Half Year Results

Tungsten West PLC
22 December 2023
 

 

Tungsten West Plc

("Tungsten West", the "Company" or the "Group")

Half Year Results for the six months ended 30 September 2023

Tungsten West, the owner and operator of the Hemerdon Mine (the "Project" or "Hemerdon") in Southwest England, is pleased to announce its half-yearly results for the six months ended 30 September 2023 (the "Period").

 

First Half and Post Period Highlights:

 

·      Alistair Stobie was appointed as CFO on 13 November 2023;

·      50 tonnes of tin and tungsten concentrate produced from legacy material;

·      £6.95 million convertible loan notes issued over two tranches;

·      Agreement to place an additional £1.8 million tranche of convertible loan notes;

·      Low frequency noise trials completed;

·      Mineral Processing Facility Permit application submitted;

·      Section 73 application was approved on 06 December 2023

·      Loss for the period of £9.1 million;

·      Capital expenditure for the period of £2.8 million

·      The Company had cash reserves of £1.4 million at 30 September 2023;  and

·      Front end re-build and plant upgrade projects ceased pending outcome of permit application and subsequent funding activities.

 

Neil Gawthorpe, CEO of Tungsten West, commented:

 

"This period has seen some challenges for the Company as we continue to navigate difficult market conditions. However, there have been many positives to take from the last six months and progress has been made at Hemerdon.

 

"The formal submission of the Mineral Processing Facility permit, following the completion of the low frequency noise trials, is a positive step forwards and, despite the delays and additional questions from the Environment Agency, we continue to have a positive relationship with the team and an open dialogue with them.  Additionally, the approval of the Section 73 application marks further progress and will augment the Project.

 

"Furthermore, the production of tin and tungsten from legacy material marked a significant milestone in the Company's progress and is an indication of what can be achieved once the mine is re-opened.

 

"Tungsten and tin remain critical minerals and are essential to everyday living, as well as being crucial in future green and emerging technologies. Tungsten West aims to help provide a secure supply chain of these critical minerals." 

 

 

Overview

 

Tungsten West started the Period with the recently appointed CEO, Neil Gawthorpe, conducting a strategic review of operations and funding requirements. At the same time, the Company was in discussions with a number of institutions to complete a funding of approximately £65 million, required to complete the Project.

 

The Company had been progressing the Project on the basis that funding, permitting and construction could run in parallel. However, the CEO concluded in his review that this was not the case, as full permitting would be required to source the funds required to complete the Project.

 

To allow the Company sufficient time to secure the remaining permit required to operate the Mineral Processing Facility ("MPF"), the Company launched an interim funding exercise in April 2023. The objective of the interim funding was to raise approximately £7 million via placing a Convertible Loan Note ("CLN") and an Open Offer. On 6 April 2023, the Company announced that it had secured commitments from purchasers of £6.95 million CLN. Additionally, the Open Offer raised £0.2 million of new capital.

 

Earth and civil engineering work has been completed to allow capital intensive construction work to commence once permits are granted and funding completed. The Company's focus is now on permitting, funding and compliance activities. A cost reduction programme was initiated in April 2023 with the objective of reducing both capex and opex until permitting and funding activities have been completed.

 

Unfortunately, this resulted in a number of redundancies. The Board would like to express their thanks and appreciation to the employees who departed: all had been incredibly dedicated to the Project.

 

 

review of activities

 

 

interim tungsten and tin production

 

During the first quarter of the Period, the Company recommissioned the refinery portion of the MPF and processed approximately 50 tonnes of legacy tin and tungsten concentrate. This was shipped to an off-taker in March 2023, generating approximately £0.4 million in revenue. This was part of a series of activities undertaken to generate cash from liquidating surplus assets. A total of 1,200 tonnes of low grade concentrate left by the previous operator was also sold between the final quarter of the prior year and first quarter of the Period, generating an additional £0.7 million revenue.

 

strategic focus and restructuring

 

By April 2023, it became apparent that funding was dependent upon the final operating permit required to operate by the Environment Agency ("EA"). The grant of a change to the existing planning permission for truck movements was also required to enable delivery of the aggregates business. Accordingly, management initiated a programme to preserve cash, reduce costs and focus on strategic priorities:

 

·      The business was re-focused on maintaining environmental compliance, securing permits and raising capital;

·      Project capex for the front-end re-build was scaled back to existing capital commitments only; and

·      All staff not engaged in these core activities were at risk and headcount was reduced by 42% through a combination of redundancies and resignations.

 

In August 2023, a further cost reduction programme was implemented, resulting in further headcount reduction. At the same time, the Company initiated a number of discussions with suppliers to agree deferred payment plans and restructure supply agreements.

 

In October 2023, as the EA process to approve the MPF permit application, and specifically reviewing the results of the low frequency noise ("LFN") trials, was taking longer than the EA had indicated, it became necessary to reduce the cost base further. At the time of this report, the ongoing headcount had been reduced to 15 full-time employees, focused only on environmental and corporate compliance, permitting and funding activities.

 

 

Mineral Processing facility permit and Low frequency noise trials

 

In July and August 2023, the Company undertook a series of investigations into LFN levels at the Project.

