Final Results

China Nonferrous Gold Limited

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

China Nonferrous Gold Limited

(“CNG” or the “Company”)

Final Results

for the twelve months ended 31 December 2021

China Nonferrous Gold Limited 中 (AIM: CNG), the mineral exploration and development company currently developing the Pakrut gold project in the Republic of Tajikistan, today announces its final results for the year ended 31 December 2021.

The results below are extracted from the Company’s audited Annual Report and Financial Statements. Copies of the Annual Report have been dispatched to shareholders today and are now available on the Company’s website (www.cnfgold.com).

The Company also confirms that it will post a notice convening the annual general meeting of the Company in due course. A further announcement will be made when it is dispatched.

For further information please visit the Company’s website (www.cnfgold.com) or contact:

China Nonferrous Gold Limited

Zhang Hui, Managing Director

Tel: +86 10 8442 6662

WH Ireland Limited (NOMAD & Broker)

Katy Mitchell, Andrew de Andrade

Tel: 0207 220 1666

BlytheRay (PR)

Tim Blythe, Megan Ray

Tel: +44 (0)20 7138 3224

Project Summary

The Pakrut gold project, of which CNG has 100 per cent ownership, is situated in Tajikistan approximately 120 km northeast of the capital city Dushanbe. Pakrut is located within the Tien Shan gold belt, which extends from Uzbekistan into Tajikistan, Kyrgyzstan and Western China, and which hosts a number of multi-million ounce gold deposits.

CNG is currently progressing well in several important aspects, with the Pakrut gold mine entering normal production and achieving full operational capacity in 2021.

The Company made significant achievements in 2021 and became an important gold-production enterprise in Tajikistan. The Pakrut gold mine achieved its internal production targets for 2021, which brings steady cash flows to support the sustainable development of the company.

About Tajikistan

Tajikistan is a secular republic located in Central Asia. The country is a member of the Commonwealth of Independent States and the Shanghai Cooperation Organisation. Tajikistan hosts numerous operating precious metal mines as well as the largest aluminium smelter in Central Asia. CNG's management team has extensive experience in the mining industry in Tajikistan.

Chief Executive Officer’s Statement

As CEO of the board, it gives me great pleasure to present the CEO’s statement of the annual report for the year ended 31 December 2021. Following the first successful normal production in 2019, the Company has progressed well in several important aspects, with the Pakrut gold mine entering formal production and achieving full operational capacity in 2020.

Operation

From January to December 2021, a total of 625,078 tons of ore was extracted from the Pakrut gold mine (2020: 640,036 tons), and a total of 650,995 tons of ore were processed at a grade of 2.29 g/t, 19,918 tons of gold concentrate were produced at a grade of 69.22 g/t,(2020: 640,035 tons of ore were processed at a grade of 2.04 g/t, 19,416 tons of gold concentrate were produced at a grade of 65.04g/t), 1,249 kg gold bullion were poured with a comprehensive recovery rate of 91.61% (2020: 1,126 kg gold bullion with a recovery rate of 92.94%).

COVID-19

With COVID-19 continuing to have a significant impact on the global economy, our priority is the safety and health of our people and ensuring the Company’s operations can continue in operation as normal. Since the outbreak of COVID-19 in Tajikistan on 30 April 2020, the Company has taken appropriate steps and effective measures to ensure that staff are protected at the mine site. To date operations at the mine site at Pakrut continue as normal, and there are no confirmed or suspected cases in the Company in Tajikistan or China.

The impact on working conditions has been reduced as much as is practical. Beijing has sought to reduce channels for the transmission of the virus and there have been no cases reported within the Company to date. The mine is still in normal operation. The amount of production personnel at the mine site remains sufficient to meet the required production level, so production is still progressing well at site in spite of COVID-19 and the targets for 2021 were not affected by the suspended flights. Since COVID-19, direct flights from Tajik to China via Urumqi have been stopped. The Company has ensured the mobility of employees through multiple channels, such as returning through Dubai or Iran. It is gratifying that the Tajik government has issued an official statement that direct flights back to China may be opened in June 2022, which will greatly reduce ticket costs and travel time. The government of Tajikistan announced in early 2021 that 91% of the local adults had been vaccinated against the new variant, and all the staff of the Company have now been vaccinated with third vaccines to further guard against COVID-19. Moreover, the Tajik government has also lifted all entry-exit restrictions at the land ports between Uzbekistan and Tajikistan, facilitating the purchase of materials by the Company.

Financial results

The development and construction work at the Pakrut Gold Project was finalised at the end of the 2018 financial year. The Group therefore generated revenue from full operational production from the beginning of the 2019 financial year.

Administration expenditure for the year under review was US$19,878,782 (2020: US$17,827,290). The main reason for the increase this year is due to pandemic isolation costs for employees and the increase of pandemic subsidies for employees due to the pandemic, as well as road tax calculated by 70% of the income. The advance receipts of suppliers cannot be collected due to the bankruptcy of suppliers, resulting in bad debts of $370,000.

The overall loss incurred by the Group was US$6,245,062 (2020: US$6,357,743). Pakrut generated gold sales revenue of US$71,991,962 (2020: US$64,516,000), a significant increase as a result of entering full operational production and gold prices rose sharply due to Covid-19.

During the course of the year, the Group did not enter into any new financing agreements with shareholders or their associates. Instead, the original repayment dates in December 2020 on the loan contracts previously signed with China Nonferrous Metals International Mining Co., Ltd. and China Nonferrous Metals Mining Group Co., Ltd. (“CNMC Loans”) were extended once more and are now repayable in December 2022.

In February 2021, the Group repaid US$20m of the CNMC International Capitals Company Limited. And in June 2021, the Group repaid another US$9.26 million(¥60million).

In June 2021, the Group repaid the remaining US$65 million to China Construction Bank Corporation Macau Branch (“CCBC”) in respect of its existing loan agreement, which was signed in 2016. In January 2021, the Group repaid a loan of US$20 million from Construction Bank Corporation Macau Branch (“CCBC”), which was signed in 2019. In March 2021, the Group repaid a loan of US$14.55 million from China Construction Bank (Asia) Corporation Limited (“CCBC”), which was signed in 2020.

In January 2021, the Group executed an agreement with China CITIC Bank Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to CNY 300million which is equivalent to US$46.37million. The CITIC Loan facility is for a maximum of 12 months and is repayable 12 months from first drawdown. US$20million of the CITIC Loan was drawn down in January 2021 to replace the China Construction Bank (CCB) Macau loan of US$20million which fell due in January 2021. A second drawdown of US$14.55m in March 2021 was used to repay the CCB Asia loan of US$14.55m.

In June 2021, the Group executed an agreement with Bank of Shanghai (Hong Kong) Limited (“BOS”) for a loan facility of up to US $65 million (the “BOS Loan”). The Loan facility is for a maximum of 24 months and is repayable 24 months from the drawdown. The total amount of US$65m of the BOS Loan had been drawn down in June 2021 to repay the CCBC Macau loan of US$65m.

The existing loan facilities from CITIC and BOS totaled US$99.55 million and the CNMC and CNMIM loan facilities totaled US$269 million so that, including interest, the total amount of loans drawn down by the Company was US$369 million (approximately US$319m without interest). As the major shareholder and ultimate beneficial owner, CNMIM and CNMC have confirmed they will continue to support the Company. The existing loans in place with the Company’s shareholder (or its associates) were extended again once again in 2021 and now fall due for repayment in 2022.

The Group has continued production throughout 2021 despite the outbreak of COVID-19, enabling it to generate sufficient working capital for operations. However, in order to ensure the repayment of the existing loans detailed above a broader refinancing will be required. At the same time, for short-term loans from external banks, it will continue to communicate with multiple banks and make capital arrangements in advance (where necessary) to raise sufficient working capital to be able to continue the normal operations of the Group. In order to ensure the repayment of existing loans a broader refinancing will be required. Some refinancing has been completed post-year end and is disclosed in the following section. The ultimate parent Company CNMC has committed to support the CNG group should this be required for a period of at least 12 months from the date of approval of these financial statements.

Events after the Reporting Period

In January 2022, the Group executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $34.55 million (the“CNMC Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of USD $34.55m (being USD20m advanced in January 2021 (“First Loan”) and USD14.55m advanced in March 2021 (“Second Loan”)).

In addition, in April 2022, the Group executed a foreign currency working capital loan agreement with China CITIC Bank Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to US$20 million with an annual interest at 3.00% over 6 month LIBOR, which was used to repay US$20m of the CNMC Loan.

The Company continues to explore a wider refinancing of its loans.

Outlook

The Company is continuing to enhance its production capacity. Whilst improving production, the Company is also focusing on perfecting and improving the smelting process by reducing production costs, increasing recovery rates and improving competitiveness.

The Company has long been dedicated to becoming a significant gold producer in Central Asia. The Company has also established a strong relationship with the government of Tajikistan and other Central Asian countries, and it will consider other appropriate acquisitions at the right time, although there can be no guarantee that any acquisition will occur.

While we have taken big strides in the production and operation of the Pakrut gold mine and achieved much, there are still challenges to overcome and targets to meet, all of which I am confident to accomplish in the coming months.

Uncertainty created by the coronavirus pandemic on production and operations still exists in Tajikistan, and the long term effects are difficult to predict and estimate. The Company will make every effort to meet pandemic prevention and control requirements, as well as stabilizing and expanding the production and operation of Pakrut gold mine.

I would like to take this opportunity to thank all our employees, management and advisers for their continued hard work in 2021. I would also like to extend my thanks to all our stakeholders for their continued backing over the years. I very much look forward to updating our shareholders further on the mine developments, production levels, new strategy and direction.

Zhang Hui

Chief Executive Officer

30 June 2022

CHINA NONFERROUS GOLD LIMITED

Report of the Directors

Auditors Opinion

We have audited the group financial statements of China Nonferrous Gold Limited (the ‘group’) for the year ended 31 December 2021 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and Notes to the Financial Statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the group financial statements:

• give a true and fair view of the state of the group’s affairs as at 31 December 2021 and of its loss for the year then ended; and

• have been properly prepared in accordance with IFRSs as adopted by the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s ability to continue to adopt the going concern basis of accounting included an analysis of qualitative and quantitative aspects within management’s forecast financial information up to the 31 December 2024, as well as obtaining a letter of support from the group’s ultimate parent as well as the latest financial information of this entity.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Our application of materiality

The scope of our audit was influenced by our application of materiality. We determined materiality for the financial statements as a whole to be US$3,900,000 (2020: US$4,478,000) for the group financial statement using 1% of gross assets as a basis.

We consider gross assets to be the most relevant determinant of the group’s financial position and performance used by shareholders, with the key financial statement balances being producing mines, other property, plant and equipment, inventory and cash. The going concern of the group is dependent on its ability to fund operations going forward, as well as on the valuation of its assets, which represent the underlying value of the group. However, we consider that loss before tax will also be a key indicator of performance to financial statements users as the group is still in the early stages of its production cycle and continues to seek to maximise production and operating efficiencies at the mine.

