CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL INFORMATION

For the period ended 31 August 2023

1.    Corporate information and principal activities

Andrada Mining Limited ("Andrada") was incorporated and domiciled in Guernsey on 1 September 2017, and admitted to the AIM market in London on 9 November 2017. The company's registered office is PO Box 282, Oak House, Hirzel Street, St Peter Port, Guernsey GY1 3RH and operates from Illovo Edge Office Park, 2nd Floor, Building 3, Corner Harries and Fricker Road, Illovo, Johannesburg, 2116, South Africa. This financial information is for the period ended 31 August 2023 and the comparative figures for the 6-month period ended 31 August 2022 and for the year ended 28 February 2023 are shown.

      As at 31 August 2023, the Andrada Group comprised:

¹ Held directly by Andrada Mining Limited

² Held by Greenhills Resources Limited

³ Held by Andrada Mining (Namibia) Pty Limited

⁴ Held by Mokopane Tin Company Pty Limited

⁵ Held by Pamish Investments 71 Pty Limited

This financial information presented in Pound Sterling (£) because that is the currency in which the Group has raised funding on the AIM market in the United Kingdom. Furthermore, Pound Sterling (£) is the functional currency of the ultimate holding company, Andrada Mining Limited. The Group's key subsidiaries, Andrada Namibia and UTMC, use the Namibian Dollar (N$) as their functional currency. The period-end spot rate used to translate all Namibian Dollar balances was £1 = N$23.87 and the average rate for the period was £1 = N$23.25.

2.    SIGNIFICANT ACCOUNTING POLICIES

a.   Basis of accounting

The Consolidated interim financial information has been prepared in accordance with UK Adopted International Accounting Standards. The Consolidated interim financial information also complies with the AIM Rules for Companies, NSX Listing requirements, OTCQB Listing requirements and the Companies (Guernsey) Law, 2008 and show a true and fair view.

The significant accounting policies applied in preparing this information are set out below. These policies have been consistently applied throughout the period. This information has been prepared under the historical cost convention except as where stated.

The interim financial information for the six months to 31 August 2023 is unaudited and does not constitute statutory financial information. The statutory accounts for the year ended 28 February 2023 are available on the Company's website.

b.   Going concern

These financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes the Group will be able to continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. At period end, the Group had cash in the bank of £6.7m and had drawn down £1.5m of the Standard Bank working capital facility.

In September 2023, N$50m (c. £2.1m) of the N$100m (c. £4.2m) funding from the Development Bank of Namibia was received. These funds will be used to expedite the implementation of the Uis Mine Stage II Continuous Improvement Project.

In November 2023, US$25m (c. £19.8m) was received from Orion Resource Partners. This includes US$2.5m (c. £2.0m) equity, a US$10m (c. £7.9m) Convertible Loan Note and a US$12.5m (c. £9.9m) unsecured tin royalty. The equity and loan note will be used to accelerate Andrada's overall strategy of achieving commercial production of its lithium, tin and tantalum revenue streams. The royalty funds will be used for the sole purpose of increasing Andrada's tin production as it ramps up its capital programmes over the next 2 years.

Management has prepared a detailed cash flow forecast for the period to 30 November 2024 and have performed stress tests of these forecasts. The base case forecast demonstrates that the Group will have sufficient funds to meet its liabilities as they fall due. The main estimates considered as part of management's going concern assessment are production profiles, tin, lithium and tantalum prices, exchange rates and committed capital. The production profile is based on the Group's current achieved production post the completion of the expansion project, as well as the additional production on the successful completion of the continuous improvement capital project. The Group also retains the ability to flex its ongoing exploration and metallurgical capital expenditures in line with cash availability as well as macro-economic circumstances.

The forecast revenue and funding raised to date supports the liquidity requirements of the Group and its ability to meet its obligations in the ordinary course of business until February 2025. Accordingly, the Directors have concluded that the going concern basis in the preparation of the financial statements is appropriate and that there are no material uncertainties that would cast doubt on that basis of preparation.

c.   Critical accounting estimates and judgements

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are relevant. Actual results may differ from these estimates. Information about significant areas of estimation uncertainty considered by management in preparing the interim financial information is provided below.

Estimates and judgements are continually evaluated. Revisions to accounting estimates are recognised in the year in which the estimates are revised if the revision affects only that year, or in the year of revision and in future years if the revision affects both current and future years.

d.   Going concern and liquidity

Significant estimates were required in forecasting cash flows used in the assessment of going concern including tin, tantalum and lithium prices, the levels of production, operating costs, and capital expenditure requirements. For further details, refer to going concern considerations laid out earlier in Note 2(b).

e.   Decommissioning and rehabilitation obligations

Estimating the future costs of environmental and rehabilitation obligations is complex and requires management to make estimates and judgements, as most of the obligations will be fulfilled in the future and contracts and laws are often not clear regarding what is required. The resulting provisions (see Note 18) are further influenced by changing technologies, and by political, environmental, safety, business, and statutory considerations.

