This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018.

28 June 2021

Ferro-Alloy Resources Limited

("Ferro-Alloy" or the "Company" or the "Group")

Final Results for the year ended 31 December 2020

Ferro-Alloy Resources Limited (LSE:FAR), the vanadium mining and processing company with operations based in Southern Kazakhstan is pleased to announce its final results for the year ended 31 December 2020.

Overview

·    Increased production of vanadium pentoxide by 56% to 237 tonnes

·    Revenue increased to US$2.4m (2019:US$1.8m)

·    Commissioning and expansion of pyrometallurgical process line which is designed to treat a different type of concentrate from that which was previously treated creating new revenue stream

o  total capacity of the combined plant now up to 80 tonnes per month depending on the grades of concentrates treated, six times more than 2019 production

·    Connection to adjacent high voltage power line complete with first power expected late July 2021

·    Technological developments:

o  Conversion of ammonium metavanadate to vanadium pentoxide and trial production of vanadium pentoxide powder commenced; product is suitable for chemical uses and often attracts higher prices than standard vanadium pentoxide depending on the purity

o  Commercial production of calcium molybdate started in October 2020 with 20 tonnes of calcium molybdate (CaMoO4), containing 12 tonnes of molybdic oxide (MoO3) produced by the end of the year; a highly profitable process as provides additional recovery as a by-product from the same raw-materials

o  Developed technology to produce electolyte for vanadium flow batteries directly from ammonium metavanadate

·    Scope of Feasibility Study upgrade on the Balasausqandiq vanadium project now expanded to include Phase 1 and Phase 2 which will facilitate a focussed development of the resource and more properly reflect the Company's value and potential.  Publication of the expanded Feasibility Study expected mid-2022

·    Covid-19 restrictions particularly affected raw-material supplies, restricted production and prevented full use of the increased capacity

·    Prices of vanadium pentoxide currently c.US$8/lb

Post-Period

·    Strategic long term investment by Vision Blue Resources in March 2021 with investment to date totalling $3.1m

·    Further options available to Vision Blue to invest an additional $9.5 million at an agreed price of £0.09 per share, plus a further $30 million at higher prices to finance construction of Phase 1 of the Balasausqandiq vanadium project

·    Strengthening of board with the appointment of Sir Mick Davis as non-executive chairman and Peet Nienaber as non-executive director

·    Further US$476,000 raised in 2021 to date by the issue of bonds on AIX

Nick Bridgen, CEO, commented: 

"2020 saw Ferro-Alloy continuing to make strong progress towards our main goal of developing the world-leading Balasausqandiq project. Progress has been made with the feasibility study and infrastructure improvements despite the ongoing Covid-19 pandemic which restricted deliveries of raw materials and prevented us from utilising fully the new capacity that we've added. Nevertheless, we saw a significant increase in production of vanadium pentoxide in the year and I anticipate future production to improve strongly now that raw materials have started to be delivered reliably and accumulate on site.

 "In March 2021, we welcomed Vision Blue Resources as a strategic investor in the Company. Vision Blue share our view that Balasausqandiq is a truly extraordinary project with the potential to become the leading vanadium asset in the world. The strategic relationship established is significant with investment of $12.6m envisaged plus options to invest a further $30m at higher prices. We have received the Initial Investment of $3.1m and we expect Vision Blue to exercise their option to invest the next $7m imminently.

"We welcomed Sir Mick Davis to our board as non-executive chairman and Peet Nienaber and as non-executive director. Their collective experience, knowledge and relationships in the mining industry will be hugely beneficial to us. 

