The Directors of GreenX Metals Limited present their report on the Consolidated Entity consisting of GreenX Metals Limited (Company or GreenX) and the entities it controlled during the half-year ended 31 December 2022 (Consolidated Entity or Group).
The names and details of the Company’s Directors in office at any time during the half-year and until the date of this report are:
Mr Ian Middlemas Chairman
Mr Benjamin Stoikovich Director and CEO
Mr Garry Hemming Non-Executive Director
Mr Mark Pearce Non-Executive Director
Unless otherwise shown, all Directors were in office from the beginning of the half-year until the date of this report.
OPERATING AND FINANCIAL REVIEW
Highlights during, and subsequent to, the half-year include:
· During the period, the hearing for the international arbitration claims against the Republic of Poland under both the Energy Charter Treaty and the Australia-Poland Bilateral Investment Treaty was concluded.
➢ Combined arbitration hearing took place in front of the Arbitral Tribunal in London under the UNCITRAL Arbitration Rules for GreenX’s claims against Poland.
➢ Damages of up to £737 million (A$1.3 billion / PLN4.0 billion) have been claimed including the assessed value of GreenX’s lost profits and damages related to both the Jan Karski and Debiensko projects, and accrued interest related to any damages.
➢ The Company has funded the Claim proceedings under its US$12.3 million Litigation Funding Agreement (LFA).
· In November 2022, the Company announced highly encouraging results from an initial site visit to Arctic Rift Copper Project (ARC or Project).
➢ Analysis of the site visit results is underway and will be key to future work programs.
➢ GreenX can earn up to 80% of the ARC copper project in Greenland. ARC is a significant, large-scale project (5,774km2 license area) with historical exploration results and recent analysis indicative of an extensive mineral system with potential to host world-class copper deposits.
· Subsequent to the half year, the Company announced a placing to issue 12.4 million new ordinary shares to raise gross proceeds of approximately £3.9 million (~A$6.8 million) from new and existing UK and European investors and some Australian investors (Placing). Due to high demand, directors resolved to increase the Placing to issue 14.1 million new ordinary shares to raise total gross proceeds of approximately £4.4 million (~A$7.7 million). The Placing shares were issued on 14 March 2023.
· On completion of the Placing, the Company will have cash reserves of A$10 million.
Dispute with the Polish Government
During the period, the Company reported the conclusion of the hearing for the international arbitration claims (Claim) against the Republic of Poland under both the Energy Charter Treaty (ECT) and the Australia-Poland Bilateral Investment Treaty (BIT) (together the Treaties). The hearing took place in London in November 2022 and lasted two weeks.
Following completion of the hearing, the Arbitral Tribunal will render an Award (i.e., the legal term used for a ‘decision’ by the Tribunal) in due course with no specified date available for the Tribunal decision.
As previously advised, the arbitration and hearing proceedings in relation to the Claim are required to be kept confidential.
Details of the Claim
The Company’s Claim against the Republic of Poland is being prosecuted through an established and enforceable legal framework, with GreenX and Poland agreeing to apply the United Nations Commission on International Trade Law Rules (UNCITRAL) to the proceedings. The arbitration claims are being administered through the Permanent Court of Arbitration in the Hague.
The evidentiary hearing phase of the arbitration proceedings has now been completed in front of the Arbitral Tribunal. With completion of the hearing, the Arbitral Tribunal will render an Award (i.e., a decision) in due course. There is no specified date for an Award to be rendered. Subsequent to the end of the half-year, the Company filed its post hearing brief with the Tribunal. The Company’s claims for damages against Poland are in the amount of up to £737 million (A$1.3 billion/PLN4.0 billion), which includes a revised assessment of the value of GreenX’s lost profits and damages related to both the Jan Karski and Debiensko projects, and accrued interest related to any damages. The Claim for damages has been assessed by independent external quantum experts appointed by GreenX specifically for the purposes of the Claim.
In July 2020, the Company announced it had executed the LFA for US$12.3 million with Litigation Capital Management (LCM). The facility is currently being drawn down to cover legal, tribunal and external expert costs as well as defined operating expenses associated with the Claim. The LFA is a limited recourse loan with LCM that is on a “no win – no fee” basis.
In September 2020, GreenX announced that it had formally commenced with the Claim by serving the Notices of Arbitration against the Republic of Poland. In June 2021, GreenX announced that it had formally lodged its Statement of Claim in the BIT arbitration, including the first assessed claim for compensation. The Company’s Statement of Reply was submitted in July 2022 which addressed various points raised by the Republic of Poland in their Statement of Defence. The Statement of Reply also contained a re-evaluation of the claim for damages based on consideration of Poland’s Statement of Defence.
GreenX’s dispute alleges that the Republic of Poland has breached its obligations under the applicable Treaties through its actions to block the development of the Company’s Jan Karski and Debiensko projects in Poland which effectively deprived GreenX of the entire value of its investments in Poland.
In February 2019, GreenX formally notified the Polish Government that there exists an investment dispute between GreenX and the Polish Government. GreenX’s notification called for prompt negotiations with the Government to amicably resolve the dispute and indicated GreenX’s right to submit the dispute to international arbitration in the event of the dispute not being resolved amicably.