The Group's rehabilitation provision is based on the net present value of management's best estimates of future rehabilitation costs. Judgement is required in establishing the disturbance and associated rehabilitation costs at period end, timing of costs, discount rates, and inflation. In forming estimates of the cost of rehabilitation which are risk adjusted, the Group assessed the Environmental Management Plan and reports provided by internal and external experts. Actual costs incurred in future periods could differ materially from the estimates, and changes to environmental laws and regulations, life of mine estimates, inflation rates, and discount rates could affect the carrying amount of the provision.

In determining the amount attributable to the rehabilitation liability, management used a risk-free discount rate of 13% (August 2022: 13% and February 2023: 13%), an inflation rate of 5.3% (August 2022: 7% and February 2023: 5.3%) and an estimated mining period of 12.9 years (August 2022: 16.5 years and February 2023: 13.4 years), being the Phase 1 expansion life of mine. The rates used are in line with the Namibian market rates.

f.    Impairment indicator assessment for exploration and evaluation assets

Determining whether an exploration and evaluation asset is impaired requires an assessment of whether there are any indicators of impairment, including specific impairment indicators prescribed in IFRS 6: Exploration for and Evaluation of Mineral Resources. If there is any indication of potential impairment, an impairment test is required based on value in use of the asset. The valuation of intangible exploration assets is dependent upon the discovery of economically recoverable deposits which, in turn, is dependent on future tin prices, future capital expenditures, environmental and regulatory restrictions, and the successful renewal of licences. The directors have concluded that there are no indications of impairment in respect of the carrying value of Namibian intangible assets at 28 February 2023 based on planned future development of the Namibian projects, and current and forecast tin prices. Exploration and evaluation assets are disclosed fully in Note 11. 

g.   Impairment assessment for property, plant, and equipment

Management have reviewed the Uis mine for indicators of impairment and have considered, among other factors, the operations to date at the Uis Tin Mine, forecast commodity prices, production profile, inflation rate, post-tax real discount rate and market capitalisation of the Group. Management identified the reduction in the tin price as an indicator of impairment. In undertaking the impairment review, management have also reviewed the underlying LoM valuation model for Uis.  The LoM valuation model is on a fair value less cost to develop basis and includes assessments of different scenarios associated with capital improvements and expansion opportunities. The impairment testing performed by management did not result in an impairment.

The forecasts require estimates regarding forecast tin, tantalum and lithium prices, ore resources, production, operating and capital costs. Under the base case forecast scenario, management used a forecast tin price of $26 000, tantalum price of $150 000, lithium price of $2 960 dropping to $1 051 in FY2027, a post-tax real discount rate of 8.7%, an inflation rate of 5.5% and a life of mine of 30 years. The forecast indicates sufficient headroom as at 31 August 2023.

The complex judgement in determining the recoverable amount of mining assets is an estimation of the future tin price. The estimation of future tin price is subject to uncertainty considering the volatility of market. Management has therefore compared the forecast tin price with the economic consensus estimates. Furthermore, a sensitivity analysis was performed by lowering the forecast tin prices by 5% which also indicated sufficient headroom as at 31 August 2023.

As an additional test, management performed certain sensitivity calculations. These included raising the discount rate to 9.7% post tax real rate, lowering plant recovery by 5% and increasing operating costs by 5%. In each of these circumstances, the forecast indicated sufficient headroom as at 31 August 2023.

h.   Depreciation

Judgement is applied in making assumptions about the depreciation charge for mining assets when using the unit-of-production method in estimating the ore tonnes held in reserves. The relevant reserves are those included in the current approved LoM plan which relates to the Phase 1 expansion. Judgement is also applied when assessing the estimated useful life of individual assets and residual values. The assumptions are reviewed at least annually by management and the judgement is based on consideration of the LoM plan, as well as the nature of the assets. The reserve assumptions included in the LoM plan are evaluated by management.

i.    Capitalisation and depreciation of waste stripping

The Group has elected to capitalise the costs of waste stripping activities as these are necessary to allow improved access to the ore and, therefore, will result in future economic benefits. The costs of drilling, blasting and load & haul of waste material is capitalised until such time that the underlying ore is used in production. These costs are then expensed on a proportional basis. The capitalised costs are included in the mining asset in property, plant & equipment and are expensed back into the statement of comprehensive income as depreciation. Capitalisation of waste stripping requires the Group to make judgements and estimates in determining the amounts to be capitalised. These judgements and estimates include, amongst others, the expected life of mine stripping ratio for each separate open pit, the determination of what defines separate pits, and the expected volumes to be extracted from each component of a pit for which the stripping asset is depreciated.

j.    Determination of ore reserves

The estimation of ore reserves primarily impacts the depreciation charge of evaluated mining assets, which are depreciated based on the quantity of ore reserves. Reserve volumes are also used in calculating whether an impairment charge should be recorded where an impairment indicator exists.