Annual Report

The Annual Report for the year ended 31 December 2020 will be available on the Company's website shortly at www.ferro-alloy.com

For further information, visit www.ferro-alloy.com or contact:

Ferro-Alloy Resources Limited

Nick Bridgen, Chief Executive Officer                                                      info@ferro-alloy.com

Shore Capital (Broker)

Corporate Advisory: Toby Gibbs / Mark Percy / John More                Tel: +44 (0)207 408 4090

Corporate Broking: Jerry Keen

VSA Capital                                                                                                  Tel: +44 (0)203 005 5000

Andrew Monk / Simon Barton

St Brides Partners Limited (Financial PR & IR Adviser)

Catherine Leftley/Charlotte Hollinshead                                                 Tel: +44 (0)207 236 1177

Further information about Ferro-Alloy Resources Limited

The Company's operations are all located at the Balasausqandiq Deposit in Kyzylordinskaya Oblast in the South of Kazakhstan. Currently the Company has two main business activities:

a) the high grade Balasausqandiq Vanadium Project (the "Balausa Project"); and

b) an existing vanadium concentrate processing operation (the "Existing Operation") 

Balasausqandiq is a very large deposit, with vanadium as the principal product together with numerous by-products. Owing to the nature of the ore, the capital and operating costs of development are very much lower than for other vanadium projects. 

A reserve on the JORC 2012 basis has been estimated only for the first ore-body (of five) which amounts to 23 million tonnes, not including the small amounts of near-surface oxidised material which is in the Inferred resource category. In the system of reserve estimation used in Kazakhstan the reserves are estimated to be over 70m tonnes in ore-bodies 1 to 5 but this does not include the full depth of ore-bodies 2 to 5. 

There is an existing concentrate processing operation at the site of the Balasausqandiq Deposit. The production facilities were originally created from a 15,000 tonnes per year pilot plant which was then adapted to treat concentrates and expanded. Further expansion is being undertaken which is  expected to result in annualised production capacity of around 1,500 tonnes of contained vanadium pentoxide plus significant by-product molybdenum. 

The strategy of the Company is to develop both the Project and the Existing Operation in parallel. Although they are located on the same site and use some of the same infrastructure, they are separate operations.

CEO's report on operations for the year to 31 December 2020 and 2021 to date

Introduction

Despite the challenges resulting from the Covid-19 pandemic and consequent economic turmoil, the Company has made significant progress towards the expansion of the existing operation and, most importantly, continued the work to put Balasausqandiq into production including the feasibility study and infrastructure development.

In March 2021 the Company entered into an Investment Agreement with Vision Blue Resources under which Vision Blue has invested $3.1m in equity and has an option to invest a further $9.5m at the agreement price of £0.09 per share plus up to a further $30m at higher prices to finance construction of Phase 1 of the Balasausqandiq vanadium project.

Production

During the year ended 31 December 2020, production of vanadium pentoxide (V2O5) amounted to 237 tonnes, some 56% above 2019. Whilst this is a very solid increase, without the disruptions experienced due to the Covid-19 pandemic and previously reported interruptions to power supply, production would have been significantly higher.

* AMV: ammonium metavanadate

The focus of the Existing Operation during 2020 was the commissioning and expansion of the new pyrometallurgical process line which is designed to treat a different type of concentrate from that which was previously treated.

In February, the second roasting oven was installed and the pyrometallurgical line completed. Over the course of the first half of the year this new process became the most important contributor to the production, bringing the total capacity of the combined plant to some 80 tonnes per month depending on the grades of concentrates treated, six times more than 2019 production.  Actual production has lagged significantly behind this level as a result of both Covid-19 restrictions, which have affected both the Company and its suppliers, power supply issues which are being resolved by the commissioning of the new power line, and a mix of raw-materials including some lower grades.

It is expected that the connection to the adjacent high-voltage power-line will take place during July 2021, further details of which are set out below.

The impact of Covid-19 has been seen particularly in the more technically difficult hydrometallurgical production process which has been temporarily halted several times, primarily as a result of the inability to bring specialist staff to site. This has resulted in some five months of lost production from this part of the operation. The Company has prioritised the pyrometallurgical operations, not only because it is technically simpler, but also because the prices paid for the raw materials flex with the vanadium price so margins are less affected by low prices than for the hydrometallurgical line where the price is fixed.