Upon completion of the LFN Trials, the Company submitted the MPF permit application to the EA which, once granted, will allow the plant to operate, thus facilitating the production of tungsten and tin at Hemerdon. The Company has worked closely with the EA and Devon County Council (the "Council") throughout the entire permitting and LFN trial process and anticipates the decision regarding the permit approval to be forthcoming early in 2024.

The Company received a further series of questions in October 2023. These questions were fully addressed by the end of October 2023 and a formal response submitted to the EA. At the time of writing this report the Company is still waiting for the EA's decision and on whether to grant the MPF permit. Taking into account the demonstrated reduction in LFN emitted from the test rig following the implementation of the noise mitigation measures, the Company is confident that the historical LFN issues have been resolved and that the last required permit will be obtained early in 2024.

 

 

Section 73 Application

 

To deliver the Project sustainably, the Company will produce secondary aggregates, a by-product from mining which, once sold, will provide an ongoing revenue stream and reduce the storage of barren rock at site.

 

Post-period end on 6 December 2023 the Council approved the Company's Section 73 application to vary the tonnage cap associated with the existing permission for 50 truck movements per day from the site, in order to facilitate the sales of secondary aggregates. Traffic and market studies carried out in conjunction with the application highlight that the Company can plug a gap in the market for high-quality, secondary aggregates in Devon with a minimal increase in overall heavy vehicle traffic.

Tungsten West has actively involved the local community, local councils and regulatory bodies in the process, participating in regular discussions and offering a direct line to the Company for all stakeholders. 

 

In addition, the Company received positive news relating to test work carried out on its secondary aggregate products, showing them to be superior, in several applications, to other materials available locally.

 

 

management changes

 

On 28 April 2023 James McFarlane resigned and stepped down as Managing Director of the Group. James had joined the Company soon after the acquisition of the Project in 2019. During this period, he played a key role in completing two feasibility studies and the successful IPO process.

 

On 16 May 2023 Mark Thompson stepped down from the Board of Directors. Mark was one of the founding Directors of Tungsten West and was instrumental in the acquisition of the Project and subsequent rounds of pre-IPO funding and the AIM admission.

 

Nigel Widdowson resigned as CFO on 16 August 2023, however he has remained with the Group to oversee the restructuring and funding processes and transition to a new CFO.

 

The Board was strengthened by the appointment of three Non-Executive Directors on 4 September 2023:

 

·      Kevin Ross, a mining engineering specialist who has held numerous COO roles in the mining sector for operating and development companies;

·      Guy Edwards, who brings significant experience in the aggregates industry having held CEO positions at Aggregates Industries UK and Aggregates Industries USA; and

·      Adrian Bougourd, currently part of the Developed Markets team at Lansdowne Partners, a financial analyst with experience in capital markets and advising companies in the global industrial and mining sector.

 

 

After the period ended, Alistair Stobie was appointed CFO on 13 November 2023 and will act in capacity as a PDMR. Alistair has over 20 years' experience as CFO at AIM listed companies in the natural resources sector. In particular, he has significant experience of raising capital for, and delivering, complex capital-intensive projects in the natural resources sector.

 

 

funding

 

The Group completed the issue of a CLN facility and open offer in June 2023. These collectively raised £7.2 million gross of fees. The CLN facility provided the ability to issue a further tranche up to £2.0 million ("Tranche C") under the same terms. On 18 December 2023 the Company announced that it had raised £1.8 million under Tranche C to existing CLN holders. The Tranche C Notes, together with further funding (via and additional notes under the existing CLN facility ("Tranche D") or other similar instrument), the sale of certain assets and existing on site aggregates are anticipated to provide sufficient funding to allow the Company to meet its liabilities as they fall due and to complete the short-term strategic objectives before June 2024. The existing waivers on previous breaches of the CLN also expire in June 2024. Notwithstanding, as set-out in Note 2 Going Concern, there remains material uncertainty regarding further funding, the sale of certain assets and the value of onsite aggregate sales which would have an impact on the Group's ability to continue as a going concern. Opex has been significantly reduced and all material capital commitments deferred until these objectives have been achieved. As at the end of November 2023 the Group had issued Tranche A (£3.975 million) and Tranche B (£2.975 million) of the CLN and had £0.5 million in cash reserves.

 

At the date of this report, there is not currently any commitment from existing or new noteholders to purchase any Tranche D notes, any agreed sale of any assets or sale of onsite aggregates. If the Group fails to find purchasers for the Tranche D notes, and / or assets or the sale of onsite aggregates, then, in the absence of other new sources of finance, it is anticipated it would no longer be able to meet its liabilities as they fall due in March 2024.

 

 

outlook

 

Considered a critical mineral, the outlook for tungsten is positive with the European Metal Bulletin Ammonium Para-Tungstate price being reported at circa US$305 per Metric Tonne Unit (MTU) (1 MTU = 10 kilograms). Tungsten remains an essential component in construction tools, electrical components, including lightbulbs, MRI scanners, and for defense applications. Additionally, it is also a mineral of the future, with applications in both emerging and green technologies including electric vehicles, nuclear fusion, renewable energy, and aerospace

Tin prices are currently at their 12-month average of US$24,500 per tonne at the date of this statement. Tin is a major component in the global drive towards electrification and clean energy and, whilst a by-product of the tungsten operations, Tungsten West is poised to become a significant producer.