Whilst materiality for the financial statement as a whole was set a US$3,900,000, each significant component of the group was audited to an overall materiality ranging between US$75,000 and US$3,800,000 with performance materiality set at 70%. We applied the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatement.

Our approach to the audit

In designing our audit we determined materiality, as above, and assessed the risk of material misstatement in the financial statements. In particular, we looked at areas requiring the directors to make subjective judgements, for example in respect of significant accounting estimates including impairment of producing mines, and considered future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represents a risk of material misstatement due to fraud.

A full scope audit was performed on the complete financial information of the group’s operating components located in Tajikistan, with the group’s key accounting function for all being based in China with a local finance function in Tajikistan.

The group’s Tajikistan operations are audited by a component auditor. The audit team discussed significant events occurring during the year and post year-end period with the component auditor and performed a review of the component auditor’s working papers, including review of planning and completion stage group reporting. The group audit team are responsible for the scope and direction of the audit process. All other work was performed remotely by PKF Littlejohn LLP.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matter	How our scope addressed this matter
Revenue recognition (Accounting Policies and Note 3)
The group records revenues from the sale of gold generated by the Pakrut Gold Project in Tajikistan. There is the risk that the revenues associated with gold sales have not been recognised and disclosed appropriately in the financial year, and that revenue cut-off has not been appropriately accounted for.	Our work in this area included: Reviewing component auditor’s working papers in respect of revenue which included the following: Obtaining and reviewing the sales contract and relevant documentation during the period to support the revenue recognised; Review of the gold price used with reference to the London Bullion market price on the date of sale and ensure that the invoice was accurate; Review of post year end receipts to ensure completeness of income recorded in the accounting period; Testing revenue cut-off to ensure completeness of income recorded in the accounting period; and Obtaining the contracts signed between Pakrut LLC and other parties to which gold was sold during the year, and the associated approval from the National Bank of Tajikistan regarding the sale of gold. Understanding the revenue recognition policy and reviewing for compliance with International Financial Reporting Standard (IFRS) 15.
Settlement of contractor balances (Note 19)
Following the completion of all construction work at the Pakrut mine site by the end of 2018, the balances payable to the contractors 15MCC, Wenxhou and Shanxi were due to be settled before the 31 December 2020. The carrying value of contractor balances, as at 31 December 2021, is US$24.7m (2020: US$22.7m). There is a risk that the final net payable balance has not been correctly adjusted and accounted for in the financial statements as the final settlement agreements have not yet been reached with all parties, particularly given there are multiple factors involved in reaching the final net payable balance for each contractor including pre-settlement amount, retentions, local equipment and local project expenditures in Tajikistan.	Our work in this area included: Obtaining all available correspondence and agreements between the contractors, the group and the independent consultant relating to the settlement of the balances; Obtaining the third party consultant’s final settlement certificates or reports and vouched the final payable balances; Agreeing payments made during the year to bank statements and the nominal ledger; and Reviewing adjustments posted by management regarding the contractors balance settlement in the nominal ledger to ensure these have been correctly accounted for.
Valuation of PPE/Producing Mines (Note 13)
Producing Mines within PPE is the most material balance with the financial statement and represents the key source from which the group generates income. The carrying value of Producing Mines, as at 31 December 2021, is US$357m (2020: US$362m). There is the risk that the value of the mine is impaired.	Our work in this area included: A review of management’s impairment assessment, including consideration of net present value (‘NPV’) calculations used and providing challenge to the source of the inputs, obtaining support where possible; and Undertaking a sensitivity analysis on the NPV calculations to assess the impact on the headroom for possible changes to key assumptions; and Ensuring valid mining licenses are held; and Considering any potential impairment indicators through discussion with management and the component auditor, who has visited the mine site as part of their audit, as well as review of announcements to the market and Board minutes for evidence of impairment; and Reviewing management’s assessment of the impact of COVID-19 on operations at the mine site as well as external macroeconomic factors, and consider whether there is evidence to suggest the mine asset should be impaired. We noted that the lifespan of the mine used in the depletion calculation is 18 years which is 8 years more than the licence currently held by CNG permits. Based on the information available to management there is currently no reason to expect the licence extension will not be granted however if it were not then there is the risk that the key inputs into this calculation would need to be amended. This could lead to a material impact on the related charge within the financial statements and therefore on the carrying value of Producing Mine.

Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the group financial statements does not cover the other information and, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of directors

As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the group financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

We obtained an understanding of the group and the sector in which it operates to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with management, and discussions with the internal legal team in Pakrut conducted by the component auditor. We also selected a specific audit team based on experience with auditing entities within this industry facing similar audit and business risks.
We determined the principal laws and regulations relevant to the group in this regard to be those arising from:
- AIM Rules
- Local industry regulations in Tajikistan
- Local tax and employment law in China and Tajikistan
We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the group with those laws and regulations. These procedures included, but were not limited to:
- Enquiries of management;
- Review of Board minutes;
- Review of legal ledger accounts;
- A review of RNS announcements; and
- A review of component auditor’s work surrounding local law and regulation in Tajikistan.
We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management override of controls, we did not identify any significant fraud risks.
As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to: the testing of journals; reviewing accounting estimates for evidence of bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with our engagement letter dated 10 May 2021. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

David Thompson (Engagement Partner)

For and on behalf of PKF Littlejohn LLP

Statutory Auditor

15 Westferry Circus

Canary Wharf

London E14 4HD

30 June 2022

The Directors present their annual report and the audited Financial Statements of China Nonferrous Gold Limited for the year ended 31 December 2021.

Principal Activity

The principal activity of the Group is that of mineral exploitation, mine development and mining.

BUSINESS REVIEW

Introduction

China Nonferrous Gold Limited (“CNG”) is a mineral exploration, development and mining Company. The Group’s project is located in central Asia, having been discovered during the Soviet era. The principal focus of the Group is the development and exploitation of the Pakrut Gold Project in Tajikistan.

CNG, following the scheme of arrangement between Kryso Resources Limited (formerly Kryso Resources Plc) and its shareholders, was admitted to trading on AIM on 31 July 2013 in order to continue funding the development of the Pakrut Gold Deposit and the exploration of the Pakrut License Area, and to better position the Group to obtain and acquire other gold and base metal deposits in Tajikistan.

The Group’s Executive Directors have a proven track record of operating in Tajikistan and they believe CNG to be the first foreign Company to obtain a 100% interest in a mining and exploration project in the country.

A review of the activities of the Group during 2021 is provided in the CEO’s Statement.

Strategy

CNG’s strategy is to maximize shareholder value through the development of the Group’s exploration properties, proving up additional resources. CNG’s medium term objective is to become a mid-tier gold producer and keep in mind the mission of state-owned enterprises, maintain strategic strength, and strive to achieve the production goal of Pakrut. The directors of CNG have a track record of operating successfully in Tajikistan and believe CNG to have been the first foreign Company to obtain 100% ownership of a mining and exploration project in Tajikistan.

OPERATING REVIEW

During 2021 the Group has:

Reached production capacity of 1,713 tons per day from January 2021;
Processed a total of 650,995 tons of ore at a grade of raw ore of 2.29g/t;
The recovery rate of processing was 92.68% and the recovery rate of smelting was 91.61%;
19,909 tons of gold concentrate were produced at the grade of 69.22g/t, 1,249 kg gold bullion were poured; and
Generated revenue from production of US$71,991,962.

Pakrut Gold Deposit and License Area

In April 2004, LLC Pakrut, a wholly owned subsidiary of the Group, was granted a license and geological lease to explore and exploit the Pakrut License Area which comprises the Pakrut gold deposit and the surrounding 6,300 hectare exploration area located in the metalliferous southern Tien-Shan Fold Belt. This belt is reputed to have the second largest known gold resource after the Witwatersrand in South Africa. The exploration license was valid for 10 years and expired on 1 April 2014. An application has been submitted in accordance with the required procedures to renew the exploration license. The renewal application is being considered by the Government of Tajikistan and the Group is working with the Government to ensure it is renewed as soon as possible. Exploration and evaluation activities can continue at the Pakrut Gold Deposit in the area covered by the mining license.

In November 2011, the Government of the Republic of Tajikistan issued the Pakrut Project mining license to LLC Pakrut. According to the terms of the license, the amount of ore that can be mined is variable depending upon the mine plan. The plan submitted by the Group envisages an initial processing capacity of 660,000 tons of ore per annum, increasing to 1,320,000 tons per annum. The mining license is valid until 2 November 2030. An application has been submitted in accordance with the required procedures to obtain approval to mine all JORC compliant reserves arising from exploration and evaluation activities undertaken by the Group between 2009 and 2013. The application is currently being considered by the Tajik Department of Geology, following which approval is required by the Scientific and Technical Counsel. It is the current intention of the Group to seek an extension to the mining license to ensure maximum exploitation of the resources available and this is permissible under the current terms of the arrangements in place.

FINANCIAL REVIEW

The results for the year ended 31 December 2021 were as follows:

	*2021*	*2020*
	*US$000*	*US$000*
Revenue	71,992	64,516
Cost of sales	(37,256)	(35,297)
Administrative expenses	(19,879)	(17,827)
Foreign exchange loss	(1,853)	(1,076)
Other operating expenses	(2,416)	(46)
Total costs	61,405	54,247
% Administrative expenses to total costs	32.37%	32.86%
Operating profit/(loss)	10,587	10,268
Less: interest receivable	(6)	(196)
Add: interest payable	10,826	15,999
Loss on ordinary activities before taxation	(235)	(5,532)
Earnings per share (cents)	(1.63)	(1.64)

The main financial Key Performance Indicator (‘KPI’) for the Group is administration costs as a percentage of total costs which continues to be at an acceptable proportion. In 2021, KPI index is at 32.37% (2020: 32.86%).

Revenue is also considered to be a KPI and will be increasingly important to monitor now that the Group has entered full production. Revenue for the year was US$71.99 million (2020: US$64.52 million). This significant increase is in line with expectations given the increased production levels and increased price of gold at the mine site since 2019 now the mine operations are operating at full production capacity.

Corporate Responsibility

The Group seeks to build a sustainable and profitable business to maximize the return to its shareholders and in doing so will not knowingly overlook its Corporate Responsibilities.

Certain Directors also serve as Directors of other companies involved in natural resource exploration, development and mining and consequently there exists the possibility for such Directors to be in a position of conflict. Any decision made by such Directors involving the Group will be made in accordance with their duties and obligations to deal fairly and in good faith with the Group and such other companies. In addition, such Directors will declare, and refrain from voting on, any matter in which such Directors may have a conflict of interest.

People

The Group recognises that the success of its ventures is based on the well-being and health of its employees. All employees have to pass through an induction process where they are briefed on the Group’s health and safety policies. The safety of the Group’s employees is of the utmost importance and is therefore taken seriously in all areas in which the Group’s employees operate.

The Group is also committed to the development of its employees and encourages them to attend courses and programs to further develop their own skills. The Group also aims to provide a favorable working environment which will continue to draw, retain and motivate its employees so that they can reach their true potential and share in the Group’s success.