The Covid-19 travel bans also made installation, commissioning and fault rectification much more difficult. The Company has, using substantially its own workforce, completed commissioning work on two of the three new press filters which would normally have required site visits from the suppliers, and completed the installation of the oven to convert ammonium metavanadate to vanadium pentoxide.

Production in the fourth quarter was disappointing, with little contribution from the hydrometallurgical line and restricted deliveries from the Company's main high-grade concentrate supplier, attributed to the effects of the Covid-19 restrictions on their operation.

Production outlook

Although the progression to higher production slowed towards the end of 2020, the equipment is now in place to achieve significantly higher production, assisted by the near-term connection to the high-voltage power-line and as the global vaccination programme starts to lessen the restrictions caused by the Covid-19 pandemic.

Supplies of raw materials continued to be restricted below contracted levels throughout the first half of 2021, attributed by suppliers to Covid-19 related restrictions and container shortages. The delayed supplies have now started to arrive and enough material is on site and in transit for over four months of production at the planned level. Contracts are in place for regular monthly deliveries which should enable the Company to maintain sufficient stocks of raw materials to avoid shortages in future.

Looking further ahead, the Company is planning to procure an electric arc furnace which can double production capacity again.  This furnace has been designed, contracts agreed and will take some six months to build. The furnace will be used to produce ferro-vanadium directly from raw-material concentrates without first producing vanadium pentoxide, and it will also be used for the production of by-product ferro-nickel, utilising the nickel content of our raw-materials which is currently sold at very low prices as a low-grade concentrate.

Other developments

Conversion of AMV to vanadium pentoxide

The equipment to convert AMV to vanadium pentoxide has been commissioned and trial production of vanadium pentoxide powder has commenced. This product is suitable for chemical uses and often attracts higher prices than standard vanadium pentoxide depending on the purity.

Calcium molybdate production

Commercial production of calcium molybdate started in October 2020, with 20 tonnes of calcium molybdate (CaMoO4), containing 12 tonnes of molybdic oxide (MoO3) produced by the end of the year. Calcium molybdate production, although small scale, is highly profitable because it provides additional recovery as a by-product from the same raw-materials and with relatively low processing costs. The Company now has the option to source molybdenum-bearing raw-materials with molybdenum as the primary content where it is more profitable to do so.

Electrolyte for batteries

In September we reported that the Company's specialists had developed a new process for the production of electrolyte for vanadium flow batteries directly from ammonium metavanadate, a more economical process.  .

Connection to high-voltage powerline

As previously reported, the Company's operations have up to now been severely impacted by the unreliability of the existing power supply with power delivered over a long distance on a low voltage line with wooden poles. It is subject to frequent unplanned outages, voltage and phase instability, and is expensive. The instability damages our equipment and causes long interruptions as restart procedures can take far longer than the power interruption.

The Company has been constructing a link to draw power from an adjacent high voltage (110kV) line, including the connection, transformers, some three km of line and necessary communications and switching.  This US$2.5m project has now been completed on budget and substantially on time, but delays by the supplier of power-measurement equipment required by the owners of the line mean that first power is expected to be drawn only in late July 2021.

The new power supply will also be used for Phase 1 of the large Balasausqandiq vanadium project, although some augmentation of transformer capacity will be required.

Balasausqandiq project  - feasibility study

Development of the large Balasausqandiq vanadium deposit is on-going in parallel with the Company's Existing Operations.

The main components of the feasibility study into Phase 1 of the project had already been completed as part of the locally required Kazakhstan study but parts require upgrade or further review to meet the requirements of a western bankable feasibility study.  The remaining parts of the study have been significantly delayed by Covid-19 restrictions, including a prohibition on overseas specialists visiting site and an inability to export samples but the process plant design work has continued remotely by Coffey International, a Tetra Tech group company, whose work was initiated, including a site visit, before the lock-downs.

The innovative process developed and refined in our commercial demonstration plant in Kazakhstan has been adapted to produce a high purity V2O5 product from the black shale mined at Balasausqandiq. Flow sheet development, the associated mass and energy balance, and the process design criteria, are complete. In parallel Coffey International have specified confirmatory metallurgical test work that will be completed at an accredited international laboratory. The sample material has been collected and is ready to ship.