Despite energy costs having stabilised and the most recent feasibility study demonstrating a viable Project with a strong NPV, the Company and the Board acknowledge that this is a challenging Project and there are many risks that could impact the Company's ability to reach construction through to commercial production. Permitting, funding and macro-economic risks (geopolicial, domestic political, economic instability) remain the most significant risks. Lack of or delayed permits, alongside volatile input costs, forex and commodity prices, will significantly increase the risk of lack of access to capital.

The principal risks and uncertainties are outlined in the Company's most recent audited annual report and accounts which can be found on www.tungstenwest.com.

The Board remains positive for the long-term prospects for the Hemerdon mine and the commodities it will produce, and is committed to delivering the Project and recommencing operations.

 

 

 

 

Neil Gawthorpe

Chief Executive Officer

Cautionary statement

This document contains certain forward-looking statements in respect of the financial condition, results, operations, and business of the Group. Whilst these statements are made in good faith based on information available at the time of approval, these statements and forecasts inherently involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are several factors that could cause the actual results of developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.  Nothing in this document should be construed as a profit forecast.

 

Enquiries

 

Tungsten West

Neil Gawthorpe

Tel: +44 (0) 1752 278500

 

Strand Hanson

(Nominated Adviser and Financial Adviser)

James Spinney / James Dance / Abigail Wennington

Tel: +44 (0) 207 409 3494

Blythe Ray

(Financial PR)

Tim Blythe / Megan Ray

tungstenwest@blytheray.com

Tel: +44 (0) 20 7138 3204

Hannam & Partners

(Joint Broker)

Andrew Chubb / Nilesh Patel

Tel: +44 (0)20 7907 8500

 

VSA Capital

(Joint Broker)

Andrew Monk

Tel: +44 (0)20 3005 5000

 

Further information on Tungsten West Limited can be found at www.tungstenwest.com

 

 

 

 

 

 

 

 

Overview of Tungsten West

 

Tungsten West is the 100 per cent owner and operator of the past producing Hemerdon tungsten and tin mine, located near Plymouth in southern Devon, England. The Hemerdon mine is currently the world's third largest tungsten resource, with a JORC (2012) compliant Mineral Resource Estimate of approximately 325Mt at 0.12 per cent. WO3. The Company acquired the mine out of a receivership process in 2019 after its most recent operators, Wolf Minerals, stopped production in 2018. While it was operator, Wolf invested over £170 million into the development of the site, the development of significant infrastructure and processing facilities. Hemerdon was producing tungsten and tin materials, under Wolf, between 2015 and 2018, before the Company entered administration and placed the mine into receivership due to a number of issues that have since been identified and rectified by Tungsten West.


Independent Auditor's Review Report on Interim Financial Information

 

Conclusion

 

We have reviewed the accompanying Consolidated Statement of Financial Position of Tungsten West Plc as of 30 September 2023 and the related Consolidated Income Statement, Consolidated Statement of Change in Equity and Consolidated Statement of Cash-Flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes.

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information does not give a true and fair view of the financial position of the Group as at 30 September 2023, and of its financial performance and its cash flows for the six-month period then ended in accordance with UK-adopted International Accounting Standard 34.

 

Basis for conclusion

 

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Material uncertainty relating to going concern

 

We draw attention to Note 2 in the interim accounts, which indicates that the group has yet to secure a key permit necessary to obtain the finance it needs to complete the plant rebuild and continue in operational existence for the foreseeable future. The group's ability to pay liabilities as they fall due beyond early 2024 is dependent on uncertain events such as securing additional finance, asset sales or inventory sales.  As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2 indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern. Our conclusion is not modified in respect of this matter.

 

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410, however future events or conditions may cause the entity to cease to continue as a going concern.

 

Responsibilities of directors

 

Management is responsible for the preparation and fair presentation of this interim financial information in accordance with International Accounting Standard 34. In preparing the half-yearly financial report, the directors are responsible for assessing the company'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 company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the review of the financial information

 

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report.

 

 

 

 

Use of our report

 

This report is made solely to the company in accordance with ISRE (UK) 2410. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.

 

 

PKF Francis Clark

Melville Building East

Unit 18,23 Royal William Yard

Plymouth

Devon

PL1 3GW

 

Date:…21/12/2023……………….

 

 

Consolidated Income Statement

 














Unaudited

 

Unaudited


Audited

 


Six months to

 

Six months to


Year ended

 

Note

30-Sep-23

 

30-Sep-22


31-Mar-23

 








£

 

£

 

£

Revenue

4

722,036

 

208,217


626,460

Cost of sales


(780,649)

 

(1,959,326)


(1,984,983)

Gross loss


(58,613)

 

(1,751,109)


(1,358,523)








Administrative expenses


(8,037,199)

 

(3,323,977)


(10,160,088)

Other operating income


130

 

-


18,947

Other gains/(losses)


(117,953)

 

107,292


710,710

Operating loss

5

(8,213,635)

 

(4,967,794)


(10,788,954)

Finance income


102,004

 

128,366


454,196

Finance costs


(1,020,782)

 

(286,854)


(495,279)

Net finance cost


(918,778)

 

(158,488)


(41,083)

Loss before tax


(9,132,413)

 

(5,126,282)


(10,830,037)

Income tax credit


-


-


544,602

Loss for the period


(9,132,413)

 

(5,126,282)


(10,285,435)

Loss attributable to:

 






Owners of the Company


(9,132,413)

 

(5,126,282)


(10,285,435)










Unaudited

 

Unaudited


Audited

 


£

 

£


£

Basic and diluted loss per share

12

(0.050)

 

(0.028)


(0.057)

 

There were no items of other comprehensive income in any period presented.

