the Company's ordinary shares equal in value, taking the value to
be the latest price at which shares were subscribed for by third
parties, to the agreed remuneration. In 2018, 393 shares were
issued prior to the subdivision of the company's shares, equivalent
to 78,600 shares post subdivision, and 52,174 shares were issued
after the subdivision. The cost of services received from NEDs and
the part-time employee was measured as a product of the number of
shares issued and the fair value of those shares. The fair value of
shares was determined by reference to the consideration received
for share subscriptions from third-party subscribers during the
year being US$75,195 in 2018 and US$35,668 in 2017.
As a result, during 2018 the Group recognised an increase in
share capital / premium of US$ 75 thousand (2017: US$ 36 thousand)
as administrative expenses in the statement of profit or loss and
other comprehensive income.
9. Subsequent events
From 1 January 2019 until 1 April 2019, the Company issued
7,507,761 shares for a consideration of US$ 6.3m after
expenses.
On 28 March 2019 the Company's shares were admitted to listing
on the London Stock Exchange.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR IMMPTMBAJMAL
(END) Dow Jones Newswires
April 30, 2019 05:18 ET (09:18 GMT)
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