Employees are kept well informed of the performance and objectives of the Group through established methods of personal briefings and regular meetings. Employees are given the opportunity to develop and progress according to their ability. The Group has an employee share option scheme to encourage employees’ participation in the Group’s performance.

The Group has continued its policy of giving the disabled full and fair consideration for all job vacancies for which they offer themselves as suitable applicants, having regard to their particular aptitudes and abilities. With regard to existing disabled employees and those who may become disabled during the year, the Group examines ways and means of providing continuing employment under normal terms and conditions and provides training, career development and promotion, where appropriate.

Social

The Group continues to have a strong relationship with the local communities in the areas in which it operates, respecting their laws and customs. The Group employs local people in all levels within the organization; this ensures a transparent and fair transfer of benefits and support to their communities where appropriate. The Group engages the local communities in all aspects of the projects it is actively involved in, from exploration through to feasibility and production, ensuring that concerns are addressed, and that support is maintained throughout the entire process.

Environment

The Group has a strict environmental code with which all its employees are well-versed during the induction process; this not only satisfies the local environmental code, but also the international code. The Group has contracted the services of a local environmental consultant who monitors its operations to ensure that any lapses are immediately brought to the attention of management.

Risk Factors

There are several principal risk factors outlined below that may affect the Group’s businesses and which may not all be within the Group’s control.

PRINCIPAL RISKS AND UNCERTAINTIES

Environmental Risk

The Group’s core operations are located in Pakrut, a mountainous area of Tajikistan. The area is remote and can be subject to adverse weather conditions which, as evidenced in the first half of 2017, can impact the ability of the Group to perform its core operations and may lead to substantial damage of the Group’s properties. The Group seeks to manage this risk by taking out appropriate insurance and carefully monitoring weather reports during the seasons when adverse conditions are most likely and ensuring that appropriate action is taken to minimise risk to life and property damage.

Production Risk

The Pakrut Gold Project is now operating at full production capacity. The Company's existing production equipment is considered to be sufficient to meet the requirements of the budgeted gold production targets. The right choice of production equipment has a major impact on productivity and costings.

The production process of the gold should be based on the specific performance requirements of the product. This requires an increase in production skills and requires training of Company technicians. Technology is changing rapidly and existing production technology may have fallen behind, therefore technicians must continue to develop their knowledge and skillset to keep up with this pace.

At present, CNG is in a stable production and operation stage. The Company will need to manage change and innovation and accumulate valuable experience and systems as production levels continue to ramp up. A key factor will be the continuous technological innovations and developments in the industry. To become an industry leader, CNG must adhere to the technology innovation strategy and seek innovative methods to achieve a comprehensive transformation.

Production risks are related to the possibility that gold production or output levels are lower than expected. The main sources of production risk are bad weather conditions and limited production capacity, such as hail, snow disasters, and limited Chinese technical staff. Despite the control measures taken, the production risk may also be due to the harsh winter weather and the breakdown of production equipment and machinery. At present, Pakrut is adopting corresponding risk prevention and control strategies for the above risks, including purchase of equipment spare parts and materials in advance to ensure the sufficiency of raw materials and the normal operation of the machinery at the mine site; vigorously training Tajik technical personnel, exerting local talent policies, and rationally using manpower resources; reasonably estimate the impact of severe weather to ensure the achievement of the annual output target.

COVID-19 risk

Affected by the COVID-19, global gold price is still subject to some fluctuations. However, from the current situation, the average delivery price of gold for the first five months of 2022 was US$1,881.58 per ounce, and the average delivery price of gold for the whole year of 2021 was US$1,808.72 (2020:US$1,798.81) . From the above data, it can be concluded that the company’s average delivery price of gold is stable.

Secondly, the technicians of Shenyang Institute of Technology have come to Tajikistan in 2022 to guide local production, conduct field exploration, and further improve ore production and grade. Relevant technical innovations were discussed with the company's personnel and returned to China smoothly.

The pandemic situation in Tajikistan seems to have stabilize in 2022, no official numbers on infection and confirmed cases have been released since the beginning of this year. On March 15, 2022, the government of Tajikistan announced that all restrictive measures against the pandemic would be abolished in Tajikistan, and the local residents would fully return to normal life and work.

In addition, the Company has also arranged for Chinese employees to return home for vaccination. The good news is that by March 2022, Tajikistan and other transit third countries have liberalized the return policy,and Chinese residents can return home as long as the nucleic acid (covid test) is negative, which will greatly improve the mobility of returning personnel. So far, 100% of Chinese employees have been vaccinated with the three doses. The Company aims to minimize the risk of illness of employees and maximize the health level of employees.

Exploration and Development Risk

The exploration for, and the development of, mineral deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties which are explored ultimately develop into producing mines. Major resources are required to establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at the Pakrut site.

There is no certainty that the exploration and development expenditures made by the Group as described in these financial statements will result in a commercially feasible mining operation. There is aggressive competition within the mining industry for the discovery and acquisition of properties considered to have commercial potential. The Group will compete with other companies, many of which have greater financial resources, for the opportunity to participate in promising projects. Significant capital investment is required to achieve commercial production from successful exploration efforts.

The commercial viability of a deposit is dependent on a number of factors. These include deposit attributes such as size, grade and proximity to infrastructure; current and future market prices which can be cyclical; government regulations including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The effect of these factors, either alone or in combination, cannot be entirely predicted, and their impact may result in the Group not receiving an adequate return on invested capital.

There is no assurance the Group will be able to adhere to the current development and production schedule or that the required capital and operating expenditure will be accurate. The Group’s development plans may be adversely affected by delays and the failure to obtain the necessary approvals, licenses or permits to commence production or technical or construction difficulties which are beyond the Group’s control. Operational risks and hazards include: unexpected maintenance, technical problems or delays in obtaining machinery and equipment, interruptions from adverse weather conditions, industrial accidents, power or fuel supply interruptions and unexpected variations in geological conditions.

The risks inherent in developing the Group’s projects are mitigated to some extent by the strategic alliance with China Nonferrous Metals Int’l Mining Co. Ltd, which is a member of a group with a number of active mining operations.

Regulatory and Legal Risk

Substantially all of the Group’s business and operations are governed by the laws, rules and regulations in Tajikistan which can contain inherent ambiguities, uncertainty, inconsistency and contradictions with regards to their application, interpretation, implementation and enforcement. In particular, the laws, rules and regulations which the Group is subject to, including, but not limited to, those relating to foreign investments, subsoil use, land use, licensing, customs, foreign currency, environmental protection and taxation are still evolving and remain uncertain in many respects.

In addition, the judicial system in Tajikistan may not be independent and immune from the economic, political and nationalistic influences in Tajikistan and the decisions of the courts are often not transparent and available to the public. In many circumstances there are no prior court decisions for reference and the interpretations of the laws, rules and regulations by the courts in Tajikistan remain ambiguous and it is difficult to predict or to seek effective legal redress. The regulatory authorities in Tajikistan are entrusted with a high degree of discretion and authority in the application, interpretation, implementation and enforcement of the laws, rules and regulations potentially resulting in ambiguous and inconsistent actions.

There is no assurance that the Group will be able to comply with all new laws, rules and regulations applicable to its mining operations or any changes in laws, rules and regulations. Furthermore, the legal protections available to the Group may be limited and could have a material impact on the results of the Group and the imposition of penalties and/or regulatory action. In addition, the process of obtaining, retaining or renewing licenses and permits could be time-consuming and costly and could give rise to unexpected delays and expenses. The Group seeks and obtains sufficient and appropriate legal advice where considered necessary.

The Group’s existing licenses and permits could be revoked, terminated or not extended in accordance with expectations by the Tajikistan Government, the local government or the Tajikistan courts under certain circumstances, including failure to comply with the conditions imposed by the licenses and permits, which may include the provision of regular reports to the relevant regulatory authority, obtaining sufficient insurance coverage, adherence to the permitted extraction of mineral resources or complying with the obligations relating to sustainable management, subsoil, environmental protection and health and safety regulations. Failure to obtain, retain or renew the relevant licenses and permits required at all or on a timely basis could have a material adverse effect on the Group’s financial condition. The Group works closely with the Government and local government departments on the mine project in order to ensure all parties are kept up to date on progress and closely monitors compliance with the conditions imposed under its existing licenses and permits.

Economic Risk

The profitability of the Group’s future operations may be significantly affected by changes in the market prices for the materials it may produce and is affected by numerous macroeconomic factors beyond the Group’s control. The level of interest rates, the rate of inflation, world supply, and the stability of exchange rates can all cause fluctuations in the price. Such external factors are in turn influenced by changes in international investment patterns and monetary systems and also political developments. Metal prices have fluctuated in recent years, particularly gold, and future significant price declines could cause future commercial production to be uneconomic and have a material adverse effect on the Group’s financial condition. Economic risk is continually evaluated by the Group, including expectations of future events, and action undertaken as necessary.

Certain payments, in order to earn or maintain property interests, are to be made in local currency in the jurisdiction where the applicable property is located. As a result, fluctuations in the Chinese Renminbi and the Tajik Somoni could have a material adverse effect on the Group’s financial results which are denominated and reported in US dollars. Where possible the Group maintains bank and cash balances in the same denomination as its expected liabilities. The Group does not currently hedge its exposure to foreign currencies.

The Group currently has a comprehensive program of insurance but does not carry insurance to protect against certain risks and nor can it guarantee that its level of insurance is sufficient to cover all outcomes and eventualities. As a result, the Group may become subject to liability to include environmental pollution, political risk and other hazards against which the Group cannot insure or which it may elect not to insure. The payment of such liabilities may have a material adverse effect on the Group’s financial condition.

Pakrut is located in Tajikistan, an overseas country, and the tax pressure is not insignificant. Due to the regional poverty and developing status of the host country, the Directors understand that government funds are tight, and that tax has become the main source of national revenue. The taxation bureau has threatened that enterprises will be required to pay more taxes, although to date there has been no local taxation policy change. In 2020, Pakrut further strengthened its internal control and basic management, and has formulated tax management measures that meet the Company's management needs, that enables the team to promptly assess tax-related risks and related countermeasures in the Company's business and management processes, and is responsible for establishing and maintaining good relationships with the relevant tax authorities in order to make representations in regard to potential changes to tax law, tax planning, and tax incentives in order to safeguard the Company's overall interests.

Financial Risk

The Group’s operations expose it to a number of financial risks. These are discussed under ‘Financial Risk Management’ within Note 1 of the Financial Statements.

Political and Country Risk

Substantially all of the Group’s business and operations are conducted in Tajikistan. The political, economic, legal and social situation in Tajikistan introduces a certain degree of risk with respect to the Group’s activities. The Government of Tajikistan exercises control over such matters as exploration and mining licenses, permitting, exporting and taxation, which may adversely impact the Group’s ability to carry out exploration, development and mining activities.

Government activity, which could include non-renewal of licenses, may result in any income receivable by the Group being adversely affected. In particular, changes in the application or interpretation of mining and exploration laws and/or taxation provisions in Tajikistan could adversely affect the value of the Group’s interests.