 


 

Consolidated Statement of Financial Position
















Unaudited


Unaudited


Audited



Six months to


Six months to


Year ended



30-Sep-23


30-Sep-22


31-Mar-23


Note

£


£


£

Non-current assets

 

 





Property, plant and equipment

6

19,811,546


14,674,729


19,054,864

Right-of-use assets

7

1,955,412


1,702,233


2,022,672

Intangible assets

8

5,096,005


4,997,853


5,090,016

Deferred tax assets


1,390,346


1,397,789


1,390,346

Escrow funds receivable

9

4,107,892


5,564,319


5,146,986



32,361,201


28,336,923


32,704,884

Current assets

 

 





Trade and other receivables


4,788,186


5,045,579


6,163,593

Inventories


29,850


69,901


114,173

Cash and cash equivalents


1,416,765


14,925,706


3,438,018



6,234,801


20,041,186


9,715,784



 





Total assets

 

38,596,002


48,378,109


42,420,668



 





Equity and liabilities

 

 





Equity

 

 





Share capital

13

1,870,741


1,805,516


1,805,516

Share premium account


51,949,078


51,882,931


51,882,761

Share option reserve


412,831


292,579


357,366

Warrant reserve


740,867


1,408,730


740,867

Convertible loan note reserve


165,408


-


-

Retained earnings


(32,937,431)


(19,313,728)


(23,805,018)

Equity attributable to the owners of the parent

 

22,201,494


36,076,028


30,981,492



 





Non-current liabilities

 

 





Loans and borrowings

11

1,927,165


1,522,723


1,901,583

Provisions

10

4,799,194


6,702,984


5,701,771

Deferred tax liabilities


1,390,346


1,397,789


1,390,346



8,116,705


9,623,496


8,993,700

Current liabilities

 

 





Trade and other payables


1,519,343


2,502,202


2,330,603

Loans and borrowings

11

6,758,460


176,383


114,873



8,277,803


2,678,585


2,445,476



 





Total liabilities

 

16,394,508


12,302,081


11,439,176



 





Total equity and liabilities

 

38,596,002


48,378,109


42,420,668

 


 

Consolidated Statement of Cash Flows

 








Unaudited

 

Unaudited


Audited



30-Sep

 

30-Sep


31-Mar

2023

 

2022


2023


Note

£


£


£

Cash flows from operating activities

 






Loss for the period


(9,132,413)


(5,126,282)


(10,285,435)

Adjustments to cash flows from non-cash items







Depreciation and amortisation

 6,7

265,675


261,099


514,394

Loss on disposal of right-of-use asset


-


-


124,528

Loss on disposal of intangible asset


-


-


73,401

Impairment of asset under construction

6

1,841,039


-


108,947

Fair value losses on escrow account


1,133,447


2,904,871


3,495,064

Fair value gains on restoration provision


(1,015,494)


(3,012,163)


(4,205,774)

Finance income


(102,004)


(128,366)


(454,196)

Finance costs


1,020,782


236,120


495,279

Share based payment transactions


55,465


50,718


115,505

Impact of foreign exchange


(42,593)


-


74,724

Income tax credit


-


-


(544,602)



(5,976,096)


(4,814,003)


(10,488,165)

Working capital adjustments

 






Income tax received


-


-


544,602

(Increase)/decrease in trade and other receivables


1,375,407


(1,218,070)


(2,336,084)

Increase/(decrease) in trade and other payables


(811,260)


(1,787,421)


(1,959,020)

(Increase)/decrease in inventories


84,323


87,043


42,771

Net cash outflow from operating activities

 

(5,327,626)


(7,732,451)


(14,195,896)








Cash flows from investing activities

 






Interest received


5,204


29,193


99,082

Acquisitions of property plant and equipment


(2,764,261)


(6,407,451)


(10,892,254)

Proceeds from disposals


2,088


-


4,167

Acquisitions of intangibles


(39,952)


(20,000)


(191,523)

Net cash outflow from investing activities

 

(2,796,921)


(6,398,258)


(10,980,528)

 

 






Cash flows from financing activities

 






Interest paid


(2,971)


-


(4,084)

Proceeds from exercise of warrants


131,542


284,351


284,181

Proceeds from exercise of share options


-


-


-

Proceeds from convertible debt


6,038,428


-


-

Payments to hire purchase


(14,398)


-


(63,294)

New leases


-


74,250


-

Payment of lease liabilities


(49,307)


(57,574)


(357,749)

Net cash inflow (outflows) from financing activities

 

6,103,294


301,027


(140,946)








Net (decrease) in cash and cash equivalents


(2,021,253)


(13,829,682)


(25,317,370)