GreenX’s investment dispute with the Republic of Poland is not unique, with international media widely reporting that the political environment and investment climate in Poland has deteriorated since the change in Government in 2015. As a result, there are a significant number of International Arbitration claims being bought against Poland.
Highly encouraging results from initial ARC site visit
During the period, GreenX and its joint-venture (JV) partner Greenfields Exploration Ltd (Greenfields) announced the results of from the first visit to ARC.
The results of this work program have demonstrated the high-grade nature of the known copper sulphide mineralisation and wider copper mineralization in fault hosted Black Earth zones and adjacent sandstone units. The exact position of a native copper fissure at the Neergaard Dal prospect was also identified.
Analysis of this new information is underway and will be key to future work programs.
A logistical base in Greenland was also secured as part of the site visit. The Company successfully established depots, and field trialled its SHERP vehicles and advanced satellite communications systems.
Share Placing to UK and European Investors
In March 2023, the Company announced the Placing to issue 12.4 million new ordinary shares to raise gross proceeds of approximately £3.9 million (~A$6.8 million) from new and existing UK and European investors and some Australian investors. Due to high demand, directors resolved to increase the Placing to issue 14.1 million new ordinary shares to raise total gross proceeds of approximately £4.4 million (~A$7.7 million). The Placing shares were issued on 14 March 2023.
Results of Operations
The net loss of the Consolidated Entity for the half-year ended 31 December 2022 was $1,432,272 (31 December 2021: $1,963,939). Significant items contributing to the current half-year loss and the substantial differences from the previous half-year include to the following:
(i) Arbitration related expenses of $4,830,784 (31 December 2021: $1,241,087) relating to the Claim against the Republic of Poland. This has been offset by the arbitration funding income of $4,795,937 (31 December 2021: $1,342,440);
(ii) Sale of land rights at Debiensko of nil (31 December 2021: $654,428);
(iii) Exploration and evaluation expenses of $668,066 (31 December 2021: $763,800), which is attributable to the Group’s accounting policy of expensing exploration and evaluation expenditure incurred by the Group subsequent to the acquisition of rights to explore and up to the commencement of a bankable feasibility study for each separate area of interest;
(iv) Business development expenses of $132,578 (31 December 2021: $182,433) which includes expenses relating to the Group’s review of new business and project opportunities plus also investor relations activities during the six months to 31 December 2022 including public relations, digital marketing, travel costs, attendances at conferences and business development consultant costs;
(v) Non-cash share-based payment expense of nil (31 December 2021: $1,203,339) due to incentive securities issued to key management personnel and other key employees and consultants of the Group as part of the long-term incentive plan to reward key management personnel and other key employees and consultants for the long-term performance of the Group. The expense results from the Group’s accounting policy of expensing the fair value (determined using an appropriate pricing model) of incentive securities granted on a straight-line basis over the vesting period of the options and rights. During the prior period, the Company issued 10,750,000 unlisted options which vested on issue; and
(vi) Revenue of $161,385 (31 December 2021: $111,664) consisting of interest income of $27,901 (31 December 2021: $9,643) and the receipt of $133,484 (31 December 2021: $102,021) of gas and property lease income derived at Debiensko.
At 31 December 2022, the Group had cash reserves of $2,574,558 (30 June 2022: $6,106,847) and the US$12.3 million arbitration facility (US$4.2 million available at 31 December 2022) placing it in a good financial position to continue with exploration activities at ARC and with the Claim. On completion of the Placing, the Group will have cash reserves of A$10 million.
At 31 December 2022, the Company had net assets of $10,329,665 (30 June 2022: $11,812,416) an decrease of approximately 13% compared with 30 June 2022. This is largely driven by the loss of the half-year of $1,432,272 (31 December 2021: $1,963,939).
Business Strategies and Prospects for Future Financial Years
GreenX’s strategy is to create long-term shareholder value through the discovery, exploration, development and acquisition of technically and economically viable mineral deposits. This also includes pursuing the Claim against the Republic of Poland through international arbitration in the short to medium term.
To date, the Group has not commenced production of any minerals, nor has it identified an any Ore reserves in accordance with the JORC Code. To achieve its objective, the Group currently has the following business strategies and prospects over the medium to long term:
· Continue to enforce its rights through an established and enforceable legal framework in relation to international arbitration for the investment dispute between GreenX and the Polish Government that has arisen out of certain measures taken by Poland in breach of the Treaties;
· Continue to assess corporate options for GreenX’s investments in Poland;
· Identify and assess other suitable business opportunities in the resources sector; and
· Continue with exploration activities in Greenland.
All of these activities are inherently risky and the Board is unable to provide certainty of the expected results of these activities, or that any or all of these likely activities will be achieved. Furthermore, GreenX will continue to take all necessary actions to preserve the Company’s rights and protect its investments in Poland, if and as required. The material business risks faced by the Group that could have an effect on the Group’s future prospects, and how the Group manages these risks, include the following:
· Litigation risk – All industries, including the mining industry, are subject to legal and arbitration claims. Specifically, and as noted above, the Company is continuing with it its Claim against the Republic of Poland, and will strongly defend its position and will continue to take all relevant actions to pursue its legal rights in the Claim process. During the period, the hearing for the Claim was completed with Tribunal to render an Award (i.e., a decision) in due course with no specified date available for the Tribunal decision. There is however no certainty that the Claim will be successful. If the Claim is unsuccessful, then this may have a material impact on the value of the Company’s securities.