Coffey International's engineering team has specified the major mechanical equipment, designed the process areas and completed a 3D CAD model of the general arrangement of the plant. The model includes the buildings that will house the process equipment. Budget price enquiry, in support of the capital cost estimate, is underway and is approximately 50% complete.

Following the investment by Vision Blue, and consequently the greater funds expected to be available to the Company in due course, it has been decided to expand the scope of the study to include not just Phase 1 of the Group's development plans (1 million tonnes of ore treated per year) but also, so far as appropriate, Phase 2 (increase to 4 million tonnes of ore per year) and the by-product revenues.  This will involve some additional drilling to upgrade ore-bodies 2, 3 and 4 to the Indicated level (under JORC 2012) and, with the addition of mine planning, to the probable reserve standard.  The Directors believe that although this will delay the publication of the feasibility study until mid-2022, it will facilitate a focussed development of the resource, more properly reflect the Company's value and potential which will result in the most optimal financing arrangements for the project.

Covid-19

The Covid-19 pandemic had a negative impact on the Company's operations in 2020. While cases started to decline towards the end of Q3 2020, Kazakhstan experienced a second wave during Q4 2020, albeit at lower levels than in Europe. Kazakhstan has maintained restrictions on visitors from overseas and implemented lock-downs on a selective basis. A third wave started in March 2021 but actions taken by the Government have prevented a major outbreak and currently, there are around one thousand cases per day.

Kazakhstan started vaccinations on 1 February 2021 using the Russian Sputnik-V vaccine and Kazakhstan QazVac vaccine. During 2021 the plan is to vaccinate some 6 million people in Kazakhstan starting with front line medical professionals followed by education providers and then higher risk individuals. The current level of vaccination is now approaching 10% of the population.

Environment & changing climate

On the 2-13 December 2019 the UN Climate Change Conference was held in Madrid. During the annual conference, countries' approaches to the implementation of actions in the field of climate change, based on the provisions of the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement, were agreed. Kazakhstan participated in the conference and reconfirmed that its is commitment to reduce greenhouse gas emissions by 15% by 2030 (compared with the levels of 1990). In addition, Kazakhstan is planning to develop a concept of low carbon development by 2050 which is expected to be finalised and published in June 2021.

During 2020, the Company's operations emitted 24.21 tonnes of carbon oxides, compared with the permitted level of 50.33 tonnes during the year. The Company will be reviewing the Government report on low carbon development after its publication and will develop its strategy related to Climate Change accordingly while ensuring that it is in line with leading international practice.

Product prices

At the start of 2020 the price of vanadium pentoxide in Europe was a little over US$5/lb, having fallen from around US$16/lb at the start of 2019 and a high of US$29/lb in late 2018. The fall from the exceptionally high levels of 2018 had been expected but overshot and remained below historic average prices throughout 2020, most likely as a result of reduced world-wide construction during the Covid-19 pandemic. The price has been rising since the start of 2021 and is now at over US$8.00 per lb. 

The Directors expect demand in the longer-term to be strong for a number of reasons:

·    Post Covid-19 stimulus infrastructure development expected around the world, especially with the stimulus programme in the USA, causing a significant rise in consumption of vanadium-containing structural steel;

·    Increasing use of vanadium for micro-alloying of steel, enabling smaller sections to be used to obtain the same strength and thereby reducing the CO2 emissions caused by construction;

·    Growing penetration of vanadium redox flow batteries for long-term grid energy storage; and

Whilst this demand can be met from vanadium projects currently under evaluation, the cash cost of production of this new capacity and the associated capital costs implies the need for a significantly higher vanadium price than today's, giving an expectation that the price will need to rise before such projects become financeable. By contrast, the Company's Balasausqandiq deposit is expected to be able to produce vanadium pentoxide at a cost of less than half that of other primary producers.