Opening cash and cash equivalents

 

3,438,018


28,755,388


28,755,388

Closing cash and cash equivalents c/f

 

1,416,765


14,925,706


3,438,018


 

Consolidated Statement of Changes in Equity

Audited

 

Share capital

 

Share premium account

 

Share option reserve

 

Warrant reserve

 

Convertible loan note reserve

 

Retained earnings

 

Total

 


£

 

£

 

£

 

£

 

£

 

£

 

£

At 1 April 2022


1,793,682


51,610,414


241,861


1,408,730


-


(14,187,446)


40,867,241

Loss for the year


-


-


-


-


-


(10,285,435)


(10,285,435)

New shares subscribed


11,834


272,347


-


-


-


-


284,181

Exercise of warrants


-


-


-


(334,378)


-


334,378


-

Expired warrants


-


-


-


(333,485)


-


333,485


-

Share options charge


-


-


134,610


-


-


-


134,610

Forfeiture of share options


-


-


(19,105)


-


-


-


(19,105)

At 31 March 2023

 

1,805,516

 

51,882,761

 

357,366

 

740,867

 

-

 

(23,805,018)

 

30,981,492

 















Unaudited

 














At 1 April 2022


1,793,682


51,610,414


241,861


1,408,730


-


(14,187,446)


40,867,241

Loss for the period


-


-


-


-


-


(5,126,282)


(5,126,282)

New shares subscribed


11,834


272,517


-


-


-


-


284,351

Share options charge


-


-


50,718


-


-


-


50,718

At 30 September 2022

 

1,805,516

 

51,882,931

 

292,579

 

1,408,730

 

-

 

(19,313,728)

 

36,076,028

 















Unaudited

 














At 1 April 2023


1,805,516


51,882,761


357,366


740,867


-


(23,805,018)


30,981,492

Loss for the period


-


-


-


-


-


(9,132,413)


(9,132,413)

New shares subscribed


65,225


66,317


-


-


-


-


131,542

Issue of convertible loan










165,408


-


165,408

Share options charge


-


-


55,465


-


-


-


55,465

At 30 September 2023

 

1,870,741

 

51,949,078

 

412,831

 

740,867

 

165,408

 

(32,937,431)

 

22,201,494

 


Notes to the interim accounts

 

1.   Basis of Preparation

These unaudited condensed consolidated interim accounts have been prepared in accordance with the recognition and measurement principles of International Accounting Standards as adopted in the United Kingdom ("UK-adopted IAS") using the accounting policies that are expected to apply in the Company's next annual report.

The accounting policies applied are consistent with those disclosed in the Company's last statutory financial statements.

The interim accounts are in compliance with IAS 34, Interim Financial Reporting.

The interim accounts do not comprise the Company's statutory accounts. The information for the year ended 31 March 2023 is not the Company's statutory accounts. The Company's financial statements for that year have been filed with the registrar of companies. The  independent auditor's report on those financial statements was unqualified but drew attention to a material uncertainty relating to going concern. The independent auditor's report did not contain statements under s498(2) or s498(3) of the Companies Act 2006.

2.   Going concern

 

The Group is still in the pre-production phase of operations and meets its day to day working capital requirements by utilising cash reserves from investment made in the Group. In October 2021, the Group raised £36.0 million net of fees by way of an initial public offering and at 30 September 2023, had £1.4 million in cash reserves.

Further to ongoing discussions with investors and debt providers, it remains clear that access to the capital required to complete the project will be significantly limited until the Group has secured the final permit required to operate the MPF and the recently issued  Section 73 permission relevant to truck movements.

These conditions indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern.

The Group continues to focus its short-term operating strategy simply on activities required to secure these permits, maintain environmental compliance and secure funding to complete the project and recommence mining operations, including an updated Feasibility Study.

The Group completed the issue of a convertible loan note facility and an open offer in June 2023. These collectively raised £7.2 million gross of fees. Tranche C Notes were issued on 18 December 2023, raising £1.8 million gross of fees. It is envisaged that Tranche D Notes, or other similar instrument, will be issued towards the end of 1Q 2024. In addition, management will seek to sell certain assets and existing onsite aggregates. The sum of the Tranche C & D Notes, asset sales and sale of onsite aggregates is expected to be not less than £6.5 million. The Board consider this to be sufficient liquidity to meet its liabilities as they fall due and to complete the short-term strategic objectives, including completing an updated Feasibility Study, before December 2024. Opex has been significantly reduced and all material capital commitments deferred until these objectives have been achieved.

As at the end of November 2023 the Group had issued Tranche A (£3.95 million) and Tranche B (£2.95 million) of the CLN and had £0.5m in cash reserves. The Company issued Tranche C of the notes on 18 December 2023. Tranche C raised £1.8 million gross of fees.

There is not currently any commitment from existing or new noteholders to purchase any Tranche D notes, nor have any agreements to sell certain assets been agreed. If the Group fails to find purchasers for the Tranche D notes or find buyers for certain assets, then, in the absence of other new sources of finance, it would no longer be able to meet its liabilities as they fall due in March 2024.