No assurance can be given that the Group will be able to maintain or obtain effective security or insurance for any of its assets or personnel at its operations in Tajikistan; this may affect the Group’s operations or plans in the future. A moderate degree of security is also currently required to mitigate the risk of loss by theft, either by the Group’s employees or by third parties, and controls are implemented where possible to minimize this risk. No assurance can be given that such factors will not have a material adverse effect on the Group’s ability to undertake exploration, development and mining activities in respect to present and future properties in Tajikistan.

The Group’s controlling shareholder is a People’s Republic of China (“PRC”) state-owned enterprise. Any adverse changes to Sino – Tajikistan diplomatic relations could affect the policies and regulations of the Tajikistan Government towards foreign investment and foreign exchange, which could adversely affect the Group’s business, financial conditions and prospects.

Tax risk

Tajikistan's poor tax environment, excessive discretion in tax collection and high tax risk could have an adverse impact on the normal production and operation of enterprises.

In 2021, compared with 2020, the corporate income tax increased significantly by $5,187,869. The main reason is that the Tajik Local Taxation Committee conducted a routine tax inspection on the Pakrut company. The Tax Committee does not recognise some of the expenses that the Company considered deductible which lead to an additional tax charge. This is the first inspection of the Pakrut company since commencing full production two years after the issuance of the presidential decree (an exemption from tax inspections).

The Company will further strengthen communication with the tax department and actively respond to tax requirements and proposed changes in order to protect the legitimate rights and interests of the enterprise.

Funding

The Group may need to secure further funding for working capital and other purposes and in addition it will need to renegotiate its current funding in the short-medium term. There is the risk that this may not be forthcoming which would impact the Group operations. The Group has numerous funding options available and remains in close contact with its controlling shareholder who have, up to now, continued to provide economic support as required.

Performance of Key Personnel and Employees

The Group is dependent on a relatively small number of key employees, the loss of any of whom could have an adverse effect on the Group.

There has been a steady emigration of skilled personnel from Tajikistan in recent years that could adversely affect the Group’s ability to retain its employees.

The Group seeks to mitigate this risk by actively engaging with its employees and seeking to offer a secure work environment with appropriate pay levels to maintain both motivation and loyalty to the Group.

Results and Dividends

The results for the year and the Group’s financial position at the end of the year are shown in the following Financial Statements. The Directors do not recommend the payment of a dividend (2020: US$Nil).

Future Developments

Future prospects are set out in the CEO’s Statement on page 8 under ‘Outlook’.

Directors and their Interests

The Directors who served the Group during the year do not hold any beneficial interests in the shares of the Group (2020: None).

No Director who served during the period held any share options in the Company.

Remuneration of the Directors is disclosed in Note 5.

Substantial shareholdings

As at the date of these financial statements, the Directors were aware of the following shareholdings in excess of 3% of the Company’s issued share capital.


	*Number of ordinary shares*	*Percentage of issued share capital*

China Nonferrous Metals Int’l Mining Co Ltd	146,666,667	38.36
Zhao Bin	50,090,304	13.10
Golden Max Group	33,823,113	8.85
Huang Lihuo	33,068,430	8.65
BOCOM International	16,500,000	4.31
Rainbow Bridge Investment Fund	12,335,489	3.23

Going Concern

The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the CEO’s Statement on pages 6 to 9. Note 1 to the financial statements includes the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposures to credit risk and liquidity risk.

The Directors have prepared the Group financial statements on a going concern basis after reviewing the Group’s forecast cash position and working capital requirements for the period to 31 December 2024 and satisfying themselves that the Group will have sufficient funds on hand to realise its assets and meet its obligations as they fall due.

In making their assessment, the Directors have considered the level of production and operation at the mine site and how the Group will be able to use the cash inflows from these operations to support its working capital position and repay loans when they fall due. The Directors have considered the importance of working closely with its lenders, some of whom are related parties, and they have obtained appropriate assurances from them regarding their continued support. The Directors have also considered the ongoing COVID-19 pandemic and, although the extent of the global impact is as yet uncertain, the Group believes there are sufficient measures in place at the mine site in Tajikistan and in the Beijing head office to mitigate any potential risks presented and enable operations to continue as normal.

After making the due enquiries the Directors have a reasonable expectation that the Company and Group have access to adequate resources to continue in operational existence for the foreseeable future which is considered to be at least 12 months from the date of the signing of these financial statements. Accordingly, the Group continues to adopt the going concern basis in preparing the annual report and financial statements.

Events after the Reporting Period

Details of events after the reporting period are set out in the Chief Executive Officer’s Statement and in Note 28 to the Financial Statements.

Relevant Audit Information

The Directors who held office at the date of approval of this Report of the Directors confirm that, so far as they are individually aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that they ought reasonably to have taken as a Director to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

Auditor

PKF Littlejohn LLP has signified its willingness to continue in office as auditor.

Signed by order of the Director

Mr Hui Zhang

30 June 2022

Consolidated Statement of Comprehensive Income, Year Ended 31 December 2021

CHINA NONFERROUS GOLD LIMITED

Notes to the Financial Statements

		2021	2020
		US$000	US$000
Revenue	3	71,992	64,516
Cost of sales		(37,256)	(35,297)
Gross Profit		34,736	29,219
Other operating income		-	1
Administrative expenses	6	(19,879)	(17,827)
Loss on foreign exchange		(1,855)	(1,076)
Other operating expenses	7	(2,416)	(46)
Operating Profit		10,585	10,271
Finance income	9	6	196
Finance costs	9	(10,826)	(15,999)

Loss before Income Tax		(235)	(5,532)
Income tax	8	(6,012)	(824)

Loss for the year attributable to owners of the parent		(6,247)	(6,356)

Total comprehensive income attributable to owners of the parent for the year		(6,247)	(6,356)

Basic and Diluted Earnings per share attributable to owners of the parent (expressed in cents per share)	10	(1.63)	(1.66)

All of the activities of the Group are classed as continuing.

Consolidated Statement of Financial Position

	*Note*	*As at* *31 December 2021* *US$000*	*As at* *31 December 2020* *US$000*
Non-Current Assets
Property, plant and equipment	13	364,337	373,201
Total Non-Current Assets		364,337	373,201
Current Assets
Inventories	16	17,334	15,911
Trade and other receivables	17	4,202	5,649
Cash and cash equivalents		7,472	27,196
Total Current Assets		29,008	48,756
Non-Current Liabilities
Borrowings	18	(65,000)	(19,822)
Provisions for other liabilities and charges	20	(1,084)	(995)
Total Non-Current Liabilities		(66,084)	(20,817)
Current Liabilities
Borrowings	18	(303,953)	(368,919)
Trade and other payables	19	(49,696)	(52,363)
Total Current Liabilities		(353,649)	(421,282)
Net Current Liabilities		(324,841)	(372,526)
Net Liabilities		(26,388)	(20,143)

Consolidated Statement of Cash Flow

	*31 December*	*31 December*
	*2021*	*2020*
	*US$000*	*US$000*
Cash flows from Operating Activities (Note 24)	13,904	17,137
Net cash generated from Operating Activities	13,904	17,137

Cash flows from Investing Activities
Purchase of property, plant and equipment	(994)	(1,942)
Interest received	6	196
Net cash used in Investing Activities	(989)	(1,746)

Cash flows from Financing Activities
Proceeds from borrowings (net of capitalised issue costs)	99,550	14,550
Repayment of borrowings	(128,806)	(10,000)
Interest paid	(3,384)	(3,866)
Net cash generated from Financing Activities	(32,640)	684

Net increase in Cash and cash equivalents	(19,724)	16,075
Cash and cash equivalents at beginning of the year	27,196	11,120
Cash and cash equivalents at end of the year	7,472	27,196

Equity attributable to the owners of the parent
Share capital	22	38	38
Share premium		65,901	65,901
Other reserve		10,175	10,175
Retained earnings		(102,502)	(96,257)
Total Equity		(26,388)	(20,143)

Consolidated Statement of Changes in Equity

Attributable to owners of the parent
	*Share capital* *US$000*	*Share premium* *US$000*	*Other reserve* *US$000*	*Retained earnings* *US$000*	*Total* *US$000*
Balance at 1 January 2020	38	65,901	10,175	(89,899)	(13,785)
Loss for the year	-	-	-	(6,356)	(6,356)
Total comprehensive income for the year	-	-	-	(6,356)	(6,356)
Total transactions with owners of the parent, recognised directly in equity	-	-	-	-	-
Balance at 31 December 2020	38	65,901	10,175	(96,255)	(20,141)

Balance at 1 January 2021	38	65,901	10,175	(96,255)	(20,141)
Loss for the year	-	-	-	(6,247)	(6,247)
Total comprehensive income for the year	-	-	-	(6,247)	(6,247)
Total transactions with owners of the parent, recognised directly in equity	-	-	-	-	-
Balance at 31 December 2021	38	65,901	10,175	(102,502)	(26,388)

Notes to the Financial Statements

1. Financial Risk Management

The Group’s operations expose it to a number of financial risks; principally the availability of adequate funding, movements in interest rates and fluctuations in foreign currency exchange rates. Continuous monitoring of these risks ensures that the Group is protected against any adverse effects of such risks so far as it is possible and foreseeable.

Market Risk

a) Cash Flow and Interest Rate Risk

The continued operation of the Group is dependent on the ability to raise sufficient working capital until the mine produces sufficient quantities of gold to be self-sufficient. The Group currently finances itself through the issue of equity share capital and the secured loan facilities from CNMIM, CNMC and CCB. Management monitors its cash and future funding requirements through the use of cash flow forecasts. All cash not immediately required for working capital purposes is held on short term deposit. The Group’s exposure to interest rate fluctuations on cash balances is restricted to the rate earned on these short-term deposits. The potential impact of such fluctuations is not considered material to the financial statements.

The Group’s interest rate risk arises from long-term borrowings. The Group has both variable and fixed rate borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash invested at variable rates. The annual fixed interest rate for the CNMIM loan is 9% for all USD and RMB denominated tranches. All payments of principal and interest in respect of the RMB denominated tranche are repayable at a fixed RMB: USD exchange rate. The interest rate on the BOS loan of US$65 million is 1.50% per annum over the quarterly LIBOR rate and the loan is repayable in US$. The interest rate on the CITIC loan of US$20 million is 2.70% per annum over the 6 month LIBOR rate and the loan is repayable in US$. The interest rate on the CITIC loan of US$14.55 million is 2.71% per annum over the 12 month LIBOR rate and the loan is repayable in US$. The interest rate on the CNMC loan of US$207.24million is 3.25% per annum over the quarterly LIBOR rate .

1. Financial Risk Management (continued)

At 31 December 2021, the potential impact of fluctuations in interest rates is considered material to the financial statements.

b) Foreign Currency Risk

The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures. Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has cash assets denominated in UK Sterling, United States Dollars, Tajik Somoni and PRC Renminbi and incurs liabilities for its working capital expenditure in all of these denominations. Payments are made in all of these denominations at the pre-agreed price and converted (if necessary) as soon as payment needs to occur. Currency conversions and provisions for expenditure are only made as soon as debts are due and payable. The Group is therefore exposed to currency risk in so far as its liabilities are incurred in UK Sterling, PRC Renminbi and Tajik Somoni, and fluctuations occur due to changes in the exchange rates against the functional and presentational currency of US Dollar. The table below details the split of the cash held as at 31 December 2021 between the various currencies.