The Group estimates its ore reserves and mineral resources based on information, compiled by appropriately qualified persons, relating to geological and technical data on the size, depth, shape, and grade of the ore body and related to suitable production techniques and recovery rates. The estimate of recoverable reserves is based on factors such as tin prices, future capital requirements and production costs, along with geological assumptions and judgements made in estimating the size and grade of the ore body. There are numerous uncertainties inherent in estimating ore reserves and mineral resources. Consequently, assumptions that are valid at the time of estimation may change significantly if or when new information becomes available.

k.   Valuation of inventories

Judgement is applied in making assumptions about the value of inventories and inventory stockpiles, including tin prices, plant recoveries and processing costs, to determine the extent to which the Group values inventory and inventory stockpiles. The Group uses forecast tin prices to determine the net realisable value of the ROM stockpile and the tin concentrate inventory on hand at period end. Inventory stockpiles are measured using actual mining and processing costs.

l.    Determining the lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise, or not to exercise, an extension option. Extension options are only included in the lease term where the company is reasonably certain that it will extend or will not terminate the lease when the lease expires. For all leases, the most relevant factors include:

§ Historical lease durations.

§ Costs incurred in replacing the leased asset.

§ Possible business disruption due to replacing the leased asset.

§ Likelihood of extension of the lease - if there are significant penalties to terminate, then it's reasonably certain that the Group will extend.

The lease term is reassessed on an ongoing basis, especially when the option to extend becomes exercisable, or on occurrence of a significant event or a significant change in circumstances which affects this assessment, and that is within the control of the Group. 

m. Determining the incremental borrowing rate to measure lease liabilities

The interest rate implicit in leases is not available, therefore the Group uses the relevant incremental borrowing rate (IBR) to measure its lease liabilities. The IBR is estimated to be the interest rate that the Group would pay to borrow:

§ over a similar term.

§ with similar security.

§ the amount necessary to obtain an asset of a similar value to the right of use asset; and

§ in a similar economic environment.

The IBR, therefore, is the best estimate of the incremental rate and requires management's judgement as there are no observable rates available.

n.   Determining the fair value of trade receivables classified at fair value through profit or loss

The consideration receivable in respect of certain sales for which performance obligations have been satisfied at period end and for which the Group has received prepayment under the terms of the offtake agreement, remain subject to pricing adjustments with reference to market prices at the date of finalisation. Under the Group's accounting policies, the fair value of the consideration is determined, and the remaining receivable is adjusted to reflect fair value. Management estimated the forward price based on the LME 3-month tin price that is expected when the open shipments will be finalised. As at 31 August 2023, the Group recognised a receivable at fair value through profit or loss of £432 220 (August 2022: receivable of £519 321 and February 2023: receivable of £126 125).

3.    Adoption of new and revised standards

Several new and amended standards and interpretations issued by IASB have become effective for the first time for financial periods beginning on (or after) 1 March 2023 and have been applied by the Group in this interim financial information. None of these new and amended standards and interpretations had a significant effect on the Group because they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

a.     Accounting standards and interpretations not applied

There are several standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods and which have not been adopted early.

4.    Segmental reporting

The reporting segments are identified by the management steering committee (who are the chief operating decision-makers) by the way that the Group's operations are organised. The Group has previously reported a Namibian and a South African operating segment. In the 2021 financial year, the Group made the decision to impair the full value of the South African mining licences as it chose to focus on developing its Namibian assets and it did not intend to incur any further expenditure on its South African licences. The Group now has a single operating segment, consisting of the Namibian operations.

5.    Revenue

6.    Cost of sales

7.    Administrative expenses

The loss for the period has been arrived at after charging:

Other costs are mainly comprised of corporate overheads necessary to run the South African head office and the costs associated with being listed in London.

8.    Finance cost

9.    Taxation

      The tax expense represents the sum of the tax currently payable and deferred tax.

Accumulated losses in the subsidiary undertakings for which there is an unrecognised deferred tax asset are £9 379 913 (August 2022: £5 131 401 and February 2023: £8 100 173).

10.  Loss per share from continuing operations

The calculation of a basic loss per share of 0.18 pence (February 2022: loss per share of 0.25 pence and February 2023: loss per share of 0.60 pence), is calculated using the total loss for the period attributable to the owners of the Company of £2 755 819 (February 2022: £2 680 820 and February 2023: £7 753 819 and the weighted average number of shares in issue during the period of 1 538 528 155 (August 2022: 1 064 247 295  and February 2023: 1 291 331 804). Due to the loss for the period, the diluted loss per share is the same as the basic loss per share. The number of potentially dilutive ordinary shares, in respect of share options, warrants and shares to be issued as at 31 August 2023 is 76 309 563 (August 2022: 97 310 649 and February 2023: 77 636 918). These potentially dilutive ordinary shares may have a dilutive effect on future earnings per share.

11.  Intangible assets

The additions to the evaluation and exploration asset during the period mainly comprise of expenses capitalised as part of the Phase 2 exploration drilling project, the metallurgical test work programme, environmental studies, and region exploration projects.