Since the 31 March 2023, the Group has taken measures to conserve cash by stopping capex payments, restructuring the cost base and deferring certain contracted payments to creditors. As a result of this, the Group has notified the Note Purchasers of multiple defaults on the terms of the Note Purchase Agreement which relate to payments to creditors. There are detailed in Note 35 the annual report and accounts to March 2023. Under the terms of the Note Purchase Agreement, the Noteholders can cancel any outstanding Notes under the Note Purchase Agreement and demand immediate redemption unless a waiver is in place. The redemption sum is two times the loan note principal outstanding along with any accrued PIK. A waiver for the breaches in place at the time of signing the 31 March annual report and accounts was issued by the noteholders in June and again in December 2023, to clear further breaches arising post September 2023. The waiver will expire in June 2024 and going concern is reliant on the Group complying with the terms of the waiver. The Company has agreed terms of an amended waiver for the breaches in place at the time of signing this report and going concern is dependent on the Group complying with the terms of the amended waiver until it expires on 30 June 2024. The waivers give the Board sufficient comfort that the Group can both meet the terms of the original loan without further breaches and the terms of the waiver hence is a going concern.  For the Group to remain a going concern, the Group is reliant on continued support of the Noteholders by not exercising their rights under the defaults should the defaults not be remedied, or the note converted or redeemed, by June 2024.

As identified earlier in this report, permitting, funding and macro-economic risks (Geopolitical, Economic instability) continue to be the most significant risks facing the Group. Lack of or delayed permits, alongside volatile input costs, forex and commodity prices, will significantly increase the risk of lack of access to capital.

The Board is pursuing a strategy of completing the project on a capital build and operate basis. In light of the noise mitigation measures now anticipated to be required for securing the MPF permit, the Board forecasts in excess of £80 million remaining expenditure prior to recommencing operations. Various options for progress post January 2024 will be considered as further information becomes available through the intervening period and are expected to result in the Group continuing as a going concern once the various permissions are secured.

Going concern is reliant on further funding being secured by the end of March 2024, or the receipt of funds form the sale of certain assets and/or ongoing aggregate sales, without which the group would be unable to pay its liabilities as they fall due beyond this point. Management have prepared one forecast as follows:

Model 1 - Additional funding closed in 2024

This scenario models management's intended plan of the expected future outflows required to complete the capital build once finance is secured. Sensitivity analysis has been applied in terms of when the project would restart, availability of additional capital and the cashflow demands for each scenario. As the terms of any finance package have not yet been agreed the model does not include costs of finance.

Management are satisfied there is sufficient headroom to service the projected cost of debt when this is agreed. As negotiations with finance providers proceed the model will be updated with the anticipated finance costs to ensure that a sufficient level of liquidity is maintained. Management is confident that the project finance can be secured to complete the capital build under the updated business plan once the relevant permits are secured.

As a result, there is a material uncertainty over the granting of the permit, within the necessary timeframes, to allow the group to obtain the finance it requires. The Board's aim is that it will obtain the necessary permit and required funding, allowing the group to operate as a going concern for the foreseeable future. Consequently, they continue to adopt the going concern basis in preparing these financial statements despite the material uncertainty referred to above.

3.   Asset and liabilities held at fair value

Escrow funds

These funds are held with a third party to be released to the Group as it settles its obligation to restore the mining site once operations cease. The debtor has been discounted to present value assuming the funds will be receivable in 28 years' time which assumes one year of set up and a 27-year useful life of mining operations. The key assumptions that would lead to significant changes in the escrow account fair value are the discount rate and the useful life of the mine.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material. This includes a provision for the obligation to restore the mining site once mining ceases.

The restoration provision is the contractual obligation to restore the mining site back to its original state once mining ceases. The provision is equal to the expected outflows that will be incurred at the end of the mine's useful life discounted to present value. As the restoration work will predominantly be completed at the end of the mine's useful life, these calculations are subject to a high degree of estimation uncertainty. The key assumptions that would lead to significant changes in the provision are the discount rate, useful life of the mine and the estimate of the restoration costs.

Convertible loan notes

Convertible loan notes which entitle the holder to convert into a fixed number of shares for a fixed amount of cash contain both the features of a financial liability and an equity instrument. The initial fair value amount of the liability is calculated as the present value of all future payments and interest (at the rate determined by the instrument) all being discounted at a market rate of interest for a similar loan without a conversion option. The amount of the equity component is residual balance after deducting the initial fair value amount of the liability from the proceeds of the convertible loan issue. Issue costs are assigned to the liability component.

Subsequently, interest is calculated on the liability component under the effective interest method.

The present value of the liability cash-flows has been estimated with reference to management's judgement of the most likely cash-flows, as permitted under IFRS9. Under the terms of the convertible loan notes if the Group breaches the terms of the agreement or an exit event occurs the initial capital can be called in for repayment at a premium of 100%. As management judge this unlikely it has not been accounted for in the fair value of the liability at period end. Were this clause to be enacted the capital repayment due, on loan notes drawn to period end, would be increased from £6.95m to £13.90m.