Somoni	GBP Sterling	US Dollar	Renminbi	Total US$000
3,342	4	3,869	257	7,472

Due to the different nature of assets and liabilities, changes in asset value caused by exchange rate changes have different ways of affecting a Company's free cash flow. Therefore, it must be considered separately when evaluating the value of an enterprise. The first is the monetary items in the corporate balance sheet. Typical monetary items include monetary funds, loans, accounts receivable and accounts payable. When the exchange rate changes, the above-mentioned assets or liabilities of the enterprise accounted in foreign currencies will increase or depreciate accordingly. For example, in the context of the depreciation of the Renminbi, the foreign currency deposits (Somoni/USD) held by enterprises will appreciate, which in itself has a substantial impact on the present value of cash. The foreign currency-settled bonds or other debts issued by companies can be repaid at a lower RMB cost, which can save companies more funds that can be used for free distribution, thereby promoting the enhancement of corporate value.

1. Financial Risk Management (continued)

During 2021, the Group’s principal revenue, costs, assets and liabilities, including intercompany loans were denominated in USD. The Group manages foreign currency risk by matching receipts and payments and monitoring movements in exchange rates. The Group does not currently hedge its exposure to foreign currencies and recognises the profits and losses resulting from currency fluctuations as and when they arise. At the year end the Group did not have material exposure to foreign exchange risk relating to its non-US$ denominated bank deposits and as such this not disclosed. The year-end exchange rates used in the preparation of the financial statements for 2021 and 2020 were as follows:

	Somoni to USD	GBP to USD	Renminbi to USD
31 December 2021	11.30	1.3499	6.3757
31 December 2020	11.30	1.3625	6.5250

Liquidity Risk and Credit Risk

The continued operation of the Group is dependent on the ability to raise sufficient working capital. As noted above, the Group currently finances itself through the issue of equity and borrowings from CNMIM, CNMC, CCB, CITIC and Bank of Shanghai. Management monitors its cash and future funding requirements through the use of cash flow forecasts. The Group enters into capital commitments to fund operations, and any surplus cash not immediately required for working capital purposes is held on short term deposit.

1. Financial Risk Management (continued)

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.

	*Less than 1 Year US$000*	*Between* *1 and 2 Years US$000*	*Between* *2 and 5 Years* *US$000*	*Over* *5 Years* *US$000*	*Total* *US$000*	*Carrying amount* *US$000*

Year ended 31 December 2021
Interest-bearing borrowings	303,953	65,000	-	-	368,953	368,953
Trade and other payables	49,696	-	-	-	49,696	49,696
Provisions for other liabilities	-	-	-	1,085	1,085	1,085
	353,649	65,000	-	1,085	419,734	419,734

1. Financial Risk Management (continued)

Year ended 31 December 2020
Interest-bearing borrowings	368,919	19,822	-	-	388,741	388,741
Trade and other payables	52,363	-	-	-	52,363	52,363
Provisions for other liabilities	-	-	-	2,481	2,481	995
	421,453	19,822	-	2,481	443,585	442,099

The Group holds bank accounts with banks in the UK, PRC and Tajikistan with the following credit ratings:

Credit rating	*2021* *US$000*	*2020* *US$000*

A	3,229	21,212
No independent credit rating available	4,243	5,984
	7,472	27,196

If a bank has no credit rating, the Group assesses the credit quality through local knowledge and past experience in the particular jurisdiction.

1. Financial Risk Management (continued)

Capital Risk Management

The Group consider equity to be their capital. The Group’s objective when managing their capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to enable the Group to continue its exploration, evaluation and mine construction. The Group holds debt in the form of both shareholder and external loans and defines capital based on the total equity of the Company. Except for the secured loan facilities from CNMIM, CNMC and CCB, the Group’s current policy for raising capital is through equity issues and debt financing. The Group is not currently required to monitor its gearing ratio and is not exposed to any externally imposed capital requirements.

2. Critical Accounting Estimates, Assumptions and Judgments

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are set out below. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets and liabilities affected in future periods.

The Group has identified the following areas where significant estimates, assumptions and judgments are required. The most significant judgment for the Group is the assumption that exploration and development at its sites will ultimately lead to a commercial mining operation. Failure to do so could lead to impairment of the mine.

Estimated impairment of Producing mines (Note 13)

The Group tests annually whether exploration, evaluation and licensing assets and producing mines have suffered any impairment. The recoverable amounts of the cash generating units (“CGUs”) have been determined based on value in use calculations which require the use of estimates and assumptions such as long-term commodity prices, gold recovery rates, discount rates, operating costs and therefore expected margins, future capital requirements and mineral resource estimates (see below). These estimates and assumptions are subject to risk and uncertainty and therefore there is a possibility that changes in circumstances will impact the recoverable amount. Management has assessed its CGUs as being individual exploration and mine sites, which is the lowest level for which cash inflows are independent of those of other assets or CGUs.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

In assessing the carrying amounts of its exploration, evaluation and licensing assets and producing mines at Pakrut, the Directors have used an independently prepared and Director approved bankable feasibility study (http://www.cnfgold.com/projects/pakrut-gold-project). The period used in management’s assessment is the anticipated life of the mine to the expiration of the license in 2030 with revenues being generated from full production from January 2019.

The calculation assumes a gradual increase in mining capacity of 2,000 tonnes of ore daily. Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the mines agreed 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. Gold revenues have been estimated over that period at a price of US$1,820 based on management’s estimates, which are derived from forward price curves and long-term views of global supply and demand, building on past experience of the industry and consistent with external sources.

The total cost per ounce is estimated to be around US$780 with a gross margin of circa 57%. Royalties have been calculated at 6% of sales revenues and corporate income tax at 13%, according to the relevant laws in Tajikistan. A discount rate of 10% has been utilised.

The calculations have been tested for sensitivity to changes in the key assumptions. The most sensitive inputs in the calculation of the value in use are operating and direct costs, the gold price, and the discount rate. An impairment to the mine value would occur if, compared to the base case scenario, the discount rate were to increase to 13%, gold prices fell by 5%, or direct costs were to increase by 25%.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Approval of Pakrut reserves by Tajik Department of Geology

In November 2011, the Government of the Republic of Tajikistan issued the Pakrut Gold Project mining license to LLC Pakrut. According to the terms of the license, the amount of ore that can be mined is variable depending upon the mine plan. The plan submitted by the Group envisages an initial processing capacity of 760,000 tons of ore per annum, increasing to 800,000 tons per annum. The mining license is valid until 2 November 2030.

The mining license issued in November 2011 currently entitles the Group to mine JORC compliant resources (measured, indicated and inferred) of 904,000 ounces out of total JORC compliant resources of 4,383,000 ounces at Pakrut, excluding the Eastern Pakrut, Rufigar and Sulfidnoye ore zones. The JORC compliant resources include the results from the Group’s exploration and evaluation work subsequent to the mining license issue date.

LLC Pakrut has sought approval of the increased JORC compliant resources from the Tajik Department of Geology and the Scientific and Technical Counsel which includes the results of all exploration and evaluation activities undertaken by the Group between 2009 and 2013. The application is currently subject to that approval process and the Directors are not aware of any legal or other impediments which would prevent approval of their application and therefore permit the Group to mine the increased resources. However, the approval process currently remains incomplete.

The mine design and construction work undertaken to date, together with the assessment of the recoverable amount of ‘Producing mines’ (see below), is based upon the total quantity of JORC compliant resources of which part falls outside the area covered by the mining license and still subject to formal approval, as noted above. Failure to obtain this approval would lead to an impairment of ‘Mines under Construction’, together with inventories, and also impact the going concern basis of preparation of the Financial Statements. The Group has made the judgement that this approval will be forthcoming. No provision for impairment has been recognised in these Financial Statements relating to this uncertainty.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Mineral resource and reserve estimates

Reserves are estimates of the amount of resources that can be economically and legally extracted from the Group’s mining properties. The Group estimates its mineral resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. This analysis requires complex geological judgments to interpret the data. The estimation of the recoverable amount is based upon factors such as estimates of commodity prices, future capital expenditure and production costs along with geological assumptions made in estimating the size and grade of the resources. Details of the mineral resources and reserve estimates can be found on www.cnfgold.com.

The Group estimates and reports mineral resource estimates in line with the principles contained in the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (December 2004), which is prepared by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia, known as the “JORC Code”. The determination of a JORC resource is itself an estimation process that involves varying degrees of uncertainty depending on how the resources are classified (i.e. measured, indicated or inferred).

As additional geological information is produced during the operation of a mine and through additional exploration activity, mineral resource estimates may change. Such changes may impact on the Group’s reported financial position which includes the carrying value of property, plant and equipment and inventories.

2. Critical Accounting Estimates, Assumptions and Judgments (continued)

Estimated economically recoverable reserves are used in determining the depreciation and/or amortisation of mine-specific assets. This results in a depreciation/amortisation charge proportional to the depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves and estimates of future capital expenditure. The calculation of the UOP rate of depreciation/amortisation could be impacted to the extent that actual production in the future is different from current forecast production based on economically recoverable reserves, or if future capital expenditure estimates change. Changes to economically recoverable reserves could arise due to changes in the factors or assumptions used in estimating reserves, including:

The effect on economically recoverable reserves of differences between actual commodity prices and commodity price assumptions;
Unforeseen operational issues.

Depreciation/Amortisation (Note 13)

As the mine entered full production during the period, 2019 was the first period for which depreciation / amortisation was charged in respect of the producing mine assets. As mentioned in the judgement above judgement is required in the calculation of this amount with the key estimates considered to be surrounding the amount of economically recoverable resources and the lifespan of the asset. The economically recoverable reserves are considered to be those detailed out on the website (see above for link) and the lifespan of the mine is considered to be 18 years. As mentioned above the Group currently only has a mining license that is valid until November 2030 which is less than the 18 year period used within the depreciation/amortisation calculation. After considering the information available to them which includes discussions with Tajik officials and the required timing for extending the mining license, management have made the judgement that they will be able to secure the necessary extensions and therefore continue to the mine for a period of 18 years. If a 10 year license period were to be used then depreciation for 2021 would be approximately $15 million.

3. Segment Information

The following segments are based on the management reports received by the Executive Directors, who are the chief operating decision makers. The Group operates principally in three geographical areas, UK, PRC and Tajikistan, with operations managed on a project by project basis within Tajikistan. For segment reporting purposes, the operations of the Cayman Islands registered parent Company are included in the UK and PRC segment as these segments are jointly managed.