The Group reported revenues of US$2.4m for the period compared to US$1.8m in 2019, reflecting the considerable increase in production and shipping.

Revenue, and the corresponding trade receivable, are recognised at the time of transfer of control to the customer but, as is common in the industry, the final price determination is often based on assay and prices after arrival of the goods at the port of destination. Therefore, revenues recognised at the time of shipment are subject to adjustment to prices prevailing up to four months later. Typically, the customer makes a provisional payment based on volumes, quantities and spot prices at the date of shipment and makes a final payment once the product has reached its final destination. As a result, when prices are rising, the final receipt can exceed the initial revenue recorded and vice versa. Where prices decrease significantly, this can result in the Company being in a net payable position if a downward adjustment to the consideration exceeds the provisional payment received.

Amounts receivable from or payable to customers for sales which are still subject to final price determination are initially recorded at the estimated fair value at the time of shipment, with changes in fair value recorded as other revenue.  Changes in this fair value during the year and, for those sales where the final determination has not been made, fair values assessed on the basis of prices prevailing at the year end, increased revenue by US$0.07m to US$2.37m (2019: decrease by US$0.55 to US$1.84m).  In periods of rising prices this adjustment would be expected to be positive and in the long run such pluses and minuses can be expected to even out. The final price determinations made after the end of 2020 in respect of sales made before the end of the year were not significantly different from the fair value assessed at the end of the year.

Cost of sales increased to US$3.8m from US$3.2m in 2020 primarily reflecting the increased volumes and increases in the price of the vanadium concentrate purchased at the high prices prevailing in 2019 and utilised in 2020. The largest part of cost of sales is the purchase of raw materials, the price for which is determined as a percentage of the value of the content of vanadium at prices prevailing at the time of purchase. Since such materials are purchased up to several months before processing, and sales price determination is made several months after shipment, the prices used as a basis for the calculation of raw material prices were significantly higher than the price used as a basis for product sales. This means that the operating margin was squeezed as prices were kept low in 2020. Again, during times of rising prices this effect would be reversed and is likely to even out in the long term as prices move up and down.

Administrative expenses of US$2.2m (2019: US$1.8m) principally comprised employee costs, listing costs, audit and professional services. The costs directly relating to the listing on the London Stock Exchange amounted to US$0.103m (2019: US$0.304m).

Net finance costs were US$0.133m (2019: net finance costs US$0.183m) as a result of the tenge devaluation and sales in USD and RUR. US$0.03m costs are related to bonds' coupons.

The Group made a loss before tax of US$3.94m (2019: loss before tax of US$3.34m).

Net cash outflows from operating activities totalled US$1.3m (2019: US$4.5m) with the reduction principally reflecting tight management of working capital. Changes in trade receivables increased to US$0.1m (2019: minus US$0.4m). Changes in trade payables increased to US$0.5m (2019: minus US$0.4m) by making payment terms with suppliers of raw materials more favourable for the Company and change in inventory which generated a cash inflow of $1.0m (2019: $1.0m outflow).

Net cash outflows from investing activities totalled US$1.1m (2019:US$2.3m) and included US$0.73m (2019:US$2.3m) of capital expenditure associated with expanding the processing operation and US$0.33 (2019: nil) of expenditure on the feasibility study for the exploration and evaluation asset.

Net cash inflows from financing activities included subscriptions for shares amounting to US$1.6m  and bonds amounting to US$0.9m.

The Group had cash of US$0.707m at 31 December 2020 (2019: US$0.648m).

Key performance indicators

The Group is in a period of development and its current operations, the processing of bought-in secondary vanadium-containing materials for extraction of vanadium, are relatively small in comparison with the main objective of the Group to develop the Balasausqandiq mine and processing facility. Moreover, the current operations are themselves undergoing a significant expansion which means that operations are not in a steady state capable of meaningful inter-period comparisons. The directors are therefore of the opinion that Key Performance Indicators may be misleading if not considered in the context of the development of the operation as a whole for which the information for shareholders is better given in a descriptive manner than in tabular form.