 

 

 

4.   Revenue

Revenue by product comprised the following:

5.   Operating loss

Operating loss is stated after the following:

 

6.   Property, plant and equipment

Land and buildings

 

Furniture, fittings and equipment

 

Computer equipment

 

Motor vehicles

 

Other property, plant and equipment

 

Asset Under Construction

 

Total

Unaudited

£

 

£

 

£


£

 

£

 

£

 

£

Cost

 













At 1 April 2023

5,189,361


114,709


313,400


141,500


243,455


13,717,101


19,719,526

Additions

-


61


2,101


-


6,053


2,756,046


2,764,261

Disposals

-


-


(2,088)


-


-


-


(2,088)

At 30 September 2023

 

114,770

 

313,413

 

141,500

 

249,508

 

16,473,147

 

22,481,699

 














Depreciation

 













At 1 April 2023

339,688


14,494


82,329


35,435


83,769


108,947


664,662

Impairment

-


-


-


-


-


1,841,039


1,841,039

Charge for the period

52,723


11,980


49,720


23,349


26,680


-


164,452

At 30 September 2023

392,411

 

26,474

 

132,049

 

58,784

 

110,449

 

1,949,986

 

2,670,153

 














Unaudited

 













Cost

 













At 1 April 2022

4,446,750


27,327


171,420


8,740


196,755


3,904,548


8,755,540

Additions

33,865


22,234


27,361


112,500


16,800


6,194,691


6,407,451

Transfer

713,969


-


-


-


-


(713,969)


-

At 30 September 2022

5,194,584

 

49,561

 

198,781

 

121,240

 

213,555

 

9,385,270

 

15,162,991

 














Depreciation

 













At 1 April 2022

235,797


1,578


9,932


5,047


33,576


-


285,930

Charge for the period

132,715


2,370


29,539


14,216


23,492


-


202,332

At 30 September 2022

 

 

 

 

 

-

 

 














Audited

 













Cost

 













At 1 April 2022

4,446,750


27,327


171,420


8,740


196,755


3,904,548


8,755,540

Additions

228,570


87,382


141,980


141,500


46,700


10,326,594


10,972,726

Reclassifications

514,041


-


-


-


-


(514,041)


-

Disposals

-


-


-


(8,740)


-


-


(8,740)

At 31 March 2023

5,189,361

 

114,709

 

313,400

 

141,500

 

243,455

 

13,717,101

 

19,719,526

 














Depreciation

 













At 1 April 2022

235,797


1,578


9,932


5,047


33,576


-


285,930

Charge for the year

103,891


12,916


72,397


37,598


50,193


-


276,995

Disposals

-


-


-


(7,210)


-


-


(7,210)

Impairment

-


-


-


-


-


108,947


108,947

At 31 March 2023

339,688

 

14,494

 

82,329

 

35,435

 

83,769

 

108,947

 

664,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 September 2023

4,796,950

 

88,296

 

181,364

 

82,716

 

139,059

 

14,523,161

 

19,811,546

At 30 September 2022

4,826,072


45,613


159,310


101,977


156,487


9,385,270


14,674,729

At 31 March 2023

4,849,673


100,215


231,071


106,065


159,686


13,608,154


19,054,864

 

7.   Right-of-use asset

 

 

8.   Intangible assets (net book value)

9.   Escrow Funds

 

The funds held in escrow with a third party will be released back to the Company on the cessation of mining once restoration works have been completed. The amounts have been discounted to present value over the expected useful life of the mine. During the period, the discount rate was revised to 4.7% (30 September 2022: 4.1%) (31 March 2023: 3.7%) resulting in a loss of £1.0 million in the six months to September 2023 (loss in period to 30 September 2022: £2.9 million)  (loss in year to 31 March 2023: £3.5 million). The actual funds held in escrow at the period end were £13,468,004 (30 September 2022: £13,228,692) (31 March 2023: £13,230,653).

 

10.  Provisions

This provision is for the obligation to restore the mine to its original state once mining operations cease, discounted back to present value based on the estimated life of the mine. Prior to discounting the Directors estimate the provision at current costs to be £13.2 million (30 September 2022: £13.2 million) (31 March 2023: £13.2 million).

The provision has been discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The ultimate costs to restore the mine are uncertain, and cost estimates can vary in response to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates and changes in discount rates.

Management has considered these risks and used a discount rate of 6.7% (30 September 2022: 6.1%) (31 March 2023: 5.7%), an inflation rate of 2.5% to 7% over the life of the project (30 September 2022: 2.5% to 7%) (31 March 2023: 2.5% to 9%) and an estimated mining period of 27  years (30 September 2022: 24 years) (31 March 2023: 27 years).

11.  Borrowings

Borrowings comprised:

The Group issued convertible loan notes in two tranches as follows:

·      On 15 June 2023 - £3.975 million of Tranche A notes

·      On 15 August 2023 - £2.975 million of Tranche B notes

Interest on the convertible loan notes in the form of payment in kind notes (PIK notes) is 20%. The final termination date of the convertible loan notes is 14 June 2023. The normal conversion price of the loan notes is £0.03 per share however under an equity raise (excluding equity raised to certain qualifying shareholders, on a normal conversion of the loan notes or on an issue of shares in relation to warrants and share options) the conversion price is equal to the issue price on the equity raise less a discount of 50%.

Under the terms of the convertible loan notes if the Company breaches the terms of the agreement or an exit event occurs the initial capital can be called in for repayment at a premium of 100%.

