Significant progress continues to be made at Elandsfontein. The project remains on track and within the original projected capital budget for commissioning in Q4 2021. These achievements have been realised against the backdrop of the COVID-19 pandemic.
Earthworks and civil construction are largely complete; the fabrication and erection of structural steel, platework and piping are well advanced, and the first mechanical equipment has been installed. Installation by the electrical, control and instrumentation contractor has also commenced.
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The project schedule remains tight, with a high number of critical path, and near critical path items being managed concurrently.
The current and further potential effects of COVID-19, and the possibility of a third wave of infections in South Africa remains a risk to the project schedule. The Company has mitigated this risk as far as reasonably practicable by compliance to the Kropz COVID-19 policies and procedures.
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For the past eight months, Kropz (together with the Elandsfontein management team) and Transnet have been engaging regarding the finalisation of the port capacity agreement for the export sales of the Elandsfontein phosphate rock through the Port of Saldanha.
Transnet recently informed the Company that capacity is not available in Saldanha, although Transnet has committed to provide an alternative solution for a portion of the Elandsfontein production through the Port of Cape Town. Sales through Cape Town would incur additional transportation costs due to the greater travel distance involved. Kropz and Elandsfontein management are investigating all possible solutions and discussions with Transnet are continuing.
Kropz secured a convertible loan facility of up to US$40 million from the ARC Fund, Kropz’s major shareholder in June 2020, to be used exclusively for the development of Elandsfontein in South Africa. At the time of concluding the Original Equity Facility, the exchange rate was well above ZAR 17 / US$ and budgets and cashflows were calculated based on that ZAR exchange rate.
Due to the strengthening of the ZAR to the US$ in recent months, ZAR drawdown receipts in South Africa are expected to be well below the ZAR680 million anticipated at the time of concluding the Original Equity Facility. The current shortfall is expected to be ZAR80 million, subject to exchange rates for the rest of 2021, and that this would be required by the Company in Q4,2021. Management are in the process of investigating alternatives for the funding of this potential shortfall.