· Earn-in and joint venture contractual risk – The Company’s earn-in right to the Project is subject to the Earn-In Agreement (EIA) with Greenfields as announced in October 2021. The Company’s ability to achieve its objectives is dependent on it and other parties complying with their obligations under the Agreement. Any failure to comply with these obligations may result in the Company not obtaining its interests in the Project and being unable to achieve its commercial objectives, which may have a material adverse effect on the Company’s operations and the performance and value of the Shares. There is also the risk of disputes arising with the Company’s joint venture partner, Greenfields, the resolution of which could lead to delays in the Company’s proposed development activities or financial loss.
If and when the Company earns in its interest in the Project, an incorporated joint venture will be established between the Company and Greenfields. The nature of the joint venture may change in future, including the ownership structure and voting rights in relation to the Project, which may have an effect on the ability of the Company to influence decisions on the Project.
· Operations in overseas jurisdictions risk – The Project is located in Greenland, and as such, the operations of the Company will be exposed to related risks and uncertainties associated with the country, regional and local jurisdictions. Opposition to the Project, or changes in local community support for the Project, along with any changes in mining or investment policies or in political attitude in Greenland and, in particular to the mining, processing or use of copper, may adversely affect the operations, delay or impact the approval process or conditions imposed, increase exploration and development costs, or reduce profitability of the Company. Moreover, logistical difficulties may arise due to the assets being located overseas such as the incurring of additional costs with respect to overseeing and managing the Project, including expenses associated with taking advice in relation to the application of local laws as well as the cost of establishing a local presence in Greenland. Fluctuations in the currency of Greenland may also affect the dealings and operations of the Company.
Failure to comply strictly with applicable laws, regulations and local practices relating to mineral rights applications and tenure, could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests. Further, the outcomes in courts in Greenland may be less predictable than in Australia, which could affect the enforceability of contracts entered into by the Company.
The Project is remotely located in an area that has an arctic climate and that is categorised as an arctic desert, and as such, the operations of the Company will be exposed to related risks and uncertainties of arctic exploration, including adverse weather or ice conditions which may and has prevented access to the Project, which can impact exploration and field activities or generate unexpected costs. It is not possible for the Company to predict or protect the Company against all such risks.
The Company also had previous operations in Poland which may be subject to regulations concerning protection of the environment, including at the Debiensko and Kaczyce projects which have both been relinquishment by the Company. As with all exploration projects and mining operations, activities will have an impact on the environment including the possible requirement to make good any disturbed or damaged land.
Existing and possible future environmental protection legislation, regulations and actions could cause additional expense, capital expenditures and restrictions, the extent of which cannot be predicted which could have a material adverse effect on the Company’s business, financial condition and results of operations.
· The Group’s exploration and development activities will require further capital – The exploration and any development of the Company’s exploration properties will require substantial additional financing. Failure to obtain sufficient financing may result in delaying or indefinite postponement of exploration and any development of the Company’s properties or even a loss of property interest. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favourable to the Company.
· The Group’s exploration properties may never be brought into production – The exploration for, and development of, mineral deposits involves a high degree of risk. Few properties which are explored are ultimately developed into producing mines. To mitigate this risk, the Company will undertake systematic and staged exploration and testing programs on its mineral properties and, subject to the results of these exploration programs, the Company will then progressively undertake a number of technical and economic studies with respect to its projects prior to making a decision to mine. However, there can be no guarantee that the studies will confirm the technical and economic viability of the Company’s mineral properties or that the properties will be successfully brought into production.
· The Group may be adversely affected by fluctuations in copper prices – The price of copper fluctuates widely and is affected by numerous factors beyond the control of the Group. Future production, if any, from the Group’s mineral properties will be dependent upon copper prices being adequate to make these properties economic. The Group currently does not engage in any hedging or derivative transactions to manage commodity price risk. As the Group’s operations change, this policy will be reviewed periodically going forward.
· The Group may be adversely affected by competition within the copper industry – The Group competes with other domestic and international copper companies, some of whom have larger financial and operating resources. Increased competition could lead to higher supply or lower overall pricing. There can be no assurance that the Company will not be materially impacted by increased competition. In addition, the Group is continuing to secure additional surface and mineral rights, however there can be no guarantee that the Group will secure additional surface and mineral rights, which could impact on the results of the Group’s operations.
· The Company may be adversely affected by fluctuations in foreign exchange – Current and planned activities are predominantly denominated in Stirling, Danish krone and/or Euros and the Company’s ability to fund these activates may be adversely affected if the Australian dollar continues to fall against these currencies. The Company currently does not engage in any hedging or derivative transactions to manage foreign exchange risk. As the Company’s operations change, this policy will be reviewed periodically going forward.