The Company was in breach of the terms of the CLN Agreement in June 2023 and post period end prior to the issuance of the Tranche C Notes. In each case the Note Holders waived the breaches such that the Company was not in breach of the Agreement.

Further issues of Tranche C loan notes are disclosed in note 16.

 

12.  Basic and diluted loss per share

 

The diluted loss per share calculations excludes the effects of share options, warrants and convertible debt on the basis that such future potential share transactions are anti-dilutive.

Were the Company's options and warrants to be converted, a potential further 23,956,451  ordinary shares of between £0.01 to £0.60 would be issued Information on share options and warrants is disclosed in note 14. This figure excludes the conversion of any CLN's in Note 11.

There were no shares issued subsequent to the end of the interim period.

13.  Share capital

Share issues during the period

During the period ended 30 September 2023 the following share transactions took place:

·        The Company issued 6,522,496 ordinary shares of £0.01 each for consideration of £0.03 per share.

 

14.  Share options and warrants

 

Founder share incentives

The founder shareholders have a right to receive shares at a nominal value once certain milestones are met.

The movements in the number of incentives during the year were as follows:

Unaudited

Unaudited

Audited


Six months to

Six months to

Year ended


30 September 2023

30 September 2022

31 March 2023


Number

Number

Number

Outstanding at beginning of period

18,229,148

18,229,148

18,229,148

Granted during the period

-

-

-

Terminated on admission to AIM

-

-

-

Replacement share awards following admission to AIM

-

-

-

Exercised during the year

-

-

-

Outstanding at end of period

18,229,148

18,229,148

18,229,148

 

The founder options meet the definition of equity in the financial statements of the Company on the basis that the 'fixed for fixed' condition is met. No consideration was received for the founder options at grant date, therefore no accounting for the issue of the equity instruments is required under IFRS. On exercise, the shares are recognised at the fair value of consideration received, being the option price of £0.01.

Part of one of the founders' option agreement were share options issued in their capacity as a Director and were dependent on their continuing employment, and therefore 243,333 options have been accounted for under IFRS 2. This resulted in a charge to the income statement of £143,603 and these options were fully vested in the year ended 31 March 2022.

Share Options - Employees

 

EMI and ESOP

Share options have been issued to key employees as an incentive to stay with the Company. These options can be exercised within one and ten years following the grant date once the option has vested.

The movement on the number of share options issued by the Company during each period presented was as follows.

Unaudited

 

Unaudited


Audited


Six months to

 

Six months to


Year ended

30-Sep-23

 

30-Sep-22


31-Mar-23


Number

 

Number


Number

Outstanding at beginning of period

1,533,333

 

1,683,333


1,683,333

Granted during the period

40,910

 

-


-

Lapsed during the period

-

 

(100,000)


(150,000)

Outstanding at end of period

1,574,243

 

1,583,333


1,533,333

 

The exercise price of share options issued to key employees ranges between £0.30 and £0.45 (30 September 2022: £0.01 and £0.45) (31 March 2023: £0.30 and £0.45) and their remaining contractual life was 9 years (30 September 2022: 10 years) (31 March 2023: 9.5 years.).

CSOP share options

Share options have been issued to key employees as an incentive to stay with the Company. These options can be exercised within three and ten years following the grant date once the option has vested.

 

 

The exercise price of share options outstanding at 30 September 2023 was £0.275 and their remaining contractual life was 9 years.

 

The exercise price of share options outstanding at 31 March 2023 was £0.275 (2022: £nil) and their remaining contractual life was 9 years and 6 months.

 

Warrants

Warrants have been issued to certain shareholders and intermediaries as commission for introducing capital to the Company. Warrants can be exercised at any point before the expiry date for a fixed number of shares.

The movement on the number of warrants issued by the Company during each period presented was as follows.

 

At 30 September 2023 the exercise price of warrants outstanding ranged between £0.01and £0.60 and their remaining contractual life was 1 month to 3 months.

At 31 March 2023 the exercise price of warrants outstanding ranged between £0.01 and £0.60 and their remaining contractual life was 3 months to 9 months.

           

 

15.  Commitments

 

Capital commitments

As at 30 September 2023 the Group had contracted to purchase property, plant and machinery amounting to £2,329,060. (30 September 2022: £4,173,277). (31 March 2023: £3,754,738). An amount of £123,320 (31 March 2023: £123,320) (30 September 2022: £123,320) is contingent on the commencement of mining operations.

 

Other financial commitments

The total amount of other financial commitments not provided in the financial statements was £9,329,000 (30 September 2022: £10,329,000) (31 March 2023: £10,329,000) payable on the commencement of mining operations and represented contractual amounts due to the mining contractor and further committed payments to the funds held in the escrow account under the escrow agreement.

 

Included within other financial commitments is £3,000,000 (30 September 2022: £5,000,000) (31 March 2023: £4,000,000) which is considered to be payable annually.

 

16.  Events after the end of the interim reporting period

 

On 18 December 2023 the Group issued £1.8 million of Tranche C convertible loan notes which carry the same terms and conditions as the other convertible loan notes as disclosed in note 11.

 

As disclosed above, the Group was in breach of the terms of the agreement post period end. These breaches were waived by all Note holders whether they subscribed to Tranche C or not in December 2023.

 

 

 

 

 

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