*2021*	*UK and PRC* *US$000*	*Tajikistan Pakrut* *US$000*	*Total* *US$000*

Revenue	-	71,992	71,992
Cost of sales	-	(37,256)	(37,256)
Administrative expenses (including foreign exchange)	(9,454)	(12,280)	(21,734)
Other operating expenses	2,117	(4,534)	(2,416)
Operating profit/(loss)	(9,454)	20,039	10,585
Finance costs	(10,825)	-	(10,825)
Finance income	6	-	6
Income tax	-	(6,012)	(6,012)
(Loss)/profit for the year	(20,273)	14,027	(6,247)

Total assets	3,101	390,246	393,347
Total liabilities	383,777	35,957	419,734
Additions to property, plant and equipment	-	994	994

3. Segment Information (continued)

The Group’s mining activities are located in Tajikistan, principally within the Pakrut Gold Project. Support and administration services are provided from the UK and PRC. Inter-segment revenue is eliminated on consolidation and is conducted on mutually agreed terms between Group companies.

All revenue generated in the period was from the government of Tajikistan.

*2020*	*UK and PRC* *US$000*	*Tajikistan Pakrut* *US$000*	*Total* *US$000*

Revenue	-	64,516	64,516
Cost of sales	-	(35,297)	(35,297)
Administrative expenses (including foreign exchange)	(2,313)	(16,591)	(18,904)
Other operating expenses	-	(46)	(46)
Impairment	-	-	-
Other operating income	-	1	1
Operating profit/(loss)	(2,313)	12,583	10,270
Finance costs	(15,999)	-	(15,999)
Finance income	151	45	196
Income tax	-	(824)	(824)
Loss for the year	(18,115)	11,804	(6,357)

Total assets	24,472	397,567	422,039
Total liabilities	418,203	23,898	442,099
Additions to property, plant and equipment	-	1,942	1,942

4. Particulars of Employees

The average number of staff employed by the Group during the financial year amounted to:

	*2021* *No.*	*2020* *No.*

Administrative and management	116	125
Operational staff	590	607
	706	732
The aggregate costs of the above were:
	*2021* *US$000*	*2020* *US$000*

Wages and salaries	4,575	4,379
Basic pension cost	1,036	885
	5,611	5,265

No staff costs were capitalised as the Group entered into full production from January 2019.

5. Directors’ Emoluments

The Directors’ emoluments in respect of qualifying services were:

	*Salary and fees*	*Total*
*2021*	*US$*	*US$*
Mr Wang Xiaohua**	37,500	37,500
Mr Yong Li	18,000	18,000
Mr Lixian Yu	80,000	80,000
Mr Delin Feng*	91,027	91,027
Mr Xiuzhi Shi	18,000	18,000
Mr Hui Zhang	18,000	18,000
	262,527	262,527

	*Salary and fees*	*Total*
*2020*	*US$*	*US$*
Mr Boyi Liang	76,797	76,797
Mr Yong Li	23,088	23,088
Mr Lixian Yu	197,131	197,131
Mr Delin Feng	194,921	194,921
Mr Xiuzhi Shi	22,233	22,233
Mr Hui Zhang	61,142	61,142
	575,312	575,312

Key management comprises Executive and Non-Executive Directors and all emoluments are short term in nature.

*Mr Delin Feng resigned on November 2021

**Mr Xiaohua Wang appointed on November 2021

6. Expenses by nature

	*2021*	*2020*
	*US$000*	*US$000*

Employee benefit expenses	6,758	6,617
Operating lease expenses	50	145
Depreciation	3,023	3,200
Legal, professional and regulatory costs	515	170
Travel and entertaining	521	125
Social & other taxes	6,609	6,287
Other Expenses	1,067	258
Commission/bank fees	1,336	1,025
Total administrative expenses	19,879	17,827

6. Expenses by nature (continued)

	*2021* *US$000*	*2020* *US$000*
Fees payable to the Company’s auditor for the audit of the consolidated financial statements	119	114
Fees payable to the Company’s auditor for other services: Tax compliance services	-	3
	119	117

7. Other operating expenses

	*2021* *US$000*	*2020* *US$000*
Impairment loss of fixed assets	2,307	-
Public welfare donation expenditure	2,227	46
Gain on dissolution of subsidiaries	(2,118)	-
	2,416	46

Total other expenses in 2021 were US$2,416,000 (2020:US$46,312), net of gain on dissolution of subsidiaries IMSS and Kryso Resources Ltd during the year of US$2,118,000. The main reason for the increase compared to 2020 is that at the request of the Tajik government, the donation expenditure increased compared with last year; secondly, a number of fixed assets of Pakrut have incurred physical wear and tear as a result of long-term use and cannot be repaired for further use, so they were scrapped.

8. Income Tax

a) Analysis of Charge in the Year

	*2021*	*2020*
	*US$000*	*US$000*
Current tax:
Current tax	6,012	824
Deferred tax	-	-
Total	6,012	824

No provision for income taxes arose in the Cayman Islands, the UK, British Virgin Islands. A current income tax expense arose in Tajikistan during the year as LLC Pakrut sold gold in the amount of TJS 814,171,620 – equivalent to US$ 71,991,962 (2020: TJS 671,738,902 – equivalent to US$ 64,515,782). Thereby, the Company paid the amount of advance payments of income tax according to the Tax Code of the Republic of Tajikistan, being 1.00% of revenue.

The main reasons for the substantial increase in income tax compared with last year are as follows: Pakrut was subject to a tax inspection by the local tax Commission during 2021; secondly, the increase in sales revenue this year resulted in a corresponding increase in corporate income tax.

Faced with the harsh tax environment in Tajikistan, the company has continued to strengthen the study and research on the tax law of Tajikistan to reduce tax losses; secondly, strengthen the visit and communication with the tax bureau and the Tax Committee, maintain good relations, and continue to reduce the prepaid tax.

8. Income Tax (continued)

Factors Affecting Current Tax Charge

The tax assessed on the loss for the year is higher than the weighted average standard rate of corporation tax of 20% (2020 – 20%).

	2021 US$000	2020 US$000
Loss before income tax	(235)	(5,451)

Loss on ordinary activities by weighted average rate of tax at 20% (2020: 20%)	(47)	(1,090)
Expenses not deductible for tax purposes	630	875
(Utilisation of tax losses)/Tax losses for which no deferred income tax asset was recognised	(611)	215
Pakrut income tax	6,012	824
Current tax payable	6,012	824

The Group did not recognise deferred tax assets of approximately US$Nil (2020: $215,000). Unused Tajik tax losses amounting to approx. US$14,027,000 at 31 December 2021 can be carried forward for three years from the year incurred and used against future taxable income at 15%.

9. Finance Income and Costs

	*2021*	*2020*
	*US$000*	*US$000*
Finance Income
Interest income on short term bank deposits	6	196

Finance Costs
Interest expense on shareholder’s loans wholly repayable within five years	7,315	13,111
Interest expense on bank borrowings wholly repayable within five years	3,510	2,888
Finance costs	10,825	15,999

10. Earnings per Share

	*2021*	*2020*
	*US$*	*US$*
Basic and diluted earnings per share (cents)	(1.63)	(1.66)

The basic earnings per share is calculated by dividing the loss attributable to equity holders after tax of US$6,245,000 (2020: 6,357,000) by the weighted average number of shares in issue and carrying the right to receive dividend. For the year ended 31 December 2021 this was 382,392,292 (2020: 382,392,292) shares.

As the Group has incurred a loss for the year, no option or warrant is potentially dilutive, and hence the basic and diluted earnings per share are the same. At the year end, there were nil (2020: nil) share options outstanding that are potentially dilutive in the future.

11. Intangible Assets

	*Exploration and evaluation assets* *US$000*
Cost
At 1 January 2019, 31 December 2019, 31 December 2020 and 31 December 2021	-

Impairment
At 1 January 2019, 31 December 2019, 31 December 2020 and 31 December 2021	-

Net Book Value
At 31 December 2019, 31 December 2020 and 31 December 2021	-

The exploration and evaluation assets represent internally generated costs in connection with the Group’s exploration and evaluation activities. Expenditure is transferred from exploration and evaluation assets to mines under construction once the work completed to date supports the future development of the property and such development receives appropriate approvals.

The rights of LLC Pakrut to carry out exploration and evaluation activity at the Pakrut deposit expired on 1 April 2014. The renewal application by the Group to extend the exploration license is being considered by the Government of Tajikistan. Although the Directors are not aware of any legal or other impediments which would ultimately prevent approval of the license extension, the Directors fully impaired the carrying value of the exploration and evaluation assets during 2014 due to non-renewal of the Exploration License. Exploration and evaluation activities can continue at the Pakrut Gold Deposit in the area covered by the mining license. Currently, staff members of Pakrut are coordinating with the local government for exploration licenses.

12. Mines under Construction

Mining rights comprised of exploration and evaluation assets up to the date the Pakrut Gold Project was determined to be technically feasible and commercially viable. All subsequent exploration and evaluation expenditure at this site was capitalised within mining rights. Mining rights also included the subsoil contract signature bonus and payments to obtain land use rights.

Construction in progress comprised the mine, smelting plant, tailings pond, power lines and road construction work carried out at the Pakrut Gold Project by contractors and directly by the Group. It also included the borrowing costs associated with the loan to finance the mine, construction from China Nonferrous Metals Intl Mining Co. Limited (“CNMIM”) and China Construction Bank (“CCB”), together with associated legal, professional and consultancy costs.

Mines under construction are not depreciated until construction is completed and the assets are available for their intended use and signified by the formal commissioning of the mine for production. Construction was completed at the end of the 2018 financial year with the mine being deemed to be fully operational at the start of the 2019 financial year and all accumulated capitalised costs were transferred into Property, Plant and Equipment at 1 January 2019.

13. Property, Plant and Equipment

	*Land* *US$000*	*Office furniture and equipment* *US$000*	*Motor* *vehicles* *US$000*	*Plant and machinery* *US$000*	*Producing mines* *US$000*	*Assets under construction* *US$000*	*Total* *US$000*
Cost

At 1 January 2020	32	587	8,698	17,119	398,639	4,322	429,396
Additions	-	106	-	1,836	-	-	1,942
Transfer from Assets under construction	-	-	-	4,322	-	(4,322)	-
Settlement of historic liabilities	-	-	-	-	(20,214)	-	(20,214)
At 31 December 2020	32	693	8,698	23,277	378,425	-	411,125

Additions	-	-	190	805	-	-	994
Disposals	-	(90)	(3,465)	(2,639)	-	-	(6,193)
Settlement of historical liabilities	-	-	-	-	4,307	-	4,307
At 31 December 2021	32	602	5,423	21,443	382,732	-	410,233

13. Property, Plant and Equipment (continued)

Accumulated Depreciation
At 1 January 2020	-	322	6,227	11,476	8,823	-	26,849
Charge for the year	-	32	414	2,580	8,050	-	11,076
Disposals	-	-	-	-	-	-	-
At 31 December 2020	-	354	6,641	14,056	16,873	-	37,924

Charge for the year	-	-	319	2,521	9,026	-	11,866
Disposals	-	(90)	(2,112)	(1,690)	-	-	(3,892)

At 31 December 2021	-	264	4,847	14,888	25,899	-	45,898

Net Book Value
At 31 December 2021	32	341	575	6,555	356,833	-	364,377
At 31 December 2020	32	339	2,057	9,221	361,552	-	373,201

In 2019 as the mine entered full production, mines under construction were transferred into Property, Plant & Equipment under the sub-category of Producing mines as presented above, and depreciation/depletion charged as per the accounting policies.