Furthermore, the existing processing business of the company is complex and the business model has been developed to allow maximum flexibility in the type of raw-materials treated so that market variations in raw material prices can be moderated by the ability to select raw materials which may be more profitable to treat notwithstanding they be of lower grade and result in a lower level of production. Nevertheless, the directors consider that the main indicator of performance, although subject to interpretation as described above, is the level of production. This has been dealt with in the section "Production" above.

Environmental matters are of paramount importance to the Group. Up to this date most of the residues from the main raw materials treated have been used for the construction of evaporation ponds and the Company has started to produce low grade nickel concentrate as by-product from the residues of high grade vanadium concentrate and signed long term contract for selling it. As a result no residues from the production of ammonium metavanadate, calcium molybdate and low grade nickel concentrate are left. No significant mining operations have yet been carried out but plans are being developed at an early stage to ensure the highest standards for site rehabilitation at the sites of future mining.

Balance sheet review

Total non-current assets increased to US$5.101m from US$5.089m principally due to the capitalisation of the feasibility study as exploration and evaluation assets. The increase in prepayments for equipment is largely related to prepayments made for construction of the new Power Line (US$1m).

Current assets decreased from US$2.47m to US$1.66m, principally reflecting decrease in inventory.

Corporate

On 28 March 2019 the Company was admitted to listing on the London Stock Exchange, raising £5.2m gross, equivalent to US$6.9m, or US$6.6m net of issue costs.  The Company listed on the new Astana International Stock Exchange (AIX) on 6 January 2020 and consequently delisted from the Kazakhstan stock exchange (KASE) on 21 February 2020.

During 2020 the Company raised equity finance of US$1.7m (US$1.6m after expenses) and issued bonds to the value of US$0.9m. Since the start of 2021 the Company has raised US$475,829 from further issues of 242 bonds, with 58 issued in February and a further 184 issued on 12 March 2021. All the bonds have been issued on the Astana Stock Exchange ("AIX") with a nominal value of US$2,000 each, have a coupon of 5.8% payable twice-yearly, are unsecured and are repayable on 17 March 2023. Some of the bonds issued in 2020 (256) had an early redemption right for the holders. Each issue is made at a premium or discount as negotiated at the time of issue.

On the 7 June 2021, pursuant to the Investment Agreement signed in March 2021, Vision Blue Resources invested a further US$1.6m in equity in addition to the investment of US$1.5m already made.

During 2020 the Group's main operating company in Kazakhstan was audited by the tax authorities for the purpose of receiving a reimbursement of excess VAT for the period from 2015 to 31 March 2020. Following the completion of the audit, a repayment of 116,000,000 KZT (approximately US$276,000) was received. VAT of $301,000 was written off as non-refundable. During 2020 VAT receivables increased by $230,000, mainly due to VAT on imports and a reduction of $101,000 in the VAT receivable was made to reflect a decision by the tax authorities, resulting to the ending balance of $205,000. In 2021 the Company applied for a refund of this amount. It is expected that VAT receivable will be reimbursed on a quarterly basis.

Description of principal risks, uncertainties and how they are managed

(a)  Current processing operations:

Current processing operations make up a small part of the Group's expected future value but provide useful cash flows in the near term and allow the group to gain valuable experience of the vanadium industry. The principal risk of this operation is the price of its product, vanadium. The price of vanadium pentoxide is volatile and rose from historic lows at the beginning of 2016 to a near-record high of nearly US$30/lb near the end of 2018. Currently, the price of vanadium pentoxide is at around US$8.00/lb which is close to the ten-year average to date. Most forecasters anticipate that vanadium will be in deficit in the short to medium term, resulting in some increase in current prices, and will return to the long-run marginal cost of production in the longer term which may be substantially higher. The Company acquires raw-materials at a cost that is related to the price of vanadium so there is a natural hedge but there is a risk of changes in vanadium prices between the time of acquisition of the raw materials and sale of the product which cannot be entirely avoided.