The carrying value of the PPE, most notably producing mines, and the depreciation/depletion methodology used, are both considered to be key accounting judgements. Detail of these are disclosed in Note 2 along with the related key estimate.

14. Subsidiary Undertakings

The Group had the following subsidiary undertakings as at 31 December 2021:

Name of Company

Holding

Country of Incorporation

Proportion of Voting Rights held

Nature of Business

Registered addresses

Directly held

Kryso Resources (BVI) Limited

Ordinary shares (CNG)

British Virgin Islands

100%

Holding Company

190 Elgin Avenue, Grand Cayman, KY1-9005, Cayman Islands

Indirectly held

LLC Pakrut (BVI holds 100% share)

Ordinary shares (BVI)

Tajikistan

100%

Mineral exploitation, development and mining

Bahor district, Vahdat, Tajikistan

15. Financial Instruments by category

	*Financial assets at amortised cost*
	*US$000*
31 December 2021 Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments	3,565
Cash and cash equivalents	7,472
Total	11,037

	*Financial liabilities at*
	*amortised*
	*cost*
	*US$000*
31 December 2021 Liabilities per Statement of Financial Position
Borrowings	368,953
Provisions for other liabilities and charges	1,084
Trade and other payables, excluding non-financial liabilities	49,696
Total	419,733

15. Financial Instruments by category (continued)

	*Financial assets at amortised cost*
	*US$000*
31 December 2020 Assets per Statement of Financial Position
Trade and other receivables, excluding prepayments	3,016
Cash and cash equivalents	27,196
Total	30,212

	*Financial liabilities at amortised cost*
	*US$000*
31 December 2020 Liabilities per Statement of Financial Position
Borrowings	388,741
Provisions for other liabilities and charges	995
Trade and other payables, excluding non-financial liabilities	52,363
Total	442,099

16. Inventories

	*2021*	*2020*
	*US$000*	*US$000*

Gold	-	-
Construction materials and processing equipment	17,334	15,911
	17,334	15,911

Construction materials and processing equipment relates to raw materials and semi-finished products used in gold production.

17. Trade and Other Receivables

	*Group*	*Group*
	*2021*	*2020*
	*US$000*	*US$000*
Other receivables	3,565	3,016
Prepayments and deposits	638	2,633
Total	4,203	5,649

None of the receivables are past due. The fair values are equal to the carrying amounts.

Other receivables include $2,758,418 due from related party CNMIM in relation to funds received from the insurance provider after the snowfall disaster, which were received on behalf of CNG.

18. Borrowings

	*2021*	*2020*
	*US$000*	*US$000*

Bank borrowings	99,550	99,550
Other loans	269,403	289,191
Total	368,953	388,741

Non-current portion	65,000	19,822

Current portion	303,953	368,919

The fair value of borrowings equals their carrying amounts, as the impact of discounting is not significant.

LIBOR is relied on the inherently subjective expert judgement of the panel of submitting banks, such rates are prone to manipulation and are no longer truly reflective of how banks fund in practice. Following the announcement by Financial Conduct Authority (FCA) on 5 March 2021, the panel bank submissions for all LIBOR have ceased or are no longer representative. As such, LIBOR rates were no longer available. The implications of the reform were that: 1) lenders were no longer able to issue loans based on LIBOR from 1 April 2021, therefore new loans must reference a ‘risk free rate’ or alternative non-LIBOR rate and 2) any existing contracts based on LIBOR should have been switched to an alternate reference rate before 31 December 2021. The new interest rate benchmark reforms have been considered, the impact is not material in the current year and an appropriate rate will be reflected in next year’s financial statements.

CNMIM loan

In accordance with the terms of the Subscription Agreement and Warrant Instrument dated 27 July 2010 between Kryso Resources Limited (formerly Kryso Resources Plc) and CNMIM, a subsidiary Company of significant shareholder China Nonferrous Metals Mining (Group) Co. Limited (“China Nonferrous”), CNMIM was required to use its best endeavors to secure mine funding for the construction and development of the Pakrut Gold Project.

The USD tranche of the loan has been settled in full and US$Nil was outstanding as at 31 December 2021 (2020: US$Nil). The amount outstanding on the RMB tranche of the loan as at 31 December 2021 was US$12,683,599 (2020: US$12,683,599).

CNMC loans

The loan agreement between CNMC International Capitals Company Limited and CNG was signed on 20 September 2017. Under this agreement, CNMC International Capitals Company Limited provided a loan facility of US$6,500,000 to CNG. This loan was used to improve the daily business operations of China Nonferrous Gold Limited.

The full amount of the loan was drawn down on 20 September 2017. The loan contains annual fixed interest at 4%, however where the loan is used for a purpose other than that stated in the contract (see comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum. Payment of interest is made quarterly.

During 2019, the loan was transferred from CNMC International Capitals Company Limited to another member of the group, CNMC Trade. On 15 July 2020, a loan extension agreement was signed, extending the repayment date until 20 December 2020. The extension agreement incurs interest at a rate of 6 months LIBOR + 3.7%.

On 26 March 2021, a loan extension agreement was signed, extending the repayment date until 20 December 2022. The extension agreement incurs interest at a rate of 3 months LIBOR + 3.25%.

A loan agreement between CNMC International Capitals Company Limited and CNG was signed on 27 April 2016. Under this agreement, CNMC International Capitals Company Limited provided a loan facility of US$120,000,000 to CNG. This loan was used to refinance the previous ICBC loan of the same amount, and the purpose of these funds was for development, operations and management of the Pakrut Gold Project, including operating and related expenses.

The full amount of the loan was drawn down on the 27 April 2016. The loan contains annual fixed interest at 4%, however where the loan is used for a purpose other than that stated in the contract (Pakrut Mine – see comments above), the proportion of the loan used will incur interest at a fixed rate of 8% per annum. Payment of interest will be made biannually in June and December.

During 2019, the loan was transferred from CNMC International Capitals Company Limited to another member of the group, CNMC Trade. On 26 March 2021, a loan extension agreement was signed extending the repayment date until 20 December 2022. The extension agreement incurs interest at a rate of 3 months LIBOR + 3.25%.

The Group has pledged its 100% equity interest in China Nonferrous Gold Limited to CNMC as security for repayment of the loan.

A loan agreement between CNMC and CNG was signed on 27 May 2016 for a total amount of US$20,000,000, which was drawn down in full on 27 June 2016. The loan period per the contract was 6 months, from 27 May 2016 to 26 November 2016. The loan contains a fixed interest rate of 4% per annum, which is calculated on a monthly basis from the 21st of the month to the 20 of the following month.

During 2018, the loan was transferred from CNMC to another member of the group, CNMC Trade. A further extension has been signed extending the repayment date until 26 November 2020. On 26 March 2021, a loan extension agreement was signed extending the repayment date until 2022. The extension agreement incurs interest at a rate of 3 months LIBOR + 3.25%.

A loan agreement between CNMC International Capitals Company Ⅱ Limited (CNMC International) and CNG was signed on 8 February 2018 for a total amount of US$90,000,000, which was drawn down in full on 9 February 2018. The loan was provided for the purposes of the construction, operations and management of the Pakrut Gold Project, including operating and related expenses. This use is in line with the terms of the agreement. The loan period per the contract was from 9 February 2018 to 8 December 2020.

The loan contains a fixed interest rate of 5.8% per annum, which is calculated on a half yearly basis from the 21st of December to the 20th June, and from the 21st June to 20th December. Payment of interest will be made annually in June and December of each year. Where the loan is used for a purpose other than that stated in the contract (see comments above), the proportion of the loan used will incur interest at a fixed rate of 11.6% per annum. At the repayment date, interest will be charged at 8.7% on any unpaid balance. On 8 February 2021 US$20,000,000 was repaid, and on 26 March 2021, a loan extension agreement was signed extending the repayment date of US$70,000,000 until 8 December 2022, and the extension agreement incurs interest at a rate of 3 months LIBOR + 3.25%. In June 2021, the Company repaid US$9.26m（60million）of its outstanding loan.

CCB loans

The first loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited was signed on 14 June 2016. Under this agreement CCB provided a loan facility of US$100,000,000 to China Nonferrous Gold Limited. This loan was used to refinance a previous loan from CNMC of US$55,000,000, with the remainder used for development, operations and management of the Pakrut Gold Project, including operating and related expenses. This use is in line with the terms of the agreement.

The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$103,092,783.51, with validity of not less than 60 months in favor of CCB.

The full amount of the loan was drawn down on 30 June 2016. The loan incurs interest at a rate of 3 months LIBOR + 2.1% and is payable in arrears at the end of each applicable interest period.

The loan is repayable in 8 installments commencing 18 months from drawdown date and every 6 months thereafter as follows:

31/12/17 – US$5,000,000

30/06/18– US$5,000,000

31/12/18 – US$5,000,000

30/06/19 – US$5,000,000

31/12/19 – US$5,000,000

30/06/20 – US$5,000,000

31/12/20 – US$5,000,000

30/06/21 – Balance of loan

The second loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited was signed on 29 January 2019. Under this agreement CCB provided a loan facility of US$20,000,000 to China Nonferrous Gold Limited. This loan was used for the purpose of working capital for Pakrut Gold Project. This use is in line with the terms of the agreement.

The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$20,620,000, with validity of not less than 12 months in favor of CCB.

The full amount of the loan was drawn down on 29 January 2019. The loan incurs interest at a rate of 3 months LIBOR + 1.2% and is payable quarterly in arrears. It has been repaid on 29 January 2021.

The third loan agreement between China Construction Bank (“CCB”) and China Nonferrous Gold Limited was signed on 9 March 2020. Under this agreement CCB provided a loan facility of US$14,550,000 to China Nonferrous Gold Limited. This loan was used for the purpose of working capital for Pakrut Gold Project. This use is in line with the terms of the agreement.

The loan is secured by Standby Letter(s) of Credit to be issued by China Construction Bank Corporation, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$30,000,000, with validity of not less than 12 months in favor of CCB.

The full amount of the loan was drawn down on 13 April 2020. The loan incurs interest at a rate of 3 months LIBOR + 1.15% and is payable quarterly in arrears. It was repaid on 16 March 2021.

CITIC loans

In 2022, the Group executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $34.55 million (the“CNMC Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of USD $34.55m (being USD20m advanced in January 2021 (“First Loan”) and USD14.55m advanced in March 2021 (“Second Loan”).

In January 2021, the Company executed an agreement with China CITIC Bank Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to CNY 300million which is equivalent to US$46.37m. The CITIC Loan facility is for a maximum of 12 months and is repayable 12 months from first drawdown. US$20m of the CITIC Loan was drawn down in January 2021 including an annual interest rate at 2.7% plus 6 month LIBOR. It has been repaid on 20 January 2022.

Another US$14.55m of the CITIC Loan was drawn down in March 2021 including an annual interest rate at 2.71% plus 12 month LIBOR. It has been repaid on 26 January 2022.

Bank of Shanghai loan

The Company executed an agreement with Bank of Shanghai (Hong Kong) Limited (“BOS”) for a loan facility of up to US $65 million (the “BOS Loan”). The Loan facility is for a maximum of 24 months and is repayable 24 months from the drawdown. The total amount of US$65m of the BOS Loan was drawn down on 28 June 2021 in order to repay the CCBC Macau loan. The loan is secured by Standby Letter(s) of Credit to be issued by Bank of Shanghai, Beijing Branch, and guaranteed by CNMC under the terms of the loan agreement, for an aggregate amount of not less than US$66,000,000, with validity of not less than 24 months in favor of BOS.

19. Trade and other payables

	*2021*	*2020*
	*US$000*	*US$000*

Trade and other payables	49,696	52,363

	49,696	52,363

Trade and other payables include amounts due of US$44.3m (2020: US$42.4m) in relation to mine development.

20. Provisions for Other Liabilities and Charges

	*Rehabilitation* *US$000*	*Total* *US$000*

At 1 January 2021	995	995
Unwinding of discount	90	90

At 31 December 2021	1,085	1,085

All provisions are non-current.

The Group makes full provision for the future cost of rehabilitating the mine site and associated production facilities on a discounted basis at the time of constructing the mine and installing those facilities.

The rehabilitation provision represents the present value of rehabilitation costs relating to the Pakrut mine site, which are expected to be incurred up to 2030, which is the expiration date of the mining license. The provision has been created based upon the feasibility study. Assumptions based upon the current economic environment within Tajikistan have been made, which management believes are a reasonable basis upon which to estimate the future liability and will be reviewed regularly to take into account any material changes to the assumptions. The actual rehabilitation costs and works required will ultimately depend upon future market prices for the necessary rehabilitation works required, changes in future regulatory requirements and the timing on when the mine ceases to operate commercially.

The discount rate used in the calculation of the provision as at 31 December 2021 is 9% per annum. The value of the undiscounted provision is US$2,481,000 (2020: US$2,481,000).

21. Treasury Policy and Financial Instruments

The Group operates informal treasury policies which include ongoing assessments of interest rate management and borrowing policy. The Board approves all decisions on treasury policy.

Facilities are arranged, based on criteria determined by the Board, as required to finance the long-term requirements of the Group. The Group has financed its activities by the raising of funds through the placing of shares and through the issue and subsequent exercise of options and warrants.

There are no material differences between the book value and fair value of the financial assets at the year end. Except for the impact of discounting on the provisions for liabilities and other charges, there are no material differences between the book value and fair value of financial liabilities at the year end.

22. Share Capital

	*2021*	*2021*	*2020*	*2020*
	*No. of*	*Share*	*No. of*	*Share*
	*ordinary*	*Capital*	*ordinary*	*Capital*
	*shares*	*US$000*	*shares*	*US$000*

At 1 January (Ordinary shares of $0.0001) each	382,392,292	38	382,392,292	38
Issued during the year	-	-	-	-

At 31 December (Ordinary shares of US$0.0001 each)	382,392,292	38	382,392,292	38

All shares are authorised for issue and fully paid.

23. Share Based payments

Options can be granted to any employee of the Group in accordance with the rules of the Group in accordance with the rules of the Unapproved Share Option Scheme. The option price is not to be less than the initial Placing Price or the price on the day of issue. The options cannot be exercised for a period of at least one year from the date of grant. In the event of any employee to whom options have been granted ceasing to be an employee of the Group he or she will have a set period in which to exercise those options (depending on the reasons for leaving), falling which, the options will lapse.

There were no share options outstanding at the year end.

24. Cash flow information

	*31 December 2021*	*31 December 2020*
	*US$000*	*US$000*
Cash flows from Operating Activities

Loss before income tax	(235)	(5,451)
Adjustments for:
Finance income	(6)	(196)
Finance costs	10,826	15,999
Depreciation	7,972	11,072
Foreign exchange loss	1,853	1,076
Change in working capital:
Inventory	(1,423)	945
Trade and other receivables	(1,869)	(1,004)
Trade and other payables	3,222	(5,405)
Other current assets	(549)	121
Other current liabilities	(5,890)	(19)
Net Cash generated from Operating Activities	13,904	17,137

24. Cash flow information (continued)

Net debt reconciliation

	31 December 2021 US$000	31 December 2020 US$000
Cash and cash equivalents	7,472	27,196
Borrowings – repayable within one year	(303,953)	(368,919)
Borrowing – repayable after one year	(65,000)	(19,822)
Net debt	(361,481)	(361,545)

	31 December 2021 US$000	31 December 2020 US$000
Cash and cash equivalents	7,472	21,196
Borrowings – fixed interest rates	(117,664)	(126,538)
Borrowings – variable interest rates	(251,289)	(262,204)
Net debt	(361,481)	(361,545)

24. Cash flow information (continued)

	Cash at bank US$000	Borrowings due within 1 year US$000	Borrowings due after 1 year US$000	Total US$000

Net debt as at 1 January 2020	11,120	(267,527)	(103,586)	(359,993)
Cash flows	16,076	(677)	-	15,392
Interest accrued	-	-	(16,950)	(16,950)
Movement between current and non-current	-	(100,715)	100,715	-
Net debt as at 31 December 2020	27,196	(368,919)	(19,822)	(361,545)

Cash flows	(19,724)	30,613	-	10,889
Interest accrued	-	-	(10,825)	(10,825)
Movement between current and non-current	-	34,353	(34,353)	-
Net debt as at 31 December 2021	7,472	(303,953)	(65,000)	(361,481)

25. Controlling Party

The Directors consider China Nonferrous Metals Mining (Group) Co. Limited (“CNMC”) to be the ultimate controlling party, by virtue of their shareholding and representation on the Board of Directors.

26. Contingent Liabilities

During 2018, a contract was entered into between LLC Pakrut & LLC WenJian, a Company set up by a former employee of Pakrut (Dept. 2), to provide outsourced services including the extraction of ore, delivery of ore to smelting plant, cleaning of mine, mine development and construction works. LLC WenJian is not considered to be a related party.

Although LLC WenJian hold the relevant license for the construction works, the Company does not hold a license in accordance with the laws of Tajikistan “On subsoil” and “On licensing of certain types of activities” for implementing the other services they have been contracted to perform. This is a breach of Tajik laws and regulations which could result in penalties being imposed on both parties to the contract. The outcome of this situation is unclear and could result in fines imposed with the worst-case scenario being that Pakrut could have their own license rescinded by the Tajik government. There is no visibility surrounding the value or nature of any penalty at this time.

27. Related Party Transactions

The amount paid by the Company and Kryso Resources Limited to CNMIM for interest on the loan in 2021 amounted to US$Nil (2019:US$Nil). The amount of loan interest accrued by the company to CNMIM in 2021 was US$1,257,032 (2020: US$1,242,352). CNMIM is a significant shareholder of China Nonferrous Gold Limited and Lixian Yu and Hui Zhang are President and CEO of CNMIM respectively. During 2021, CNG did not pay any interest to CNMIM.

The amount of loan interest accrued by the Company to CNMC Trade in 2021 was US$5,062,816 (2020: US$6,561,195). The amount of loan interest accrued by the Company to CNMC International Capitals Company Ⅱ in 2021 was US$2,207,276 (2020: US$5,307,000). CNMC is the ultimate parent of China Nonferrous Gold Limited.

27. Related Party Transactions (continued)

During 2021, 15MCC (a related party to CNG through being a subsidiary of CNMC, the Company’s ultimate controlling party) provided equipment and materials, together with installation and construction work to the Group amounting to US$Nil (2020: $Nil) and the Group advanced payments to 15MCC amounting to US$Nil in 2021 (2020:$ 1,524,503). As at 31 December 2021, the total liability due to 15MCC was US$11,819,082 (2020: US$15,917,473).

In 2015 the Group entered into an additional consultancy contract with CNMC Hongtoushan Fushun Mining Co Ltd., through CNMIM as agent as follows:

Smelting and Processing Agreement

CNMC Hongtoushan Fushun Mining Co Ltd. (CNHFMG) is a copper mine and processing operation owned by CNMC. On 7th of September 2015, the Group entered into a smelting and processing agreement with CNHFMG.

Under the terms of the Agreement, CNG will pay to CNHFMG an amount of RMB 17.99 (approximately US$2.8) per gram of finished gold once the Project commences the 12-month production period. Prior to this period the Company will cover the labour and associated costs of CNFMG. Once in production, in the event the recovery of the plant is above the Beijing General Research Institute of Mining and Metallurgy forecast rate over the life of production of 82.99 percent, CNHFMG will share 40 percent of the profits from the upside directly due to the increased recovery. In the event recovery is below 75 percent, CNHFMG will bear 20 per cent of any loss incurred by the Company from the Project due to directly to recovery levels.

During 2021, CNHFMG provided equipment and materials, together with installation and construction work to the Group amounting to US$Nil (2020:US$Nil) and the Group advanced payments to CNHFMG amounting of 2021 was Nill(2020: US$304,887). As at 31 December 2021, the total liability due to CNHFMG was US$370,859 (the arrears have been paid off in January 2022).As of June 2022, the project funds between the company and CNHFMG have been fully settled.

27. Related Party Transactions (continued)

During the year of 2021 CNMC provided a guarantee for standby letters of credit amounting to US$66,000,000 as security for the Group’s bank loan facility with Bank of Shanghai.

During the year of 2021 CNMC guaranteed the Company's loan to China CITIC Bank with a total amount of US$3.455 million.

As at 31 December 2021, PAKRUT has opened a foreign sales channel, and the seller is Daye Nonferrous Metals. In December 2021, a total of 50.056kg gold sales occurred in related party transactions, with an amount of US $2,938,161.24, which has been received.

28. Events after the Reporting Period

In 2022, the Group executed a loan agreement with CNMC Trade Company Limited (“CNMC Trade”) for a loan of up to USD $34.55 million (the “CNMC Loan”). This CNMC Loan has been used to repay the existing China CITIC Bank Corporation Limited (“CITIC”) bank facilities of USD $34.55m (being USD20m advanced in January 2021 (“First Loan”) and USD14.55m advanced in March 2021 (“Second Loan”).

In 2022, the Group executed a foreign currency working capital loan agreement with China CITIC Bank Corporation Limited (Zhuhai Branch) (“CITIC”) for a loan facility of up to US$20 million (the “new CITIC Loan”), with an annual interest at 3.00% over 6 month LIBOR, which was used to repay US$20m of the CNMC Loan.

The Group has continued production throughout 2021 despite the outbreak of COVID-19, enabling it to raise sufficient working capital.

The Company currently has total debt facilities (including banking facilities), before interest, of c.US$319 million.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220630005440/en/

Companies

China Nonferrous Gold Limited (DI) (CNG)

Full Archive

UK 100

Latest directors dealings

All directors dealings today