The processing operation is also dependent on the continuing availability of raw materials which are subject to competition from other processors. The Company is mitigating this risk by positioning itself to treat a wide variety of potential raw-materials and maintaining low treatment costs.

The level of profitability of the current processing operation is also dependent on production levels sufficient to generate profits to cover fixed overheads. The level of production could be impacted by unanticipated production difficulties, power outages and raw-material delivery limitations. The Company aims to keep a stockpile of raw-materials and has installed a larger capacity generator to maintain production during outages.

The Company is currently carrying out an expansion project which will lower the average cost of production and as part of this project, will be connecting to a larger capacity and more reliable power supply as described above. Although a substantial part of this expansion has already been completed, the plans include completion of the link to the adjacent high voltage powerline and the installation of an electric arc furnace.  The full benefits of the expansion depend upon the raising of sufficient finance and the successful completion of these projects.

(b)  Covid-19:

There remains a risk that the Covid-19 crisis worsens in Kazakhstan. This could cause further disruption to supply-lines, staffing and subcontractors as has already occurred, but it is also possible that a case might arise on site requiring a temporary shutdown of operations and create further pricing volatility.  In addition, Covid-19 may impact the availability of finance or the terms which are available. Whilst it is not possible to guard against this, the Company continues to take all recommended precautions and will aim to maintain higher than normal stores of essential supplies on site. In terms of funding, cash flows are monitored on a continuous basis to enable the Company to take proactive measures to safeguard liquidity.

(c)   Financing risk:

The Company is in stronger financing position relative to the prior year. In March of 2021 the Company signed an investment agreement with Vision Blue Resources.  Under the terms of this agreement, an initial investment of $3.1m has been made which will fund capital projects and Vision Blue has the right to subscribe further amounts which, if exercised, will bring the total up to $12.6m.  Since the current share price is greatly in excess of the option price, the directors expect this investment to be made.  However, as detailed in note 1, a material uncertainty in respect of going concern is considered to exist as a result of the risks and uncertainties associated with Covid-19.

(d)  Climate change risk:

On the 2-13 December 2019 the UN Climate Change Conference was held in Madrid. During the annual conference, countries' approaches to the implementation of actions in the field of climate change, based on the provisions of the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement, were agreed. Kazakhstan participated in the conference and reconfirmed that as a part of the international community focusing on reducing risk of climate change it is committed to reduce greenhouse gas emissions by 15% by 2030 (from the levels of 1990). Additionally, Kazakhstan is planning to develop a concept of low carbon development by 2050 which is expected to be finalised and published during June 2021.

The Company is following the development of Government strategy in relation to the Global Climate Change. During 2020 the Company emitted 24.21 tonnes of carbon oxides compared with the permitted level of 50.33 tonnes. The Company will be reviewing the Government concept of low carbon development after its publication and will develop its strategy related to Climate Change accordingly.

(e)  Risks associated with the developing nature of the Kazakhstan economy:

According to the World Bank, Kazakhstan has transitioned from lower-middle-income to upper-middle-income status in less than two decades. Kazakhstan's regulatory environment has similarly developed and the Company believes that the period of rapid change and high risk is coming to an end.  Nevertheless, the economic and social regulatory environment continues to develop and there remain some areas where regulatory risk is greater than in developed economies.

(f)   Balasausqandiq project:

The Balasausqandiq project is a much larger contributor to the Group's value than current operations and is primarily dependent on long term vanadium prices. The Company's long-term assumption is US$7.50/lb of vanadium pentoxide, but the forecast low cost of production means that the project would remain profitable at lower price levels.

The project is also dependent on raising finance to meet capital costs anticipated to amount to in excess of US$100m for the first phase.  Raising this money will be dependent on the successful outcome of the western bankable feasibility study which is ongoing. The favourable financial and other characteristics of the project determined by studies so far completed give the directors confidence that the outcome of the study will be successful.  Initial discussions with the providers of finance, including with the Development Bank of Kazakhstan for which our project has passed through initial screening, have been encouraging.

Signed on behalf of the Board of Directors

on 25 June 2021